Towner v. McClelland
110 Ill. 542
Ill.
1884
Check Treatment
Mr. Justice Walker

delivered the opinion of the Court:

What are the rights of the parties on the facts in this case ? Did defendant in error acquire title to these notes, or either of them, when he purchased of Kribs ? As to the note overdue, we think not. The case of Foley v. Smith, 6 Wall. 492, was where the payee of a note left it with a bank for collection. It was indorsed in blank, and not having been paid at maturity, an officer of the bank, after it was due, fraudulently sold the note, and it was held that the note, being over-due, and the bank having no power to sell it, the purchaser took no title to the note,—that the note being dishonored by nonpayment at maturity, the purchaser was put on inquiry to ascertain whether the bank had authority to sell it, and failing to make inquiry to learn the fact, he was chargeable with bad faith, and took nothing by his purchase. That case is in point in this. Here, Kribs had no power to sell that note. It was over-due, and that put defendant on inquiry, and having failed to learn whether Kribs had necessary authority to sell the note, he must suffer the loss. The other note, not being clue when he paid the $1000, and it was delivered to him, depends on a different principle. He found the note in circulation and negotiable by delivery. Being indorsed in blank, and not due, he acquired title by the purchase and delivery, as there was no notice or anything to put him on inquiry. The statute expressly provides that purchasers of negotiable paper not due, and without notice, shall be protected against defences of payment by the maker. Here, this note was not due, and defendant in error purchased without notice, and as against the maker he took it free from the defence of the after-payment by Bartlett to Wilcox before the note matured. There is no question that Bartlett paid Wilcox in good faith, nor is there any that defendant in error acted in equally good faith, and the loss must fall on one of two innocent parties. The equity of defendant in error is manifestly equal to that of Bartlett, and where the equity is equal the law must prevail,—and that maxim applies in its full force in this case as to this latter note. Defendant had, for a full consideration, acquired, as we have seen, the legal title, which must turn the scale in his favor. Then, defendant in error having purchased the note in good faith, before maturity, and holding the legal title, all of his rights incident to commercial paper may be enforced in a court of law; but where resort is had to a court of equity by such holder, to foreclose the mortgage, that court will let in any defence which would be good against the mortgage in the hands of the mortgagee. (Olds v. Cummings, 31 Ill. 188.) It therefore follows, that where the mortgage is transferred in equity by the assignment of the note to which it is incident, the assignee of the mortgage is not protected, as he is with the note acquired in good faith before maturity.

A mortgage not being assignable at law, the assignee takes it subject to all equities between the parties. The fact that he takes the note by assignment, before maturity, free from all defences at law, does not thereby protect the mortgage against equitable defences,—that applies alone to negotiable paper, and not to equitable assignments. Not only so, but where a mortgage is assigned, and the mortgagor without notice pays the payee, who has parted with the note, that will discharge the mortgage, and in a suit to foreclose, such payment may be set up in bar of a decree for its foreclosure. The mortgagor, to release himself from liability on his note, must see that he pays the money to the holder of the note, who has received it by assignment before maturity, but not so to discharge the mortgage, because it is not assignable at law. The equitable assignee, to protect his rights against a payment by the mortgagor to the mortgagee, must give the former notice, actual or constructive, of its assignment. He may place the assignment on record, or give notice of the assignment to the mortgagor. Here defendant in error did neither, nor did the mortgagor have any notice, nor was there anything to put him on inquiry. It follows that the mortgage was satisfied by the payment by Bartlett, through Kribs, to Wilcox.

The decree of the Appellate Court is reversed, and the cause remanded.

Decree reversed.