1. In a suit brought by a citizen of Louisiana in the Circuit
Court of the United States for the Eastern District of Arkansas to
enforce a lien on lands situate within that district, one of the
defendants, a citizen of Tennessee, was served with process in
Arkansas.
Held that under the Act of Feb. 28, 1839, 5
Stat. 321, such service brought him within the jurisdiction of the
court.
2. A court which has acquired rightful jurisdiction of the
parties and subject matter will retain it for all purposes within
the general scope of the equities to be enforced.
3. The holder of a note which is secured by mortgage may proceed
at law and in equity at the same time until he obtains actual
satisfaction of the debt.
Thompson purchased from Fleming, Jan. 15, 1867, a plantation
situated partly in Prairie County and partly in Pulaski County,
Ark., at the price of $60,000, to be paid in ten equal
installments, the first March 1, 1867, and the remainder annually
thereafter. Notes, negotiable in form and expressing on their face
that their consideration was the purchase of this plantation, were
executed by Thompson to Fleming for the several installments,
payable at the times agreed upon. On the same day, the date of the
purchase, Fleming and his wife conveyed the property to Thompson by
a deed in which, after a recital of the notes for the purchase
money, was the following:
"But it is expressly agreed by the parties of the first and
second part, that the said parties of the first part shall, and do
hereby, retain a lien upon all of said lands for the payment of
said ten promissory notes given for the purchase money, and when
the same are fully paid off, said lien is to stand released and
discharged."
This deed was recorded in Pulaski County Feb. 26, 1867. It was
also duly recorded in Prairie County.
At the time of the purchase, Thompson was a citizen of
Louisiana, and Fleming of Arkansas. The note falling due March 1,
1867, was paid Jan. 19, 1867, and on March 20, 1867, Fleming
transferred all the other notes, by endorsement, to Gallagher, a
citizen of Louisiana. Gallagher afterwards sued Thompson in the
Fifth District Court for the Parish of Orleans, La., upon the note
falling due March 1, 1869, and, June 7,
Page 93 U. S. 200
1869, recovered judgment thereon for $6,000 and interest from
March 4, with costs. This judgment he has been unable to collect by
execution or otherwise.
At the time of the purchase, there was also a judgment in the
Prairie County Circuit Court of Arkansas against Fleming, in favor
of one Embry, for $643.43 debt, and $63 damages, which was a lien
upon the part of the plantation in Prairie County. An execution was
issued upon this judgment April 29, 1867, levied May 14, 1867, on
the lands covered by the judgment lien, and they were offered for
sale by the sheriff, and struck off, Aug. 19, 1867, to one English,
for $844.70. In pursuance of this sale, the sheriff conveyed them
to English, Aug. 24, 1867, and, Feb. 29, 1868, English conveyed
them to Ober, the appellant, to whom at the same time Thompson also
conveyed them.
Gallagher afterwards, being a citizen of Louisiana, filed this
bill against Ober, a citizen of Arkansas, and Thompson, then a
citizen of Tennessee, in the Circuit Court of the United States for
the Eastern District of Arkansas, setting forth the sale from
Fleming to Thompson; the execution of the notes by Thompson to
Fleming; the reservation of the lien in the deed from Fleming; the
endorsement of the note falling due March 1, 1869, by Fleming to
Gallagher; the judgment against Thompson thereon in the Fifth
District Court for the Parish of Orleans; the judgment of Embry
against Fleming; its lien; the sale and conveyance by the sheriff
to English; and the conveyance by English to Ober -- substantially
as above stated. The bill then alleges, in effect, that the
purchase by English at the sheriff's sale was for the use of
Thompson; that Thompson paid him the money he advanced to the
sheriff; that the conveyance to Ober was for the benefit and at the
request of Thompson; and that Ober at the time had full knowledge
of all the facts. The prayer is that the property conveyed by
Fleming to Thompson may be subjected, under the lien reserved in
the deed, to the payment of the amount due upon the judgment in
favor of Gallagher.
At the time of the commencement of this suit, Fleming as well as
Thompson was a citizen of Tennessee. He was not made a party. Ober
and Thompson were both served with process in Arkansas, Thompson
having been found there at the
Page 93 U. S. 201
time, and they both demurred to the bill, assigning special
cause as follows:
"1st, said bill shows that said Thompson is a nonresident of
said district, and not within the jurisdiction of this court."
"2d, said complainant, as the assignee of the note named in said
bill, did not take any lien, nor has he any under and by virtue of
the assignment of said note."
"3d, said bill fails to show that John T. Fleming, the original
holder and payee of said note, could have brought suit thereon in
this court."
"4th, said bill fails to show that complainant has exhausted his
remedies at law to collect the debt named in said bill."
"5th, the judgment exhibited with said bill rendered in the
State of Louisiana merged the note named in the bill, and this
court has no jurisdiction to enforce such judgment as a lien
against the lands described in the bill, or to enforce it at all,
until a judgment is rendered on the same in this court at law."
"6th, said complainant having elected to use said Thompson at
law, he must abide such election, or show that he has used all
remedy under such suit, but to no purpose, which said bill does not
show."
This demurrer was overruled. Thompson elected to stand by his
demurrer, but Ober answered, insisting that the title of English
was superior to that of Fleming, and that he was a
bona
fide purchaser from English without notice. In this way, he
claimed to hold the property in Pulaski County free from the lien
reserved by Fleming. As to that in Prairie County, he insisted that
the note due March 1, 1867, exceeded in amount the value of this
part of the property, and that in equity it should be released from
the lien.
After this answer, Gallagher, by consent, amended his bill by
setting up his ownership of the other notes endorsed to him, and
asking that "as to any of said notes that may be due at the time of
rendering the final decree herein," he might have
"the same relief that he hath already in and by his original
bill prayed, and that as to the remainder of said notes, the court
may give him such relief as may tend to secure the payment of the
same when they respectively fall due, without further litigation or
delay."
At the time of filing this amendment,
Page 93 U. S. 202
it was agreed that the answer of Ober to the original bill
should be taken as his answer to the amended bill; that Thompson
should have the same benefit from his demurrer to the original bill
that he would have if he had demurred to the bill as amended, and
the cause was set down for hearing upon bill, amended bill, answer,
and replication, with leave to both parties to take
depositions.
The circuit court rendered a decree April 24, 1874, finding due
to Gallagher, upon his judgment, and upon the notes then past due
and unpaid, $49,903, establishing a lien in his favor upon the
whole plantation in the hands of Ober, as security for the amount
so found to be due, and ordering a sale, and an application of the
proceeds to its payment. Further directions were also given in
respect to the notes not then due.
From this decree Ober alone appeals.
Page 93 U. S. 203
MR. CHIEF JUSTICE WAITE stated the case, and delivered the
opinion of the Court.
No errors have been assigned either upon the record or in the
briefs of counsel, as required by our Rule 21. For this
Page 93 U. S. 204
reason we might very properly affirm the decree without looking
into the record, but as the case has been submitted and briefs
filed on both sides, we will, without making this a precedent to
justify such neglect of this salutary rule in the future, proceed
to the consideration of the points suggested by the counsel for the
appellant in opposition to the decree.
1. It is insisted that as Thompson was, at the time of the
commencement of the suit, a citizen of Tennessee and a necessary
party, the Court could not take jurisdiction of the cause, and in
support of this objection it is said that where there is a
plurality of plaintiffs or defendants, each one must have the
requisite character of citizenship to sue and be sued.
The question here presented cannot be one of practical
importance in the future, as the Act of March 3, 1875, 18 Stat.
470, sec. 1, has extended the jurisdiction of the circuit courts to
controversies "between citizens of different states," using for
that purpose the very words of the Constitution, Art. III, Sec. 2,
and thus avoiding the embarrassments that frequently arose under
the act of 1789, 1 Stat. 78, sec. 11, which limited their authority
to controversies between "a citizen of the state where the suit is
brought and a citizen of another state." It is therefore sufficient
to say that since the Act of Feb. 28, 1839, 5 Stat. 321, sec. 1, it
has never been doubted that the circuit courts had jurisdiction of
a suit in equity of a local nature where a citizen of one state
prosecuted citizens of other states in a district where the
property in controversy was situated and of which one of the
defendants was an inhabitant. If all the defendants were served
with process in the district or voluntarily appeared in the suit,
the decree when passed would bind all. But if they were not served
or did not appear and they were not indispensable parties, the case
might proceed without them, and their interests would not be
affected by what was done in their absence. If, however, an
indispensable party was a citizen of the same state with the
plaintiff, the jurisdiction would be defeated, because the
controversy would not be between citizens of different states, and
thus not within the judicial power of the United States as defined
by the Constitution. The decisions to this effect are numerous.
Hagan v.
Walker, 14 How. 36;
Shields v.
Barrow, 17 How. 141;
Clearwater
Page 93 U. S. 205
v. Meredith, 21 How. 492;
Inbusch v.
Farwell, 1 Black. 571;
Barnes
v. Baltimore City, 6 Wall. 286;
Jones
v. Andrews, 10 Wall. 332;
Commercial & R. Bank of
Vicksburg v. Slocomb, 14 Pet. 65.
In
Louisville Railroad Company v. Litson, 2 How. 497,
it is also distinctly stated (p.
43 U. S. 556),
that the act of 1839 "was passed exclusively with an intent to rid
the courts of the decision in the case of
Strawbridge
v. Curtis," 3 Cranch 267, which, with that of
Bank v.
Deveaux, 5 Cranch 84, had "never been satisfactory
to the bar." P.
43 U. S.
555.
Here, Gallagher could sue both Thompson and Ober separately in
the courts of the United States, and they could each sue him. The
suit is of a local nature, its object being to subject lands in
Arkansas to the payment of a debt. It must therefore be brought in
the district where the property is situated. Ober is a citizen of
that state, and is the principal defendant. The relief demanded
consists in bringing his property to sale, to pay a debt charged
upon it. As to him, the court confessedly had jurisdiction.
Thompson, though a citizen of Tennessee, was served with process in
Arkansas, and this, under the provisions of the act of 1839,
brought him into the case, and within the jurisdiction of the
court.
2. As Fleming, the payee of the notes secured by the lien, was,
when the suit was commenced, a citizen of Tennessee, and
consequently incompetent to sue Thompson, also a citizen of that
state, in the courts of the United States, it is claimed that
Gallagher cannot maintain this suit.
This objection is also based upon a clause in sec. 11 of the
Judiciary Act of 1789, repealed by the Act of March 3, 1875, which
provides that no circuit court shall have cognizance of any suit to
recover the contents of a promissory note in favor of an assignee,
unless a suit might have been prosecuted in such court to recover
such contents if no assignment had been made. Under this act, it
was held, in
Sheldon v.
Sill, 8 How. 441, that an endorsee of a negotiable
promissory note, secured to the payee by a mortgage, could not sue
in the courts of the United States to foreclose the mortgage,
unless the mortgagee could. Gallagher did not sue in this case
originally as the endorsee of a note, but as the owner of a
judgment of record in his own favor, secured by a lien which he
asked to have
Page 93 U. S. 206
enforced. The note was no longer in existence as an outstanding
liability. It had been merged in the judgment, and was, as a note,
extinguished. Gallagher no longer claims as the assignee of the
note, but as the owner of a judgment in his favor against Thompson.
He can sue Thompson upon the judgment in the courts of the United
States in Tennessee. As was well said by Mr. Justice Story in
Bean v. Smith, 2 Mass. 269,
"It is no objection to the jurisdiction that at some anterior
period, the transaction assumed a shape not within the reach of
that jurisdiction. It is sufficient, if it has now become so
modified by the act of the parties or by the principles of law that
jurisdiction now rightfully attaches."
Thompson is no longer a debtor by note to Fleming, but by
judgment to Gallagher. In the collection of the judgment, Gallagher
does not sue or proceed upon the note and its assignment, but upon
the judgment.
The court had therefore jurisdiction of the suit as originally
brought, and this jurisdiction was not defeated by the amendment
which introduced the notes, not in judgment, but secured by the
lien, into the case. Having obtained rightful jurisdiction of the
parties and the subject matter of the action for one purpose, the
court will make its jurisdiction effectual for complete relief.
Story's Eq. 64
k. If the amendment had not been made, the
court would in its decree have taken care to protect the rights of
the holders of the outstanding notes, and that is all it is called
upon to do by the amendment. Having jurisdiction for one purpose,
it may be retained for all within the general scope of the equities
to be enforced.
3. Another objection urged is that the assignment of the notes
by Fleming did not transfer the lien he had reserved as security
for their payment. It is undoubtedly true that in many of the
states the implied lien which equity raises in favor of the vendor
of real property to secure the payment of the purchase money does
not pass by an assignment of the debt; but here the lien was not
left to implication -- it was expressly reserved. In fact, it is
more than a lien. In equity, it is a mortgage, so made by express
contract. The acceptance by Thompson of the deed containing the
reservation amounts to an express agreement on his part that the
land should be
Page 93 U. S. 207
held as security for the payment of what he owed on account of
the purchase money. This created an equitable mortgage, and such a
security passes by an assignment of the debt it secures. We so held
in
Batesville Institute v.
Kauffman, 18 Wall. 154, a case which also came from
the Eastern District of Arkansas.
It is claimed, however, that the law of Arkansas is different
and that the supreme court of that state has decided that a lien to
secure the payment of purchase money, expressly reserved by the
vendor in his deed, does not pass by an assignment of the debt. If
such was the settled rule of law in the state when the notes which
are under consideration in this case were assigned, we should be
compelled to recognize it as a rule of property there, and be
governed accordingly.
Suydam v.
Williamson, 24 How. 434. But we do not understand
such to have been the fact. The first case in which this ruling was
made was
Sheppard v. Thomas, 26 Ark. 617, decided at the
June Term, 1871, by a divided court, two out of the five judges
dissenting. This case was followed also by a divided court in
Jones v. Doss, 27 Ark. 518, decided at the December Term,
1872; but almost immediately thereafter, April 24, 1873, the
legislature provided by statute as follows:
"The lien or equity held or possessed by the vendor of any real
estate, for the sale of the same, shall inure to the benefit of any
assignee of the notes or obligations given for the purchase money
of such real estate, and such lien or equity shall be assignable,
and payable by endorsement or otherwise in the hands of such
assignee, and any such assignee may maintain an action or suit to
enforce the same.
provided the said lien or equity is
expressed upon or appears from the face of the deed of
conveyance."
Pamphlet Laws, 1873, p. 217, sec. 28.
This legislation was followed, at the December Term, 1873, by
the case of
Campbell v. Rankin, 28 Ark. 401, in which it
was strongly intimated that if it were necessary, the previous
cases in which this question was decided would be overruled. Under
these circumstances, we are not satisfied that when these notes
were assigned, it was a settled rule of property in Arkansas that a
lien for purchase money expressly reserved would not pass by an
assignment of the debt. Such being the case,
Page 93 U. S. 208
the circuit court was right in following our decision in
Batesville Institute v. Kauffman, especially as its
decision was not made until after the doubts expressed in
Campbell v. Rankin, as to the correctness of the rulings
in the previous cases.
4. It is finally insisted that Gallagher must exhaust his
remedies at law before he can come into a court of equity to
subject the land. This is not a creditor's bill to reach equitable
assets. There is no attempt to enforce the judgment as a judgment,
but to reach securities held for the debt. The suit is in reality
one to enforce a mortgage given to secure a note, but not commenced
until after the note had gone into judgment at law. The note was
merged in the judgment; but the lien which secured it was not --
that was simply transferred from the note to the judgment.
An election to sue at law upon a note secured by mortgage does
not make it necessary for the holder to exhaust his remedies in
that forum before he can go into equity to enforce his mortgage. He
may proceed at law and in equity at the same time, and until actual
satisfaction of the debt has been obtained.
This disposes of all the questions presented in the demurrer,
and brings us to a consideration of the case upon its facts.
Without going into the details of the evidence, it is sufficient to
say, that we are entirely satisfied that English purchased the
property in Pulaski County at the sheriff's sale, for the benefit
of Thompson; that Thompson either furnished him the money to pay
the sheriff, or repaid him what he may have advanced within a short
time thereafter; that the sale to Ober was made by Thompson to pay
or secure a debt he owed; that English conveyed to Ober at the
request of Thompson, and to give effect to the arrangement he had
made; that Ober, at the time of his purchase, had full knowledge of
all the facts, and that he took the title to the property
encumbered by the lien reserved in the deed from Fleming.
It follows that the decree of the circuit court was right, and
it is, therefore,
Affirmed.
