U.S. Supreme Court
Smith v. Kernochen, 48 U.S. 7 How. 198 198 (1849)
Smith v. Kernochen
48 U.S. (7 How.) 198
When a mortgagor and mortgagee are citizens of the same state, and the mortgagee assigns the mortgage to a citizen of another state for the purpose of throwing the case into the circuit court, it is necessary, in order to divest the court of jurisdiction, to bring home to the assignee a knowledge of this motive and purpose. Till then, he must be considered an innocent purchaser without notice.
If the assignment was only fictitious, then the suit would in fact be between two citizens of the same state, over which the court would have no jurisdiction.
The question of jurisdiction, in such a case, should have been raised by a plea in abatement. Upon the trial of the merits, it was too late.
A former suit in chancery between the original parties to the mortgage involving directly the validity of that instrument, in which suit a bill to foreclose was dismissed, upon the ground that the mortgage was void, was good evidence in an ejectment brought by the assignee claiming to recover by virtue of the same mortgage. The instrument had been declared void by a court of competent jurisdiction, and neither the parties nor their privies could recover upon it.
There is no difference upon this point between a decree in chancery and a verdict at law. Either constitutes a bar to a future action upon the instrument declared to be void. The authorities upon this point examined.
The highest court of the State of Alabama having decided that the original mortgagee (an incorporated company) violated its charter in the transaction which led to the mortgage, this Court adopts its construction of a statute of that state. chanrobles.com-red
The plaintiff below, Kernochen, a citizen of New York, brought an action of ejectment against the defendants to recover the possession of eleven hundred and sixty acres of land, situate in that state, and to which he claimed title.
On the trial it appeared that Archibald K. Smith, being the owner in fee of the premises, executed a mortgage of the same, on 9 April, 1839, to the Alabama Life Insurance and Trust Company, a corporation duly incorporated by the Legislature of the State of Alabama, to secure the sum of seven thousand five hundred dollars, payable in five equal annual payments, with interest. And, further, that the mortgage had been duly assigned and transferred by that company to Kernochen, the plaintiff, in consideration of the sum of one thousand dollars, on 26 August, 1844. Possession being admitted by the defendants, the plaintiff rested.
It appeared, on the part of the defense, that the mortgage and bond accompanying it, with other securities belonging to the Life and Trust Company, were placed in the hands of Hunt, an agent of the company, to procure a loan of money in New York, and that one thousand dollars was loaned, at his instance and request, by the plaintiff to the company, for the security of which the assignment of the above mortgage was made. That the motive of the company in making the assignment was to obtain a decision of the federal courts upon the questions decided in the court below, but that Kernochen was not advised of the motive at the time of the advance of the money, nor was he in any way privy to it.
It further appeared, that a bill of foreclosure of the mortgage had been filed in the court of chancery of Wilcox County, State of Alabama, by the company, against Smith, the mortgagor, which was defended by him. In the answer he admitted the execution of the bond and mortgage, but denied their validity, setting out the consideration, which consisted of bonds and obligations of the company made and delivered to him for the like sum of seven thousand five hundred dollars, payable at a future day, with six percent interest. The mortgage in question bore eight percent.
The proofs taken in the case sustained the answer, and showed that the transaction between the company and the mortgagor consisted simply in an exchange of securities with each other, with an advantage to the former of two percent profit.
The chancellor decreed that the contract was valid, and the bond and mortgage binding upon the defendant, and that unless chanrobles.com-red
the principal and interest were paid within thirty days, the mortgage be foreclosed.
Upon an appeal to the supreme court of the state, this decree was reversed, and a decree entered dismissing the bill. That court held that the charter of the Life and Trust Company conferred no authority upon it to lend its credit, or issue the bonds for which the mortgage in question was given, and that the bond and mortgage taken therefor were inoperative and void.
The charter of the company, together with several amendments of the same, were given in evidence.
When the evidence closed, the defendants prayed the court to charge the jury, that, if they believed that the transfer of the mortgage to the plaintiff was made for the purpose of giving jurisdiction to the federal courts, and to enable the company to prosecute its claim therein, and that the plaintiff was privy to the same, the deed was void, and did not pass any title to the plaintiff which the court would enforce.
The defendants further prayed the court to charge, that the judgment and decree of the Supreme Court of Alabama between the company and Smith, the mortgagor, was conclusive upon the parties in this suit, and that neither the mortgagees, nor those claiming under them, since the rendition of the decree, could recover the lands embraced in the mortgage at law or in equity.
The court refused to charge according to the above prayers, and charged as follows:
1. That any matters which might abate the suit should have been pleaded in abatement, and that, after the plea of the general issue, the facts proved by the defendants, as set forth in the bill of exceptions, could be of no avail, and were insufficient to abate the suit. And,
2. That the defendants, claiming title under Smith, the mortgagor, were estopped from denying the consideration of the mortgage as set forth in that instrument, and that the consideration as there stated was good, and valid, according to the charter of the company, and sufficient to sustain the validity of the mortgage and title of the plaintiff.
The jury found a verdict for the plaintiff.
A writ of error brought the case up to this Court. chanrobles.com-red