SOCIETY OF SHAKERS AT PLEASANT HILL et al. v. WATSON et al., 68 F. 730

Having stated the case as above, SEVERiONH, District Judge, delivered the opinion of the court. The first question raised by the defendants is one of jurisdiction, if being contended that the citizenship of Letitia Souther is not sufficiently shown to be different from that of the defendants. In the ozlginal bill, Watson was described as a citizen of üew York, and Henry Souther as a citizen of Virginia. The hill styled “supplemental,” of Letitia Souther, does not show her citizenship. The amended bill describes her as being a nonresident of Kentucky, but does not allege her citizenship there.

The defendants, therefore, insist that she, being, as they also contend, a necessary party to the suit, is not shown to he a citizen of some other state than Kentucky, and so that the court is without jurisdiction. The general rule here invoked is undoubtedly ivell established as the result of the statutory provisions upon the subject. Robertson v. Cease, 97 U. S. 646; Insurance Co. v. Rhoads, 119 U. S. 237, 7 Sup. Ct. 193; Everhart v. Huntsville College, 120 U. S. 223, 7 Sup. Ct. 555.

But attention must be given to the peculiar circumstances shown by the record in order to ascertain whether (lie rule is applicable. At the time when the- original bill, was filed, Henry Souther was dead. Counsel for defendants insist, and we think rightly, that Watson was therefore the only party complainant; in the bill then filed, and that for all practical purposes it; should be treated as though Souther had not been named as a party at all; and we also agree to their further proposition that, when Letitia Souther came in, she came as an original party.

The new matter brought forward by her hill was in no proper sense supplemental. Her interest had not before been represented in the suit. But the court had already acquired jurisdiction of the case. Watson, who held the general property in the note upon which the suit was brought, liad filed his bill more than four months before Letifia Souther came in. She had an equitable interest arising upon the pledge of the note as collateral to Watson’s indebtedness to the estate she represented. Watson’s title was a sufficient foundation on which the case could stand.

It is true the pledgee of the note was a proper party, and, in a sense, a necessary party to the suit. She was not a necessary party in giving jurisdiction to the court over the case, and enabling it to make a decision; but she was a necessary party to the rendition of such a decree as should bind all the parties interested in the subject-matter. If the suit had proceeded without the intervention of Letitia Souther, it would have been defective in respect of parties, but not fatally so.

It would have given ground for demurrer, and probably for an objection, to be taken in the answer or at the hearing, though the objection is -rarely allowed to be first started on an appeal. McGahan v. Bank, 156 U. S. 218, 15 Sup. Ct. 347.

A party, by failing to seasonably insist that necessary parties to a complete decree are not before the court, “often suffers the evils of inadequate litigation by leaving some Branch of the subject still open to future controversy.” The court also might take the objection sua sponte at the hearing, and order the case to stand over for the bringing in of the party having an equitable interest in the claim. Story, Eq. Pl. § 75; Cal v. Parties, 113-116; Mitf. Eq. Pl. 180; 1 Daniell, Ch. Prac. c. 5; Coop. Eq. Pl. 33.

That the court may do this, of course, necessarily implies that the case is under its jurisdiction and authority. The defendant should be required to take the objection seasonably. If he does not, and goes* on with the litigation, and, as here, first raises the objection on appeal, he ought to be held to have waived all defects except such as deprive the court altogether of the power to afford any effectual relief. If the defendant, by proceeding, waives such, defects, he exposes himself to further litigation at the instance of the party interested in, but not represented in, the former suit.

But that would be the result of his own negligence in not requiring all parties to be brought into the first suit, so that the decree would protect him. If Watson had obtained a decree upon the original bill, he would have held the fruit of the suit subject to the same equities as he held the note; that is, subject to a trust in favor of his pledgee for the amount of his debt. Here Mrs. Souther was allowed to intervene for her interest early in the suit. That which the defendants might have insisted on, or-the court on its own motion have directed, Avas seasonably done, and no inconvenience has ensued.

Permitting a party to intervene in a pending suit to represent an interest involved does not oust the jurisdiction of a federal court already acquired by reason of the diverse citizenship of the original parties, of whatever state the intervener may. be a citizen. Stewart v. Dunham, 115 U. S. 61, 5 Sup. Ct. 1163; Freeman v. Howe, 24 How. 450; Krippendorf v. Hyde, 110 U. S. 276, 4 Sup. Ct. 27; Phelps v. Oaks, 117 U. S. 236, 6 Sup. Ct. 714; Osborne v. Barge, 30 Fed. 805. We think, therefore, that the jurisdictional objection founded on the citizenship of the parties-is not well taken.

The next ground of defense is that the court had no jurisdiction, because there was a plain and adequate remedy at law. What the supposed plain and adequate remedy at law is in such a case is not very clearly shown to us. It was the society, and not the individual members, which made the note. Some of the members were adults, and some infants. The society was not a “partnership.” Neither was it a “corporation/’ in the proper sense of that term.

The members have no property, having renounced all to the society.It is a somewhat anomalous case, hut is yet of a, kind which occasionally appears in the books of reports, and in regard to which the law has been settled by a number of decisions. It is urged that the statute of Kentucky in regard to the remedy in such cases is of no avail. It is said that it is unconstitutional, in that it attempts to vest a court of equity with jurisdiction of a purely legal right.

It is further said that the statute has been repealed by implication, and that, at all events, it was not competent for the legislature of Kentucky to determine the jurisdiction of the equity courts of the United States, or to interpolate therein a strictly legal cause of action-. We think none of these suggestions are weil founded. The law which is thought to repeal the statute is the general practice regulation of the Code of the state, which does not specif ically refer to this statute, and is not so inconsistent with it but that both might harmoniously be wrought out together. Frost v. Wenie, 157 U.

S. 46, 15 Sup. Ct. 532. Nor can we see any good leason for holding the law void for the reason suggested, or for saying that the equity courts of the United States should altogether disregard it. We do not refer to that act for the details of practice provided by it, but only to show that, by providing the equitable remedy, the rights to be secured were recognized as of an equitable character; for, while the statutes of a‘state may extend the subject of equity jurisdiction, they do not affect the mode of its exercise. Holland v. Challen, 110 U. S. 15, 3 Sup. Ct. 495; Whitehead v. Shattuck, 338 U. S. 149, 11 Sup.

Ct. 276; Gormley v. Clark, 134 U. S. 338, 10 Sup. Ct. 554. That the rights here dealt with partake of an equitable character had been decided in the courts of chancery long before the date of this statute, and the doctrine has now become so well established that we should not hesitate to support the jurisdiction if the Kentucky statute had never been enacted. Let us first suppose that the note constitutes a legal obligation upon which an action at law can be maintained. Against whom shall the suit be brought? Not against the society, for it is not a corporation, and has no legal existence as an aggregation.

If the suit be brought against the members, what members are liable? Probably such only as were sui juris at the time of making the note. But some of these are dead, and others may have withdrawn. The suit, if brought, would be liable to repeated abatements. Perhaps these difficulties could be got along with. But a greater one would be experienced in the remedy for the satisfaction of the judgment. The members have no private property. All is merged in the common mass. There is no inheritance and no estate which would go to an administrator.

It would be an extremely embarrassing task to identify any legal interest of the members in the common property upon which an execution could he levied. It is true there is a statute in Kentucky making the interest of a cestui que trust leviable on execution.

Section 21, art. 1, c. 63, p. 829, of tlie General Statutes of Kentucky, provides as follows: “Estates of every kind held or possessed in trust shall loe subject to the debts and charges of the persons to whose use or for whose benefit they shall be respectively held or possessed, as they would be subject'if those persons owned the like interest in the property, held or possessed, as they own or shall own in the use or trust thereof.” If this statute applies to the interest of members of such a society, such a proceeding would result in rights for contribution among the members, and consequences altogether alien to the purpose and interests of the society would ensue.

It is to such a case that the jurisdiction of a court of equity is peculiarly applicable. By the flexibility of its procedure to fix the liability and the scope of the remedies it is authorized to employ for its satisfaction, it can furnish complete relief where the remedy of the common law is neither plain nor adequate.

A large branch of equity jurisdiction has always been concurrent with that of the courts of law, — that is, has extended over the same general subjects as those taken cognizance of in actions at.law; but where, from the nature of the circumstances, and on account of the inadequacy of its remedies, a court of law cannot afford the due and appropriate relief.

In these eases there is an obligation of a legal character at the foundation of the suit, like the note in the present case, but there is some difficulty either in the manner in which the obligation rests upon persons or property, or in the efficiency of the process belonging to the court, which makes the legal remedy inadequate. Boyce’s Ex’rs v. Grundy, 3 Pet. 210; Wylie v. Coxe, 15 How. 416; Barber v. Barber, 21 How. 582. In Weymouth v. Boyer, 1 Ves. Jr. 424, Mr.

Justice Buller, sitting for the lord chancellor, says: “We have the authority of Lord Hardwicke that if a ease was doubtful, ox* the i*emedy at law difficult, we would not pronounce against the equity jurisdiction. This same principle has been laid down by Lord Bathurst.” It would result from these considerations that this bill could be maintained if the note could be regarded as imposing a technically legal liability. But we doubt if it can be so regarded, and are inclined to think that the rights secured by it are of a purely equitable character.

Looking to the circumstances in which this note was given, we think it cannot be doubted that it was intended to charge the property of the society. The society itself, as has already been said, was not a corporation of which the law could lay hold, nor was it a partnership. It was but a mere name given to a community whose membership is constantly shifting.

The note was not effectual against anything but this changing body, and that only by supposing it to be intended to be a charge against the property which all the members of the society had concurred in putting in a comfnon mass in the hands of the trustees of the society. It could not be accepted that the society intended to obtain the money, appropriate it to its own use, and give this note as an idle form, which it is unless it charges their property.

And the consideration of the note went to augment the fund upon which it is sought to charge it. “Rights in equity equivalent to liens may arise under various circumstances. Tims, real or personal estate may he charged by an agreement, express or implied, creating a trust which equity will enforce.''’ Snell, Eq. (2d Ed.) 274. “In courts of equity the term ‘lien' is used as synonymous with a charge of incumbrance upon a thing, where there is neither jus in re, nor ad mu, nor possession of the thing.

The term is applied as well to charges arising by express engagement of the owner of property, as to a duty or intention implied on Ms part to make the property answerable for the specific debt or engagement. Mr. Justice Erie once remarked [Rrunsdon v. Allard, 2 El. & El. 27] that ‘the words “equitable lien" are intensely undefined.’ .

It is necessarily the case that something of vagueness and uncertainty should attend a doctrine that is of such wide and varied application as is this of equitable lien; and yet the principles are as well defined as other equitable principles, and their application to certain well-established classes of liens is well settled. To apply them to that undefined class of liens which arises from the contracts of parties may be more difficult, because these liens are as various as are the contracts, and precedents which exactly apply may not be found.

This wide application of the doctrine is one element of the importance of this branch of equity jurisprudence.” 1 Jones, Liens, § 28. And Pomeroy, in discussing the subject of equitable liens, says: “There is no doctrine which more strikingly shows the difference between the legal and equitable conceptions of the judicial results which flow from the dealings of men with each other from their express or implied undertakings.” 3 Pom. Eq. Jur. § 1234. In Perry v. Board, 102 N. Y. 99, 6 N.

E. 116, the plaintiff had in good faith advanced money for the improvement of certain property which was in the hands of the defendant upon a trust to raise money by mortgage to pay off this and another debt. The money so raised was not sufficient after paying the other debt to satisfy the plaintiff. He sued in equity to charge the trust property. He had no legal obligation of the trustee, nor of the party which created the trust, upon which he could maintain an action, and no recourse but to the property itself.

The court of appeals held that, because of the lack of any available remedy for the reimbursement of the money which he liad bestowed in augmentation of the trust property with the knowledge of the officers of the parties interested in the trust property, Hie plaintiff was entitled to an equitable lien thereon, which was directed to bo enforced. This case is cited by Jones in his work on Liens in support of the proposition that equity will afford a lien where the plain tiff’s rights can be secured in no other way. 1 Jones, Liens, § 39; 1 Beach, Mod. Eq. Jur. §§ 290, 291. And see, also, Riddle v. Hudgins, 7 C. C.

A. 335, 58 Fed. 490, and cases cited. The bill in this case makes the society, the trustees, and three of the members parties defendant. In our opinion, this was sufficient. It belongs to that class of cases in which it has been held that when the parties are numerous, and it is inconvenient to bring them all before the court, a representation of them may be constituted, and the representatives be made parties to prosecute or defend for all. . Lord Hardwicke, in Vernon v.

Blackerby, 2 Atk. 144, mentions the case of The Bubble, decided in the high court of chancery in 1720, in which, “although several persons were interested, yet they lodged a general power and authority in some few only, and therefore, to avoid inconvenience from making such numerous parties, this court restrained them to those particular persons who were intrusted with this general power.” In Meux v. Maltby, 2 Swanst. 277, the bill made the treasurer and directors of a joint-stock company, who were also holders of shares, defendants to the suit.

Objection being made for want of parties, it was held, upon review of many previous cases, by Sir Thomas Plumer, master of the rolls, that the objection was' not maintainable. In delivering judgment he said: “Here is a current of authority, adopting more or less a general principle of exception, by wbicb the rule that all persons interested must be parties yields when justice requires it, in the instance of either plaintiffs or defendants. The rigid enforcement of the. rule would lead to perpetual abatements. This, therefore, cannot be 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. Can I then dismiss the bill for want of parties, because all the proprietors, admitted to be so numerous that it is difficult to find them, are not before the court? There is no fair distinction in that respect between this case and those which have been stated.” TMs was a case where the parties themselves had lodged the authority of management in certain officers. The same principle obtains where the court itself adopts a few as representatives of the whole. Story, Eq.

Pl. §§ 117, 118. We therefore conclude that the suit is properly brought in equity, and that the defendants are rightly constituted. The next defense presented is that the note was not so executed as to bind the society, but only the individuals, Dunlavy and Scott.

The note is signed in their names, as “Trustees of the Society of Shakers at Pleasant Hill, Ky.” Prima facie it might be that, under the rule adopted by many authorities, the result contended for might follow such a mode of signing, especially where the note has passed into the hands of a party who had no acquaintance with the facts in which the note originated, and insisted on holding the signers to the rule. But here the defendant, the principal of the persons signing the note, raises the objection.

When an instrument like this bears on its face a suggestion that it is executed by one acting as an officer or agent of another, evidence is admissible as against the principal to show that the instrument was intended as the obligation of the party who was in fact the principal in whose behalf the business was done, and not that of the agent. The case is governed by the rule laid down in Metcalf v. Williams, 104 U. S. 93. The cases of Brockway v. Allen, 17 Wend. 40, and Kean v. Davis, 21 N. J. Law, 683, cited by Mr. Justice Bradley in Metcalf v. Williams, are also precisely in point.

The doctrine of these cases is that, while the general rule is as here contended, still it is competent to prove tlie ¡surrounding circumstances where the language of the instrument with respect to the party to he charged is equivocal. The evidence in the present case leaves no doubt whatever that the society was intended to be the obligor. The suggestion of the society that its trustees should be held personally responsible for the debt is altogether devoid of merit. It is also insisted that neither Dnnlavy nor Scott had power to bind the society.

The defendants contend that, Boisseau having been also a trustee, his concurrence in the act of giving the note was necessary. It is undoubtedly the general rule that all the trustees appointed must participate in the act of agency. Mechem, Ag. § 77; 1 Perry, Trusts, § 411; Wilbur v. Almy, 12 How. 180. And, if the society had held its trustees to the rule, it might very well be that this obligation, thus executed, could not at law have been enforced.

But the evidence demonstrates that it did not in the transaction of its business stand upon the rule, but permitted the individuals of the trustees, sometimes one and sometimes two, to conduct the business of tlie society. Indeed, it quite clearly appears that: Dnnlavy was the recognized manager, who often conducted its important affairs without any active intervention of the other trustees.

We think the society should not now be allowed, having got tlie money procured by its ordinary methods and evidenced by an instrument executed in the manner in which for many years its obligations had without dissent been executed, to say that its adopted method was irregular and did not bind it. Besides, if the execution of the instrument was defective, it would not on that account fail in equity. The real purpose and effect of the instrument is to prove the fact upon which the society’s property should be charged; that is, that the money it represented was loaned to the society. 3 Pom. Eq.

Jur. (2d Ed.) § 1237; 1 Beach, Mod. Eq. Jur. § 292; Allis v. Jones. 45 Fed. 148. The observations made in regard to the defense last mentioned apply to the further ground of defense, which is, as stated in the language of the brief submitted by appellant’s counsel, that “the trusiees had no power to bind the society upon negotiable paper, nor did Dunlavy’s signing of the name Dnnlavy & Scott bind the society.” It is proven that the society was in tlie habit of using such paper so executed.

If it did not govern itself by its own rules, or permitted its agents to malee a rule of practice of their own, the society should respond to the results of a rule of practice thus sanctioned. The last ground of defense, and which really ought to have stood first in the line, is that there was no consideration for the note, and chat Watson is not an innocent holder of the note. We are entirely satisfied that Dnnlavy signed the note; that is, that tlie signature is in his handwriting. This was almost conceded by counsel for defendants on the argument. But the evidence leaves it clear enough.

This fact goes far towards proving the good faith of the transaction. Dnnlavy’s reputation for integrity is not impugned. He appears always during his life to have had the entire confidence of the society, and was trusted by it in its most important business affairs. There is no ground whatever shown for suspecting him. Nor is there any proof that the instrument is not such as was intended. It recites that the consideration for which it was given was in fact received. There is affirmative proof from witnesses that the money represented by the note was paid, and there is no proof to the contrary.

The law presumes good faith and fair dealing. There is nothing but the singularity of the transaction to raise a suspicion of anything wrong, and this is not sufficient to overcome the positive evidence supported by the legal presumption. It is not necessary, therefore, to determine whether Watson is a' “bona fide holder,” as that term is employed in the law of negotiable paper. We think the decree of the court below is right, and it is accordingly affirmed.