delivered the opinion of the court:
Emilie Wilhelmine Peacock, who was the owner of a promissory note for $15,000 secured by a trust deed on premises known as 151 Astor street, in Chicago, and the trustee in the said trust deed, filed their bill in the circuit court of Cook county to foreclose the same. The appellant, J. Arnold Scudder, filed his cross-bill in the case to foreclose a trust deed which was a second lien on the premises, and was made to secure the payment of a note for $4000 which he had purchased from the Chicago Savings Bank and Trust Company and which was held by the bank as collateral security for a note of $2500. The appellee, Edwin F. Masterson, had purchased the premises, and he and his wife by their answer disputed the right of the appellant to a foreclosure for the full amount of the trust deed, and insisted that it was a lien upon the premises only to the amount of the note for which it was cpllateral, which amount they were ready and willing to pay. The appellant had paid for the note and trust deed on April 29, 1907, $2530.62, which was the amount due the bank, and appellee offered to pay that amount, with interest. The appellee paid the amount secured by the first trust deed and the-original bill was dismissed without prejudice to the cross-bill. He also paid to appellant the amount which appellant had paid for the note and trust deed, together with interest covering the amount for which it had been held as collateral, and $200 solicitor’s fees agreed upon by the parties. Appellee also deposited with the clerk of the court $1800 to be held pending the result of the suit, arid the lien of the trust deed was transferred, by order of the court, from the land to the fund deposited. The issues were referred to a master in chancery, who reported that appellant was entitled to the full amount of the $4000 note, with interest. The chancellor overruled exceptions ■ to the report and entered a decree for $1618 and interest from March 3, 1908, and ordered the clerk to pay that sum to the appellant out of the funds in his hands. The Branch Appellate Court for the First District reversed the decree and remanded the cause, with directions to order the payment of the amount deposited to the appellee and to dismiss the cross-bill of the appellant. The court then granted a certificate of importance and an appeal to this court.
The question to be decided is whether the appellant, who purchased the note of $4000, and the trust deed securing the same, with notice that they had been deposited for the payment of a note for $2500, was entitled to a decree for the full amount of the note and trust deed purchased, or was only entitled to the amount due the bank and secured by the note and trust deed, which was paid to him, together with solicitor’s fees.
The material facts were agreed upon before the master, as follows: Lillie M. Phillips, who was the owner pf the mortgaged premises, made her promissory note on November 27, 1906, for $2500 to the Chicago Savings Bank and Trust Company, and at the same time she and her husband executed their note for $4000, payable to their owq. order and endorsed in blank, together with a trust deed to secure its payment. The $4000 note and trust deed were delivered to the bank as collateral security for the $2500 note, which provided that upon default in payment the bank might sell, the collateral pledged for such payment. Upon the maturity of the $2500 note, on January 26, 1907, a new note for the same amount, payable thirty days after date, with interest at seven per cent, and with the same provisions as to the collateral, was given and the same collateral security was .retained by the bank. The $2500 note was not paid, and on April 29, 1907, the bank sold the collateral security for the amount due it, to the appellant. The amount due was $2530.62, and appellant lcnewr all the circumstances of the pledge. The bank canceled the $2500 note and returned it to Mrs. Phillips. Six weeks after the sale of the collateral to appellant Mrs. Phillips and her husband conveyed the premises to the appellee, who was informed of the note and trust deed pledged as collateral security with the bank and that the bank had authority to sell the note and trust deed on default of payment of the $2500 note, but he did not know that the sale had already been made.
A creditor holding goods, chattels or tangible personal property as a pledge to secure the payment of the indebtedness to him may sell the same and apply the proceeds to the payment of his debt, accounting to his debtor for any surplus. (22 Am. & Eng. Ency. of Law,—2d ed.—882.) From the nature of the property the only method of applying it to payment of the debt is through a sale, but it is not so with bonds, mortgages or promissory notes, which are available for the payment of the principal debt by collecting them and applying the proceeds. (Joliet Iron and Steel Co. v. Scioto Fire Brick Co.
A trust deed or mortgage is not assignable either by the common law or under the statute, and while the assignment of a promissory note secured by mortgage carries with it the mortgage as an incident of. the debt, it does so only in equity. When resort is had to a court of equity to enforce the obligation created by the mortgage it will let in any defense which would have been good against the mortgage in the hands of the mortgagee himself, excepting only defenses based on latent equities of third persons of whose rights the assignee had no notice. (Olds v. Cummings,
Counsel fo£ appellant regard the collateral as answering the same purpose as accommodation paper, but there is no similarity between the two. Accommodation paper is made without legal consideration, and would fail of its only purpose if the assignee could not recover on it discharged of all defenses that might have existed against the accommodated party. (Miller v. Larned,
The judgment of the Appellate • Court is affirmed.
Judgment affirmed.