Stevenson v. Austin , 44 Mass. 474 ( 1842 )

Wilde, J.

These cases were argued on the bills and an« swers, and on an agreed statement of facts. Both cases depend on the same questions, as the plaintiffs in each suit claim the same funds in the hands of Austin, one of the defendants in both suits, being the proceeds of the sale of sundry bags of sugar, purchased of Russell & Sturgis, on account of Bruce, another defendant, and which were delivered to Austin, the attorney of George Wildes & Co. of London, in pursuance of the agreement of the parties to that effect : So that if the claim of one party should be allowed, the claim of the other must necessarily be disallowed. The main question therefore is, which of these parties have, the better equitable title to the funds in question. But before considering this question it is necessary to dispose of a preliminary objection, made by the answer in the suit in which the firm of Russell & Sturgis are plaintiffs.

It appears that Bruce, having become insolvent, has assigned his property and effects, including his equitable claim to the funds in the hands of Austin, to Stevenson & Curtis, in trust for the use and benefit of his creditors. The assignees are made parties defendants in this suit; but it is objected, that the creditors, who have become parties to the assignment, ought also to be made defendants in this suit. The general rule is, that all parties interested in the subject of the suit should be made parties, plaintiffs or defendants, so that the court may settle the rights of all parties interested, and may thereby prevent future litigation. But there are many exceptions and qualifications to the general rule. When the parties interested are very numerous, so that it would be difficult and expensive to bring them all before the court, and all the different interests may be fairly tried, the court will not require a strict adherance to the rule. It is said that the creditors in this case are numerous, some residing out of the Commonwealth, and the residence of others being unknown. We think, therefore, that it is sufficient to make the assignees parties, who alone have a right to claim the property, (they having the legal title,) and who are empowered, and whose duty it is, to represent the interests of and to act for all the creditors interested in the trust.

In Adair v. The New River Co. 11 Ves. 445, it is said by Lord Eldon, that it is not necessary to make all the individuals, who are interested, 'parties : “ The court therefore has required so many, that it can be justly said, they will fairly and honestly try the right between themselves, all other persons interested, and the plaintiff.” So in Lloyd v. Loaring, 6 Ves. 779, Lord Eldon says, “ I have seen strong passages, as falling from Lord Hardwicke, that where a great many individuals are jointly interested, the court will let a few represent the whole.” So in Vernon v. Blackerby, 2 Atk. 145, Lord Hardwicke refers with approbation to a case decided in 1720, where several persons were interested, who had given a general power and authority to some few only, and therefore to avoid inconvenience from making numerous parties, the court restrained them to those particular persons who were intrusted with the general power. It is laid down in Mitf. Pl. (3d ed.) 142, that “ trustees of real estate for the payment of debts or legacies may sustain a suit, either as plaintiffs or defendants, without bringing before the court the creditors or legatees for whom they are trustees ; and the rights of the creditors or legatees will be bound by the decision of the court against the trustees.” And this rule seems supported by the current of the authorities. In Meux v. Maltby, 2 Swanst. 277, several of these and some other authorities are referred to, and the question as to parties in similar cases was very fully considered. In that case, on a bill against the treasurer and directors of a joint stock company, it was held that it was not necessary that the rest of the proprietors, being very numerous, should be made parties. Sir Thomas Plumer, master of the rolls, after referring to several authorities, says : “ Here is a current of authority, adopting, more or less, a general principle of exception, by which the rule, that all persons interested must be parties, yields when justice requires it, in the instance either of plaintiffs or - defendants. The rigid enforcement of the rule would lead to perpetual abatements. This, therefore, cannot 5>e regarded as a' new point, or as creating a difficulty It is quite clear that the present suit has sufficient parties, and that the defendants may be considered as representing the company.”

Nor is there any thing inconsistent with this principle of exception in the decision of the case of Newton v. The Earl of Egmont, 4 Simons, 585, & 5 Simons, 130, cited by the defendants’counsel. In that case, the plaintiff claimed priority of his incumbrance to the claims of sundry creditors for whose use and benefit the estates incumbered had been conveyed in trust; and it was held that all the creditors must be made parties. The Vice Chancellor says, “ I accede to the rule laid down in Adair v. The New River Co. That rule, however, applies only to cases where there is one general right in all the parties ; that is, where the character of all the parties, so far as the right is concerned, is homogeneous. In this case, where the question is priority of charge, the very.nature of the question makes it necessary that all the creditors should be parties. It implies a contest with every other person claiming an interest in the land.” 5 Simons, 137.

From these authorities it seems very clear that there is no defect of parties in the present case, and that it is unnecessary that the creditors of Bruce should be made parties in either suit, which must be attended with great delay, expense and difficulty, without subserving, in any respect, the administration of justice between the parties interested. The interests of these creditors are similar, which the trustees are bound to enforce and defend.

We are then brought to the consideration of the main ques tian, as to the equitable claims of the contending parties. The solution of this question depends on the validity or invalidity of the title set up by the firm of Russell and Sturgis.

By the letter of credit by Wildes & Co. in favor of Phillips, the agent of Bruce, it was stipulated, that the bill of lading of the sugars intended to be purchased with such draft or drafts as might be drawn under said credit, should be made to the order of said Wildes & Co. and sent to the said' Austin, their attorney, in Boston. It is agreed that the sugars thus sent were held as collateral security for the performance of Bruce’s promise to place Wildes & Co. in funds to cover said drafts, on or before their maturity. But the counsel of the defendants, Stevenson & Curtis, the assignees of Bruce, contend that no lien was created in favor of any person, who might become interested in the proposed undertaking, except Wildes & Co., and that their lien was ipso facto discharged by their refusal to accept the bill drawn under the letter of credit ; that their acceptance was a condition precedent, being the whole consideration of Bruce’s promise ; and that he was not bound to remit funds to Wildes & Co. before he had notice of their acceptance of the bill, and certainly not after notice of its non-acceptance.

On the other hand, the counsel of Russell & Sturgis contend that the lien is not to be thus limited ; that the pledge was intended as security for the payment as well as the acceptance of the bill ; that if Wildes & Co. had paid the bill at maturity, his lien would have been preserved ; and that as Russell & Sturgis have paid the bill, they are entitled to the benefit of the lien, by way of substitution ; that Russell & Sturgis took the bill on their faith in the letter of credit, and in the promise of Bruce to pay the bill at maturity. It was also argued that the acceptance of the sugars by Wildes & Co. implied a renewal of their promise to accept the bill, and amounted in law to an actual acceptance.

We have taken time to consider the case, with the arguments of counsel thus imperfectly recapitulated, and I will now proceed to state the opinion of the court, and the principal reasons and principles on which it is founded.

That here was a lien created as security for the benefit of Wildes & Co. is not denied ; but to what extent, and under what circumstances, it was to avail them, the parties have not declared. Their intentions, therefore, must be inferred from the nature of the transaction, and all the circumstances of the case. When such a lien is created as a security or in trust, the parties must be presumed to have in their contemplation all the contingencies which might probably occur in the course of the business to which the security relates, and to intend that the lien should avail the party for whose benefit it was created, as a valid security, in any such contingency. Considering this as a reasonable inference, we cannot think that the lien in this case was intended to be limited to the acceptance of the bill, and that by its non-acceptance the lien was ipso facto discharged, as the defendants’ counsel contend. If Wildes & Co. had paid the bill at its maturity, with their own funds, we can have no doubt that they would have been entitled to the benefit of their lien, notwithstanding their refusal to accept the bill ; and if so, their acceptance cannot be considered as a condition precedent Their refusal to accept the bill was of little importance to Bruce ; for he was bound to advance funds for the payment of the bill, and this he ought to have done, in justice to all parties interested, notwithstanding the non-acceptance. Of this he had seasonable notice, and was requested to remit funds, either to the house of Wildes & Co. or to any other house, wherewith to pay the bill. The refusal of Wildes & Co. therefore, did ir no respect operate to the prejudice of Bruce ; for it was immaterial to him whether he made payment to Wildes & Co. or to the bill holder. From these considerations, and all the circumstances of the case, in our opinion, there can be no doubt that Wildes & Co. had a lien on the goods, in the hands of their agent, in- nature of a trust, to secure and indemnify them in case they should pay the bill. The parties must have contemplated such a contingency ; for if no payment should be made by Wildes & Co. they could have no claim for indemnity. They did not, however, pay the bill; but it was paid by the plaintiffs in the second bill (Perit & others), and they thereupon became, by way of substitution, entitled to all the benefits which Wildes & Co. would have been entitled to, if they had paid the bill.

The principle of substitution has been long recognized by courts of equity, and is well established. In Gibson v. Crehore, 5 Pick. 146, which was a bill to redeem a mortgage, it was held that if the plaintiff paid the mortgage debt, and if those, who were interested with her, should refuse to contribute their proportions of the debt, she would have a right to hold the whole estate redeemed, in right of the mortgagee, until she should be indemnified. The payment of the mortgage debt was held to be an' equitable assignment of the mortgage, and entitled the plaintiff to all rights in equity of the mortgagor. And the same doctrine has been repeatedly laid down in other cases. So it is a well settled rule, that in equity a surety, who pays; he debt of the principal, is entitled to the benefit of all the securities which the creditorhad against the principal. Copw v. Middleton, Turner & Russell, 229. 1 Story on Eq. 481. 592. Homer v. Savings Bank, 7 Connect. 478. New London Bank v. Lee, 11 Connect. 112.

So it was decided in „the case Ex parte Prescott, 1 Mont. & Ayrt. 316, that if a party takes bills for the price of goods, and it is agreed that the bills are to be paid out of the proceeds of the goods, and the acceptor becomes bankrupt, the indorsers of the bills, even without notice of the agreement, are entitled to the benefit of it. The same principle is laid down in the case Ex parte Hobhouse, 3 Mont. & Ayrt. 269.

Courts of equity specifically apply the proceeds of property bound to indemnify a particular party, by attaching the trust to those who are equitably entitled to the benefit of it.

These authorities and principles sustain very fully, as it seems to us, the claim of the plaintiffs in the second action. They are in the relation of sureties to Bruce, and have been compelled to pay his debt. They have therefore a strong equitable claim to the property pledged for the security of such payment. Indeed, without resorting to the doctrine of substitution, this action might be maintained, if the property was deposited in the hands of Austin for the security generally of any one who might pay the bill. And that it was so .deposited, we think may be reasonably inferred from the circumstances of the transaction. If Phillips, who it is said drew the bill, not as the :gent of Bruce, but so as to make himself liable as drawer, nod been compelled to pay the bill, we cannot doubt he would have a right to avail himself of the property pledged; and the plaintiffs, Per it fy others, who indorsed the bill, we think are entitled to the same benefit.

The letter of credit was exhibited to them, and the presumption is, that they took the bill relying, in some measure, on the security given, and the promise of Bruce to remit funds to Wildes & Co. to pay the bill. But without relying on this view of the case, we are well satisfied that, admitting the security to have been to Wildes & Co. only, the plaintiffs are nevertheless entitled to maintain their claim upon the established principles of equity : the tfhst having been intended to secure and indemnify Wildes & Co. in case they should be compelled o pay the bill : And as Peril fy others have paid the bill, they are entitled to the benefit of the security by the way of substitution.