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Galpin v. Page/Opinion of the Court

ERROR to the Circuit Court for the District of California.

Philip Galpin brought an action against Lucy Page for the possession of certain real property situated in the city of San Francisco. The case was tried by the court by the stipulation of the parties without the intervention of a jury. Both parties claimed title to the premises from the same source, Franklin C. Gray, deceased, who died in the city of New York, in July, 1853, intestate, possessed of a large property in California, both real and personal. Of the real property the premises in controversy were a portion. The deceased left surviving him a widow, Matilda, of whom a posthumous child was born in December afterwards, named Franklina. By the statute of California the entire estate of the deceased vested in the widow and child in equal shares.

The plaintiff asserted title to the demanded premises through conveyances authorized by the Probate Court of the City and County of San Francisco, which administered upon the estate of the deceased. The defendant claimed title under a purchaser who bought at a commissioner's sale had under a decree of the District Court of the State rendered in an action brought to settle the affairs of an alleged copartnership between the deceased and others. It was admitted that the plaintiff acquired the title unless it had previously passed to the purchaser at the commissioner's sale. It was, therefore, upon the validity of the decree in the District Court and the consequent sale and deed of the commissioner that the present case was to be determined.

The action in which that decree was rendered arose in this wise: In February, 1854, William H. Gray, a brother of the deceased, brought a suit in equity in the District Court of the State (which embraced at the time the city of San Francisco), against Joseph C. Palmer and Cornelius J. Eaton, who had been appointed administrators of the estate of the deceased, and against the widow, Matilda, and James Gray, the father of the deceased. In his bill the complainant alleged that a copartnership had existed between himself and the deceased, which embraced commercial business in which the latter was engaged, and the purchase and sale of real estate; that the copartnership business was carried on, and the titles of the real property purchased were taken in the individual name of the deceased, but that the complainant was interested in all its business and property to the extent of one-third. The object of the suit was to have the affairs of the alleged copartnership settled, and to obtain a decree awarding one-third of its property to the complainant.

The allegation of the bill that a dormant and universal copartnership had existed between the complainant and the deceased was without any just foundation in fact, for, as hereinafter mentioned, it was afterwards held by the Supreme Court of the State to be unsupported by the evidence in the case.

The bill omitted to make the child, Franklina, a party, and accordingly, in June following, a supplemental or amendatory bill was filed by the complainant, referring to the original bill, and stating the birth of the child, that she was entitled to share in the estate of the deceased, and that she was absent from the State, a resident with her mother in Brooklyn, in the State of New York, and praying that she might be made a party defendant, that a guardian ad litem might be appointed for her, and that the complainant might have the same relief prayed in the original bill.

Subsequently an order was made by the court directing service of the summons upon the new defendant by publication. It was preceded by a recital that it appeared to the satisfaction of the court that the defendant resided out of the State, and that she was a necessary party to the action. It was not stated in the order in what way the facts recited appeared. It seemed probable that the court might have acted upon the statements of the supplemental complaint. The statute of the State, which authorizes constructive service by publication, is as follows:

'When the person on whom the service is to be made resides out of the State, or has departed from the State, or cannot, after due diligence, be found within the State, or conceals himself to avoid the service of summons, and the fact shall appear by affidavit, to the satisfaction of the court or a judge thereof, or a county judge, and it shall in like manner appear that a cause of action exists against the defendant in respect to whom the service is to be made, or that he is a necessary or property party to the action, such court or judge may grant an order that the service be made by the publication of the summons.'

In December following, upon the petition of the plaintiff, a guardian ad litem was appointed for the child. The other defendants appeared by attorneys and answered.

In January, 1855, Eaton, who had been a clerk of the deceased, and who, as administrator, was made defendant in the above action of Gray, resigned his trust and commenced a suit in the District Court of the State against Palmer, the remaining administrator, and against the widow and child. In his bill he also alleged that a copartnership had existed between him and the deceased, that such copartnership embraced all the business and real estate transactions of the deceased, and that his interest in the partnership and its property was one-fourth.

In this action publication was made of the summons issued against the defendant, Franklina, but it nowhere appeared in the record that any application was ever made to the court or judge thereof for an order directing the publication, or that any such order was ever made. So far as appeared from the record it was the voluntary act of the complainant without judicial authority or sanction. The Supreme Court afterwards held that no sufficient service was ever made of the summons issued. In September following, after the publication thus made, upon application of the complainant, the same person was appointed guardian ad litem for the infant defendant in this action, who had previously been appointed such guardian ad litem in the other action. The other defendants appeared by attorney and answered.

On the 23d of October following, upon the stipulation of the guardian thus appointed and the attorneys of the other defendants, the two actions were consolidated into one. Four days subsequently a decree was entered in this consolidated action, and from a certificate of the judge appended to the decree, it would seem to have been entered without trial and by consent and agreement of the parties. By this decree it was adjudged that a copartnership had existed between Eaton and the deceased, which embraced all the property, real and personal, and all the business of each of them, and that in this copartnership Eaton had an interest of one-fourth; that there had also existed at the same time a copartnership between Gray and the deceased, which also embraced all the property, real and personal, and all the business of each, and that in this copartnership Gray had an interest of one-third; that the latter copartnership was subject to the copartnership with Eaton, and that, therefore, Eaton should take one-fourth of the estate, and Gray one-third of the remaining three-fourths, and that the residue should be equally divided between the widow and child. By the decree a reference was also ordered to a commissioner to take and state an account of the business profits and property of the two copartnerships, with directions upon the confirmation of his report to sell all the property, real and personal, of both copartnerships, and upon the confirmation of the sales to execute proper conveyances to the purchasers.

The commissioner stated an account as required, his report was confirmed, and by a decree of the court, made in April, 1856, a sale of the entire property of the two alleged copartnerships was ordered. The sale was had under this decree in May following. At that sale the premises in controversy were bid off by Gwyn Page, one of the attorneys of the plaintiff, Gray, and to him the commissioner executed a deed. Page subsequently sold and conveyed an undivided half of the premises to J. B. Crockett, his law partner, also one of the attorneys of the plaintiff, Gray, and the latter in June, 1863, conveyed his interest to Lucy Page, the defendant in the case. The interest of Gwyn Page in the remaining half passed by devise to the defendant.

On appeal to the Supreme Court of the State the decree of the District Court was, at the October Term of 1857, reversed, on the ground that no sufficient service of summons was made upon the infant, Franklina, under the statute, in the case of Eaton against Palmer, and that until such service no guardian ad litem could be appointed for her; and on the further ground that the evidence presented had not established a copartnership between William H. Gray and the deceased. The case was accordingly remanded to the District Court, and afterwards both suits were dismissed.

The Circuit Court gave judgment in the suit below for the defendant, and the plaintiff thereupon brought the case here on writ of error. In its opinion, which accompanied the record, and in which the Circuit Court went into an elaborate argument to show that the District Court of California had, when its decree was rendered, apparently, jurisdiction, the Circuit Court held that the record in the State court could not be attacked collaterally unless it affirmatively showed that the court did not have jurisdiction. Its language was as follows:

'The record in the consolidated action is here attacked collaterally, and not on appeal, or in a direct proceeding of any kind to reverse, set aside, or vacate the decree. The rule is different in the two cases. When attacked collaterally it is not enough that the record does not affirmatively show jurisdiction, but, on the contrary, it must affirmatively show that the court did not have jurisdiction, or the decree will be valid until reversed on appeal, or vacated on some direct proceeding taken for that purpose.'

Mr. Galpin, plaintiff in error, in propri a person a:

The court below erred in holding that the judgment of a court of general jurisdiction cannot be attacked collaterally, except for matters apparent on the record, and that in the absence of matters affirmatively disclosing a want of jurisdiction the judgment is conclusive; in other words, in holding that the record imports such absolute verity that it can never be contradicted or questioned collaterally.

One illustration will show that the doctrine is not sound, or at any rate is subject to exceptions. Suppose a judgment is rendered against a party by publication of summons, and property sold under it, could not the heirs of the party defend against an ejectment brought by the purchaser, by showing that the party had been dead years before the suit was commenced, and that his estate, including the property in question, had been administered upon and settled? Would it be pretended in any court that the record imported such absolute verity that it must be taken as true that the party was at the time alive, even though courts in other States had pronounced him dead, and had distributed his effects accordingly? All rules of evidence are intended to secure justice, and to hold the record conclusive in such a case would make the general rule of presumption with respect to judgments of superior courts of general jurisdiction, which is a wise one when property applied, an instrument of monstrous wrong and injustice.

Take another case: A probate court on evidence deemed sufficient adjudges a man dead, and administers his estate. Although an inferior court, when it once gets jurisdiction, its proceedings are entitled to the same presumptions in their favor as the proceedings of courts of general jurisdiction. Having acquired jurisdiction apparently-that is, the jurisdictional fact being declared established-property is sold by the decree of the court. Now, would it not be competent for a purchaser from the man adjudged to be dead to show, in a suit brought by the purchaser under the decree of the court, that the man was alive all the time, and to make bodily profert of him in court? or must the doctrine of the court below prevail, and the man be held to be dead notwithstanding his vocal disclaimer?

Such cases show the error of the ruling of the court below. The true doctrine is that the jurisdictional fact must always be open to inquiry; for if the court has in truth no jurisdiction, it cannot cut off inquiry into its authority.

In Williamson v. Berry, the Supreme Court of the United States says:

'We concur that neither orders nor decrees in chancery can be reviewed as a whole in a collateral way. But it is an equally well-settled rule in jurisprudence, that the jurisdiction of any court exercising authority over a subject, may be inquired into in every other court, when the proceedings in the former are relied upon, and brought before the latter, by a party claiming the benefit of such proceedings. The rule prevails whether the decree or judgment has been given in a court of admiralty, chancery, ecclesiastical court or court of common law, or whether the point ruled has arisen under the laws of nations, the practice in chancery, or the municipal laws of States.'

In support of this doctrine numerous cases are cited.

In Starbuck v. Murray, Marcy, J., dissipates the doctrine contended for in the court below; and in that case there was an allegation that the party had appeared. There is nothing of that kind here. He says:

'But it is strenuously contended that if other matter may be pleaded by the defendant, he is estopped from asserting anything against the allegation contained in the record. It imports perfect verity, it is said, and the parties to it cannot be heard to impeach it. It seems to me that this proposition assumes the very proposition to be established which is the only question in issue. For what purpose does the defendant question the jurisdiction of the court? Solely to show that its proceedings and judgments are void, and therefore the supposed record is not in truth a record. If the defendant had not proper notice of, and did not appear to the original action, all the State courts with one exception agree in opinion that the paper introduced as to him is no record; but if he cannot show even against the pretended record that fact, on the alleged ground of the uncontrollable verity of the record, he is deprived of his defence by a process of reasoning that is to my mind little less than sophistry. The plaintiff in effect declares to the defendant: The paper declared on is a record, because it says you appeared, and you appeared because the paper is a record. This is reasoning in a circle. The appearance makes the record uncontrollable verity, and the record makes the appearance an unimpeachable fact.'

In Dozier v. Richardson, the Supreme Court of Georgia says:

'It is no doubt true, that a judgment rendered against a man, by a court that has jurisdiction to render it, is conclusive against him if not obtained by fraud. But does a court have jurisdiction to render judgment against a man who has never had notice of the suit, and who does not appear to the suit? Most certainly not. Can it get this jurisdiction by falsely reciting, in some proceeding in the suit, that the man was notified of the suit, or that he appeared to it? Nobody will say so. But we have to say so in effect, if we say that such recitals are conclusive on the man. This must be manifest. It follows, then, that we cannot say so.'

The legal chicane exposed in these cases, New York and Georgia, offends the sense of justice of every one; and every logical mind revolts from its wretched sophistry.

There is no presumption of law from the existence of a judgment that process was served, because no presumption can arise except in favor of a valid record; and there is no proof that the papers are a valid record, unless they contain proof of service. Otherwise a record possibly invalid proves service, and the service thus presumed proves the record.

That the record must show proof of service appears from many cases.

But if any presumption of service would ordinarily be raised from the existence of a judgment, no such presumption can be raised in favor of this record, because,

1. The record shows affirmatively that Franklina was not within the jurisdiction of the court prior to the entry of the judgment, and this fact would overthrow the presumption referred to, if any such existed.

2. The record proves affirmatively that a constructive service was attempted, which failed.

In the case at bar the court will observe also that the purchaser at the sale, under the decree of the District Court, was one of the attorneys of the plaintiff Gray, and that he conveyed one undivided half interest to his law partner, also attorney of the plaintiff Gray. They took their interests with knowledge of all the defects in the proceedings. They do not stand in the position of strangers ignorant of all the proceedings. The defendant took from Page, one of the attorneys, by devise, and from the other attorney long after the reversal of the decree.

Messrs. E. L. Goold, Carlisle, and McPherson, contra:

I. The decree of the District Court in the two consolidated cases of Gray v. Palmer et al. and Eaton v. ''Palmer, cannot be collaterally attacked. The tribunal being a superior court, clothed with jurisdiction of the subject-matter, its record imparts plenary proof of its jurisdiction over the person of the defendant, without explaining the steps by which that jurisdiction had been acquired''.

When a judgment has been rendered by a superior court, having jurisdiction of the subject-matter involved, it is not necessary that the record should disclose the proof of the mode by which the process was served upon the losing party. In this instance it is certain that the court did have jurisdiction of the subject-matter, for the case was one of the settlement of a partnership, and the partnership property was found within the jurisdictional limits of the court.

That the court had jurisdiction to determine such questions as were involved in these two cases, was decided by the Supreme Court of California, where they were considered on appeal.

In Gray v. Palmer, the language of the court was:

'The primary object was to obtain the control of the partnership property, and the sale of so much of it as would be required to pay the partnership debts, and for a partition of the remainder of the real estate, if any. These complex objects could only be accomplished by proceedings in the District Court. The Probate Court had no judicial means to do this.'

This language shows that the jurisdiction of the subject-matter of the controversy cannot be put in contest.

And now, as to that of the person.

On this head, many of the authorities are collected in Smith's Leading Cases. Hare and Wallace's notes say:

'Superior courts are presumed to act by right and not by wrong, and their acts and judgments are consequently conclusive in themselves, unless plainly beyond the jurisdiction of the tribunals whence they emanate.'

In Foot v. Stevens, it was held that where a court of general jurisdiction has rendered judgment, it will be presumed that it has jurisdiction over the person of the defendant. The court, after citing from several decisions, says:

'All these authorities are but an iteration, in another form, of the rule so strongly and clearly expressed in Peacock v. Bell, in 19 Car. II. 'The rule for jurisdiction is, that nothing shall be intended to be out of the jurisdiction of a superior court but that which specially appears to be so.' This, too, was said of a county court, which though inferior to the K. B., yet say the court, 'that does not prove it to be an inferior court in the sense that it ought to certify everything precisely,' and this too was on error. The record did not show jurisdiction, but the K. B. intended it until the contrary should be shown.

'Indeed, it may be asked where is the case which ever held a judgment record of a court of general jurisdiction void because it omitted to assert some formal step in the acquiring of jurisdiction? The omission in Peacock v. Bell was essential. The declaration fails to show a territorial power. All the cases are against this objection, and would fill a page of quotation. Shall it be said that the law will not presume until the record first asserts the fact in a line of circumstances which give jurisdiction? I answer, such a construction of the rule again contradicts the leading case of Peacock v. Bell, and confounds all distinction between courts of general and limited jurisdiction. Even as to the latter, its record asserting the fact becomes prim a facie evidence. In such case there is no need of presumption; there is direct proof. And does the rule mean to say no more in respect to a court of record? It seems to me a solecism. In regard to limited courts, not proceeding according to the course of the common law, it will not presume; and therefore they must state by their record. While as to the superior court, though it omit a formal ingredient, it shall be intended in respect to the solemnity of the main proceedings. It is unreasonable and contrary to presumption, to suppose a judgment recorded by a court in all its important forms without the usual notice.'

This principle was enforced in California at an early day.

II. Assuming that a record of a superior court, which contains some words reciting steps towards the jurisdiction, fails to recite them all, the law will intend that the remaining necessary steps were taken, and that in reference to them the court judicially passed upon evidence necessary to support the jurisdiction, unless it affirmatively appear that these steps were omitted.

This is the doctrine of the Supreme Court of California.

Something was done in the District Court of California towards bringing in Franklina by publication; and nothing of an affirmative character appears tending to show she was not served. The very act of naming a guardian ad litem involves a declaration by the judge that the infant whose rights are to be protected had already been served with process. The statute did not authorize the appointment of a guardian until service had been made. Such service must be presumed from the action of the court in selecting the guardian. How guard the infant's rights if they were not in question? And how could they be brought in question if no service had been made? That the written evidence of this service does not appear is a matter of no moment. It may have been lost or may have been mislaid. It is enough that the court was empowered to determine this jurisdictional fact, and did so determine it by the appointment. That determination can no more be assailed collaterally, than can any other decree in the cause.

'We hold that whenever a judgment is given by a court having jurisdiction of the parties and of the subject-matter, the exercise of jurisdiction warrants the presumption in favor of the purchaser that the facts which were necessary to be proved to confer jurisdiction were proved.'

And in Voorhees v. Bank of the United States:

'There is no principle of law better settled than that every act of a court of competent jurisdiction shall be presumed to have been rightly done, till the contrary appears; and this rule applies as well to every judgment or decree, rendered in the various stages of their proceedings from the initiation to their completion, as to their adjudication that the plaintiff has a right of action. Every matter adjudicated becomes a part of their record; which thenceforth proves itself, without referring to the evidence on which it has been adjudged.'

Under this view, complete protection is afforded a purchaser at a judicial sale.

In the late case of McCauly v. Fulton, the Supreme Court of California said:

'It has been repeatedly held by this court that upon collateral attack recitals in the judgment of service on the defendant are conclusive of the position of jurisdiction of the person, when the judgment is rendered by a court of superior jurisdiction.'

Reply: None of the authorities cited sustain the theory that a judgment may be presumed valid from the fact that it exists. The authorities to the effect that recitals of the existence of jurisdictional facts are binding, do not apply, because there are no such recitals of service in this record. Furthermore, those authorities may be divided into three general classes:

1. Attachment cases, where the jurisdiction is acquired by the issuing of the writ of attachment and seizure of the rem; jurisdiction being thus acquired, no notice to the parties is necessary other than that given by the seizure.

This principle is illustrated in Cooper v. Reynolds.

2. Probate proceedings, which have always been held to be proceedings in rem, of which all the world is bound to take notice, without either personal or constructive service of summons.

3. Cases where, after jurisdiction over the person had been acquired, the jurisdictional question passed on was involved in the issues, or was one which the court had power to pass on; and having done so, and exercised the power, the matter determined had passed out of the region of jurisdiction and became res adjudicata so far as other courts were concerned, especially on a collateral attack.

Mr. Justice FIELD, after stating the facts of the case, delivered the opinion of the court as follows:

The Supreme Court of the State in its opinion, to which we are referred in the findings, speaks of its decision as though there were two separate decrees before it; but this is an evident inadvertence, as there was but one decree, and that was reversed for the reasons assigned as applying to proceedings in the separate suits before their consolidation. After the reversal of the decree it is possible that the suits proceeded independently of each other as before their consolidation, until the dismissal disposed of them entirely.

The defendant relies upon the validity of the decree of the District Court, notwithstanding its subsequent reversal, to uphold the commissioner's sale and deed. Her position is this: that the District Court of the State was a court of general jurisdiction; that being such it is presumed to have had jurisdiction both of the subject-matter and persons which authorized the rendition of the decree in question; that such presumption is conclusive, and the validity of the decree cannot be callaterally attacked by any matter outside of the record, and that, therefore, the sale made under the decree before it was reversed is not affected by the reversal.

The position of the defendant was sustained by the Circuit Court. 'The record in the consolidated action,' says that court, 'is here attacked collaterally, and not on appeal, or in a direct proceeding of any kind to reverse, set aside, or vacate the decree. The rule is different in the two cases. When attacked collaterally it is not enough that the record does not affirmatively show jurisdiction, but, on the contrary, it must affirmatively show that the court did not have jurisdiction, or the decree will be valid until reversed on appeal, or vacated on some direct proceeding taken for that purpose.'

If the rule as thus stated were universally true it would not support the decree in the case at bar, for the record in the consolidated action does affirmatively show that the District Court never acquired jurisdiction over the person of Franklina C. Gray in one of the actions; and, therefore, had no more authority to appoint a guardian ad litem for her in that action than it had to appoint attorneys for the other defendants. That record embraces the judgment of the appellate court as well as the decree of the District Court; and it contains an express adjudication of the appellate court to that effect. The record of itself establishes, therefore, the invalidity of the decree. The adjudication of the appellate court constitutes the law of that case upon the points adjudged, and is binding upon the Circuit Court and every other court when brought before it for consideration. The Circuit Court possesses no revisory power over the decisions of the Supreme Court of the State, and any argument to show that that court mistook the law and misjudged the jurisdictional fact would have been out of place. There were no facts before the Circuit Court which were not before the Supreme Court of the State when its judgment was pronounced.

But the rule of law as stated by the Circuit Court is not universally true. It is subject to many exceptions and qualifications, and has no application to the case at bar.

It is undoubtedly true that a superior court of general jurisdiction, proceeding within the general scope of its powers, is presumed to act rightly. All intendments of law in such cases are in favor of its acts. It is presumed to have jurisdiction to give the judgments it renders until the contrary appears. And this presumption embraces jurisdiction not only of the cause or subject-matter of the action in which the judgment is given, but of the parties also. The former will generally appear from the character of the judgment, and will be determined by the law creating the court or prescribing its general powers. The latter should regularly appear by evidence in the record of service of process upon the defendant or his appearance in the action. But when the former exists the latter will be presumed. This is familiar law, and is asserted by all the adjudged cases. The rule is different with respect to courts of special and limited authority; as to them there is no presumption of law in favor of their jurisdiction; that must affirmatively appear by sufficient evidence or proper averment in the record, or their judgments will be deemed void on their face.

But the presumptions, which the law implies in support of the judgments of superior courts of general jurisdiction, only arise with respect to jurisdictional facts concerning which the record is silent. Presumptions are only indulged to supply the absence of evidence or averments respecting the facts pesumed. They have no place for consideration when the evidence is disclosed or the averment is made. When, therefore, the record states the evidence or makes an averment with reference to a jurisdictional fact, it will be understood to speak the truth on that point, and it will not be presumed that there was other or different evidence respecting the fact, or that the fact was otherwise than as averred. If, for example, it appears from the return of the officer or the proof of service contained in the record, that the summons was served at a particular place, and there is no averment of any other service, it will not be presumed that service was also made at another and different place; or if it appear in like manner that the service was made upon a person other than the defendant, it will not be presumed, in the silence of the record, that it was made upon the defendant also. Were not this so it would never be possible to attack collaterally the judgment of a superior court, although a want of jurisdiction might be apparent upon its face, the answer to the attack would alway be that, notwithstanding the evidence or the averment, the necessary facts to support the judgment are presumed.

The presumptions indulged in support of the judgments of superior courts of general jurisdiction are also limited to jurisdiction over persons within their territorial limits, persons who can be reached by their process, and also over proceedings which are in accordance with the course of the common law.

The tribunals of one State have no jurisdiction over the persons of other States unless found within their territorial limits; they cannot extend their process into other States, and any attempt of the kind would be treated in every other forum as an act of usurpation without any binding efficacy. 'The authority of every judicial tribunal, and the obligation to obey it,' syas Burge, in his Commentaries, 'are circumscribed by the limits of the territory in which it is established.' 'No sovereignty,' says Story, in his Conflict of Laws, 'can extend its process beyond its own territorial limits, to subject either persons or property to its judicial decisions. Every exertion of authority of this sort beyond this limit is a mere nullity, and incapable of binding such persons or property in any other tribunals.' And in Picquet v. Swan, the same learned justice says: 'The courts of a State, however general may be their jurisdiction, are necessarily confined to the territorial limits of the State. Their process cannot be executed beyond those limits; and any attempt to act upon persons or things beyond them would be deemed a usurpation of foreign sovereignty, not justified or acknowledged by the law of nations. Even the Court of King's Bench, in England, though a court of general jurisdiction, never imagined that it could serve process in Scotland, Ireland, or the colonies, to compel an appearance, or justify a judgment against persons residing therein at the time of the commencement of the suit. This results from the general principle that a court created within and for a particular territory is bounded in the exercise of its powers by the limits of such territory. It matters not whether it be a kingdom, a state, a county, or a city, or other local district. If it be the former, it is necessarily bounded and limited by the sovereignty of the government itself, which cannot be extra-territorial; if the latter, then the judicial interpretation is that the sovereign has chosen to assign this special limit, short of his general authority.'

In Steel v. Smith, Mr. Chief Justice Gibson, of the Supreme Court of Pennsylvania, after referring to the citations we have made from the treatises of Burge and Story, says: 'Such is the familiar, reasonable, and just principle of the law of nations; and it is scarcely supposable that the framers of the Constitution designed to abrogate it between States which were to remain as independent of each other, for all but national purposes, as they were before the Revolution. Certainly it was not intended to legitimate an assumption of extra-territorial jurisdiction which would confound all distinctive principles of separate sovereignty.'

Whenever, therefore, it appears from the inspection of the record of a court of general jurisdiction that the defendant, against whom a personal judgment or decree is rendered, was, at the time of the alleged service, without the territorial limits of the court, and thus beyond the reach of its process, and that he never appeared in the action, the presumption of jurisdiction over his person ceases, and the burden of establishing the jurisdiction is cast upon the party who invokes the benefit or protection of the judgment or decree. This is so obvious a principle, and its observance is so essential to the protection of parties without the territorial jurisdiction of a court, that we should not have felt disposed to dwell upon it at any length, had it not been impugned and denied by the Circuit Court. It is a rule as old as the law, and never more to be respected than now, that no one shall be personally bound until he has had his day in court, by which is meant, until he has been duly cited to appear, and has been afforded an opportunity to be heard. Judgment without such citation and opportunity wants all the attributes of a judicial determination; it is judicial usurpation and oppression, and never can be upheld where justice is justly administered.

When, therefore, by legislation of a State constructive service of process by publication is substituted in place of personal citation, and the court upon such service is authorized to proceed against the person of an absent party, not a citizen of the State nor found within it, every principle of justice exacts a strict and literal complance with the statutory provisions. And such has been the ruling, we believe, of the courts of every State in the Union. It has been so held by the Supreme Court of California in repeated instances. In Jordan v. Giblin, decided in 1859, service of publication was attempted, and the court said that it had already held, 'in proceedings of this character, where service is attmpted in modes different from the course of the common law, that the statute must be strictly pursued to give jurisdiction. A contrary course would encourage fraud and lead to oppression.' In Ricketson v. Richardson, decided in 1864, the court, referring to the sections of the statute authorizing service by publication, said: 'These sections are in derogation of the common law, and must be strictly pursued in order to give the court jurisdiction over the person of the defendant. A failure to comply with the rule there prescribed in any particular is fatal where it is not cured by an appearance.' In McMinn v. Whelan, decided in 1866, the plaintiff in ejectment traced his title from one Maume. The defendants evdeavored to show that the title had passed to one of them under a previous judgment against Maume. This judgment was recovered against Maume and others, who were non-residents of the State, upon service of summons by publication. It appeared from the record that a supplemental complaint had been filed in the action, and that the summons published was issued upon the original complaint, and not after that had been superseded by the supplemental complaint. It was objected that the publication thus made was insufficient to give the court jurisdiction of the person of the absent defendants; the objection was answered by the position that the judgment could not be questioned collaterally for the reason that the jurisdiction of a court of general or superior jurisdiction would be presumed in the absence of evidence on the face of the record to the contrary. But the court held the objection well taken, and after refering to the case of Peacock v. Bell, in Saunders, said that that case 'involved the question of jurisdiction as to the subject-matter of the action and not as to the person of the defendant, and it may be doubted if a case can be found which sanctions any intendment of jurisdiction over the person of the defendant when the same is to be acquired by a special statutory mode without personal service of process. If jurisdiction of the person of the defendant is to be acquired by publication of the summons in lieu of personal service, the mode prescribed must be strictly pursued.'

But it is said that the court exercises the same functions and the same power whether the service be made upon the defendant personally or by publication, and that, therefore, the same presumption of jurisdiction should attend the judgment of the court in the one case as in the other. This reasoning would abolish the distinction in the presumptions of law when applied to the proceedings of a court of general jurisdiction, acting within the scope of its general powers, and when applied to its proceedings had under special statutory authority. And, indeed, it is contended that there is no substantial ground for any distinction in such cases. The distinction, nevertheless, has long been made by courts of the highest character, both in this country and in England, and we had supposed that its existence was not open to discussion. 'However high the authority to whom a special statutory power is delegated,' says Mr. Justice Coleridge, of the Queen's Bench, 'we must take care that in the exercise of it the facts giving jurisdiction plainly appear, and that the terms of the statute are complied with. This rule applies equally to an order of the Lord Chancellor as to any order of Petty Sessions.'

'A court of general jurisdiction,' says the Supreme Court of New Hampshire, 'may have special and summary powers, wholly derived from statutes, not exercised according to the course of the common law, and which do not belong to it as a court of general jurisdiction. In such cases, its decisions must be regarded and treated like those of courts of limited and special jurisdiction. The jurisdiction in such cases, both as to the subject-matter of the judgment, and as to the persons to be affected by it, must appear by the record; and everything will be presumed to be without the jurisdiction which does not distinctly appear to be within it.'

The qualification here made that the special powers conferred are not exercised according to the course of the common law is important. When the special powers conferred are brought into action according to the course of that law, that is, in the usual form of common-law and chancery proceedings, by regular process and personal service, where a personal judgment of decree is asked, or by seizure or attachment of the property where a judgment in rem is sought, the same presumption of jurisdiction will usually attend the judgments of the court as in cases failling within its general powers. Such is the purport of the language and decision of this court in Harvey v. Tyler. But where the special powers conferred are exercised in a special manner, not according to the course of the common law, or where the general powers of the court are exercised over a class not within its ordinary jurisdiction upon the performance of prescribed conditions, no such presumption of jurisdiction will attend the judgment of the court. The facts essential to the exercise of the special jurisdiction must appear in such cases upon the record.

The extent of the special jurisdiction and the conditions of its exercise over subjects or persons necessarily depend upon the terms in which the jurisdiction is granted, and not upon the rank of the court upon which it is conferred. Such jurisdiction is not, therefore, the less to be strictly pursued because the same court may possess over other subjects or other persons a more extended and general jurisdiction. Upon this subject the commentators on Smith's Leading Cases, after referring to numerous decisions holding that in such cases the record must show a compliance with the provisions of the statutes conferring the special jurisdiction, very justly observe that, 'the inconveniences which may occasionally result from this course of decision are more than compensated by the lesson which it teaches, that from whatever source power may come it will fail of effect when unaccompanied by right.'

In the supplemental complaint filed in the action of Gray v. Eaton and others, and in the original complaint of Eaton v. Palmer, the absence of Franklina from the State and her residence in another State are alleged. The record in the two actions, and of course in the consolidated action, shows that she was thus beyond the reach of the process of the court. All presumption of jurisdiction over her person by the District Court, which otherwise might have been indulged, is thus repelled, and it remains for the defendant to show that by the means provided by statute such jurisdiction was obtained. The statute provides, in case of absent and non-resident defendants, for constructive service of process by publication. It requires an order of the court or judge before such publication can be made; it designates the facts which must exist to authorize the order, the manner in which such facts must be made to appear, the period for which publication must be had, and the mode in which the publication must be established. These provisions, as already stated, must be strictly pursued, for the statute is in derogation of the common law. And the order, which is the sole authority for the publication, and which by statute must prescribe the period and designate the paper in which the publication is to be made, should appear in the record with proof of compliance with its directions, unless its absence is supplied by proper averment. If there is any different course of decision in the State it could hardly be expected that it would be followed by a Federal court, so as to cut off the right of a citizen of another State from showing that the provisions of law, by which judgment has been obtained against him, have never been pursued.

The provisions mentioned were not strictly pursued with respect to the infant defendant. There were various omissions and irregularities in the proceedings taken which prevented the jurisdiction over her from ever attaching. It is unnecessary to specify them, as the effect of some of them has been the subject of judicial determination by the Supreme Court of the State. That court has adjudged that no sufficient service was ever made upon her, and that until such service no guardian ad litem could be appointed for her; and that adjudication is conclusive. It follows that the decree against her, and all proceedings founded upon such decree, so far as her rights are concerned, necessarily fall to the ground. Judgment without jurisdiction is unavailing for any purpose.

The decree being thus reversed, the title acquired by Page, the purchaser at the commissioner's sale, falls with it. He was one of the attorneys of the plaintiff Gray, and the law imputes to him knowledge of the defects in the proceedings, which were taken under his direction and that of his copartners, to obtain service upon the infant. The conveyance by him of an undivided half to his law partner, also one of the plaintiff's attorneys, was made after the decree of the District Court had been reversed for want of jurisdiction over the infant. The partner also took his interest with knowledge of this defect. The protection which the law gives to a purchaser at judicial sales is not extended in such cases to the attorney of the party, who is presumed to be cognizant of all the proceedings.

In many of the States it is the law that a purchaser at a judicial sale loses his title upon a reversal of the judgment or decree under which the sale was made, where such purchaser is a party to the judgment or decree. In Reynolds v. Harris it was held by the Supreme Court of California that, where a plaintiff bought property under a judgment, he must restore it to the defendant on a reversal of the judgment; the court observing, after citing several cases, that the current of authority, broken only by a case or two, went 'directly to the point that a party obtaining through the judgment before reversal any advantage or benefit, must restore what he got to the other party, after the reversal.' The writer of this opinion endeavored to combat this doctrine in a case in the Circuit Court of the United States, where a purchase had been made under a decree in that court for the enforcement of a mechanic's lien. In that case the complainant was mentioned in the decree as a possible bidder, and provision was made for crediting his bid on the amount adjudged due to him. On a reversal of the decree the court sustained the sale, and endeavored in its opinion to show that on principle the same protection should extend to purchasers under judgments and decrees when parties as when strangers. The law, however, of the State does not appear, so far as we are enabled to discover from the decisions of its Supreme Court, to have been changed since the decision in Reynolds v. Harris. And according to that law the purchasers being the attorneys of the parties, and standing in the same position as the parties, could not maintain their title independent of any defects of jurisdiction in the proceedings.

The same doctrine prevails in Missouri. 'The restitution,' says the Supreme Court of that State, 'to which the party is entitled upon the reversal of an erroneous judgment, is of everything which is still in the possession of his adversary. Where a man recovers land in a real action, and takes possession or acquires title to land or goods by sale under execution, and the judgment is afterwards reversed, so far as he is concerned his title is at an end, and the land or goods must be restored in specie; not the value of them, but the things themselves. There is an exception where the sale is to a stranger bon a fide, or where a third person has bon a fide acquired some collateral right before the reversal.' The same doctrine is asserted in McJilton v. Love, by the Supreme Court of Illinois, and is there stated to be well established by authority, and numerous cases in support of the position are cited. In New York the doctrine would seem to be settled in the same way. As this case must go back for a new trial, this position can be more fully considered than it appears to have been by the court below.

The defendant in this case acquired her interest, one-half, by devise from the purchaser, Page; and the other half by conveyance from one of the attorneys years after the reversal of the decree.

It follows that the judgment must be REVERSED, AND THE CAUSE

REMANDED FOR A NEW TRIAL.

DAVIS, J., did not sit in the case, and took no part in its decision.

title: Galpin v. Page/Opinion of the Court


text: Talk:Galpin v. Page/Opinion of the Court

license: Creative Commons - Attribution Share-Alike - https://creativecommons.org/licenses/by-sa/4.0/


text:
Tiffany v. Boatman's Institution

APPEAL from the Circuit Court for the District of Missouri; the case being thus:

There was living in St. Louis in 1869, and for many years previously, a person named Darby, originally, as it seemed, a member of the bar, but who afterwards entered into various sorts of business, including, as a chief one, that of an exchange broker and a so-called 'banker.' He had no capital worth speaking of, when he entered into them, nor any considerable cash means at any time. He was always scheming, and as respected ready money always more or less embarrassed. He was, however, regarded as a man of wonderful energy and capacity for business, and though 'suspending' in seasons of fiscal embarrassment, would manage to get on his feet again when the monetary crisis would be passed, and so go on anew. In this way he managed to work along for many years, never at any time being broken up. In 1868 he found himself with large property and with large debts-these being due to a considerable number of creditors, not a few of them by deposit with him as a banker-and all the time needing ready money in order to keep up appearances and to save himself from open failure. Whether he was at this time, in fact, insolvent was a matter about which different people differed. For the purposes of this case, he was conceded by the court to have been so; though it seemed that he never so regarded himself.

There existed at the same time in St. Louis, and in the later part of Darby's career, a corporation called the Boatman's Savings Institution, a company authorized by its charter to lend money. The charter, however, forbade the institution to lend at more than 8 per cent. for any loan; but prescribed no penalty, nor declared what should otherwise follow as a consequence for lending at higher rates.

The general statutes of Missouri concerning interest, declares that no person shall receive more than 10 per cent. The act proceeds:

'SECTION 5. If any action or suit shall hereafter be commenced upon any bond, note, mortgage, specialty, agreement, contract, promise or assurance whatever, which shall be made within this State, the defendant may in his answer show that a higher or greater rate of interest than 10 per cent. per annum was therein or thereby agreed for, or received or taken; and if the answer of the defendant to any such suit shall be sustained by the verdict of a jury, or the finding of the court, the court shall render judgment on such verdict or finding for the real sum of money or price of the commodity actually lent, advanced or sold, and interest on the same at the rate of 10 per centum per annum; upon which judgment the court shall cause an order to be made, setting apart the whole interest for the use of the county in which such suit may be brought, for the use of common schools; and the same, when collected, shall be paid over accordingly, and go to and form a part of the common school fund of such county; and the defendant may recover his costs.'

With these provisions by way of penalty, the whole subject seemed to end; and if the debtor voluntarily paid the money borrowed no penalties were prescribed.

Among Darby's borrowings of money, were two with the Boatman's Institution.

The first was in this way. The county of St. Louis wishing to build a jail issued proposals for sale of its bonds, which for convenience were to be issued in sums of $1000 each. Darby took one hundred and fifty of them ($150,000), at rates considerably below par, and borrowed the money to pay the county from the National Bank of Missouri; pledging the bonds as security collateral to his notes for the sum borrowed. For some reason not specifically disclosed, Darby after a certain time wished to pay his debt to this bank. In this condition of things, one Hogeman, the cashier of the Boatman's Institution, offered, in behalf of the institution, to lend him, at 10 per cent. interest, $135,000 (with which sum he could withdraw the bonds then in pledge with the National bank), and to take the bonds as collateral security for a note which Darby should give; Darby to have full power to sell the bonds from time to time at his own price; the amount received to be credited on his note. This arrangement was completed, that is to say Darby gave his note for $135,000, at 10 per cent., to the institution, withdrew the bonds from the National Bank of Missouri, deposited them with the institution, sold them at such rates as he saw good fair ones-and by which (throwing out of consideration the usurious rates that he paid for money) he rather gained than lost, and with the proceeds paid his note to the institution with the 10 per cent. interest.

Next, as to the other of the two transactions abovementioned; this other, however, being rather a series of transactions, six in number, than a single one.

As already said, Darby was always embarrassed for ready money; always borrowing, and always wanting to borrow. As a banker his creditors by deposit amounted to $170,000, while he seldom or never had more than about $5000 to meet their drafts. To meet these and other claims he was constantly raising money through street-brokers, especially through one named Stagg. Darby, generally speaking, would come to him for money, proposing to draw notes which should be indorsed by Messrs. Brotherton & Knox, gentlemen of known character and means, for the amount wanted. Stagg would then go to the Boatman's Institution, see the cashier, and learn whether the institution was disposed to lend the amount wanted. If the reply was in the affirmative, Darby would draw and sign a note, Messrs. Brotherton & Knox would indorse it, Stagg would take it and get the money, deduct his broker's commission, and pass the balance to Darby. This sort of operation was carried on for a certain time, the Boatman's Institution at the end of it, that is to say in January, 1869, being the holder of six notes for $5000 each, which, with interest on them, at rates never less than 10 per cent., and sometimes near 18 per cent., were paid, by a sale of certain real property of Darby's, made in April, 1869, through the agency of Hogeman.

Before the 17th of June, of the year just mentioned, Darby had become too notoriously embarrassed to go on longer with his business; and at a meeting of his creditors held on that day he was told by one of them that he must file his petition to be adjudged a bankrupt, or that he would be forced into bankruptcy. He did accordingly file such his petition, on the 1st of July, and on the 12th was adjudged a bankrupt, one Tiffany being appointed his trustee.

Hereupon Tiffany, as such trustee, filed a bill in the court below against the Boatman's Institution to recover from it, as having been lent at usurious rates and in violation of the Bankrupt Act, the moneys which it had lent to Darby, that is to say, the $135,000, for which he had given the one note, and the $30,000 for which he had given the six notes, and both and all of which loans, as already said, Darby and paid. The provisions of the Bankrupt Act relied on were certain ones in the thirty-fifth section, thus:

'And if any person, being insolvent or in contemplation of insolvency or bankruptcy, within six months before the filing of the petition. . . makes any payment, sale, assignment, transfer, conveyance, or other disposition of any part of his property to any person who then has reasonable cause to believe him to be insolvent. . . and that such payment, sale, assignment, transfer, or other conveyance is made with a view to prevent his property coming to his assignee in bankruptcy, or to prevent the same being distributed under this act. . . the sale, assignment, transfer, or conveyance shall be void and the assignee may recover the property or the value thereof as assets of the bankrupt.'

The bill did not ask for a decree for the excess of interest reserved and taken, over lawful rates, but asked for all the money lent to Darby and repaid by him. The grounds on which it proceeded were apparently these:

I. That at the time of the making of all these notes and of the payments on and of them, Darby was insolvent, and that both he and the Boatman's Institution had cause to know, and did know, that fact; that the payments were thus made with an intent to give the defendant a preference over other creditors, and in violation of the provisions of the Bankrupt Act, and were received with knowledge that such preference was intended and given; and finally, that such violation and fraud was contemplated and accomplished.

II. That the general statute of Missouri declaring the effects of usury and diverting the interest from the lender but saving the principal to him, applied only to 'persons,' that is to say, to natural persons, and did not include corporations; that therefore loans by corporations at rates forbidden by law-usurious loans-stood upon general principles; and being illegal were wholly void; that applying these principles—

1st. To the case of the $135,000, evidenced by the one note; that the loan being illegal and not anything which the law would regard as a loan, the note given as evidence of it was void, and the attempted transfer of jail-bonds as security no valid transfer; that therefore there was in law no security held by the Boatman's Institution for the note of $135,000; that accordingly any payments made to the Boatman's Institution stood upon the same ground as any other payments made by an insolvent debtor to an unsecured creditor.

2d. To the case of the $30,000, evidenced by the six notes; that the money had undoubtedly been lent to Darby, and was known by the Boatman's Institution (Hogeman's, its cashier's, knowledge being its knowledge) to have been so; that the loan being at above 8 per cent. it was void, and the payments, transfers, or gifts of money without consideration.

III. That independently of these general principles, the matter of the $135,000 was specially open to censure; that the manner in which the subject of the jail-bonds, given for the purpose of securing the $135,000, had been arranged by Darby and the company (Darby taking the bonds from the National Bank of Missouri, where he had them on just the same sort of loan as he was about to put them with the Boatman's Institution, except apparently that the bank would not let him appear as owner of them and sell them, and being allowed to put them in the Boatman's Institution on pledge, and yet to manage as his own and sell them as if he were absolute owner), gave to him a fictitious credit and enabled him to defraud his creditors. The special form of the transaction thus involved the Boatman's Institution in complicity with his fraudulent intent.

That though equity might not enable Darby, he being a party to the unlawful dealings, to recover what he had once voluntarily paid, it would enable his assignee under the Bankrupt Act, who was acting for creditors, and was therefore not to be affected by Darby's complicity in the unlawful arrangements, when its effect was to injure them.

The bill was resisted on various grounds, including the one that the general statute of Missouri about usury did apply to corporations, a position for which The Bank of Louisville v. Young was cited, as also a provision in the General Statutes 'on the construction of statutes,' in which it was thought to be declared that under the term 'person' corporations were included; and that for the rest, equity would not enable the assignee of a bankrupt to pay even the bankrupt's just debts, out of other men's money, because the bankrupt had borrowed money at illegal rates and repaid it, and that the most it would do would be to put him where he would have been had he paid no more than lawful interest; that is to say, would enable him to recover the surplus.

The court below thought that the first transaction-that of the $135,000-it being a transaction directly with Darby-was unlawful so far as concerned any interest above 8 per cent., the lawful rate, but that it was lawful for the residue. While, as to the other transaction or series of transactions-the transaction or transactions about the six notes of $5000 each, $30,000 in all assuming, as the court did, that none of these loans were to Darby directly, but were purchases by the Boatman's Institution in the market of negotiable paper, made by Darby to third parties, by them indorsed, and which the institution might naturally believe that such third parties had thrown on the market for their own purposes-it held that there was nothing unlawful-not even the excess of interest-in them.

From a decree to this effect and from a ruling which had excluded certain evidence tending to prove Darby's insolvency at the time of the transactions, the assignee took this appeal.

Messrs. E. R. Hoar and S. Knox, for the assignee in bankruptcy, appellant; Mr. T. T. Gantt, contra.

Mr. Justice DAVIS delivered the opinion of the court.

title: Tiffany v. Boatman's Institution


text: Talk:Tiffany v. Boatman's Institution

title: Talk:Tiffany v. Boatman's Institution


text:
Tiffany v. Boatman's Institution/Opinion of the Court

The general statute of Missouri concerning usury allows an individual to receive ten per cent. per annum interest for the loan of money; but, if more be taken and suit is brought to enforce the contract, and the plea of usury be interposed, the whole interest is forfeited to the proper county for the use of schools. The debtor is not released from his obligation to pay, but the interest is diverted from the parties and appropriated for school purposes. If, however, the borrower suffers judgment to go against him, without pleading usury, or if, without suit, he pays the usurious interest, he cannot, either at law or in equity, maintain an action for its repayment. This was settled in Ransom v. Hays, and affirmed in Rutherford v. Williams, and these decisions would be conclusive of this controversy, unless it is affected by the Bankrupt law, if the legislature intended the general provisions of this act to apply to loans by artificial as well as natural persons, although the former might be restricted to a less rate of interest than the latter. It is contended by the defendant that this act was meant to apply to corporations, and that if a bank, discounting a note in the course of business, commits usury, it is subject to precisely the same consequences with an individual. On the other hand, the complainant insists that the legislature did not intend in this matter to place corporations on the same footing with natural persons, and cites in support of this position The Bank of Louisville v. Young. But the facts of that case did not involve the construction of a contract made by a corporation created by an act of the legislature of Missouri. The point decided there was that a note given to secure a loan made in foreign bank notes by a foreign corporation doing business by an agent in St. Louis, contrary to the provisions of an act to prevent illegal banking, was void.

We have been referred to no case in the courts of Missouri, nor are we aware of any, in which the question has been directly presented whether the general law relating to usury applies to and has the same effect upon a contract made in violation of its charter by a bank as upon a contract made by an individual. The question is one of great importance to the business interests of that State, and may be far-reaching in its consequences, and as it is not necessary to decide it in order to dispose of this case, in accordance with the principle on which the Circuit Court placed its decree we prefer to leave its decision to the State tribunals. Assuming, then, that this defendant is not within the purview of the general usury statute of the State, what are the consequences that must attach to it for taking excessive interest from Darby? The bill proceeds on the idea that the provision of the charter being violated all the loans to Darby were ultra vires and void, and as they were made to him within four and six months of his adjudication as a bankrupt, with the knowledge of the defendant during the whole course of its dealing with him that he was insolvent, the complainant has, in his character of trustee, the right to recover for the use of his trust all the sums of money paid to the defendant by Darby, because paid in fraud of the Bankrupt Act.

The defendant is by its charter authorized to lend money on interest, but is forbidden to exact more than 8 per cent. for the loan. No penalty is prescribed for transgressing the law, nor does the charter declare what effect shall be given to the usurious contract. This effect must, therefore, be determined by the general rules of law. The modern decisions in this country are not uniform on the question whether, if the bank takes more than the rate prescribed, the contract shall be avoided or not on these general rules; nor is this a matter of surprise if we consider the growing inclination to construe statutes against usury so as not to destroy the contract. It is, however, unnecessary to review these cases, or the earlier ones in England and this country, which uniformly hold that the contract is avoided, because this court has in the case of The Bank of the United States v. Owens, decided the question. The bank in that case brought suit upon a promissory note that was discounted at a higher rate of interest than 6 per cent., which was the limit allowed by its charter upon its loans or discounts. The charter, like that of the Boatman's Institution, did not declare void any contract transcending the permitted limits, nor affix any penalty for the violation of the law. It was contended in that case, as it has been in this, that a mere prohibition to take more than a given per cent. does not avoid a contract reserving a greater rate, and that when a contract is avoided, it is always in consequence of an express provision of law to that effect. But the court held otherwise, and decided that such contracts are void in law upon general principles; 'that there can be no civil right where there is no legal remedy, and there can be no legal remedy for that which is illegal.' Chief Justice Taney, in the Maryland circuit, as late as 1854, in a similar case, held similar views, and supported them by the decision in this case. It must, therefore, be accepted as the doctrine of this court, that a contract to do an act forbidden by law is void, and cannot be enforced in a court of justice.

But it does not follow in cases of usury, if the contract be executed, that a court of chancery, on application of the debtor, will assist him to recover back both principal and interest. To do this would be to aid one party to an illegal transaction and to deny redress to the other. Courts of equity have a discretion on this subject, and have prescribed the terms on which their powers can be brought into activity. They will give no relief to the borrower if the contract be executory, except on the condition that he pay to the lender the money lent with legal interest. Nor, if the contract be executed, will they enable him to recover any more than the excess he has paid over the legal interest. In recognition of this doctrine the court below rendered a decree for the excess of interest over 8 per cent. per annum exacted of Darby on the note for $135,000, and dismissed the bill as to all other claims.

The six accommodation notes, which the defendant alleges were purchased from note brokers, were really taken on loans to Darby, and the illegal interest received above 8 per cent. on them should, on the principle of that decree, be refunded, as much as that upon the larger note. It is true that usury is only predicable of an actual loan of money, and equally true that a negotiable promissory note, if a real transaction between the parties to it, can be sold in the market like any other commodity. The real test of the salability of such paper is whether the payee could sue the maker upon it when due. He could do this if it was a valid contract when made, otherwise not. Mere accommodation paper can have no effective or legal existence until it is transferred to a bon a fide holder. It follows, then, that the discounting by a bank at a higher rate of interest than the law allows of paper of this character, made and given to the holder for the purpose of raising money upon it, in its origin only a nominal contract, on which no action could be maintained by any of the parties to it if it had not been discounted, is usurious, and not defensible as a purchase. The point was decided in New York at an early day, and this decision recognized and approved by this court in Nichols v. Fearson, and the general current of decision is in the same direction.

There are cases which hold that the purchaser of such paper is protected, if he took it in good faith of the holder, without knowledge of its origin, and in the belief that it was created in the regular course of business. Whether this limitation of the rule be correct or not, it is not important to inquire, as the decision of the question under consideration does not rest upon it.

The six notes which are the basis of the transaction complained of, were executed by Darby, solely for the purpose of raising money upon them, indorsed by Brotherton & Knox for his accommodation, and delivered by him to Stagg and other street brokers to be negotiated. This negotiation was effected with the Boatman's Institution, and it is perfectly manifest that the cashier, in purchasing the paper, did not suppose he was advancing the money for the benefit of the brokers who held them, or of Brotherton & Knox, who indorsed them. They were doubtless purchased because the security was deemed sufficient, but it is impossible to conceive that the cashier did not know the paper to be of that class called accommodation, as it is conceded that Brotherton & Knox were gentlemen of large pecuniary ability, and had no occasion to go upon the street to get paper held by them bon a fide, against Darby or any one else, discounted. Indeed, Stagg says the notes were negotiated for Darby's benefit, and explains in some instances how it was done. Darby would apply to him for money on his paper, and he would go to the Boatman's Institution to see if the cashier would taken, it, and if the reply was in the affirmative, the paper would be made, taken to the bank, and the money obtained on it. Can any rational person suppose, in the absence of any direct evidence, that the cashier in dealing with Stagg thought he was dealing with the owner of the notes? The presumption is that street brokers act for others, not themselves, and that the cashier was well acquainted with this course of business. If so, he knew, or ought to have known, that Darby wanted the money, and that the paper was made to enable him to get it, and for no other purpose. This being the case, the transaction can be viewed in no other light than as a loan of money directly to Darby, and as he paid more than 8 per cent. for its use, the Circuit Court erred in not ordering the excess to be refunded.

The remaining question to be considered is, whether, in this case, the rights of the trustee are greater than those of Darby. It is certainly true, in very many cases, he can do what the bankrupt could not, because he represents the creditors of the insolvent. If, for instance, the bankrupt should create a trust which was designed to conceal his property from creditors, although equity would not lend its aid to him to enforce the trust, it would to his assignee for the benefit of creditors. And many other examples might be cited in illustration of the rule, but it would be a waste of labor to do so. The point is whether, under the facts of this case, the bill will lie to recover back both principal and interest paid on the loans by Darby, when, as we have seen, if he had not been declared a bankrupt, and had filed it in his own behalf he could have only recovered the excess of interest paid beyond the charter rate.

It is very clear if the loans in controversy had been made at legal rates, and were not fraudulent in fact, they could not be impeached. There is nothing in the Bankrupt law which interdicts the lending of money to a man in Darby's condition, if the purpose be honest and the object not fraudulent. And it makes no difference that the lender had good reason to believe the borrower to be insolvent if the loan was made in good faith, without any intention to defeat the provisions of the Bankrupt Act. It is not difficult to see that in a season of pressure the power to raise ready money may be of immense value to a man in embarrassed circumstances. With it he might be saved from bankruptcy, and without it financial ruin would be inevitable. If the struggle to continue his business be an honest one, and not for the fraudulent purpose of diminishing his assets, it is not only not forbidden, but is commendable, for every one is interested that his business should be preserved. In the nature of things he cannot borrow money without giving security for its repayment, and this security is usually in the shape of collaterals. Neither the terms nor policy of the Bankrupt Act are violated if these collaterals be taken at the time the debt is incurred. His estate is not impaired or diminished in consequence, as he gets a present equivalent for the securities he pledges for the repayment of the money borrowed. Nor in doing this does he prefer one creditor over another, which it is one of the great objects of the Bankrupt law to prevent. The preference at which this law is directed can only arise in case of an antecedent debt. To secure such a debt would be a fraud on the act, as it would work an unequal distribution of the bankrupt's property, and, therefore, the debtor and creditor are alike prohibited from giving or receiving any security whatever for a debt already incurred if the creditor had good reason to believe the debtor to be insolvent. But the giving securities when the debt is created is not within the law, and if the transaction be free from fraud in fact, the party who loans the money can retain them until the debt is paid. In the administration of the bankrupt law in England this subject has frequently come before the courts, who have uniformly held that advances may be made in good faith to a debtor to carry on his business, no matter what his condition may be, and that the party making these advances can lawfully take securities at the time for their repayment. And the decisions in this country are to the same effect. Testing this case by this rule, there is no difficulty about it on the theory that the loans were not made in excess of lawful interest.

There is nothing to invalidate the jail-bond transaction. If it was unwise in Darby to purchase these bonds the defendant did not advise it, and is not, therefore, chargeable with the fictitious credit which, it is alleged, he obtained by reason of the purchase. So far as the evidence shows the purchase was accomplished before the defendant knew of it. It is a fair inference of fact that the National Bank of Missouri was tired of carrying the loan which Darby made of it in order to buy the bonds, and that the effect of the loan from this defendant was to prevent their sacrifice. At any rate the creditors of Darby were not harmed by the transaction, for the bonds when sold realized more than they cost; nor was any wrong intended by Darby. The money was not borrowed to conceal it from creditors, but to take valuable securities out of pledge. This Darby had the right to do, and the defendant in helping him to do it was guilty of no fraud on creditors, nor was any contemplated. On the contrary, so far as we can see, the creditors were benefited by the substitution of the Boatman's Institution for the National Bank of Missouri. At all events Darby's estate was is no wise impaired by the transaction. The securities were valid in the hands of the defendant, and Darby could lawfully apply the proceeds arising from their sale to repay the advances made by it.

If the six accommodation notes had been discounted at legal rates the loan would have been equally unimpeachable. Conceding that the bank had good reason to believe Darby to be insolvent, the proceeding, as we have seen, was not necessarily fraudulent as a matter of law, and there is nothing in the evidence to show that it was fraudulent in fact. The loans were not made to defeat creditors or delay them, or to conceal property from them, nor was such their effect. The paper on which they were based was taken as other paper with good indorsers is taken in the regular course of business. There is no evidence that the money was used improperly, or that the bank supposed it would be. Darby, doubtless, raised the money hoping to be able to go on with his business; not to defeat his creditors, but to pay them.

If it were clear at the time to his mind that he could overcome his difficulties (as we think it was), notwithstanding the real state of his affairs did not justify the belief, his conduct was not in fact fraudulent, nor is it condemned by any provision of the Bankrupt law.

Does the fact, then, that the interest reserved on the notes in controversy exceeded the charter rate, change these transactions, which were lawful if not tainted with usury, so that the trustee can recover back the whole sum; when, as we have seen, Darby, if suing personally, could only recover the excess? We think not. The trustee in this matter has no larger interest than the bankrupt. The estate of Darby is diminished, by reason of his dealings with this defendant, to no greater extent than the usurious interest which he has paid. This the trustee should obtain as proper assets to be administered, but to allow him to get what he asks, would be to transfer to the creditors of Darby, a sum of money exceeding $150,000, which he never owned, by way of punishment of the bank for taking excessive interest. A court of equity does not deal with contracts affected with usury in this way. The relief it gives is always based on the idea that the money borrowed with legal interest shall be paid.

We have not considered the point raised about the exclusion of evidence, because, at the most, the evidence, if admitted, would only have been cumulative on the subject of Darby's insolvency and the defendant's knowledge; and we have treated the case on the theory that the officers of the institution knew, when they made the loans and received payment of them, that Darby was insolvent.

The case will have to go back for the purpose of enabling the Circuit Court to ascertain in some proper way the excess of interest over the charter rate paid on the six accommodation notes, and to enlarge the decree so as to cover that sum. In all other respects the disposition of this case by the Circuit Court was correct.

DECREE REVERSED, and the cause remanded with directions to proceed.

IN CONFORMITY WITH THIS OPINION.


text: Talk:Tiffany v. Boatman's Institution/Opinion of the Court


text:
Trask v. Maguire

APPEAL from the Circuit Court for the District of Missouri; in which court Trask filed a bill against Maguire, collector of State and county taxes at St. Louis, to restrain him from collecting taxes upon the property of the St. Louis and Iron Mountain Railroad Company, a corporation organized in the State of Missouri, July 26th, 1867, and to have the property of the said company decreed exempt from liability to such taxes.

The case was this:

A general corporation law of Missouri, in force in 1845, thus ordained:

'The charter of every corporation that shall hereafter be granted by the legislature shall be subject to alteration, suspension, and repeal, at the discretion of the legislature.'

This provision of general law being in force, the legislature of Missouri, on the 3d of March, 1851, passed 'An act to incorporate the St. Louis and Iron Mountain Railroad Company.' The capital stock of the company was $6,000,000, and it was enacted that—

'The stock of said company shall be exempt from all State and county taxes.'

On the 17th of February, 1853, it was enacted that the railroad abovementioned as having been incorporated should be exempted from the provisions of the general corporation law already quoted. The statute further enacted:

'All the engines, cars, wagons, machines and other property belonging to said company, shall be deemed a part of the capital stock of the company, and shall be vested in the respective shareholders of the company forever, according to their respective shares, and transferable by them in the transfer of stock, as personal property.'

Subsequently to this, and to aid it in making the road, the State of Missouri lend to the company (in the shape of bonds, the principal and interest of which the company agreed to pay) a large sum of money. The act authorizing the transaction enacted that none of the bonds should be delivered to the company until it filed in the office of the secretary of state certificates of acceptance of them, executed under the corporate seal, &c. The act then proceeded:

'SECTION 4. Each certificate of acceptance so executed and filed as aforesaid, shall be recorded in the said office of the secretary to state, and shall thereupon become and be, to all intents and purposes, a mortgage of the road of the company executing and filing their acceptance, as aforesaid, and every part and section thereof, and its appurtenances, to the people of this State, for securing the payment of the principal and interest of the sums of money for which such bonds shall from time to time be issued and accepted.

'SECTION 11. In case the said companies, or either of them, shall make default in the payment of either interest or principal of the said bonds. . . it shall be lawful for the governor to sell their road and its appurtenances, by auction to the highest bidder, or to buy in the same at such sale for the use and benefit of the State, subject to such disposition in respect to such road or its proceeds as the legislature may thereafter direct.'

On the 4th of July, 1865, the State of Missouri adopted a new constitution of government. It contained the following provisions:

'No property, real or personal, shall be exempt from taxation, except such as may be used exclusively for public schools, and such as may belong to the United States, to this State, to counties, or to municipal corporations within the State.

'The General Assembly shall not pass any special laws. . . exempting the property of any named person or corporation from taxation.'

At the same time that it adopted this new constitution it adopted, in the separate form of AN ORDINANCE, entitled 'An ordinance for the payment of State and railroad indebtedness,' certain provisions which were to have 'full force and effect as a part of the constitution of the State.'

The ordinance was thus:

'SECTION 1. There shall be levied and collected from the Pacific Railroad, the North Missouri Railroad Company, and the St. Louis and Iron Mountain Railroad Company, an annual tax of 10 per centum of all their gross receipts for the transportation of freight and passengers. . . from the 1st of October, 1866, to the 1st October, 1868, and 15 per centum thereafter; which tax shall be appropriated by the General Assembly to the payment of the principal and interest now due, or hereafter to become due, upon the bonds of the State, and the bonds guaranteed by the State, issued to the aforesaid railroad companies.

'SECTION 3. The tax in this ordinance specified shall be collected from each company hereinbefore named only for the payment of the principal and interest on the bonds, for the payment of which such company shall be liable; and whenever such bonds and interest shall have been fully paid, no further tax shall be collected from such company.

'SECTION 4. Should either of said companies refuse or neglect to pay said tax as herein required, and the interest or principal of any of said bonds, or any part thereof, remain due and unpaid, the General Assembly shall provide by law for the sale of the railroad and other property, and the franchises of the company that shall be thus in default, under the lien reserved to the State, and shall appropriate the proceeds of such sale to the payment of the amount remaining due and unpaid from said company.

'SECTION 5. Whenever the State shall become the purchaser of any railroad or other property, or the franchises sold as hereinbefore provided for, the General Assembly shall provide by law in what manner the same shall be sold, for the payment of the indebtedness of the railroad company in default; but no railroad or other property, or franchises purchased by the State, shall be restored to any such company until it shall have first paid. . . all interest due from said company; and no sale or other disposition of any such railroad or other property, or their franchises, shall be made without reserving a lien upon all the property and franchises thus sold or disposed of, for all sums remaining unpaid; and all payments therefor shall be made in money or in bonds or other obligations of this State.'

On the 1st of November, 1865-soon after the adoption of the new constitution and of this ordinance-the General Assembly met, and bills were introduced providing for the sale of several railroads, including the St. Louis and Iron Mountain, then in default on its obligations. Pending these bills, questions as to the effect of the ordinance arose in the mind of the governor, and on the 27th of the same month of November he propounded to the judges of the Supreme Court, as it was his right to do under the constitution of Missouri, certain interrogatories as to the operation of the ordinance, and among the rest one as follows:

'If you are of opinion that the sale of the railroads may be ordered before such refusal or neglect, I request you to say whether such sale can be made 'without reserving a lien upon all the property and franchises thus sold for all sums remaining unpaid,' as provided by section five of the ordinance. In other words: Does this clause in the ordinance constitute a condition of all sales of railroads ordered by the State, or does it refer only to sales made, under the ordinance, for refusal or neglect to pay the tax?'

To these questions the judges replied. In the course of their reply they say that one of the things provided for by the ordinance is a tax to pay the debts of the railroad companies to the State, and another thing provided for is, 'in what manner railroads purchased by the State under her lien shall be sold again;' that 'the fifth section relates to all sales of railroads under liens reserved to the State,' whether sold for the non-payment of the tax or for the nonpayment of the mortgage-debt. 'The fifth section,' say the judges, 'provides further that no sale or other disposition of any such railroad or other property, or their franchises, shall be made by the State without reserving a lien upon the property sold for all sums remaining unpaid-that is to say by the purchaser, and the purchaser is required to make all payments therefor in money, or in bonds, or other obligations of this State; but the legislature is left unrestricted further as to the time, terms, and conditions of sale.'

After this, that is to say, on the 16th of February, 1866, the legislature passed an act 'to foreclose the State lien and to secure the early completion of the road.'

By the act it was made the duty of the governor to advertise for sale the different roads in default, 'their appurtenances, rolling stock, and property of every description, and all rights and franchises.' A board of commissioners was to attend the sale, and on a contingency named purchase for the State. The commissioners, in case the State should purchase, were to give notice of their authority to sell, and to invite proposals to purchase. The governor, on a sale being made by the commissioners, was to make a deed to the purchaser, which, it was provided, should have 'the effect to convey, transfer, and make over to the purchaser said road and all of the franchises, privileges and rights, title and interests appertaining to the road.' And the act further provided, that the purchaser should acquire by his purchase 'all the rights, franchises, privileges, and immunities which were had and enjoyed by' the original corporation 'under the charter and the laws amendatory thereof.'

One month after the passage of the act just quoted, and pending proceedings thereunder for the sale of the road, another act was passed, approved March 20th, 1866, entitled, 'An act authorizing the incorporation of the purchaser or purchasers of any railroad, or of any part, section, or branch thereof, which has heretofore or may hereafter become forfeited to and sold by the State.' That act enacted thus:

'SECTION 4. Each corporation provided under this act shall have the same power, franchises, right, and privileges, and be subject to the same liabilities and restrictions as the corporation to which it shall become the successor may have had by its original charter, and the amendments thereto, into and over the property and franchises forfeited and sold aforesaid.'

At the sale, which the governor advertised, the State bought the railroad and its appurtenances in: and the commissioners sold it to three persons, who afterwards sold it to one Allen. Allen, availing himself of the privileges of the last above-quoted act, organized himself and certain other persons, including 'Trask, already named as the complainant below, into a new corporation having the name of the old one.

Hereupon the defendant, Maguire, a collector, as already said, of State and county taxes in Missouri, having sought to levy certain State and county taxes on this new corporation, Trask filed a bill in the court below to enjoin him, and that court dismissed the bill. Trask now appealed from that decree.

Messrs. B. R. Curtis and Drydens, for the appellant:

That the property of the original corporation was exempt from taxation is undeniable. It is nearly or quite as clear that if the purchaser at the sale which was made had been a private person, or a corporation-any purchaser other than the State-such purchaser would have held what he bought, equally exempt. The lien of the mortgage was 'on the road of the company, and every part and section thereof, and its appurtenances.' That by the word appurtenances it was meant at the time that all rights, franchises, privileges, and immunities should pass under the lien is hardly questionable. In any but a purely technical sense-the sense in which the word is used in a deed-appurtenances would certainly include them. They would certainly do so alike in the popular and in the legislative sense, and these are the only important senses to be considered here; for the transaction was between managers of a railroad and a body of legislators. The State expected to get and the road meant to give as a security all that it had. Why retain an immunnity from taxation when 'the road and every part and section thereof, and its appurtenances,' were put in mortgage and liable to be gone? Of what use would the immunity be when there was no property to which it could apply? Further than this, there would be ground to argue that in a stricter sense the word appurtenances would include the immunity.

The only difficulty in the case is that the State has purchased; that becoming owner of the road, she held it, of necessity and independently of any contract with the mortgagors, free from liability to taxation. And then, the further difficulty, that before she sold, the provisions of the new constitution intervened, and prevented her granting, as she undeniably meant to do, free from her own ability to tax.

The difficulty vanishes in the face of the 'ordinance,' which has 'the same force and effect' as the constitution.'1. The constitution and the ordinance being parts and parcels of one law ought not to be construed separately, but in the construction of the one the other ought to be taken into consideration.

Inasmuch as the ordinance, by its plain words, intended to pass to the purchaser all the franchises of the railroad companies named in it; and as one of the franchises of at least one of the companies was exemption of its property from taxation, the ordinance was of necessity an exception, and intended to be an exception to the general rule established by the constitution, subjecting all property to taxation. There is room for both parts of the law to operate; the rule and the exception each in its place. And the law should be so construed as that both may stand and have effect.

2. The rule and the exception are not inharmonious in their general objects. The primary object of the rule is revenue. If revenue was not the primary object of the exception it was at least a prominent one, as a recurrence to the situation of the State and the history of the times will show. At the time of the adoption of this constitution and ordinance, it is matter of common knowledge that the State was staggering under the burden of an enormous debt, with resources wasted by a devastating war. In such an exigency what measure would so likely add to the wealth of the people and to the resources of the State as the extension of her railroads, then but just begun, into the mineral and agricultural regions of the State, lying as yet undeveloped? It was in this view, and in a large degree as a measure of finance, that the convention resolved upon the project of selling these roads and extending them to their ultimate destinations. But in order to the success of the project, privileges and franchises had to be offered to induce the embarkation of capital apparently, but not really, at the expense of the public revenue.

3. Upon a fair construction of the ordinance, power was given to the legislature to grant to the purchasers of the property of the defaulting corporations the exemption insisted upon by the complainant. The fourth section of the ordinance relates to a period of time prior to the foreclosure, while yet the title to the property remains with the mortgagor, and contemplates a then future sale in foreclosure at which the State might become the purchaser. The fifth section looks to a period after foreclosure and presupposes the purchase of the mortgaged property by the State at the foreclosure sale. Both sections direct that provision be made by law for sales. What is it that the fourth section requires to be sold? 'The railroad and other property, and the franchises.' Not one franchise, merely, but the plural; franchises, all of the franchises of the company. What by the fifth section is to be sold? The answer is, the same railroad, the same other property, the same franchises 'as hereinbefore provided for' in the fourth section. All, without exception or diminution, that the State acquired at the sale under the fourth section was to be sold by it to its own vendee under the fifth section; the vendee of the State was to take every right that the State acquired at the sale for foreclosure. The State acquired at the foreclosure sale every right that the mortgagor had. If the mortgagor had the right to hold its property exempt from taxation, that right, by the provisions of the ordinance, would pass by the sale under the mortgage to the State and then from the State to its vendee. If it be objected that the franchises of the St. Louis and Iron Mountain Railroad Company did not, for want of apt words, pass by the mortgage, and that therefore the franchises of the company did not pass to the State at the foreclosure sale; we reply: first, as we have already once said, that the words of the mortgage were and are sufficient in law to pass the franchises of the mortgagor. But, second, this ordinance was the work of the people acting as lawmaker in their sovereign capacity. The sovereign possesses within himself all fulness of franchises. He is the author and source of all franchises. The sovereign people professed in this ordinance to possess and to be able to impart the franchises of these defaulting companies. Their lawfully appointed agents sold, and for them professed to convey these franchises, and having done this they will not be permitted now to stultify themselves by the plea that they did not possess the things which they professed to grant. But if they did not then possess them specifically they must be held to supply the lack from their original inexhaustible stores.

It was the clear intention of the convention to give to the purchaser all that was enjoyed by the companies in default, and it was just as clearly within the competency of the convention to give what it thus intended to give, whether the franchises previously given out had come back to the State or not. And as all parties, vendor and vendee, here contracted upon the idea that the one was giving and the other receiving the franchises claimed, it is no hardship to hold nor is it any stretch of judicial authority to decide that in law the convention gave what it then intended to give, and had the power to give.

Mr. R. E. Rombauer, contra.

Mr. Justice FIELD delivered the opinion of the court.

title: Trask v. Maguire


text: Talk:Trask v. Maguire

title: Talk:Trask v. Maguire