JARBOE t1. TEMPLER.
213 et 01.
JARBOE
et 01.
'/I. TEMPLER
(Oi'rouit Oourt, D. Kansas. March 18, 1889.) L MECHANICS' LIENS-ENFORCEMENT-EQUITY-RELIEF TO SUBSEQUENT LIEN CREDITORS.
a.
Where proceedings to enforce a mechanic's lien are properly removed to the federal court, and a receiver is appointed, and the property sold, and the proceeds are in court for distribution, and alien creditor, who is made a party, sets up his claim by cross-bill, the court may make a decree establishing his lien, and for a deficiency, under equity rule 92, though the fund is exhausted in paying the costs and the prior lien. It is not necessary that such creditor should resort to an action at law.
FEDERAL COURTS-JURISDICTION-DIVERSE CITIZENSHIP-TRANSFER OF CAUSE OF ACTION.
The jurisdiction of the federal courts, which has once attached by reason of diverse citizenship, is not divested by a subsequent transfer of the cause of action by which the controversy becomes one between citizens of the same state. The cashier of a bank was called at midnight to meet a member of a firm indebted to the bank, and was then informed of the failing condition of the firm, and that it desired to save the bank from loss, and took an assignment of certain property for an 'expressed consideration of double the amount of the debt. The bank took possession, and retained the property until taken from it in judicial proceedings. and continued improvements thereon. which it paid for with money furnished by the partner making the assignment and the firm book-keeper, and collected from persons with whom the firm had de,alings. It was alleged that the transfer was in payment, and not as security, and that the partner making the transfer was given individually the right to redeem, and that the subsequent payments were with his money. The account on the bank's books was not closed, and no receipt was given. In a suit against the other partner to recover the debt, held, that the transfer was by way of security only.
8.
ASSIGNMENT-CONSTRUCTION-PAYMiNT-EvIDENCE.
4.
SAME-ASSIGNMENT FOR SECURITy-POWER OF AsSIGNEE.
The bank was DOt authorized to employ watchmen for the property at the expense of the firm without first its consent.
In Equity. . Bill by D. M. Jarboe & Co. against T. J. Templer and others, and -Cross-bill by the Atchison Savings Bank. W. W. Gnthrie and J. D. S. Cook, for Atchison Savings Bank. L. O. SlaVfm8, for T. J. Templer. FOSTER, J. This case comeEl on for hearing upon the cross-bill of the .Atchiso,n Savings Bank, and ihe plea and answer thereto of T. J. Templer. The proceedings leading up to this issue are briefly as follows: In .8eptember J 1880, D. M. Jarboe and James Smith J copartners as D. M. Jarboe & Co., citizens of Missouri, commenced their suit in the district {lourt of Atchison county against T. J. Templer and B. F. Johnson, copartners as T··J. Templer & Co., also citizens of Missouri, to enforce a mechanic's lien 011 elevator property situate in said county. To this :suit were made also defendants Richard A. Park J cashier of said sa\·ings Central :Branch Union Pacific Railroad CompanYJ and other
FEDERAL REPORTER,
vol. 38.
citizens of Kansas claiming liens on said property. The railroad company filed a demurre.t to thebill,and the other defendants filed answers setting up their several liens. The railroad company then removed the cause to this court on the ground of a separable controversy between it and the said plaintiffs. After the cause had been removed, an order was made, January 8, 1881, that the parties recast their pleadings, and that John S. Kellogg and the Atchison Savings Bank have leave to enter their appearance, and interplead in the cause, and file answer and cross-bill on or before March rule-day. Soon after this order was made, and on January 18th, a receiver was appointed by this court to take charge of said property, who afterwards obtained an order of sale, and sold the property for the sum of $15,000, and held the money subject to the further order of the court. Nothing seems to have been done under the order to recast the'pleadings, until April 4th, when John S. Kellogg and the Atchison Savings Bank presented to the court, and had leave to file, with consent of all parties, their respective pleadings. Kellogg, who was a citizen of Kansas, presented what he termed a "supplemental bill," alleghlg that he had purchased the claim of said complainants D. M. Jarboe & Co., and also the claims of the several defendants, except those of the Atchison Savings Bank. and the I>aid railroad company; thatthe claims so purchased amounted to over $14,000; and alleging that they were a first lien on the said property, and that said bank and railroad company had or claimed have some lien or interest in said property; and praying that said parties be required to set forth their respective claims; and that said liens be determined, and that the claim of said Kellogg be declared a first lien on said fund then.in court. On the same day, by leave of court, .and cOllsent of parties, the Atchison Savings Bank filed its cross-bill, making all the other parties defendants thereto, and setting forth that T. J;. Templer & Co. were indebted to said bank in the sum·of about $10,000 for loaned andadvanc.ed by th.e to said Templer & Co. at various times, and to secure which said Templer & Co. had on the 31st of May, 1880, assigned and transferred to R. A. Park, cashier of said bank, and in trust for the bank, a certain lease of real estate made by said railroad com pany to said Templer & Co., and upon which real estate the said elevator was constructed, together with all' the machinery, and improvements thereon, and that its claim was a first lien on said property and the fund in court; and praying for a decree, and for judgrllent against said 'l'empler and Johnson for any balance,remaining unpaid, etc. The railroad oompany withdrew its de- ' murrer, and made no further claim in the cause. The complainantS Jarboe & Co., and all the defendants, entered their appearance to Kellogg's bill and the cross-bill of the bank, but made 110 answer. The matter of the claims ofKellogg and the savings bank was referred· to ,a special master to take testimony and report the amounts due, alid determine the question of priority.' In accordanoe with the master's re-o port, a final decree was made at the June term, 1881, in which it was found there was due Kellogg,$114,:806.95, and that it 'was a first lien on the property; and to the savings bank the sum of $10,525.44, Iwhich
JARBOE Ii. TEMPLER.
215
was a second lien on the property; and ordering, after the payment -of all costs, receiver's and master's fees, that the fund be applied to the payment of these respective claims in the order named, and that said parties have judgment over against Templer and Johnson for any balance remaining unpaid. After paying costs there was not sufficient money to pay the Kellogg judgment, and of course nothing was paid on the bank judgment. Several years later, in 1885, the bank commenced proceedings in this court against Templer and Johnson and others in the nature of a creditors' bill, seeking to reach and subject to its judgment certain real estate then held, as charged in the bill, by the wives of said Templer and Johnson, but in reality the property of said defendants, and purchased with their money, etc. To this bill the defendants put in a plea against the validity of the bank's juc1gment,averring that the court had no jurisdiction of these defendants in that case; that they were not'served with process, nor did they enter their appearance therein. On this issue ,a trial was had, and it was found from the evidence that Johnson, one of the partners, when the suit of Jarboe & Co. had been commenced, employed Mills & Wells, attorneys, to represent the said Templer & Co. in said suit, with authority to enter their appearance, which the said attorneys.accordingly did. ,It further appeared that Johnson had employed the attorneys, and given them authority to enter the appearance of the firm, without express authority of his partner On this state offacts the court held that there was no jurisdiction of Templer in that case, and that as to him the judgment was void. It was then ordered that auid judgment be set aside as to Templer, and that he, be allowed to enter his appearance in the cause, and contest the claim of the bank as set out iIi its cross-bill. {See opinion in 26 Fed. Rep. 580:} He then filed another plea to the jurisdiction on the ground that, inasmuch as there was nothing left of the security or fund in court to be;a.pplied on the decree ofthe bank, tliat the court could not render: a judgment over against Templer and Johnson, but the bank should resort to an action at , law· That plea was overruled. The defendant then filed a motion to dismiss the case for want of jurisdiction of the parties, in this, to-wit: John S. Kellogg, who had purchased the claim of the complainants Jarboe & Co., together with those of several defendants, was a citizen of Kansas, and on his filing his supplemental bill it was no longer a controversy between citizens of different states, but became a controversy between him ,and the railroad company, both citizens of the same state. also answered to the merits of the cross-hill of the bank, The and the testimony has all been taken, and the cause is now submitted. The dt:fendant again presses his objections to the jurisdiction of the court to render any decree in the cause, and also to render a personal judgment against the defendants. Although the last objection has been before considered and overruled, I will briefly give my views on this question again. The court had acquired jurisdiction by proper proceedings of removal from the state court, which is not questioned. It had taken possession of the property by its receiver, and ordered it sold, and the proceeds were in court. All: parties who had any interest in or claim!>
216
or liens upon the property were proper and necessary parties to a complete and final adjudication of the matter. The bank was one of the principal claimants. It was properly made a party, and set up its claim by cross-bill, and asked for a decree establishing its lien, and applying the proceeds of the security, and for a judgment over against Tem pIer and Johnson for any balance remaining unpaid. I believe under eqnity rule 92 it was entitled to such a decree and judgment, and I cannot see that it alters the case that the security fund was exhausted in paying the costs and the prior lien of Kellogg. I can see no reason why the right to a judgment over depends on what price the security may sell for, or the amount of costs paid. Ordinarily the decree and judgment are entered before any knowledge of what amount of money will be realized out of the security, and surely it cannot be that the validity of that judg. ment depends upon the amount for which the property may afterwards be sold. But if there is, as urged by defendants' counsel, some special potency to the validity of the judgment in the payment of some amount, although it may be but a dollar, out of the security fund, why is not the payment of the costs recovered by and included in the bank judgment sufficient to redeem and save the whole? In my opinion, equity, having jurisdiction of the parties and subject-matter, had the power to make a complete adjudication of the cause without turning the junior lienholders over to a court of law. The following authorities sustain this view: Hayden v. Drury, 3 Fed. Rep. 782; Insurance Co. v. Tyler, 8 Biss. 36.9; Obe'1" v. Gallagher, 93 U. S. 199. This brings us to the next question affecting jurisdiction. The ,rable controversy between Jarboe & Co. and the railroad company, forwhich the cause had been removed, had become, by Kellogg's purchaseof the claim, not another or different controversy, but a controversy in which iii different party, and a citizen of the S!lme state with the adverse· party, had become the party in interest. Leaving out of consideration the controversy remaining in the case between the bank and Kellogg, citizens of Kansas, on the one side, and the principal debtors, Templer' and Johnson, citIzens of Missouri, on the other, let us consider whether the transfer of Jarboe's interest to Kellogg ousted the jurisdiction of the court. In Dunn. v. Clarke, 8 Pet. 2, a judgment in ejectment had been recovered by Graham, a citizen of Virginia, against Clarke, a citizen of Ohio. Graham died, and Dunn, a citizen of Ohio, held the land un-· .der the will of the deceased. Clarke filed his bill against Dunn in the United States circuit court of Ohio, praying for an injunction against theenforcing of said judgment, and for a decree for the conveyance of the· ,land to complainant. Here both parties were citizens of Ohio, but the court held that Dunn being the representativ.e of Graham, the court had jurisdiction; "that no change in the residence or condition of the parties can take away a jurisdiction once attached." If, however, new parties nut privies to the suit were brought in, over whom the court had no jurisdiction, it could proceed no further with the case. In Clarke v. Mathewsan, 12 Pet. 170, Wetmore, a citizen of Connecticut, sued Mathewson, a citizen of Rhode Island, in the last-named state. Wetmore,
TEMPLER.
217
died pending the litigation, and Clarke, a citizen of Rhode Island, was appointed his administrator. Clarke sought to revive the suit in his name, and the circuit court held it had no jurisdiction, as both plain. tiff and defendant were citizens of the same state. The supreme court reversed the decision, and held that Clarke, as the representative of Wetmore, could maintain the suit; that it was not an original proceed. ing, but a continuation of the original suit. The court say: "The parties to the original bill were citizens of different states, and the jurisdiction of the court completely attached to the controversy. Having so attached, it could not be divested by any subsequent events, and the court had a rightful authority to proceed to a final determination of it. If after the commencement of the suit the original plaintiff had removed into and be. cornea citizen of Rhode Island, the jurisdiction over the cause would not have been divested by such change of domicile." This seems to be directly in point on the question in controversy in this case. To the same effect see Morgan's Heirs v. Morgan, 2 Wheat. 290. "The jurisdiction depends upon the state of things at the time the action was brought, and after it is once vested it cannot be divested by a subsequent change of residence of either of the parties." Mollan v. Torrance, 9 Wheat. 537 See Phelps v. Oaks, 117 U. S. 236,6 Sup. Ct. Rep. 714; Stewart v. Dunham, 115 U. S. 61, 5 Sup. Ct. Rep. 1163; Gibson v. Bruce, 108 U. S. 563, 2 Sup. Ct. Rep. 873. In the lastnamed case the court decide that a state court cannot be deprived of its jurisdiction by change of citizenship after the suit was commenced. If a change of domicile, making both parties citizens of the sa.me state, would not divest jurisdiction, it is useless to argue that a transfer of the subject of litigation, producing the same result, would affect the jurisdiction. The issue between the Jarboe claitti and the railroad claim still remained; and parties coming into the suit as privies or repreeentatives of interest already involved, in general take such interest as it then exists, subject to its abilities and disabilities. Cable v. Ellis, 110 U. S. 389,4 Sup. Ct. Rep. 85; Railway Co. v. Shirley, 111 U. S. 358, 4 Sup. Ct. Rep. 472; Stewart v. Dunham,swpra; Phelps v. Oaks, supra. Passing from this question, we come to the melits of the controvel'sy between the parties. The complainant the Atchison Savings Bank, in brief, in its cross-bill that it is a corporation organized under the laws of Kansas, and that T. J. Templer and B. F. Johnson were copartners under the name and firm of T. J. Templer & Co.; that said Templer & Co., in March, 1880, leased a piece of land of the Central Branch Railroad Company for the period of 10 years, and erected a grain elevator thereon; that at various times from March to June of said year the complainant loaned to Templer & Co. different sums of money for the purpose of building said elevator, and other purposes of the firm, amounting in the aggregate to the sum of $8,500; that on the 31st day of May, in order to secure the bank for the money so loaned, Templer & Co. assigned and transferred its said lease, together with all the improvements on the said premises, to R. A. Park, cashier of said bank, in trust for thebank,which assignment reads as follows:
218
REl'O&TER,
vol. 38. May 31, 1880.
"ATCHISON, KANSAS,
"In consideration of dollars to us in hand paid, we do hereby sell, transfer, and assign to Richard A. Park all onrinterest, right, and title to the within lease, and all the buildings, fixtures, machinery, lumber, and property of every kind anc;ldescription contained and upon the lots herein described or 1:lelonging or relating to the improvements being erected T. J. TEMPLER & Co." thereon. Complainant further alleges that there is due it from Templer & Co. the further sum of $1,375.16, for money by it expended after the said transfer in and about the completion of said elevator, and for taxes, insurance, and other expenses connected with the care of the property. The defendant Templer, in his answer, admits the incorporation of the bank, the partnership of Templer and Johnson, the making of the lease with the railroad company, and the assignment thereof to R. A. Park, cashier, and the loan by the bank of$8,';;OO to Templer & Co.; but he expressly denies that the lease was assigned and transferred to Park, cashier, for the purpose of security for thebapk debt, but was transferred and accepted as a complete sale, and,in full satisfaction of the debt. He denies that the bank, or Park, cashier, with the consent of Templer & Co., money in the completion of the elevator, or for taxes, insqrance, or other purposes to the amount of $1,375.16, or any other sum; and denies that he is indebted to the bank in any sum whatever. He goes on further to allege that there was a private agreement between Park and Johnson by which Johnson was individually to have the right to redeem or repurchase for his individual benefit the property by payingthe bank debt and 10 per cent. interest. It will be seen that the main between the parties is concerning the natUJ;e, intent. and purpose of the transfer of the lease and elev:at<>r property to Park, cashier of the bank; the bank claiming that the transfer was made merely as security for its debt, while the defendant claims. it was made as an a.bsqlute sale, and was accepted as an absolute payment and extinguishment of the bank'e debt. It appears that the debt of Templer & Co. wae kept on the books of the bank as an open to check on the bank for money account. The defendants they might require it in their bUE!iness. This money was used by the fiI;'Ul in the business of constr\lcting the elevator, buying machinery and other material for the same, and also ill the buying and shipping of grain; etc. On the 31st of l\{ay, 'rempler & Co., being financially involved and about to fail, desired to payor secure the ban:k in preference to some other creditors, and for thll.t purpose made the transfer of the lease and elevator property to said Park in trust for tlle bank. It appears that neither Park nor any other officer of the bank was aware of the failing condition of Templer, & Co. until about two or three hours .the transfer was made, and the information came to Park in the following manner: He was out ·of his bed on. Monday morning, May inst, between the hours of 12 and 3 o'clock, by Mr. Draper, book;keeperof Templer & Co., to meet Johnson and Draper at the office of Mills & Wells, Johnson's attorneys. Park was then informed of the
.::' JARBOE V. TEMPLER.
219
failing con8itionof Templer' &. Co., and. that they desired t6 protect and save the bank from loss; and after some consultation among the parties it was determined to make the transfer of the lease. On the same morning Johnson took the lease to St. Louis. and had the transfer approved by Talmage, general superintendent of the railroad company. The bank tlaen took possession of the property, and held it until it went into the hands of the receiver in this case. After the bank took the property, there was further work done on the elevator to complete it. and payments machinery and labor, etc. The money for this purpose was furnished or paid to Park by Johnson and Draper, and amounted to several hundred dollars. This money was collected from parties with whom the firm had dealings in grain. The defendant claims it was Johnson's individual money, and was paid under the private agreement with Park before referred to. In the first place, it does not appear that it was Johnson's individual money that w3spaid afterthe transfer. The money used in buying grain was money of the firm, at least to some extent, and was charged to the firm on the books of the bank. There is no testimony contradicting the testimony of Draper, the book-keeper, to the effect that the money was used indifferently in constructing the elevator and in buying grain for .· the firm. He says the money paid by Johnson and himself in and about the property after the transfer, came from the proceeds of the grain business. Again, if there was such a private agreement as claimed by defendant between Park andJohnson, by which Johnson was to derive some personal benefit to himself by redemption of the property of the partnership,' it was an agreement he had no legal right to make. It is urged that Park does not deny this agreement in his testimony. Park does say that there was an agreement or understanding that Templer & Co. were to have the property back when they paid the bank debt. Now, how easy to put two meanings to the statement, "You may have this property back when you pay the debt." Such a remark, addre1lsed to Johnson, would fairly imply, not that Johnson individually might redeem the property, but that Templer & Co., the parties making the transfer, might redeem. The court will not presume the parties undertook to make an illegal contract, when the agreement is susceptible of a proper and legal import. In regard to the intent of the parties in making the transfer of the property, the testimony of the witnesses present at the time is quite evenly divided. Park and Draper testify it was made us security only, while Johnson and Corry testify it was an absolute sale. We are compelled to look to all the circumstances, as well as the testimony of the witnesses, to solve this question. If it was an absolute sale, Templer and Johnson had no further interest in the property, and certainly would spend no more of their money in completing the work. Nor is it altogether probable that Park. on so short a notice, without any opportunity to consult witht}:1e other officers of the bank, and without any positive information of the amount of mechanics' or other liens on the property, would have taken the responsibility of buying the property subject to all the debt of the bank. Cashiers of banks claims against it, and
220
FEDERAL REPORTER, vol. 38.
do not usually take such responsibilities, but do usually take prompt measures to obtain security in cases of emergency. No entry was made on the books of the bank squaring or closing the account until after the judgment had been obtained. Of course that merged the account in the judgment. No receipt was asked for or taken by Johnson, nor does the itself purport to be made in full satisfaction of the debt. It recites a consideration of $16,000,-a sum almost twice the amount of the bank debt, and which Park testified included $7,500 of a fictitious charge entered against Templer & Co., at Johnson's request, in Drder to keep other creditors off the property. Under all the testimony and the circumstances surrounding the transaction I can reach no other conclusion than that this transfer was made as security for the bank debt, and not in extinguishment of it. In reference to the cp.arge of $1,375.16, there are some items in it that may well be questioned. In the absence of any authority from the assignors, the custodian of the property would be limited to such expenses as were proper and necessary in the care and preservation of the property. There was such consent to the completion of the building, paying for labor, material, etc. The custodian was justified in keeping the property insured, and paying the taxes, but in this account are the items of $315 for insurance, and several hundred dollars for watchmen for the property. 'fhis being an extraordinary expense, the cashier should have obtained the consent of the owners before making it. With this charge stricken out, the complainant is entitled to a decree and judgment for the amount. of its claim, and it is so ordered.
HAZARD". O'BANNON, Collector. «(Jireuit (Jourt, E. D. Hi880Uri, E. D.
March SO, 1889.) I
1.
TAXATION-AsSESSMENT-BOARDS OF EQUALIZATION-INJUNCTION.
S.
SAME.