THE Reporter finds the following statement of the case, prepared by Mr. Justice Nelson, and prefixed to the opinion of the court.
This is a writ of error to the Circuit Court of the United States for the Southern District of the State of Alabama.
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 the 9th of 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 the 26th of August, 1844. Possession being admitted by the defendants, the plaintiff rested.
It appeared, on the part of the defence, 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 per cent. interest. The mortgage in question bore eight per cent.
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 per cent. profit.
The chancellor decreed that the contract was valid, and the bond and mortgage binding upon the defendant, and that, unless 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.
It was argued by Mr. Dargan, for the plaintiffs in error, and Mr. Sergeant, for the defendant in error.
Mr. Dargan, for the plaintiffs in error.
The facts of this case may be thus stated. The Alabama Life Insurance and Trust Company held the bond and mortgage of Archibald R. Smith, executed and delivered to said company. They filed a bill in equity in the State of Alabama to foreclose the mortgage. Smith resisted a decree and set up a defence, that the consideration of the bond and mortgage was illegal, in this, that the consideration of the company to him was the bonds of the company to an amount equal to his bond, payable in New York, which bonds of the company bore interest, payable semiannually, and were in the form described in the bill of exceptions. That said company had no power or capacity to deal by way of exchanging credits. The Supreme Court of the State of Alabama dismissed the bill of the company, declared the consideration illegal, and the bond and mortgage void.
This is shown by the record of the case, reported in 4 Alabama Reports, 558, which case, as reported, is made part of the bill of exceptions. It was also shown by the secretary of the company, that the consideration of the bond and mortgage was stated correctly in the report of said case. After this decision was rendered, the company transferred the bond and mortgage to Kernochen by an assignment on the back of the mortgage, marked exhibit B in the bill of exceptions.
Tisdale, the secretary of the company, testified, that the transfer of the bond and mortgage to Kernochen was for $1,000. That the object of the transfer was to obtain a decision of the question in the courts of the United States. That he did not know whether Kernochen was informed of the motive of the transfer; that the company had never had any other transaction with him, and that this was done through J. Hunt, their agent.
The defendant in the court below showed, also, that Smith had resisted the mortgage in his lifetime, and denied its validity; of this the company was apprised; also, that, since the death of Smith, the land had been sold under execution, and bought by Powe, one of the defendants. The defendants requested the court to charge the jury, that if the transfer of the mortgage was for the purpose of giving jurisdiction to the Federal courts, and to enable the Alabama Life Insurance and Trust Company to prosecute its claim in this court, and that the lessor of the plaintiff was privy to this intention, that the deed was void, and could give the lessor of the plaintiff no title which this court would enforce. This charge was refused. The defendant also requested the court to charge the jury, that the consideration of said mortgage was illegal, and therefore the mortgage was void, and the plaintiff could not recover; which was refused.
Also, that the judgment and decree of the Supreme Court of Alabama, as delivered in the case of Smith v. The Alabama Life Insurance and Trust Company, was conclusive, and that neither the mortgagors nor those claiming under the mortgage, since the rendition of said decree, could recover the land described in the mortgage; which was refused. Also, that, if the jury believed that, at the time of the transfer to the lessor of the plaintiff, the defendants held the land, denying the validity of the mortgage, the transfer was void as to them, and that the plaintiff could not recover; which was refused.
And the court charged, that any matter in abatement should have been pleaded in abatement, and that the facts proved by the defendant on the trial, as set forth in the bill of exceptions, after the plea of the general issue, could be of no avail to the defendant, and could not abate the suit.
The court also charged, that the defendants and Archibald R. Smith were estopped from denying the consideration as set forth in the mortgage, and that the consideration, as expressed therein, was sufficient, according to the laws regulating the Alabama Life Insurance and Trust Company, to sustain the contract set forth in the mortgage.
Also, that the judgment and decree of the Supreme Court of Alabama was not conclusive, and could not bar the plaintiff in this suit.
It will be seen by the bill of exceptions, that the case, as reported in 4 Alabama Reports, as well as the acts of the legislature incorporating the company, and altering and amending the charter, are part of the bill of exceptions.
I intend to present the following questions:––
1st. The court erred in refusing to charge the jury, that, if they believed the transfer to Kernochen was made with the view to enable the Alabama Life Insurance and Trust Company to litigate their claim in this court, the transfer was void, and could give no title that this court would enforce.
The response of the court to this request, as will be seen by the charge given, was, that this fact could have no influence after the general issue had been pleaded. That, if it was true, it was but matter in abatement. This is the substance of the charge given.
The Constitution did not intend to confer on the Federal tribunals jurisdiction to determine on the rights of citizens residing in the same State, unless the subject-matter was of admiralty jurisdiction, and where citizens of the same State held grants to the same land from different States.
A deed, therefore, which is merely intended to give jurisdiction to this court, and is not for the purpose of transferring the right to the thing to the vendee, but as between vendor and vendee the interest and right is still with the vendor, contravenes the spirit and intention of the Constitution; shall it be effectual for this purpose? If so, it appears to me that the framers of the Constitution ought to have added, or rather that we now add to the Constitution, after the words, 'between citizens of different States,' 'and between citizens of the same State where one of the parties has transferred his right to a citizen of another State, with the view to give jurisdiction to the Federal courts.'
Justice Washington, in 1 Washington's Circuit Court Reports, 82, decided that a deed for such a purpose was void, and could not effect its object. I think that this court came to the same conclusion in the case of McDonald v. Smalley 1 Peters, 558; in concluding the opinion, Chief Justice Marshall uses this language: 'The case, we think, depends on the question, whether the transaction between McArthur and McDonald was real or fictitious; but there being nothing in the record from which the court could pronounce it was fictitious, the deed was maintained. But suppose the evidence had shown that the deed was fictitious, that McDonald was suing merely for McArthur, what would have been the decision? It seems to me, from the whole case, that the deed would have been pronounced void,–a fiction merely; and, therefore, it could not have given title so as to effectuate the very fictitious design for which it was intended; that is, to coerce the adjudication of the title in the Federal courts.'
The District Court seemed to think it was matter in abatement; now Kernochen was a citizen of the State of New York, the plaintiff in error, of Alabama; the Circuit Court, therefore, had jurisdiction so far as the parties on the record are concerned. And the only question was, Had the plaintiff the better title? He had the title the mortgage gave him, if the transfer was valid in law; if it was not valid in law, he had no title, and the question was therefore properly raised in bar. True it is, that, in 1 Peters, the question seems to have arisen on a question of jurisdiction to the court; but the court will perceive that the question still must have been, Did the deed from McArthur to McDonald give title to McDonald? If it did give title, as McDonald resided in Alabama, the jurisdiction was perfect; if it gave no title, McDonald could not recover; therefore the question was, did the transfer of the mortgage, for the purpose of prosecuting the suit for the Alabama Life Insurance and Trust Company, being intended to give fraudulent jurisdiction to the court, convey to him any title, or such a title as this court would enforce?Deeds given for illegal purposes are void, and courts will not execute the purpose. This transfer was made to enable the Alabama Life Insurance and Trust Company, a corporation of Alabama, to litigate its rights with citizens of Alabama in the Federal courts.
The company was prevented by the Constitution from doing this. They try by this deed to do it, and for this purpose they make it; will the court execute the purpose, or declare the deed void? If void, no title passed, none at least that this court would enforce; for, if it did, it would be carrying out, or permitting the Alabama Life Insurance and Trust Company to carry out, their illegal purpose.
The whole testimony fully authorized the request asked. A decision had been rendered on the case in the Supreme Court of the State, prououncing the mortgage void. The company never had had any transaction with the plaintiff. The secretary admitted that the object was to enable the company to try the question in the Federal courts; only a thousand dollars was received. It might well have been left to the jury to say, Is this not all a fiction, a design and trick between Kernochen and the company? and if ...