Salem Trust Co v. Manufacturers Finance Co, 74

• Decision Date: 18 February 1924
• Docket Number: No. 74,74
• Citation: 31 A. L. R. 867,44 S.Ct. 266,68 L.Ed. 628,264 U.S. 182
• Parties: SALEM TRUST CO. v. MANUFACTURERS' FINANCE CO. et al
• Court: U.S. Supreme Court

264 U.S. 182

44 S.Ct. 266

68 L.Ed. 628

SALEM TRUST CO.

v MANUFACTURERS' FINANCE CO. et al.

No. 74.

Argued Oct. 14, 1923.

Decided Feb. 18, 1924.

Mr. Alexander Whiteside, of Boston, Mass., for petitioner.

[Argument of Counsel from pages 182-184 intentionally omitted] Mr. Robert G. Dodge, of Boston, Mass., for respondents.

[Argument of Counsel from pages 185-187 intentionally omitted] Mr. Justice BUTLER delivered the opinion of the Court.

On May 16, 1919, the Nelson Blower & Furnace Company, a Massachusetts corporation, assigned to the petitioner for a valuable consideration indebtedness to the amount of $45,000 due or to become due to the Nelson Company from the Murray & Tregurtha Corporation, under a contract whereby the Nelson Company was to construct certain engines for the latter. July 15, 1919 the Nelson Company for a valid consideration assigned to the respondent Manufacturers' Finance Company the same indebtedness to the amount of $40,000, and on September 20 made another assignment to the Finance Company of the same indebtedness to the amount of $10,000. Later, about the lastmentioned date, the Finance Company notified the debtor of its assignment. Up to that time it had made no inquiry of the debtor as to its indebtedness to the Nelson Company, and neither it nor the debtor had any knowledge of the prior assignment to the petitioner. September 26, 1919, the United States District Court in a suit in equity appointed a receiver of the Nelson Company. About that time each assignee learned of the assignment to the other. October 6, 1919, petitioner and respondent Finance Company agreed that the Nelson Company, acting by its receiver, should finish the work being done for the debtor, and that the net proceeds, which amounted to $7,963.36, a sum less than the amount of the claim of either assignee, should be deposited with the respondent International Trust Company, a Massachusetts corporation, in a special account in the name of the Finance Company as trustee for the one or the other of such assignees thereafter to be agreed by them, or found by some court of competent jurisdiction to be entitled thereto. They failed to agree, and petitioner brought a bill in equity in the state court against the respondents to establish its right to the amount so on deposit, and to have the same paid to it. For the removal of the suit to the District Court of the United States, the Finance Company filed its petition, stating that the International Trust Company is not a necessary party to the suit, but is a mere nominal party, being only a stakeholder and without any interest whatever in the result, and that the controversy in the suit is entirely between citizens of different states, Salem Trust Company, a Massachusetts corporation, and the Manufacturers' Finance Company, a Delaware corporation. Other proper steps were taken, and the case was removed from the state to the federal court. Petitioner moved to remand, asserting that the International Trust Company is a necessary party to the suit, and that the case was improperly removed, because the plaintiff and one of the defendants are citizens of the same state. The motion was denied. The case was tried in the District Court, and dismissed on final decree, which was affirmed by the Circuit Court of Appeals.

There are two questions for decision: Did the District Court have jurisdiction? Which of the parties is entitled to the fund?

The District Courts have original jurisdiction of controversies between citizens of different states (Constitution, art. 3, § 2; Judicial Code, § 24 [Comp. St. § 991]); and when in any suit brought in a state court, there is a controversy, which is wholly between citizens of different states, and which can be fully determined as between them, a defendant interested in such controversy may remove the suit to the proper District Court of the United States. (Judicial Code, § 28 [Comp. St. § 1010]). District Courts have jurisdiction if all the parties on the one side are of citizenship diverse to those on the other side.¹ Jurisdiction cannot be defeated by joining formal or unnecessary parties.² The right of removal depends upon the case disclosed by the pleadings when the petition therefore is filed (Barney v. Latham 103 U. S. 205, 215, 26 L. Ed. 514; Ex parte Nebraska, 209 U. S. 436, 444, 28 Sup. Ct. 581, 52 L. Ed. 876), and is not affected by the fact that one of the defendants is a citizen of the same state as the plaintiff, if that defendant is not an indispensable party to the controversy between plaintiff and defendant who are citizens of different states (Barney v. Latham, supra, 213). The facts set forth in the present bill are substantially those already stated. This suit involves a controversy between the petitioner, a citizen of Massachusetts, and the respondent the Finance Company, a citizen of Delaware, which can be determined without affecting any interest of the other respondent, the International Trust Company, a citizen of Massachusetts. The latter is not an indispensable party. See Niles-Bement Co. v. Iron Moulders Union, 254 U. S. 77, 80, 41 Sup. Ct. 39, 65 L. Ed. 145. It has no interest in the controversy between the petitioner and the other respondent. Its only obligation is to pay over the amount deposited with it when it is ascertained which of the other parties is entitled to it. On the question of jurisdiction, an unnecessary and dispensable party, will not be considered. Walden v. Skinner, 101 U. S. 577, 589, 25 L. Ed. 963; Bacon v. Rives, 106 U. S. 99, 104, 1 Sup. Ct. 3, 27 L. Ed. 69; Ex parte Nebraska, supra. The cases of Wilson v. Oswego Township, 151 U. S. 56, 14 Sup. Ct. 259, 38 L. Ed. 70, and Construction Co. v. Cane Creek, 155 U. S. 283, 15 Sup. Ct. 91, 39 L. Ed. 152, do not support the contention that this case was not properly removed to the federal court. These cases hold that where the object of the suit is to recover possession of personal property the one in possession is a necessary and indispensable, and not a formal, party. Here no cause of action exists against the International Trust Company, because it has not been determined which of the other parties is entitled to payment. The District Court had jurisdiction. The motion to remand was rightly denied.

As between successive assignees of the same account receivable, does prior notice to the debtor of the later assignment, without more, subordinate the rights of the earlier to those of the later assignee?

There is a conflict of authority on the question. Under decisions of the Supreme Judicial Court of Massachusetts, which are in harmony with the decisions of the highest courts in a number of the states,³ the earlier assignee would prevail. The court below held the question to be one of general jurisprudence, declined to be bound by the Massachusetts chusetts decisions, and followed what they understood the rule to be, as applied by this and other federal courts,⁴ and in a number of the states,⁵ and decided that the later assignee, the first to give notice to the debtor, is entitled to the money.

The question is one of general law, not based on any legislation of the state or local law or usage, and the lower court rightly decided that it was not bound by the rule applied in the decisions of the highest court of Massachusetts. Swift v. Tyson, 16 Pet. 1, 18, 10 L. Ed. 865; Boyce v. Tabb, 18 Wall. 546, 21 L. Ed. 757; Railroad Co. v. National Bank, 102 U. S. 14, 28, 26 L. Ed. 61; Presidio County v. Noel-Young Bond Co., 212 U. S. 58, 73, 29 Sup. Ct. 237, 53 L. Ed. 402; Methven v. Staten Island Light, Heat & Power Co., 66 Fed. 113, 13 C. C. A. 362; In re Leterman, Becher & Co., 260 Fed. 543, 547, 171 C. C. A. 327.

The precise question now before us was not involved, and therefore was not decided, in any of the decisions of this court cited by the Circuit Court of Appeals.

In Judson v. Corcoran, 17 How. 612, 15 L. Ed. 231, one Williams had a claim against Mexico for the illegal confiscation of a cargo. Under a treaty with Mexico (9 Stat. 922) such claims were to be adjusted by the United States upon allowance by a board of commissioners created by an act of Congress. 9 Stat. 393. Judson obtained from Williams an assignment of an interest in the claim. Later Corcoran obtained assignments covering the whole claim. The board found that Corcoran owned the whole claim and made an award in his favor. Judson set up no pretensions to the claim until after the award, some six years from the time he obtained the assignment. This court (17 How. 614, 15 L. Ed. 231) pointed out that the assignor, having parted with his interest by the first assignment, the second assignee could take nothing by the later assignment; that the purchaser is entitled only to the remedies of the seller, and hence has arisen the maxim that 'he who is first in time is best in right.' The second assignee had drawn to his equity a legal title to the fund (the award of the board of commissioners), and it was said that—assuming that no negligence could be imputed to the earlier assignee and that the case was one where an equity in the same chose in action was successively assigned to two innocent persons whose equities are equal—there must be applied the rule that 'the equities being equal the law must prevail.' The court said (17 How. 615, 15 L. Ed. 231):

'There may be cases in which a purchaser, by sustaining the character of a bona fide assignee, will be in a better situation than the person was of whom he bought; as, for instance, where the purchaser, who alone had made inquiry and given notice to the debtor, or to a trustee holding the fund, (as in this instance,) would be preferred over the prior purchaser, who neglected to give notice of his assignment, and warn others not to buy.'

Judson took his assignment in 1845 and first produced it in 1851. In the meantime, Corcoran got his assignment, gave notice, and prosecuted it to final award. It was held that he was entitled...