US SUPREME COURT DECISIONS

In construing § 1 of the Act of August 13, 1888, which provides that circuit and district courts shall not have cognizance of suits to recover the contents of any promissory note or chose in action in favor of an assignee or subsequent holder unless the suit could have been prosecuted in such court if no assignment or transfer had been made, this Court has held that:

A suit to recover the contents of a promissory note or other chose in action is a suit to recover the amount due upon such note, or the amount claimed to be due upon an account, personal contract, or other chose in action.

A suit to foreclose a mortgage is within the inhibition of the act, and can only be maintained where the assignor was competent to file the bill.

The bill or other pleading must contain an averment showing that the suit could have been maintained by the assignor if the assignment had not been made.

A suit may be maintained between the immediate parties to a promissory note as indorser or indorsee provided the requisite diversity of citizenship appears as between them, or upon a new contract arising subsequently to the execution of the original, notwithstanding a suit could not have been maintained upon the original contract, and in such case the original contract may be considered to ascertain the amount of damages.

Although an action of fraud might be sustained upon the facts involved in an action where the requisite diversity of citizenship exists if the suit is in substance one to foreclose a mortgage, and it appears by the bill that the fraud is a mere incident, the suit is one within the meaning of § 1 of the Act of August 13, 1888, and will not lie in a federal court unless plaintiff's assignor might have maintained the bill had no transfer been made.

This was an appeal from a decree of the circuit court in favor of the plaintiff, Charlotte E. Hoadley, a citizen of Massachusetts, against Abraham L. Day and other defendants, among whom were Fred H. Kolze, administrator of the estate of Friederich Kolze, deceased, Lina Kolze, his widow, Louisa Kolze, his daughter, and Charles E. Stade, trustee, all citizens of Illinois, foreclosing three trust deeds given by Day to secure chanrobles.com-red

Page 200 U. S. 77

promissory notes in the aggregate amount of $5,400. The appeal was granted solely upon the question of jurisdiction.

The point involved requires a statement of facts at some length. They are substantially as follows:

Friederich Kolze sold and conveyed certain real estate to Day by warranty deed dated and acknowledged November 15, 1897, for a stated consideration of $45,000 -- namely, $1,000 in cash and the remainder in notes secured by trust deeds. To secure such notes, Day executed three trust deeds to one Stade as trustee, conveying the real estate in question, which were dated November 17, and acknowledged and recorded November 24, 1897. Kolze thereupon entrusted the notes and trust deeds to Stade, a nephew, in whom he seemed to have great confidence, the notes being executed by Day to his own order, and by him indorsed in blank.

On February 17, 1898, Stade took the notes and trust deeds securing the same, and pledged them to Charlotte E. Hoadley as collateral security to his own notes, upon which Hoadley then advanced, or secured to be advanced, a large sum of money.

By deed dated and acknowledged November 23, 1897, but not delivered or recorded until June 30, 1898, Day reconveyed the premises to Kolze, and by deed of release, dated and acknowledged October 27, 1898, and recorded October 29, 1898, Stade, as trustee, fraudulently released said three trust deeds to Kolze, reciting a consideration of $1 and other valuable considerations, and further reciting that the notes secured thereby had been cancelled.

By deed dated October 29, 1898, Kolze, now deceased, and the appellant Lina Kolze, his wife, conveyed said premises to Louisa Kolze, their daughter, upon an expressed consideration of $12,000, although the grantee was not a bona fide purchaser, and said conveyance was made to her to hold for the benefit of the family.

For the ostensible purpose of securing the payment of the purchase money, said Louisa Kolze executed a trust deed to chanrobles.com-red

Page 200 U. S. 78

secure her promissory note of $10,000, to Percy V. Castle, as trustee. This deed was dated October 27, 1898, acknowledged October 28, 1898, and recorded October 29, 1898, the appellant Fred H. Kolze, as administrator of the estate of his father, being the owner of said notes and trust deeds, subject, as was alleged, to the rights of the plaintiff, Hoadley.

Subsequently, on or about April 21, 1899, the notes and trust deeds of Day, upon default by Stade in the payment of his note, were sold in accordance with the terms of the collateral note, and were bought in by, and became the property of, the appellee Hoadley.

The bill prayed that the release deed executed by Stade to Friederich Kolze be declared fraudulent and void as against the notes and trust deeds executed by Day and now owned by the plaintiff; that the rights of all the defendants be declared subject to those of the plaintiff under the notes and deeds held by her; that a receiver be appointed and an account had, and the defendants be decreed to pay whatever was due under the notes and trust deeds, and, in default thereof, that the premises be sold and the defendants be held liable for any deficiency upon such sale, and that they all be foreclosed of their right of redemption.

The defendants moved to dismiss the amended bill for want of a proper allegation of diversity of citizenship, which was overruled, and thereupon defendants interposed a plea to the jurisdiction upon the ground that the defendants were all citizens of the State of Illinois; that the suit was brought by plaintiff as the assignee of one William P. Smith, to whom the notes had been hypothecated by Stade to secure his (Stade's) note, and also to secure Smith for the faithful performance by Stade of a certain contract of employment; that, upon the failure of Stade to pay his note and carry out his contract, said mortgage notes and trust deeds signed by Day were sold on or about April 21, 1899, and were bought in by and became the property of the plaintiff; that Stade and Smith, "the successive assignors" of the appellee, were citizens of the chanrobles.com-red

Page 200 U. S. 79

State of Illinois, the same state of which Day, the maker of the notes, was also a resident, and that, by reason of the fact that said suit could not have been prosecuted in a federal court if no transfer or assignment had been made, the circuit court had no jurisdiction of the case.

This plea was held to be insufficient, and the defendants, failing to answer, were defaulted, and a decree thereafter entered to the effect that Stade, as trustee, had fraudulently released the trust deeds; that the trust deeds were valid as liens upon the premises; that the rights of Louisa Kolze, subsequent grantee under the warranty deed, as well as the deed of Kolze, were subject and subsequent to the rights of the plaintiff as the owner of the notes and deeds signed by Day; that the property be sold and the defendants foreclosed of their equity of redemption.

Thereupon, defendants appealed to this Court solely upon the question of jurisdiction. chanrobles.com-red

Page 200 U. S. 82