CECIL NAT. BANK V. THURBER.
913
OECIL NAT. BANK v. THURBER et al. (Circult Court of Appeals, Fourth Circuit. February 7, 1894.) No. 52.
1.
EQUITY JURISDICTION-DISCOVERY.
Where a bill seeks relief as well as discovery, the prayer for .diseovery cannot be made the ground of equity jurisdiction unless complainant alleges his inability to esta'blish, at law, the matters of which discovery is sought; and the bill should be dismissed when the answer in fact contains no discovery, and it appears that complainant is abundantly able to establish such matters by other evidence. A prayer for injunction, not as a primary remedy, but merely to preserve property from sale pending litigation concerning dt, cannot be made a ground of equity jurisdiction, when it appears that the property had already been sold when the bill was filed, of which fact complainants had knowledge, or the means of knowledge.
2.
SAME-INJUNCTION.
8.
SAME-TRUSTS.
A suit to hold a bank lil\-ble for the value of goods wrongfully pledged to it by complainants' agent as security for a personal loan, and sold by the bank thereunder, is not cognizable in equity on the theory that the goods were impressed with a trust of which the bank had notice, when cOlIlplainants do not attempt to trace the proceeds into any particular fund of which they still form a part, but merely seek a decree which will bind all the bank's property, as a judgment at law would. 52 Fed. 513, reversed.
Appeal from the Circuit Court of the United States for the District of Maryland. This was a suit by Horace K. Thurber, Francis B. Thurber, Albert . E. Whyland; Alexis Godillott, Jr., and Jacob S. Gates, copartners trading as H. K. & F. B. Thurber & Co., against the Cecil National Bank and Arian M. Hancock. The bill alleged that Hancock, agent of plaintiffs, wrongfully hypothecated certain warehouse reo ceipts to the defendant bank; charged the bank with notice; and asked for a discovery and injunction, and a decree that the bank deliver the goods covered by these receipts or their proceeds if sold. A decree was rendered in the circuit court against the defendants, (52 Fed. 513,) whereupon the bank appealed. Robert H. Smith and W. L. Marbury, for appellant. Thomas G. Hayes, for appellees. Before GOFF, Circuit Judge, and SEYMOUR and SIMONTON, District Judges. SEYMOUR, District Judge. This is an appeal by one of the defendants in a suit brought by the members of the firm of H. K. & F. B. Thurber & Co. against the appellant and one Arian M. Hancock. A decree was rendered in the circuit court against the defendants, (52 Fed. 513,) but only the bank appeals. As to Han· cock, there has been an order of severance, and leave has been granted to the bank to prosecute its separate appeal. Appellees alleged in their amended bill, that the defendant Hancock was their agent, and as such was authorized to sell for them v.59F.no.9-58
canners' goods in Hartford county, Md.; that he was further authorized to make advancE!sto canwrsto 'nssistthem in preparing advances were to be,.secured canned ,goods for market;,.tpat by hypothecation. of the goods to plaintiffs, and, when prepared, the goods were to be shipped to them for sale; that, after sale, any balance that might remain after paying advances, charges, and com1llissions,was to be paid to the canners, and any deficiency to be chargej]. them; tllat Hancock was to be paid a cominisfurther alleges that Hancock made large advances in pursuance of this employment, but that, instead of shipping the goods upon which he had made sueh advances to plaintiffs, he .deposited them in various warehouses, taking wnrehouse receipts In his own nameas'llgent, and on suchreceiptshypothecating thelIl to the defendant .the Oecil Bank for loans made by the bank to him persona1ly; that said Hancock caused said goods to be delivered to the bank, and that the bank had sold them, either ,":ll()Hy or in part·· 'fhe bill charges the bank with notice. Plaintiiis.,' ask for a discQvery, an injunction, and a that the bank deliver to them any ,of the goods, which may remalll in their hands,and pay them the'value of those sold. No injunction was ever Jssued,as all the were sold before the institution of the discQvefY made by any of defendants. A decree was rendered by the circuit court for the payment of $13,188.32, with ipterest. .' ,. ,.'. ' .. We'thillk the bill should have been"dismissed for want Of jurisdictio,Jl" It be as a bill for die\coveryfor several reasons:,' It is nota bill:. fOf . ,but for relief.. .. To make his for .a' grbund of'equitable plaintiff sh0Ulcdallege his inability to establish at law the factS of which thediscove:ry is sought. It would have been otherwise were the bUI mel'elyfor a is not necessary to allege in the bill [for discovery] that has no other witness or evidenceto establish at law tHe facts of which the discovery is sought. It would ifthebi11 should not only ask'discovery, but should ask relief equity, for in the latter case tfui bill would seek to the whole jurisdiction from the' proper cuurt of law, and to give it to the court of equity." Stot'y Eq. Pl.§ 324. As from the evidence, plaintiff wasaburidant1y able to prove the facts with respegt: to which ,he resorts to discovery by witnesses other than defendants. No discovery was made by the answers. "If the answer of the defendant discloses nothing, and the plaiptiffsupports his, claim by evidence in .his' 0WJ:l possession, unaided., QJ the confessionli! of the defendant, theel'ltablished rules limiting the jurisdiction of courts reqlli,re that. he,$hoU;1d be dis.missed .· from the court ,of chancery, ,and permitted, to assert his rights of law." , Russell v. Olark,7 Or3)1:lch,69,. Nor the, jurjsdiction ·pI, the court aided by the prayer for an injunction. This is nota,J)ilI.for an injunction al;l a primary remedy, "put a bill for relief, ,saeking tOlileGure certain property, and containing a prayerfhat it may be the
CECIL NA'!'. BANK V. THV1tBER.
915
litigation by an injunction; but there is no allegation that defendant is insolvent. The fatal difficulty with the injunction as a ground of equitable jurisdiction is, however, that, when the bill was filed, there was no property to protect,-it had all been sold; and that within the knowledge of plaintiffs, or at least plaintiffs had the means of knowledge within their reach. The only remaining ground of equitable relief averred in the bill is the court's jurisdiction over trusts; and it is upon this ground that the court below sustained the jurisdiction. Courts of equity administer trusts by appointing and removing trustees, by controlling their use of trust funds and their distribution, and by compelling trustees to account for, and pay over or deliver, money or property in their possession as trustees. They lend their aid to the owner of money held in trust, and misappropriated by the trustee. When trust property has been misapplied and con"'erted into some other species of property, if its identity can be traced, they consider it, in its new form, as still impressed with the trust. If it has gone into the hands of a third party affected with knowledge of the trust, they treat it, notwithstanding any change of form or custody, as still subject to the original rights, and make its new holder a trustee in invitum. The right ceases when the means of ascertainment fail, which is the case, Mr. Justice Story says, "when the subject-matter is turned into money, and mixed and confounded in a general mass of property of the same kind." Eq. JUl'. § 1259. The last proposition is generally true, but, according to the later cases, does not apply when the money can be traced into some existing fund of which it forms a part. It does apply, however, when the trust property has been converted, as is alleged in the present case, and its proceeds can in no way be distinguished among the assets of the party who has received them. The plaintiffs are not seeking to trace the money advanced by them to their agent, and by him to canners, into either the canned goods hypothecated to them or into any new form which may have resulted from the sale of such goods. They have asked for, and have obtained, a decree for money, which affects all of appellant's estate, but not any particular part of it, in precisely the same way that a judgment at law would have done. The bill does not ask for a decree specifically charging the bank's estate, or any part of it; nor would the facts have justified such a bill. At the institution of the suit there was no special fund to be followed. The case of National Bank v. Insurance Co., 104 U. S. 54, which was relied upon to sustain the bill, is not, as we conceive, an authority in point. It was a suit brought by the insurance company to recover money deposited by one of its agents in the defendant bank. The money was the property of the insurance company, and this was known to the bank. 4gainst this deposit the bank asserted a lien, as banker, for a personal obligation of tne agent. The defense of want of jurisdiction was raised by the answer. 'Fhe supreme court held that it was a case of equitable jurisdiction, because the facts created no privity between theiusurance company and the bank, and theJ,'eforeno action at law
916
FEDERAL REPORtER, ,
vol. 59. ,
could be maintained by the former against the latter; in other words, as plaintiff could obtain no remedy at IItW, and had a right, he was entitled to pursue it in equity. In Warner ,v. Martin, 11 How. 225, no objection to the jurisdiction was taken by any pleading, and the point was disregarded by the court when raised for the first time on the argument. Nothing is said on the subject in the opinion. Duncan v. Jaudon, 15 Wall. 165, is also cited as sustaining the jurisdiction; but the question of jurisdiction was not raised or mentioned, either in pleading, by counselor in the opinion. A court of equity does not ordinarily raise the exception that a case is not one of equitable jurisdiction of ita own motion. Amis v.Myers, 16 How. 492. In his opinion in National Banlt T. Insurance Co., Mr. Justice quotes from the leading case of Knatchbull v. Hallett, 13 Clli Diy. 696, a criticism by the master of tM rolls, Sir George J essel,tlpon the comm.on legal adage that "money has no earmarks," and upon a dictum of Lord Ellenborough's in what is also a leadingcase,-Taylor Y. Plumer, 3' Maule & S. 562. The dictum criticised was adopted by Justice Story in his Equity Jurisprudence,and' has been quoted supra from that work. Sir George Jessel dissents from the proposition that trust property cannot be traced "When the subject is turned into money, and confounded in a general mass of the same description," because equity will follow money, even· if put into a bag or an undistinguishable mass, by taking-out the same quantity; and he says the doctrine that money has no earmarks must be taken as subject to the application of this rule. " Doubtless, it is true that, while the currency of a country circulates from hand to hand so freely as to render it impossible to identify and trace a particular coin or note, as a rule, yet money may, in exceptional cases, be marked and traced. So, if J.JOrd Ellenborough's statement that money mingled with other money' cannot be traced is to be construed as conveying the proposition that in no case can money be 'traced, it would state what is not a fact; but the question is really one not of law, but of fact. Like National Bank v. Insurance Co., supra, Knatchbull v. Hallett was a case of a bank account and its ownership. The numerous American cases which cite Knatchbullv. Hallett are the most of them cases of bank deposits, usually complicated by the failure of the banks and the conflicting claims of creditors on the one hand to a preference, and on the other to an equal distribution of the assets of the bank. I do not purpose to examine this class of cases. They do not turn, anymore than does National Rank v. Insurance Co., upon whether equity has jurisdiction, but upon the rights of the parties tc)particular deposits or money, or qther subjects, a lien upon or right in which is sought to be enforced. Some priority or 'other is claimed which could only be enforced in equity. 'I'hese cases are not authorities upon the subject now under consideration. In the present case there is no fund, bank d'eposit, or particular property which plaintiffs seek to apply to their claim; the conversion of plaintiff's goods to their own use created simply a pecuniary liability. Even though a cause of action involves
BLACK V. RENO.
917
equitable features, if the legal remedy by pecuniary judgment is complete, sufficient, and certain, it must be resorted to. Buzard v. Houston, 119 U. S. 347, 7 Sup. Ct. 249. The judiciary act of 1789 provides that "suits in equity shall not be sustained in either of the courts of the United States in any case where a plain, adequate, and complete remedy may be had at law." Rev. St. § 723. While a defendant may waive his right to object to the jurisdiction, by failure to take the objection in due time, he is entitled, whenever he expressly claims it, as the defendant has done in this case by his answer,to its benefit. The right is one involving his constitutional privilege of a trial by jury, and cannot be denied by the court. In the present action the remedy granted is substantially the same as that which could have been given in an action at law, and no other relief could have been granted. These facts are conclusive of. the question of jurisdiction. It results that the decree of the court below must be reversed, and the cause be remanded to the circuit court with instructions to dismiss the bill as to this appellant for want of jurisdiction, but without prejudice; costs to be taxed against appellee. BLACK et at.· v. RENO et al. (Circuit Court, E. D. Missouri, E. D. No.3,653.
February 24, 1894.)
MORTGAGES-THANRFER-J"JEN- DISCHARGE.
Where negotiable notes secured by a mortgage duly recorded are transferred for value before maturity to a third person, a subsequent acknowledgment of record by the mortgagee of satisfaction of the debt secured does not impair the lien of the mortgage unless it was made with the knowledge or assent of the holder of the notes; and hence a purchaser of the mortgaged land Is not protected by such release, though he purchases on the faith of It. Taking notes as collateral security for money loaned at the time will constitute the lender a holder for value of such notes.
NEGOTIABLE INSTRUME::<lTS-THANSFER-HoLDERS FOR VAI,UE.
SAME-COLLATERAL SECURITy-ACTION.
The recovery of judgment against the maker of a note will not bar the creditor's action on other notes taken by him as collateral security for the loan, so long as that judgment remains unsatisfied.
4.
MORTGAGES-FoRECI>OSURE-lNSTALLMENTS OF DEBT.
A mortgage recited that It was given to secure the payment of two notes, one payable in five, and the other In ten, years, with interest payable annually; and the condition required the maker to pay "the notes and all interest that may be due thereon, according to the tenor and effect of said notes." Both notes and mortgage were transferred as collateral security for a·loan, which was not paid at maturity; and the holder brought suit to foreclose the mortgage, the first note being due and unpaid, and no interest having been paid on either note. Held, that he was entitled to foreclose without waiting for the maturity of the second note. Where foreclosure Is sought of a mortgage securing several notes, only part of which are due, the court will order the sale or so much of the land as Is necessary to pay the overdue notes, leaving thp. decree to stand as security for the others; or, if the land is not susceptible of division,
c5.
SAME-SALE-INSTALLMENTS NO'!' YET DUE.