Pennsylvania Company v. Thatcher.
Equitable assignment to an attorney — Of proceeds in compromise of tort — Cannot be enforced by assignee, when — Notice by assignee to tort-feasor — Does not charge funds in his hands, when— Where compromise, fund is paid plaintiff — Assignee cannot recover from plaintiff or defendant, when — Law of assignment of claim.
1. An equitable assignment to an attorney, of an interest in the proceeds of a compromise of a cause of action in tort, cannot be enforced in a suit at law at the instance of the assignee against the tort-feasor only. The P. C. C. & St. L. Ry. Co. v. Volkert et al., 58 Ohio St., 362, approved and followed.
2. A notice by an attorney, to one liable on such a cause of action, that his client had assigned to him “a portion of whatever may be paid in suit or settlement for services to be rendered in connection with said claim,” is indefinite and insufficient to charge the fund in the hands of the tort-feasor, especially when it appears that the real transaction was an assignment of “an interest in the subject-matter of the claim equal to the fees” of the attorney as agreed.
3. Where such a cause of action is compromised by the tort-feasor and the injured party in the absence of the attorney of the latter, before suit commenced, and the amount agreed on is paid over to the claimant, and the attorney, who claims an interest in the proceeds of the compromise, does not follow the fund into the hands of his client, but in consideration of payment of a part of the fee claimed by him agrees not to prosecute his client for the balance of his fee and agrees to prosecute the tort-feasor therefor, he thereby waives his right to recover against either.
*1764. Where in such case the attorney obtained from his client possession of part of the money paid, for the purpose of counting the same, and thereupon said that he would keep the money and apply it on account, but on resistance and remonstrance on part of the client handed it back to the latter, such facts do not show a payment to the attorney.
(No. 10570
Decided May 19, 1908.)
Error to the Circuit Court of Lucas county.
On the 14th day of May, 1903, the plaintiff 'in error was liable to Harley Mattison for damages received in a railroad accident, and on that date Mattison entered into a written agreement with the defendant in error, Charles A. Thatcher, who is an attorney, to prosecute the claim against the plaintiff in error, and stipulated that the defendant in error should be paid for his services, in case of the settlement of the said claim, one-third of the amount so recovered, or one-half of the amount recovered in case of' trial. In said written agreement Mattison also assigned to said Thatcher “an interest in the subject-matter of said claim equal to said fees.”
On the 28th day of May, 1903, Thatcher wrote to the superintendent of the plaintiff in error at Toledo, Ohio, notifying the latter that he, Thatcher, was attorney for Mattison and expressed a desire to open negotiations for settlement. He concluded the letter as follows: “You will please take notice that Mr. Mattison has assigned to me a portion of whatever may be paid in suit or settlement for services to be rendered in connection with said claim.” Thereafter Thatcher had some negotiations with the officials of the plaintiff in error looking to compromise; but on *177or about August i, 1903, while Thatcher was temporarily absept from the city, Mattison took the matter into his own hands, went to the office of the plaintiff in error in Toledo and then and there settled his claim for $3,000, which, was paid to him at that time; and he thereupon gave to the plaintiff in error a release in full for his claim. When Thatcher learned of the compromise and demanded of Mattison $1,000 as his fees under the agreement, a dispute arose as to the value of the services and Thatcher then notified the Company that he would look to it for the full amount of his fees and that unless the matter should be adjusted without further delay he would begin an action against the Company. Negotiations continued, however, between Thatcher and Mattison until August 14. Meantime, on the day after the settlement with the plaintiff in error, defendant in error had an interview with Mattison at Mattison’s house, in presence of Mattison’s wife, mother and sister-in-law. Defendant in error demanded of Mattison one thousand dollars. The latter said he only had in the house between $700 and $800. Defendant in error asked to count it and it was given to him for that purpose. .Defendant in error counted it and then said he would keep the money and apply it on account. Mattison got excited and got between defendant in error and the door, when the latter gave up the money.
On August 14, 1903, Mattison and Thatcher met in a saloon in Toledo, and the former paid $300 on Thatcher’s claim for services and received the following release: “Harley Mattison having deposited $300 with C. B. Hadden I agree *178to prosecute the Pennsylvania Co. for balance of my fees and not to prosecute the said Mattison for the same for the reason that said Mattison is insolvent and a judgment against him would be of no account. If any action is taken by me against said Mattison said payment of $300 to said Hadden is void and said $300 shall be returned to him.” (Signed) “C. A. Thatcher.” Witnessed by E. Miller, H. Schnetzler, C. B. Hadden. Hadden is a lawyer who rented his office from Thatcher and he deposited the $300 in a bank, took a certificate of deposit therefor and indorsed and delivered the same to Thatcher, who still has it.
On May 14, 1904, the defendant in error filed his petition against the plaintiff in error in the court of common pleas of Lucas county alleging that the defendant was a railroad corporation having a line of railroad and doing business in the city of Toledo; that on the 14th of May, 1903, it was liable to Harley Mattison in a large sum of money for a tort committed by the defendant; that the plaintiff was employed by said Mattison as his- attorney, and setting out the contract of employment as hereinbefore stated; that on the 23d of May, 1903, the plaintiff served notice upon the defendant of his interest in the claim and that he had performed everything required of him in carrying out the terms of the employment; that the defendant had promised and agreed with the plaintiff to adjust said claim through him and to pay to him the amount that might be agreed upon in the settlement of said claim, but that, instead of so doing, on or about August 1, 1903, the defendant paid to Mattison the sum of three thousand dollars in settlement *179of said claim, which said sum included the amount which was due to the plaintiff. under the said terms of employment. The plaintiff avers that he had attempted to collect the sum so due him from Mattison; that Mattison had deposited the sum of $300 to be applied on the amount due to the plaintiff, and was, and is, insolvent; that the payment was made by the* defendant for the purpose of defrauding the plaintiff; and that by reason of the premises the defendant is indebted to and liable to the plaintiff in the sum of $700, with interest from the 1st day of August, 1903, for which he prays judgment.
The defendant answered this petition: first, by admitting its corporate capacity and the allegation that it had paid to Mattison the sum of $3,000 in full settlement for-injuries which he had received while in the employment of the defendant, and denies each and every allegation in the petition not herein expressly admitted; second, the defendant further answering says that the plaintiff demanded in settlement of Mattison’s claim the sum of $8,000; that the plaintiff was at the same time authorized by Mattison to settle for the sum of $3,000; that when plaintiff made demand of the defendant of the sum of $8,000, defendant notified Mattison of that fact and Mattison thereupon informed the defendant that the plaiiitiff was no longer his attorney but that one S. H. Kelley would represent him in negotiation for settlement; that thereupon Kelley did negotiate with the defendant and through and by his advice said Mattison accepted the sum of $3,000 in full settlement and discharge of the defendant; that *180said Kelley was present during the negotiations of settlement and when said money was paid, and had said Mattison execute a written agreement of settlement as aforesaid, and thé defendant therefore denies that at the time the settlement was made the plaintiff was the attorney of Mattison; and third, the defendant further answering says that after said settlement had been made, the plaintiff called upon said Mattison at his home and demanded that Mattison should turn over to him the money which he had received in settlement of the claim, which Mattison refused to do; that thereupon the plaintiff made a threat of prosecution and so intimidated Mattison that he turned over a large part of this money to the plaintiff, and the defendant avers that the plaintiff was thereupon paid in full for all services which he may have rendered Mattison as stated in the petition; and that the defendant is informed the plaintiff thereafter returned said money to said Mattison, and avers that if the money was returned by the plaintiff as aforesaid it was by voluntary action of plaintiff and for the purpose of carrying out some mutual arrangement between himself and said Mattison.
By way of reply, the plaintiff denied that Mattison at any time authorized the plaintiff to accept $3,000 in settlement of said Mattison’s claim against the defendant, and avers that Mattison requested him to take the sum of $8,ooo, and no other sum; that at the time the said demand was made by him it was believed that Mattison would never recover from said injuries and that he was justly entitled to receive the sum of $8,ooo. Plaintiff denies any knowledge of any state*181ment Mattison may have made to the defendant regarding the employment of one S. H. Kelley as his attorney. The plaintiff avers and believes that Kelley was never employed by Mattison as his attorney, but that he was secured to act for the defendant in its effort to settle the said case. Plaintiff also avers that Mattison did not employ Kelley as his attorney, but that the defendant did employ him to use his influence over said Mattison- to induce him to settle the claim; that Mattison at no time discharged plaintiff as his attorney; that when said settlement was made plaintiff was absent from the city of Toledo, and prior to leaving said city the defendant through its authorized attorney promised and agreed with plaintiff that no settlement of said claim should be made during the absence of said plaintiff from said city but that the same should be taken up with the plaintiff on his return to the city; and plaintiff charges that the purpose of the defendant in making settlement without plaintiff’s knowledge was to take advantage of the said Mattison and to defraud plaintiff out of the amount to which he was justly entitled. He further says that it is not true that he in any manner intimidated or threatened said Mattison with prosecution, and that it is not true that Mattison turned over to him the money, or a large part, which Mattison had received from the defendant. Plaintiff' says that he has never been fully paid for the services rendered by him to said Mattison, and denies each and every allegation in the answer contained, except such matters as are alleged in his petition.
*182A trial of said case resulted in a verdict and judgment for the plaintiff. Motion for a new trial was overruled, a bill of exceptions taken, petition in error filed in the circuit court, and on the hearing in the circuit court the judgment of the court of common pleas was affirmed. This proceeding is prosecuted to reverse the judgments of the courts below.
Messrs. Marshall & Fraser, for plaintiff in error.
The courts below held the plaintiff in error liable upon some theory of equitable, assignment or equitable lien or equitable interest, and they construed the action as one in equity seeking to reach the fund and therefore held that the moment the company agreed to pay Mr. Mattison $3,000.00 some kind of an equitable ownership to a third of it might attach in favor of Mr. Thatcher, and for the instant the railroad company held it as trustee for him.
If this action is to be treated in any sense as an equitable proceeding to reach the fund, then the petition is clearly demurrable for the reason that there are no sufficient allegations in the petition to reach that end, and there is clearly a defect of parties defendant for the reason that Mr. Thatcher’s client is not a party defendant, and it must certainly be true that if this were an action to reach the fund, the client is a necessary party. This has been so held where the question has been directly raised. Oishei v. Railroad Co., 91 N. Y. Supp., 1034.
There could be no equitable assignment of this fund, which was not in existence at the time the *183assignment was made, and the courts based their holding upon the case of Kendall v. United States, 7 Wall., 113.
If has been expressly held by this court, and we may say it is fundamental law of this state and other states that no assignment of a part of a cause of action can be made so as to subject the defendant to an action at law without his consent. Railway Co. v. Volkert, 58 Ohio St., 363.
In the case at bar it is not claimed even that the Pennsylvania Company ever consented to any partial assignment of this cause of action.
It needs no citation of authority to remind the court that in Ohio there can be no attorney’s lien, and especially before action is begun, and it has been held here and elsewhere repeatedly that no lien attaches for attorney fees in an action for unliquidated damages, prior to judgment.
In some states by statute an attorney has a lien, but not so in Ohio. Diehl v. Friester, 37 Ohio St., 477; Henchey v. Chicago, 41 Ill., 141; Getchell v. Clark, 5 Mass., 309; Forsythe v. Beveridge, 52 Ill., 268; Simmons v. Almy, 103 Mass., 33; Hobson v. Watson, 34 Me., 20; Shank v. Shoemaker, 18 N. Y., 489; Patten v. Wilson, 34 Pa. St., 299; Sherry v. Oceanic Co., 72 Fed. Rep., 565; Kusterer v. Beaver Dam, 56 Wis., 471.
If the courts below were right in holding that the company was trustee for Mr. Thatcher and was required to protect him as against his client, then we say that there was no sufficient notice given the company of the interest which Mr. Thatcher claimed in the cause of action or the fruits thereof, to require the company to hold any specific sum of money for him.
*184A notice of this kind was held by our circuit court in an earlier case, to be entirely insufficient and we have seen no reason for reversing that holding in the present. Connell v. Brumback, 18 C. C. R., 514.
The contract undertakes to make Thatcher a real owner of the tort and thereby makes him a necessary party to the determination of the liability of the railroad company for damages. In other words it introduces into the claim or the case, the claim of one who was not injured, and whose only interest in the claim is that of securing part of any fund produced, the practical result of which would be to prohibit any composition or settlement between Pennsylvania Company and Mattison if any settlement on a cash basis were attempted. It introduces into negotiations for settlement on the basis of a cash payment to the injured party, the claim of this person who was not injured, and who has no interest in the claim except as a possible creditor of the claimant.
'It has long been held in this state that any contract whereby the attorney and the client agree that no settlement can be made without the consent of the attorney, is champertous and void. If the law is as stated, and if no contract can be made whereby such a settlement is prevented, then we desire to inquire how an attorney and client can do indirectly what the law expressly says they cannot do directly? Emslie v. Glass Co., 25 C. C. R., 548; Brown v. Ginn, 66 Ohio St., 316; Boogren v. Railway Co., 3 L. R. A., N. S., 379; Weller v. Railway Co., 66 N. J. Eq., 11.
The theory of an equitable lien upon this fund *185having been created in favor of Mr. Thatcher, seems to us to be entirely unfounded, and is clearly shown in the reasoning of the court in the case of Weller v. Railway Co., 57 Atl. Rep., 733.
Mr. Charles A. Thatcher; Mr. Curtis T. Johnson and Mr. G. B. Keppel, for defendant in error.
An assignment to an attorney by a client, of an interest in the subject-matter of a claim for personal injuries equal to the former’s fees, and a portion of which may be recovered in case of settlement, by some authorities creates an interest in the fund in the nature of an equitable property ; by others it is denominated an equitable assignment. But, whatever term is applied to it by way of description, the result reached is to give to the assignee a property right in the thing assigned, a right which is cognizable and enforceable in a court of equity. Railway Co. v. Volkert, 58 Ohio St., 362; 2 Story on Equity Jurisprudence, Section 1044.
This contract is not' deemed as champertous by any of the cases in Ohio bearing upon the subject, and certainly it is not objectionable if tested either by the syllabus or by the reasoning of the opinion in the recent case of Reece v. Kyle, 49 Ohio St., 574.
Where a debt has been assigned, and a debtor has knowledge of' the assignment, any attempt to settle the case with the assignor and ignore the claims of the assignee, will be held to be futile so far as the rights of the latter are concerned.
It thus appears that the right of a debtor to *186compromise will be preserved as respects his dealing with the real parties in interest of whose claims he has knowledge; and if this be so, the release by one of the parties in interest cannot affect the portion of the debt belonging to another.
It has been held that a simple contract for a share of the recovery, as compensation for the attorney’s .services, is a binding and legal contract. In many cases that is the only way in which a man without money or means can have his action conducted and tried, and in all cases such contracts are sustained by the courts. Emslie v. Glass Co., 1 C. C., N. S., 603.
As soon as the settlement was effected and the money was ready for payment, the lien of Thatcher upon a portion of it arose and was not ¿•defeated by subsequent payment to Mattison by the Pennsylvania Company, as it had both actual and constructive notice of the lien, and while it does not appear that it knew the share of the fund that Thatcher was entitled to receive, its duty was to ascertain the amount and retain it for him. Fischer-Hensen v. Railroad Co., 173 N. Y., 492.
.The lien was not affected by the adjustment, but leaped from the extinguished cause-of action to the amount agreed upon in settlement.
An assignment of a portion of whatever may be recovered in an action by way of compromise, is not against public policy as preventing compromise of disputed claims. 1 Current Law, 223; Phillips on Pleadings, Section 452.
The rule is also established that it is not necessary that the entire fund or debt should be assigned, but some definite part or portion of it. *1872 Pomeroy on Equity Jurisprudence, 291; 1 Current Law, 223.
If the attorney give notice to the defendant not to pay until his bill shall be discharged, payment after such notice would be in his own wrong, and like paying a debt which had been assigned after notice. Read v. Dupper, 6 Term R., 361; Stoddard v. Benton, 6 Colo., 508; Hoffman v. Vallejo, 45 Cal., 564; Smith & Baylies v. Railway Co., 56 Ia., 720.
The right of the attorney to be protected against collusive settlements that deprive him of his costs is just as much entitled to protection, as it would be against a similar fraud to defeat his lien on the verdict or judgment. The difference is in the manner the remedy is to be applied, rather than in the remedy itself. Railroad Co. v. Ackley, 58 Ill. App., 572; Weeks v. Judges, 73 Mich., 256; Line v. McCall, 126 Mich., 497; Moore & Moore v. Robinson, 35 Ark., 297; Savage v. Gregg, 150 Ill., 161; Potter v. Hunt, 68 Mich., 242; Freeman on Judgments (12 ed.), 425; 2 Story on Equity Jurisprudence, Section 1047.
A valuable case is that of Railway Co. v. Ginther, 72 S. W. Rep., 166, in which the contract contains practically the same language as in the case at bar.
Davis, J.
In P. C. C. & St. L. Ry. Co. v. Volkert et al., 58 Ohio St., 362, this court held that an assignment to an attorney of an interest in an existing judgment, in consideration of legal services rendered in procuring the judgment and other services to be rendered in sustaining the judgment is not champertous, and that such in*188terest is not enforceable in a suit at law at the instance of the assignee against the judgment debtor only, but that it may be enforced in equity. Assuming, therefore, for the purposes of this case, that an assignment before judgment rendered, and even before action brought, of an interest in “the subject-matter of said claim equal to said fees,” does not interfere with the right of the assignor to compromise with the tort-feasor, and conceding, also, for the purposes of this case, the claim of the defendant in error that the contract amounts to an equitable assignment of an interest in the proceeds of the compromise, still it must be apparent that the defendant in error mistook his remedy. This is an action at law against the tortfeasor alone and not a proceeding in equity. It is just such a suit as the court, in the case cited, declared could not be maintained. The action is against the plaintiff in error only and the gist of the petition is that the plaintiff in error agreed with the defendant in error to adjust the claim of his client through him; that it violated the agreement and that it thereby became indebted to him, allowing credit for three hundred dollars paid by Mattison, in the sum of seven hundred dollars, with interest, for which he prays judgment and other proper relief. It is a clear-cut action for a money judgment and was so regarded by all the parties; for when the cause came on for trial, the record says: “A jury was waived by all of the parties to this cause, and it was tried to the court.” If it were a suit in equity to reach the fund in the hands of Mattison, or to set aside the agreement of compromise for fraud, or to declare the plaintiff in error to be a trustee for the defend*189ant in error, the petition necessarily would have been entirely different in form and substance, and Mattison would have been a necessary party. Therefore if the courts below were right in holding that the defendant in error had an equitable interest in the fund resulting from the compromise, they were wrong in holding that he could recover against the plaintiff in error alone in a suit at law. This is so not only on authority of the Railway Co. v. Volkert, supra, but for the added reason that the record does not disclose any degree of evidence that plaintiff in error ever agreed with defendant in error to adjust the claim with him only and to pay to him the amount which might be agreed upon in settlement, that allegation and the alleged violation of it being the backbone of his suit at law against the plaintiff in error only. The notice which was sent to the plaintiff in error by .the defendant in error does not tend to prove such an agreement. It merely apprised the plaintiff in error that the defendant in error claimed to have an assignment of “a portion of whatever may be paid.” It contained no assertion that whatever might be paid should be paid to him or that it might not be paid to his client, and there is no evidence that it was assented to in that sense, or any other sense. It was not a notice that the defendant in error claimed an interest in the amount which might be agreed upon by way of settlement, before it left the hands of the plaintiff in error; but it was a notice of a claim upon the fund created by payment, into the hands of Mattison, that is after it should become “paid.”
*190Again, the notice did not truly state the nature of the interest which was assigned. It was not an assignment of “a portion of whatever may be paid in suit or settlement;” but was in fact an attempt to assign an interest “in the subject-matter of the claim” equal to the defendant in error’s fees. This would seem to be an assignment, to the defendant in error, of the very substance of the suit. Whether such an assignment is valid and enforceable against the tortfeasor, is at least doubtful. The reasons against the enforcement of such an assignment have been very clearly set forth by the Court of Errors and Appeals of New Jersey. After referring to the doctrine of equitable .assignments of a portion of a claim for damages for personal injury, which has already been prosecuted to judgment, the court, speaking through Magie, Chancellor, says: “But such a question is not presented in this case, and the argument suggested is wholly inapplicable to. the situation disclosed by this bill. No judgment was recovered upon any of these claims for damages. What occurred between the parties was this: The alleged tort-feasor, the defendant company, admitted its liability for the injuries for which damages were claimed, treated with the injured persons with respect to the amount of compensation to be paid for a release of the claims, and when that amount was agreed on between them paid the same to the injured persons and simultaneously received from them complete releases therefor.
“That a person h.aving a valid claim to recover damages for a personal injury may bargain with his attorney and agree to pay him for his serv*191ices a share of the amount received or recovered, and that such agreement may be Enforced between them seems to admit of no question. But the contention on the part of complainants is that the' attorney holding such an agreement or assignment of a share of the damages received may, by giving notice thereof to the tort-feasor, impose on the latter an obligation to account to him for such share of the compensation for such injuries as may be agreed upon between him and the person he has injured. To give such effect to a notice of such assignment would obviously operate to practically prohibit any composition between a tortfeasor and the person he has wronged, when the composition consists of a cash payment to the latter for a release. It would introduce into the negotiation for settlement, on the basis of a present payment to the injured person, the claim of one who was not injured, and whose only interest in the claim is what Lord Tenterden, in dealing with actions prosecuted in forma pauperis, called the ‘spes spolii.’
“Nor will such assignment fall within the reason of the doctrine respecting equitable assignments of choses in action under the circumstances disclosed in this bill. Such assignments admittedly operate only where some fund or property comes into existence arising out of a previous possibility. Lie who holds such a fund may then be liable to account to the assignee thereof. Where a composition is made between the tortfeasor and the pers.on wronged, on the basis of a payment for a release, the fund does not come into existence until the payments and the release are simultaneously exchanged. Then the fund *192thus created is in the hands of the releasor, and the assignee may follow it there; but it never existed in the hands of the releasee.” Weller v. Jersey City, Hoboken & Paterson St. Ry. Co., 66 N. J. Eq., 11, 18-19.
If this reasoning is entirely sound, it would seem to result inevitably that under such an agreement as this the assignee could not maintain an action against the tort-feasor, but must work out his remedy through the assignor; and so it was held in that case, which was upon a demurrer to a bill in equity against the tort-feasor only.
There is no statute in this state which gives to an attorney a lien upon his client’s cause of action and provides a remedy for the enforcement of such lien; and therefore the opinions of courts in such states as have such- legislation are not generally of much value here, where an attorney’s lien before judgment has not been heretofore distinctly recognized.
But whatever were the original rights of the defendant in error, he abandoned the pursuit of the fund in the hands of Mattison, and in consideration of the deposit of three hundred dollars released Mattison and agreed to prosecute the plaintiff in error for the balance of his fees. His right to follow the fund in the hands of Mattison is unquestioned in any view of the case. This right he has not exhausted and has voluntarily surrendered, although the uncontradicted testimony of Mattison is that, for more than a year after the settlement with the plaintiff in error, he had more than two thousand dollars of the money on deposit in a bank in the same building in which the office of the defendant in error *193is located. His right to recover from the plaintiff in error, if any, must be worked out in equity through his client and must depend on the existence of some legal liability to him, the violation of some duty which the law imposes; and this we do not find in the circumstances of this case.
We are, however, not at all impressed with the contention of the plaintiff in error that the liability, upon whomsoever it rested, was discharged by payment. Something more than seven hundred dollars, it is true, was temporarily in the hands of the defendant in error. It was not placed there for the purpose of payment, but wholly in compliance with his request to be allowed to count it. When the defendant in error after counting the money' said that he would keep it and apply it on account, the suggestion was resented and he returned it. He could not have kept it under the circumstances without being guilty of a crime.
For the reasons stated the judgments of both the courts below are reversed and judgment is entered for plaintiff in error.
Price, C. J., Shauck, Crew, Summers and Spear, JJ., concur.