476
FEDERAL REFORTER. GILMER V,
MORRIS and others.
«(Jt"rouit Court, M. D. Alabama. November Term, 1886.) JUDGMENT-RES .ADJUDICATA-DllilMISSAL.ON DEMURRER.
Plaintiff filed a bill in a state court which, in effect, asked that he be allowed to redeem certain stock pledged by him with the defendant, a banker, in 187l. On demurrer to the bill, the court sustained the plea that the statute of limitations had run against it, and gave decree "that complainant is not entitled to relief, and that his bill of complaint be, and the same is hereby, dismissed out of this court." In the present suit plaintiff asked for an accounting and for general relief, and set out that' he had pledged the stock in 1871; that in that year part of the stock was sold, leaving a small balance due defendant; that in 1875, 'having formed a partnership, he arranged with defendant that the stock should be retained by him to secure loans and discounts to his firm as well as the balance of the original debt; that suchartangement was reo uewed as to successive firms of which the plaintiff was a partner; that large dividends were received upon the stock; and that from 1875 to 1884 defendant continuously. held, and acknowledged that he held, the stock as a pledge on plaintiff's account. Held, that the ,plaintiff, having merely failed in the first action from the omission of an essential allegation, which was supplied in the second suit, the dismissal waS not a trial upon the merits, and did not operate l1S reB adJudioata, and ,that plaintiff was entitled to maintain his ac· tion.
In Equity. Heard upon the allowartce or defendants' plea. R.O. Brickell, H. O. Semple, and W. A. Gwnter1 fOf complainant. D. S. TrfYJj"H.a. Tompkins, and A. T. London, for defendants. BRUCE, J. The bill was filed September 20,1886, and sets out a pledge as collateral security, in the year 1871, of 120 shares of stock in the Elyton Land Company, by plaintiff, to Josiah Morris, to secure to him the repayment of the sum 0($6,000, which sum Morris had advanced for the purchase money of said stock; that. in the year 1871, one-half of said stock was sold for the sunl of $6,000, leaving a small amount Qr iiiterest due to Morris, and that, in the year 1875, orator formed a partnership with one Donaldson; and desiring-,as he charges in his bill, "to continue his bank account with said Josiah Morris & Co., and to obtain from them, from time to time, some .accommodations by way of loans and arranged and agreed, in the early part of the year 1875, with said Morris, that the said stock should be held by him, not only to secure sucb balance as was due 'him on the original purchase thereof, but also for all indebtedness which the said firm of Gilmer & Donaldson might incur to him, or to his banking firm, * * * and afterwards, and in pursuance of said agreement, and up to the death of said Donaldson, in 1876, the bank account of said Gilri1er & Donaldson was opened and continued, * * * and loans and discounts were made to them from time to time. * * *" Orator says that after the death of Donaldson he formed other business partnerships, and that during the course of said dealings, under the name of Gilmer & Clanton. and Gilmer & Merritt, the saId Morris, through his said bank, as he had done for many years for all of orator's previous firms, extended credits and made loans of money to 'said firms, from time to time, upon the
GILMER V. MORRIS.
477
faith and credit of said stock belonging to orator in his hands as a pledge as aforesaid; but orator's two firms last mentioned left no balances against them in closing their accounts with said Morris' bank. The complainant states thatlarge dividends have been paid to Josiah Morris on this stock; and, without stating in detail the further allegation of the bill, the averment is that" Morris continuously, from the month of March, 1875, to the year 1884, did hold and acknowledged that he held said stock as a pledge on orator's account, and to secure the payment of the said balances due him and his said bank." The prayer of the bill is the defendant Josiah Morris may be compelled by a decree of this court to account for and pay over to orator all such dividends as may have been paid upon said stock since the same has been in l1is hands as aforesaid, after deducting any and all indebtedness on the part of orator to Morris and his said firm for which the stock is liable, and for genetal. relief. 'fa this bill the defendants plead in bar, and say that on the seventh day of July, 1884, the plaintiff, James N. Gilmer, exhibited his bill of complaint in the chancery court of the Sixth district of the Southern division of the state of Alabama against these defendants, alleging his ownership of the identical 60 shares of stock in the Elyton Land Company described in the present bill in this court, and praying in that court the same relief as is prayed in the bill in this court; that in that suit the defendants answered the bill, and also answered an amended bill which was filed by the plaintiff in that case in the state court; and that at the April term, 1885; of that court, the cause was submitted on the pleadings an!i testimony on the merits therebf; and that by the decree of the chancellor; a copy of which is made a part of the plea, "it is ordered, adjudged, and decreed thlitcomplainant is not entitled to relief, and that his bill of complaint be dismissed out of this court." * * * And that afterwards, on appeal, at the December term, 1885, the decree of the court below was affirmed by the supreme court of the state of Alabama. They thereupon plead said. proceedings in bar of this action, and say thelllatters set up in this bill have been heard and determined bya court of competent jurisdiction, and pray to be dismissed, with their costs. It IS admitted that the state chancery court which rendered the decree pleaded in bar of the present suit is a court of competent jurisdiction, and that it had jurisdiction of the parties and the subject-matter of the suit; that the parties in this suit are the same as in the former suit; that the thing sought to be recovered in this suit, to-wit, 60 shares of stock in the Elyton Land Company, is the same thing which was sought to be recovered in the former suit; but the contention of the plaintiff is that the cause of action in this suit was not the cause of action in the former suit, and that it could not have been so, because the cause of action in this was not within the issues made and determined in the former suit. Plaintiff contends that the allegations of the present bill are not the allegations of the bill in the state court;· that the cause of action is neither in substance nor in fact the same cause of action, and that upon the
478
FEDERAL REPORTER.
present bill he has not had the one hearing and tr$al on merits of his case which the law gives to every litigant. In ,the discussion?f this question, what are we to understand by the words "ca1,lse of action?" the thing or ,They seem, in some caseR, to be used as synonymous in suit, Or the subject-matter of the suit.. We speak of a suit OJ), a promissory note or contract, and in some sense the demand in suit is the cause of action; but, strictly speaking, is It promissory note the cause (lOhe suit upon it, or is it not rather the mere evidence of a right which right is the real cause of the action? A cause of action springs out of facts which show a breach of some duty or obligation, to enforce which is the purpose of a suit, either at law or in equity; the cause of the action is the right which the party has to the thing which is the subject-matter of the suit, and not merely the thing itself. The distinction between the subject-matter of a suit and the cause of action is maintained in Freeman on Judgments, §§ 252-256, and seems to be well founded. The bill in the state court was filed on the seventh day of July, 1884, which was subsequent to all the alleged acknowledgments of the pledge by -Morris, as charged in the present bill, which was filed on the twentieth 4ayof September, 1886; and the proposition oftbeplea is that, as to the stock in suit, the complainant is concluded by. the judgment of the state; court, not only as to the questions which were actually passed as to those questions which upon 1;>y the court in that suit, but might have been passed upon and decided in that court. It is to be observed that, with the answer filed by Morris to the bill in the state court, there was also, under the practice in equity in this state, a demurrer to the bill on the grounds (1) that the facts alleged show that the demand is stale, and barred by the statute of limitations; (2) the complainant has an adequate remedy at law. In the opinion of the chancellor of the state court, filed as an exhibit to the plea, he says: "The statute of limitation, therefore, is a bar to the rights of the complainant in this cause;" and the decree is "that complainant is not entitled to relief, and that his bill of complaint be, and the same. is hereby, dismissed out of this court." The ruling and judgment of the state court on the former suit is tlms shown to have been, upon demurrer to the bill, that the averments thereof did not make a case for relief. The proposition of the plea is that under the law as it has been settled, the statute of limitations of the state furnishes the rule of property in the United States courts sitting in such states, and, the state court having passed upon the question of the right of property of the stock sued for, that the rule of res judicata applies, and the bar is complete. But did the state court in this case, when it held that the complainant hlld not in his bill stated a case for relief, and dismissed the bill out of court, pass upon the question of the right of property to the stock other than as it was shown by the averments of the bill in that case? 'fhe state court said, in effect, by its decree, that complainant in his bill stated a cause of equity; and when it said that, could has it say more, and determine a cause of action which was not set up or stated in the bill?
GILMER V. MORRIS;
479
"It is settled law that a judgment of a court of competent jurisdiction, upon a question directly involved in one suit, is conclusive as to that question in another suit between the same parties." . In McCaU v. Jones, 72 Ala. 371, the court says: "The rule of res adjudicata, or former recovery, is contilled tu those cases where the parties to the two suits are the same, the identical point is directly in issue, and the judgment has been rendered in the first suit on that point." . And again, in the same case, the couli says it is not only essential that the issue or point in question must either have been actually decided or necessarily involved in the first case; but the first judgment, sought to be pleaded in bar in the second suit, will not be available as a unless it was a juligment on the merits of the case; citing authorities. An indefinite list of authorities might be cited to the same effect, but I will only add here Bigelow on Estoppel, at page 75, where he says: "Thepeeuliarity of the plea of. former judgment consists, therefore, in the fact that it shows that a certain claim or demand has already been tried and -determined. To tbis end it must be shown that there is identity between the present and the previous cause of action. The question, thetl,to be decided, is whether the two causes of action are tlle same. If they are not identical, the defense is not good." Now, can it be maintained, in the light of the law as stated in the authorities cited, that the question of the right of the complainant toredeem from the pledge of 1871 was the same question presented. to the court in the case at bar, which is the right to redeem the same property, it is trtie,but from a pledge made in 1875, upon a distinct agreement a distinct trust from the pledge of 1871, and an alleged continued acknowledgment of the trust relations between the parties down to a recent period prior to the filing of the bill? And, again, can it be held that the merits of the case presented to the state court are the merits ofthe case at bar, and that the same evidence pertinent to support the bill in the case at bar would have been pertinent to support the bill in the state court? The proposition of the plea seems to go to this extent: that a plaintiff, filing a bill or complaint in court to enforce the right which he claims to the subject-matter of his suit, must state, in his pleading, every ground and reuse ofaction upon which he bases his right to recover; and if he does not do so, and is met by a demurrer, upon which. the court· decrees the plaintiff does not show any right to relief, and dismisses· the bill or complaint, that such judgment is a bar, not only to ase.cond suit stating the same cause of action, but equally a bar to any bill or complaint which the plaintiff might file upon any other possible ground or theory of his right to recover. Is that the law,and do the adjudged cases carrythe rule of res judicata to that extent? The case of Durant v. E88tX Co., 7 Wall. 107, is relied on to support this plea. It was there held that "a decree dismissing a bill iIi an eqUity
94 n. S. 608:
What is the rule of res judicata'
It is thus stated in RuaseU v. Place,
480
suit in the circuit court of·the United States, which isubsolute in ite terms, unless made on some ground which does not go to the merits, is a final determination of the controversy, and a bar to any further litigation of the same subject between the same ,parties;" but that is not the case of the dismissal of a bill upon demurrerfor,want of equity, but after testimony was taken o:n .both sides, and the case .was heard on its merits, and argued by counseL' See page 110 ofthis opinion. The defendants rely upon the case of Souse v. Mullen, 22 Wall. 42, .where the court, at page 47 , say: . "As the record stands, this decl'ee might be pleaded successfully as a bar to any other bill brought by Eliza House, or by Mary Hunter, her child,' in assertion of herright to, this lot, though we are of the opinion that the only defect in the bill is that it shows no interest in Mary Hunter, while it does show a good cause for equitable relief on the part of Eliza House. "The court would naturally presume that Eliza House had stated her elise in her bill, and the court would toot would bar her right to the lot in .qu(;lstion j meannot affirm a ing, of course, her right as shown by her bill;' and. the question as to whether she might not have some other ground Or cause of action as to the property,was not in the mind onhe court, and the question we are {}onsidering was not before the court. . ." . . The case 'Jf Aurora City v. Weet, 7 Wall. 83, is relied on in support of the plea,and there the rule is thus stated : "Except in special oases, the plea of res j'udicata, says Taylor, applies not only to points upon whichthecourt:was.actuallyrequiJ;ed to pass an opinion and. pronounce jUdgment, but to every point whillh pro}>erly belongs to the subject of. litigation, and which the parties, exercising reasonable diligence, . might have brought forward at the time." This rule evidently applies to trial upon defined issues, and in such cases, when a party fails to present proof to f?Ustaill his.case upon the issues ma,de, he cannot afterwardl;l be allowed to avoid the rule on the ground thathe did not do that which he had the full opportunity to do. In that case, on same page, the court limits the rule of res judicata to matter in the second suit which "was open to the party within the legitimate scope of the pleadings in the first suit, and might have been presented in that trial." Many other cases are cited in support of the plea, which are more or less in point; but it may be fairly questioned if any of them go to the extent of this plea, though some of them, in expressions used in the opinions, but not on questions actually decided, would seem to go to that extent. These cases seem to make no distinction between the subject-matter of the suit and the cause of the action,-a distinction which seems to be well maintained, and which seems logically to result from the doctrine which is fundamental in res judicata, that the judgment of the court, ip. order to be a bar to a second suit, must have been upon the same question, either actually decided, or necessarily involved, and within the scope of issues in the first suit. . Is it not sometimea the case that the matter in controversy may be based upon different grounds or causes of actionj and is it sound in
,GILMER
v.
MORRIS.·
481
principle to say that when arparty presents his case to II. court on one ground, and theory of his right to recover,ifit should appeal' that he was mistaken, he should be visited with the penalty of a conclusive bar to any and every ground .of relief? It is said in Tompson v. National Bantk, 106 Mass. 128, that a plaintiff in a bill in equity is not concluded on demurrer by his allegations, of law; and it would seem to be a severe rule that a plaintiff should be visited ;with such fatal consequences, if he should be mistaken in the theory of law upon which be ,should file his bill. The law seeht1,le merits of a03use, rather than to put a party on any calculation ofchanceS for and against the successful assertion of his legal rights. It luay J>e said that,in such a case,a complainant may amend, and state other and different grounds of relief. . But dqes not his right to amend imply his right, at his option, to state a new case in another bill or complaint? If the complainant had amended his, bill ili.Jihe state court, and, stated ,a case. for relief, and the defendant had answered, and the plaintiff replied, if the answer Contained matter for replication, and a trial had then been had upon ,issues thustenderoo and joined,. the judgment ·of the court would be ,oonclu-; sive, notonl1 as to the ,questions actually and necessarily passed, upon, by the court, but also upon the. questions which might properlyhav& been passed. upon under the iSSues made and tendered in the pleadings·. This statement ,of the rule is as far as the adjudged: cases carry,it,Md under its operation the merits of a cause could generally be reached; at, least, ,the parties would have opportunity to present the meritB;but, in a. case like the one the judgment in which is plea.ded here in bar, how, can the judgment be a bar to any other cause of action than the; one stated in the bill before the court? ,It maybesaid l generally" that a party in bringing his suit halt a right, to state his case as he wilt, A complainant in equity, what shall be the scope ofbis. bill, and what matter he will pre.'ient for issue to hisadvel'sary; and,itis, not speculating or experimenting not to state, matter which, upon some other ol:.different theory of his cause, might be ground of another action.· In support of these views and the rule as stated,supra, the following cases are cited: Gould v. Evansville R. Co., 91 U. S. 534; Packet 00. v. Sickle$, 5 Wall. 592; McDonald.v. Life'Ins. Co.i65Ala. 358; Gil'1na'f/,v. Rives, 10 Pet. SOl j Griffin v· Seymour, 15 Iowa, 32; Bonnifield v.Price, 1 Wyo. 223j-Lo8 Angelo8v.MeUu8, 59 Cal. 444; Stowell v. Chamberlain, GON. Y. 275; Pritchard v.Woodruff, 36 Ark. 1:96; 1 Herm. Estop. §§ 133, 155. In Bigelow on Estoppel, pp. 50, 51, it is said a judgment rendered on the ground of insufficiency of plaintiff's declaration, or dismissing a. bill in chancery for insufficiency, is not a bar to another suit, and a line of authorities are cited, among which are Thomas v. Hite l 5 n. Mon. 590; Marrell v. Morgan, 65 Cal. 575, 4 Pac. Rep. 580; and some of the cases cited8tlpra. It may be said, however, that in some of these cases the judgment was held to beM bar on what might be called special grounds, as in. one case for want of proper parties Others of them. are v.30F.no.7-31
482
up to the proposition stated, ,though the author; like other elemeutary writers, gives the rule as foUJ1din the adjudged cases, when they are, perhaps, not in harmony with one another. Among the many cases cited by the complainant in support of the bill, the case of Gould v. lWat18i)i}le'R. R., supra, seems to have particular application here; not thatit is like the case at bar in its facts, but the court states the rule in that case, both as to when a prior judgment of a court is a bar to a second suit and when it is not; and, at page 534, says, "that, if judgment is rendered for, the defendant on demurrer to the 'declaration, or toa material pleading in chief, the plaintiff can never after maintain against the same defendant, or privies, any similar or ooncurrent action, for the same cause, upon the same grounds as were disclosed in the first declaration, for the reason that the judgment upon such demurrer determines the merits of the cause,and a final judgment deciding the right must ptlt ,an end to the dispute, else the litigation would be endless; but it is equally well settled that, if the plaintiff fails on demurrer in his first action; from the omission of an essential allegation in his declaration, which is fully supplied in the second suit, the judgment in the first suit is nj:) '})ar to the second s\1it, though the respective actiOll$ were instituted 'to enforce the same right; for the reason that ,the merits of the case, as' disclo&ed in the second declaration, were not heard and decided in the first aotion;" citing authorities. .The "court in' that case sustained. the plea upon the ground that the substance and legal effect of the two pleadings-that is,' the deolaration in the first and the second the same in all material respects, and that the alleged differences were unsubstantial; We have, however, the rule stated with as much clearness as in any of the cases cited; and, While the case which the court was considering fell within the rule of reB judicata,' does not the case at bar 'fall within the other part of the rule: thllt'thejudgnlent in the first suit is a bar only to ,the case stated, and the merits disclosed in the declaration in the first suit? Certainly it is SO" unless it should be< held, 88 it:was in that case, that the two snits, as disclosed in the respective bills filed in the state and' in this court, are the same, and that the differences alleged in the two pleadings are nom· ina! and unsubstantial. ' . The remaining! question, then; is, are the two cases the same? By what rule or ,test shall the question be determined? The substance of the bill in the case at bar has been stated with some particularity, and attention must be given to the, amendments that were made to the bill in the state court after it was filed, not only to what was by amendment added to ,the first paragraph of the bill, but also to what was stricken from and the changes made In: the subsequent paragraphs of the bill. It is not too much to say·thllt the amendments materially changed the substance and narrowed the saopeofthebill from what it was when tirstfiled, and really reduced'thedaim made to redeem the stock from the pledge of 1871. 'No question 'is here made as to the right of the complainant so to amend his bill, though it may be noted that, with the answer' filed to the amended bill, there are the same demurrers as were
. GILMER V.,MORRIS.,
483
interposed,to> We bill.as first .filedjand in addition other grounds or demurrer,one of which is "tha1;: the as amended, makes an entirely different case :from that made by the original bill." , If the bill in .the state coprt had not been amended after it was filed; perhaps there might be some difficulty in pointing out substantial differences between it and the bill in the case at bar. But, however that may be, the question is, are the two bills in substance the same, and by what rule or test shall that question be determined? We have already seen that the bill in the case at bar sets out a distinct pledge in the early part of the year 1875, upon a distinct agreement, which need not be repeated, and alleging a state of facts which, if trile, is inconsistent with any defense of the statute of limitations, or any application of the. doctrine oflachea, and showing, on the face of the bill, that testimonyWillbe required to sustain it from that requir0d to sustain the bill in' the former suit in the state court. ' . , In Freeman on JUdgments it is said, section 259:' and, most as to whetherafqrmer judgment is a bar, is to inquire whether the same evidence will sustain both the presentand the former action. If this identity of.evidence be· foun<i, it will IIlake. difference that the form of action is not the same. * * * On the other hand, if different proof be reqUired to sustain the two actions, a judgment in one of them is no bar to the other. If the eyidence in a second suit, between the s!'we parties, is sufficient to entitle the plaintiff to a recovery,bis right cannot be defeated by showing anti udgmen,t againstbim in any action, where the evidencejn the present suit would not, if offered. have altered the result." It may be said, however, that the proof necessary to sustain the bill in the present suit would have been pertinent to defeat the defense of the statute of limitations, and the application of the doctrine of laches in the former suit in the state court; but upon whut issue would such proof have been pertinent in that cause, and did the complainant tender an issue inhis bill upon which such evidence could have been properly received? The supreme court of the state, in affirming the decree of the chancellor in the court below, say: "There is neither averment or satisfactory proof of any recognition on defendant Morris' part of any existing trust· relation between himself and complainant between the. time of the original transaction and the filing of the bill." It is manifest that such a remark cannot be made in reference to the averments of the bill in the case at barjand, if it be correct to say there was no averment as stated in the former suit, then how can we, in this case, hold that the question presented here, by the matter of the bill in the case at bar, has passed in rem judicatam in the former suit in the state court? The legal maxim that the allegata and probata must correspond and agree applies here, and, if there was no averment, then no issue, and, if no issue, there is no room f<ir proof, and no ground upon which an estoppel can rest. Tried, then, by the test which the law furnishes, the bill in the case at bar is not, either in SUbstance ()r legal effect, the same bill as that which was preferred in the former suit in the state court; and the plea, therefore, is insufficient, and it is soorder{!d.
FEDERAL. REPORTER.
!. am authorized ·by Illy Brother PABbEE, who heard the case with me, he< concurs in ,holding the plea insufficient on the single ground that the suit in the state·court seems to have been to enforce a qiffereJlt trust from the trust charged in the present bill.
CENTRAL NAT. BANK OF BOSTON V. HAZARD
and others.
COv,cuit Oourt;N. J1. New York.. March 24,1887:)
L R.upioAD BILlTY.
..: !IJElee.i.ver's certificates. are not (lommei"cial paper, and the holder takes them subject to all equities 'between the origInal parties! even though he acquired ., ' them for value and without notice. .
CERTIFICATES,...NEGOTIA. . . . '
I.
SAME:""PUltCIrASED AT
"When such. .at a discount, the receiver is 'ndt authorized toallow, a subsequent bona ftde-holder wIll only be protected to the amount actually advanced'by the first purchaser. SAME-'-SALE AFTER ISSUE OF CERTrlI'XCATE--RIGHTS OF PuRCHASERS.
DIS<Joml'T; .' '
8.
Purchasers at a judicial sale of ,the property and·frl.tnchises ofa railroad cOmpany, "subject to the 'payment: of the. undue principal and interest" on certain receiver's certiflcatesofip;de;btedness previously issued by order of the oourt, or ,persons acquir,iDg titlethrol\gh such purchasers, cannot resist the payment of the certificates the gfound that the receiver negotiated them collusively,and with lessbenefl't to the trust fund than should been realized. They have' 'liO 'interest in' the trust fund' represented by the certificates, and it is immaterial to them whether they were or were not negotiated on fair terms, and for thll' best interests of the fund. purchasers, .and all others under purchasers at a judicial sale, are concluded by the decree llutho1-Izing the sale, and estopped from questioning the validity of receiver's eertificates of indebtedness, subject to the payment of which the sale was decreec;l; t,o,be,made. ,.' :' .
4.
G.
SAME,...PPRCHASER'S
Where the deed to purchasers ata Judicial sale provides that such sale is "subject to the payment:of the undue prlnClpal and interest" on certai,n of the railroad whose property and franchises were, the subject-matter of tb,e sale, such purchasers,. and all persons claiming :by derivative title from them, Me estopped by the deed from deriying the lien'of the certificates for the Whole principal and interest due upon them.
8. ESTOPPEL-BY JUDGMENT-PRIviES; Every Person is a privy to a ,judgment whose succession to the rights of property thereby affected 'subsequently to the commencement of the suit. Thus 6 grantee is estoppetl by a judgment against his grantor, because he holds by:s derivative title' frOUl such grantor. ,
Thomas G. Sherman and Robert Ludlmo Fowler, for ,defendants. Matthew Heile and Mr. Hyde, for complainant·.
'WALLAcE,J. The complainantis the owner of receiver's certificates for 8250,000, part of an issue amQunting in all to $350,000, created del; authority 9f an order of the supreme court Of the state of New York. Tl;Iat order was made in an action pending in that court, brought by one Sackett, for Jl,nd other bondholders of the Lebanon Springs