Lead Opinion
The defendant rests his defense on Lord Tiiublow’s rule: “A purchaser of a chose in action must always abide by the case of the person from whom he buys; that I take to be an universal rule.” (Davies v. Austen, 1 Ves. Jr. 247.) This rule was declared more than one hundred years ago when an assignment of a chose in action did not transfer the legal title to it, and actions to enforce all kinds of dioses in action, except certain bills of exchange and promissory notes, were necessarily brought in the name of the original promisee, which continued to be the law of this State until 1848.
The doctrine laid down in Davies v. Austen (supra) and kindred
This was the wisdom of those days, but it is not wisdom in these days. From time to time many choses in action which are transferable by delivery or by assignment, have been taken out of the rule, for the encouragement of trade and commerce. Bills of lading, bonds of corporations, under seal, and other securities for the payment of money too numerous to mention have been released from this rule. The rule is no longer applicable when the question of title arises to instruments within the recording acts. When the rule was declared, bonds and mortgages and most of the obligations now in common use were unknown and recording acts had no existence. The origin and development of the rule were largely due to the fact that assignments of choses in action were discouraged, and, when assigned, actions to enforce them had to be brought in the name of the original promisee. Now and for some years actions have been maintainable in the name of the transferee, and assignments of choses in action are encouraged, and the rule instead of being extended has been restricted and many exceptions created. However, the rule relates to defenses arising out of matters inherent in the contract by which the chose in action is evidenced, and existing before it is assigned; and especially is this true of bonds hy which the obligors undertake unconditionally to pay definite sums of money, at stated periods. (Snell's Eq. [9th Eng. ed.] 89 et seq.; 2 Pom. Eq. Juris. § 704.)
The cases of which Bush v. Lathrop (22 N. Y. 535); Trustees of Union College v. Wheeler (61 id. 112); Greene v. Warnick (64 id. 244); Crane v. Turner (67 id. 439), and Frear v. Sweet (118 id. 462) are types, are not in point because the facts and questions involved are entirely unlike the facts and questions in the case at bar.
So far as I know, the rule has never been extended far enough to cover the case at bar, and so as to authorize the original parties to a bond to defeat it, under an optional executory defeasance contained
The defenses available under Davies v. Austen(supra), and under the cases in the Court of Appeals following it, must be actually instead of potentially in existence when the chose in action is assigned; and a defense not in existence when the assignment is made cannot thereafter be created or brought into existence through the failure of the obligee afterwards to perform a collateral agreement with the obligor, nor through the execution of a secret executory contract of defeasance.
In Bush v. Cushman (27 N. J. Eq. 131) the defendant executed a mortgage to Ellis & Co. to secure the payment of $5,000, which was assigned to the plaintiff. An action was brought to foreclose the bond and mortgage, which was defended by the mortgagor on the ground, which was proved, that the mortgagee at the time the mortgage was executed agreed to advance to the mortgagor $15,000, of which $5,000 was part, the other $10,000 to be secured on other lands, and also agreed to purchase the hides and tallow owned by the mortgagor at fixed prices. The mortgagee subsequently to the assignment of the mortgage refused to make further advances and refused to purchase the hides and tallow. It was held that this constituted no defense to the mortgage. It was said: “ Unquestionably, the assignee of a mortgage, or any other chose in action, takes it subject to all equities and defenses existing between the original parties at the time of the assignment, but I do not understand that this rule embraces equities or defenses springing from defaults, or even fraud of the assignor, committed subsequent to the assignment, and which had no existence, and were simply possibilities at the time of the assignment. The rule excludes defenses and rights accruing after the assignment.”
In Coster v. Griswold (4 Edw. Ch. 364) it was held: “ Where an assignee takes in good faith, his right to hold will not be disturbed or divested by any subsequent event or after accruing right or equity
Suppose a secret executory contract had existed between the mortgagor and the mortgagee by which the latter agreed on the receipt of one dollar from the mortgagor, within two years from the date of the instruments, to cancel them. Such an agreement would not, I think, be available against an assignee for value and without notice. The ease at bar is not different It cannot be that in case A. gives his bond to pay B. $1,000 two years from date, with interest, and B. transfers it to an assignee for value, with notice to A., who remains, silent, afterwards B. can, by virtue of a secret executory agreement made with the obligor at the date of the bond, discharge it. This is exactly what was attempted to be done in the case at bar. If the* parties to the bond and mortgage had power to bring into life as against the assignee the defense interposed, they could defeat a bond or a mortgage in the manner supposed. There is no question of notice or inquiry in this. case. The agreement on which the defense is rested is not such a one as a purchaser of a bond is bound to anticipate as possible, or to inquire about, nor is it such a probable defense as a purchaser is deemed to have notice of, or is deemed to have purchased subject to, under Lord Thurlow’s rule. To establish the rule contended for by the respondent will open a wide door for the entrance of countless frauds, and render bonds and mortgages unassignable, with safety to the purchaser, unless he secures a statement from the mortgagor, the subsequent grantees of the mortgaged premises and of all previous holders of the bond and mortgage, that there is no defense then existing against them arising out of, or which may arise out of, secret collateral agreements. If the agreement in this case is good against the bank, a like agreement between an assignee of a bond and mortgage and the mortgagor, or with a subsequent owner of the mortgaged premises, would be valid as against a subsequent assignee, in good faith and for value. Such an inconvenient and dangerous rule ought not to be sanctioned, and I find no authority for it in any case or in any text book.
Again, as before stated, Louis Weill, knowing that the bond and mortgage had been assigned to the bank, paid the first six months’ interest due on the bond to the bank, without giving it notice of his alleged secret agreement with the mortgagee. Then good faith called on him to speak and disclose the fact that the bond and mortgage was subject to be destroyed at his option, at any time within two years from its date, but he remained silent, and by his silence lulled the bank into supposed security and encouraged it to make further advances on the bond and mortgage, which it did, and Weill is estopped from asserting the existence of, and attempting to enforce as against the bank, his undisclosed collateral executory contract with Thorne & Angelí.
The judgment should be reversed and a new trial ordered, with costs to the appellant to abide the event.
All concur, except Green, J., dissenting.
Dissenting Opinion
In November, 1890, Messrs. Thorne & Angelí, of Buffalo, conveyed to the defendant Weill certain premises situate in said city, and, at the same time, the bond and mortgage described in the complaint were executed and delivered by Weill to Thorne & Angelí, Contemporaneously with the giving of this deed, bond and mortgage, a further written agreement was made between Thorne & Angelí and defendant Weill, whereby it was agreed that should Weill, at any time within two years from its date, decide so to do, he could rescind the transaction and redeed the property to Thorne & Angelí, who agreed to thereupon pay to him all moneys he had paid them, with interest, and all other moneys paid out by him for taxes on the property in question; that thereupon, Weill should be released from all responsibility and liability under thé bond and
The facts in this case are undisputed, nor is the general proposition, that the assignee of a bond and mortgage takes them subject to the equities existing between the parties thereto, in any manner controverted by the appellant, but its contention is that this general rule is not applicable to the present case.
The first argument advanced by the appellant in support of its contention is that the contract, in effect, provided that there should be no payment upon the bond and mortgage unless the obligor and mortgagor so elected, and, therefore, that it was a defeasance and impeachment of their terms, and in direct contradiction thereof; that the contract was secret, and the existence thereof concealed from the plaintiff; that such a contract is, in itself, subversive of all equity, and that the promoter of such a contract should not be protected as against an innocent holder of the mortgage security.
An examination of the cases bearing upon this question discloses the fact that a condition analogous to the one here presented exists in each of those cases. The contracts and agreements of the parties therein were secret, and were not disclosed to the purchaser of the security. If they had not been secret and undisclosed to the one dealing with the securities; if they had been included and expressed
It is true that this plaintiff was not apprised of the contract in question when it was executed, for the reason that there was no intention on the part of either of the parties to that contract that the bond and mortgage in question should be assigned to this plaintiff. It was a contract which, under the established rule of law governing parties to contracts, they had a right to make. It" was not incumbent upon Weill to inform any person that such a contract was in existence. It was, however, incumbent upon this plaintiff, dealing with these non-negotiable instruments, to make inquiry of the one who was bound thereby concerning any latent equities that might exist in his favor against the enforcement thereof. If this bank, when it took the assignment of the bond and mortgage as collateral and continuing security for the debts of Thorne & Angelí, had performed its duty in respect thereto, it would have been protected against such contract and the equity now claimed by the defendant Weill. The bank, upon such inquiry, would have ascertained the existence of the contract; or, if upon inquiry, defendant Weill had denied its existence or disclaimed having any defense to the obligations, the bank would have been protected, and the defendant Weill would have been estopped from relying upon the contract. (Kirby v. Fitzgerald, 31 N. Y. 425; Reeves v. Kimball, 40 id. 311, 312.) The bank, however, made no inquiry of the defendant Weill. There was nothing to show that, from the time of the making of the bond and mortgage to the time of the trial, any officer of the bank ever made inquiry of Weill, or that Weill had seen any officer of the bank relative to the bond or mortgage or to his obligation thereunder. The only evidence of any attempt on the part of the bank to even give notification to the defendant Weill that the bank had become the owner of the bond and mortgage, is found in the testimony of the cashier of the plaintiff, who testified: “ Sometime after the assignment of this mortgage to the bank I notified the defendant, Mr. Louis Weill, that such assignment had been made.
The bank took the bond and mortgage for what it aauis worth and without inquiry of Weill, and his communication after that to the bank as to his rights under the collateral agreement could in no way have helped the bank, and his silence in no Avay prejudiced the bank as to the transaction between it and Thorne & Angelí, which had been consummated long before Weill knew of it.
In further support of its contention, the appellant asserts that the so-called equities of the defendant Weill are not inherent in the bond and mortgage transferred to the plaintiff. It has been sIioavu that the deed, bond and mortgage and contract Avere contemporaneous. The contract in question was a part of the original transaction itself The premises were purchased, the deed accepted and the bond and mortgage given upon the conditions expressed in the contract in question. It may fairly be assumed that neither the deed, nor the bond and mortgage, would have been executed, except upon the conditions expressed in the contemporaneous agreement.
The appellant further insists that the equities are clearly with the bank in the transaction under consideration. The bank is seeking to enforce the obligation against Weill. There is no evidence of fraud nor deceit, nor of an intention to deceive any one in the inception and execution of this contract. The bond and mortgage were not given with a view of obtaining a loan or credit from this or any other bank, nor of being used as collateral security for the indebtedness of Thorne & Angelí to this bank. No fraud nor deception was intended or practiced. The parties had a right to make this contract. It was a contract authorized by the law, and the parties thereto had a right to contract with reference to the existing law, and to rely upon the same in the enforcement of the terms and conditions of the contract. There is nothing to show that the defendant Weill was unwilling at any and all times, if called upon, to disclose the terms of that agreement. He certainly could not have been required to voluntarily go to this plaintiff and inform it of his agreement with Thorne & Angelí. Before the assignment of the bond and mortgage to plaintiff he had no knowledge of any transactions or dealings between the bank and Thorne & Angelí, nor that the bank contemplated taking these obligations as collateral securities for the indebtedness of Thorne & Angelí. The obligation and duty rested upon the bank, when it contemplated dealing with these non-negotiable instruments, to make inquiry of Weill and ascertain whether he claimed any defense thereto. (Reeves v. Kimball and Kirby v. Fitzgerald, ante.) The inquiry, to have been effective,
Another reason assigned by the appellant as precluding the defendant from asserting his equity as a defense to this action is that when the defendant Weill reconveyed the property to Thorne & Angelí under the contract in question and received back the cash payment, he then knew that the bond and mortgage were held by the bank, and that his surrender of the property should have been made to the assignee instead of the mortgagee, or should have included both, and that he should then have applied to the bank for the discharge of the bond and mortgage. The election of Weill to rescind was within the time provided by the contract. Thorne & Angelí recognized the conditions and covenants of that contract, and did the only thing possible to .fulfill the terms of the same, and that was repayment of the money to Mr. Weill upon his demand and upon the reconveyance of the land to them and assumption of the bond and mortgage by them, pursuant to their agreement that defendant Weill should be relieved from all liability thereunder and reinstated in his original position. At the time of the latter transaction, it appears, the bond and mortgage had been assigned to the bank, and, therefore, it was impossible for the original contractors, Thorne & Angelí, to cancel or surrender the same at the time of this reconveyance of the land. The bank was in no wise a party to this transaction, nor were its rights affected or changed thereby; its lien upon the land under the mortgage held by it remained undisturbed, and has been protected by the judgment herein, directing an enforcement thereof, by a sale of the mortgaged premises. The bank was not a party to the original contract, neither was it a party to the transaction by which the terms of the contract were fulfilled. No consideration passed to Weill from the bank or from Thorne &
Thorne & Angelí recognized as a valid and subsisting claim the •contract made with Weill, and fulfilled the covenants and conditions therein contained to be performed by them. Of this the bank could not complain, for, in taking the bond and mortgage, it took the same subject to this contract and subject to all the defenses, legal aud equitable, which the mortgagor had against the enforcement of it by the assignor at the time of the assignment. (Hill v. Hoole, 116 N. Y. 302; Bennett v. Bates, 94 id. 354, 363; Stevenson Brewing Co. v. Iba, 155 id. 224.)
“ The principle is settled beyond peradventure that an assignee of a mortgage must take it subject to the equities attending the original transaction. If the mortgagee himself cannot enforce it, then the assignee has no greater rights. The true test is to inquine, what can the mortgagee do by way of enforcement of it against the property mortgaged, and what he can do the assignee can do, and no more. As a purchaser of a chose in action he must always abide the case of the person from whom he buys, and he stands entirely in the place of the latter.” (Crane v. Turner, 67 N. Y. 439, 440; Gray v. Green, 77 id. 619.)
s‘ And the rule is too well settled to require amplification of. the reasons upon which such rule is founded, that an assignee of a mortgage takes it subject to the equities between the original parties to it. The assignee steps into the place, in that respect, of the mortgagee.” (Frear v. Sweet, 118 N. Y. 462; Owen v. Evans, 134 id. 514; Rapps v. Gottlieb, 142 id. 164; Fairbanks v. Sargent, 104 id. 116, 117; Ingraham v. Disborough, 47 id. 421; Schafer v. Reilly, 50 id. 67.)
Many of the cases bearing upon this question have been collated .and commented upon in a recent case (Roosevelt v. Land & River Improvement Company, 11 Misc. Rep. 604), and the conclusion from .such review and discussion is thus expressed : “ The rule is thus established that when one takes an assignment of a mortgage he takes it .subject to all equities that existed in favor of the mortgagor, or in favor of third persons,'unless the person seeking to enforce the ■equity has been estopped from asserting his title against a bona fide purchaser for value without notice.”
The other two cases above referred to were considered in the case of Davis v. Bechstein (69 N. Y. 440). That action was brought to have a bond and mortgage on lands belonging to the plaintiff set aside and canceled. The bond and mortgage were executed by the plaintiff and her husband to Lawrence A. Riley, and delivered to him as an accommodation, to be used as collateral security for the payment of a note which he contemplated getting discounted, and under an agreement with him that he should not have the same recorded. Riley failed to procure the discount. The plaintiff
A careful examination of this case convinces me that it comes within the rule herein stated and forms no exception thereto. The
So much of the judgment as is appealed from reversed and a new trial ordered, with costs to the appellant to abide the event.