#### George R. Williams, Trustee, appellant, v. Michael Donnelly et al., appellees.

Filed March 17, 1898.

No. 9515.

Mon-Negotiable Instrument: Assignment: Defense. A non-negotiable chose in action is subject in the hands oí an assignee thereof to all equities which were of force between the original parties thereto prior to the assignment, but not subject to equities of which he had no notice, existent between his assignor and a thirdperson.

Appeal from the district court of Douglas county. Heard below before Scott, J.

*Affirmed.*

*Wharton & Baird,*for appellant.

' References: *Connecticut Mutual Life Ins. Go. v.*Stinson, 62 111. App. 319; 2 Wait, Actions & Defenses 250; Bishop, Contracts sec. 1189; *Quimby v.fWood,*35 Atl. Rep. [R. I.] 149; *Martin v. Richardson,*68 N. Car. 255; *Connecticut M‘U.tual Life Ins. Go. v. Butte,*45 Mich. 113; *Jacio v. Davis,*29 Ga. 219; *Smith v. Rogers,*14 Ind. 224; *Bush v. Lathrop,*22 N. Y. 535; *Ely v. McNight,*30 How. [N. Y.] 97; *Timms v. Shannon,*19 Md, 296; *Cutis v. Guild,*57 N. Y. 229; *Richardson v. Wood-ruff,*20 Neb. 132; *Johnson v.*Payne,.11 Neb. 269; *Young v. Brand,*15 Neb. 601; *McCreery v. Schaffer,*26 Neb. 173.

*Charles Offutt, contra.*

References: *Clippinger v. Fuller,*10 Kan. 377; *State v. Winn,*19 Wis. 323; *Ym Shaaclo v. Robbins,*36 la. 201; *Huston- v. Marloley,*49 la. 162; *Martin v. Ragsdale,*49 la. 589; *Jefferson Land Co. v. Grace,*57 Ark. 423; *Far gasón v. Edrington,*49 Ark. 107; *lÁvingston v. Wright,*88 Ga. 33; *Willard v. Ames,*130 Ind. 351; *Hagaman v. Commissioners of Cloud County,*19 Kan. 394; *Griswold v. Wilson,*36 la. 156; *Murray v. Lylburn,*2 Johns. Ch. [N. Y.] 441; *lÁvingston v. Dean,*2 Johns. Oh. [N. Yi] 479; *Da/vis v. Barr,*9 S, *&*R. [Pa.] 137; *Mullison’s Estate,*68 Pa. St. 212; *Bloomer v. Hen**194*derson,*8 Mich. 395; *Croft v. Bunsfer,*9 Wis. 457; *Bush v. Lathrop,*22 N. Y. 535; *Moore v. Metropolitan Nat. Bank,*55 N. Y. 41.

Harrison, C. J.

In this action, commenced in the district court of Douglas county, the appellant sought the foreclosure as a first lien of a mortgage for its alleged unpaid amount of f 17,-000. The mortgage was executed by Michael Donnelly, of date January 4, 1890, and delivered to the mortgagee, the Lewis Investment Company of Des Moines, Iowa, and by it assigned to appellant of date December 8, 1891. The property involved was situate in Boggs & Hill’s Second Addition to Omaha. The National Bank of Norwich, New York, of defendants in the action, filed an answer and cross-petition in which it asserted its right to, and asked foreclosure of, the liens of certain certificates of tax sales and receipts for delinquent taxes on the property paid subsequent to the sales for taxes; and further, that, they be declared a first lien. Foreclosure of the claims was decreed and the bank, for the aggregate sum of its liens, was given priority over that of the appellant. The latter in appeal to this court presents the one quesiion, the right of priority of the liens.

Of the facts disclosed by the pleading and record on which the claim of the appellant was and is predicated were the following: There was a statement of the execution and delivery of the mortgage in suit by Michael Donnelly to the Lewis Investment Company as security for the payment of the indebtedness of the former to the latter, as evidenced by a promissory note or bond with interest coupons attached; that the mortgage contained a condition in terms as follows:

> “It is further expressly stipulated and agreed that the said party of the first part shall pay all taxes or public rates and assessments on said real estate now due, or hereafter to become due, to whomsoever laid or assessed, and including personal taxes, before the same shall become *195delinquent, and shall keep all buildings on said preanises 'insured for not less than $17,000 so long as the iiulebtedness secured hereby shall remain unpaid, the policy or policies for the same to be delivered to said party of the second part, and the loss, if any, to be made payable to said party, and in case of a failure so to do, the parly of the second part, its successors or assigns, may pay such taxes-and insure said buildings, and any sum paid for taxes and insurance shall be considered as a part, of the indebtedness secured hereby and shall draw interest at the same rate as said principal sum, and shall be included in any judgment which may be rendered on said bond; and if default shall be made in the payment, of principal or interest, or for insurance or taxes as herein provided, then the whole indebtedness secured hereby may, at the option of the holder, at once-become due and collectible without further notice, and the holder hereof may at once proceed by foreclosure, or in any other lawful mode, to make the amount of said bond, with interest, and all sums paid for insurance or taxes' as above provided.”

It was further pleaded that “The said Lewis Investment Company is a legal corporation incorporated under the laws of the state of Iowa; that said company, in pursuance of~the authority conferred in its articles of incorporation, by vote of its stockholders and directors legally entered, issued and .negotiated its certain debenture bonds; that about the 27th day of February, 1890, said company issued its debenture bonds known as ‘Series B,’ in the sum of $1,000,000, in denominations of $500 each, from one to one hundred inclusive, all made payable to I). Roardman, trustee, at the First National Bank of Ithaca, New York, bearing interest at six per cent, payable semiannually and running ten years from date.; that in connection with the execution and delivery of said bonds, and for the purpose of securing payment of the same, the said Lewis Investment Company entered into a written agreement to and with the said Boardman, trustee, bearing date February 27, 1890, whereby the company cove*196nanted and agreed that it would assign and deliver to said Boardman, trustee, certain first class real estate mortgage and other evidences of indebtedness” (we now quote from the agreement), “all of which shall be first liens on real estate appraised at not less than two and a half times the sum loaned thereon, to an amount which .shall fully and at all times equal the amount of outstanding bonds of this issue and five per cent in excess thereof. All of which mortgages or other loans shall be carefully and prudently made on inspected and approved security. The bonds or notes, together with the mortgages securing the same and the assignment of mortgages to said Douglas Boardman, trustee, are to be delivered to the latter and subject to the privilege of exchange of securities hereafter provided.

“It was further covenanted and agreed that the said Lewis Investment Company shall be understood and bound in all cases to guarantee the title good in the borrower, in the case of each mortgage delivered to said Boardman as trustee, and to guaranty each mortgage to be the first lien on the real estate covered thereby, except the current taxes, not delinquent, and shall obtain from the mortgagor insurance to a reasonable amount upon the buildings covered by the respective mortgages wherever said buildings constitute any considerable portion of the security. Each loan or mortgage shall be accompanied by a certificate of title from the attorneys of the said company certifying to the above facts, and also by a certificate of insurance, stating the amount of insurance, the company, when insurance expires, and that the policy is held by tire Lewis Investment Company; or, if preferred by the trustee, the abstract of title and the insurance policies shall be delivered to him.

“It is further agreed that the Lewis Investment Company may exchange any security held by the trustee, at any time, for other securities to the same amount equally acceptable and approved by him, and that said company will pay to the trustee a fee for his services equal to one-*197half of one per cent on the amount of mortgages originally deposited with the trustee'or exchanged for other mortgages; and further, that they will pay the reasonable charges and expenses of an examiner or inspector ;o be appointed by the trustee to inspect the real estate covered by the mortgages or other securities offered by said company as collateral for the debenture as aforesaid.

“It is further understood and agreed that said trustee shall have the right to reject any mortgages offered as collateral to these bonds which shall not, on inspection, meet his approval or prove' satisfactory, and the Lewis Investment Company reserves the right to take up any mortgage placed as collateral, before the maturity thereof, if it shall so elect, replacing the same by mortgage or other security equally acceptable to the trustee. It is further agreed that no bonds shall be issued by the trustee unless protected by mortgages as above provided, and that no bond shall be valid for any purpose or binding upon the LeAvis Investment Company, ¿or upon any other person or persons, until the same has been properly countersigned and certified by the trustee' as provided on the back of .said bonds. And in case of default on the part of the Lewis Investment Company in paying interest due on said debenture for more than sixty days, or in payment of the pi incipal sum due on said bonds at the maturity thereof, then said trustee is hereby authorized and empowered to collect the amount due on said mortgages by legal process, or by the sale of the same at public or private sale, as may seem for the best advantage of the holder of the debenture, and with the least loss to the said company.

“The said Douglas Boardman promises and agrees to accept the trust created hereby, and to do and perform the services required in carrying out the provisions of the trust for the compensation above specified. And in case of his death or inability to perform the duties of the trust before the maturity of said bonds, then George R. Williams, of Ithaca, New York, is hereby appointed his successor, with all the power, duties,-and obligations created *198by this instrument or imposed upon said Boardman as trustee by law, as fully as if said Williams had been first appointed trustee herein.”

Some time after the agreement Boardman died and the duties of the trust devolved upon Williams, the appellant herein, and the mortgage in suit, as we have before stated, was assigned to him as trustee December 8, 1891. The assignment was recorded of date January 11, 1896. The investment company failed to pay the interest due on bonds January 1, 1896, and Donnelly failed to pay interest on the mortgage debt due of date January 1,1895, and to pay taxes assessed against the mortgaged property. Before the institution of this action the investment company became insolvent and made a voluntary assignment to one Nelson Royal for the benefit of creditors.

The lien of the bank had its origin in the following state of facts: On November 9,1891, William G. Ure purchased at tax sale lot 10 of the property included in the mortgage in suit for the delinquent taxes of the year 1890; and on the same day lot 9 of the property covered by the Donnelly.mortgage was purchased at tax sale, by John Ledwich for delinquent taxes for the year 1890. Each purchaser received a treasurer’s certificate of tax sale. Each purchaser afterwards paid amounts of taxes which were levied on the lot bought by him and which were not paid by the owner but allowed to become delinquent. Both parties, on January 24, 1898, sold- and assigned to the Lewis Investment company the certificates and the receipts for taxes on the property paid by them respectively after tax sale, and in December, 1894, the certificates, etc., were assigned to the bank as security for the payment of an amount of money then loaned by it to the investment company. The loan was in good faith and without notice of the agreement between the appellant and the investment company. It is not contended but that all things in regard to the taxes, the sales, the certificates, the receipts, the payments, and the assignments were regular, and the liens for taxes existing, of force, and the fore*199closure or enforcement proper. It is, however, urged that they were not, in the hands of the investment company, or its assignee, the bank; superior and prior to the lien of the mortgage held by.appellant.

At the outset of his argument the counsel for appellant states the propositions to be noticed as follows:

> “First — That under the terms of the agreement, by which the mortgage in question was assigned to the appellant, the Lewis Investment Company was legally bound to pay the taxes in question and protect the appellant’s mortgage as a first lien on the premises, and that whatever rights the Lewis Investment Company took under the assignment to it of the tax liens in question were necessarily subject to the appellant’s mortgage.

> “Second — That the rights which the Lewis Investment Company acquired by the assignment to it of the tax liens in question were limited and controlled by the provisions of the mortgage in controversy and the provisions of the agreement under which the mortgage was assigned to the appellant, and were merged in the mortgage of which the Lewis Investment Company was the owner, subject to the prior rights of the appellant as assignee or pledgee of the mortgage.

> “Third — That the Lewis Investment Company could assign to the National Bank of Norwich no greater rights to the tax liens in question than it possessed, and as the rights which it had in the tax liens were subject to the mortgage of the plaintiff, it necessarily follows that the rights which the National Bank of Norwich acquired under the assignment from the Lewis Investment Company to it are subject to the mortgage of the appellant.”

For the bank the grounds of the discussion are set forth thus:

> “It is not alleged in the pleadings, or established by proof, that any >of the debenture bonds, to secure the • payment of which the'$17,000 mortgage was assigned'to Williams, trustee, were ever negotiable or sold by the trustee, or that any of them are or ever were outstanding.

> *200*“2.*Waiving the first proposition, as the tax sales were made to Ure and Ledwich, and these men were the ‘original purchasers’ at the tax sales, the certificates therefor were, under the provisions of section 117, article 1, chapter 77, of the Compiled Statutes, assignable by indorsement, and an assignment vested in the assignee ‘all the right and title of the original purchasers,’ that is, of Ure and Ledwich.

> “3. Conceding that the investment company, by the trust agreement and the subsequent transfer of the mortgage, incurred an obligation to the appellant to discharge the tax liens, and that the tax liens, while owned by the investment company, were secondary to the mortgage lien, — these tax liens were acquired from the state, — the appellant had no defense to any of these taxes against the state, he conceded their validity (abstract, pp. 29 and 37); the appellee acquired them in good faith for value from the holder of the legal title thereto, and is, therefore, prior in right to the appellant, who asserts a latent equity based upon a private agreement with the investment company, of which appellee had no notice.

> “4. The investment company has fulfilled every covenant it made with the appellant, and there is nothing in the record on which to base a claim that the investment company has failed in any agreement it made with appellant.”

It seems proper to first take up the proposition advanced for appellee, that it is not of pleading or proof that any of the debenture bonds assigned to appellant were ever negotiated or sold, or that any of them are or ever were outstanding, — in short, that there was no showing, in either pleading or proof, that the plaintiff had any valuable or real interest which entitled him to any standing in this litigation. While these matters are not very strongly pleaded, we think there are statements from which they sufficiently appear. Relative to the first division of the argument for the appellant, it may be said that by an examination and fair construction of the writ*201ten agreement which was made between the trustee and the Lewis Investment Company, pursuant to and under the terms of which the Donnelly bond and mortgage were transferred by the company to the appellant, it clearly appears that the time referred to in the agreement at which, as to any security transferred, the contract or promise of the company should attach and be effectual to the extent the title to any property included in any mortgage, the subject of transfer, was to be affected, that the mortgage should be a first lien thereon, and also as against taxes except the current taxes not delinquent, was of the time the security became a lien on the property by its execution and delivery to the investment company, when it was completed, as an evidence of indebtedness and lien therefor in favor of such company. That by the “current taxes not delinquent” was meant taxes assessed and payable during the year the mortgage was given, but not at the time of such act delinquent, and with this we think the correct construction of the terms of the agreement, none of the taxes which had been paid by the parties who assigned the evidences of the tax liens to the investment company, and which it assigned to the appellee bank, were within the import of the agreement, as the taxes were of the year 1890 and subsequent years. But it is needless to notice in detail the arguments. All the propositions urged for the appellant originated.in and derive their being from the agreement between the Lewis Investment Company and the appellant, which we have hereinbefore quoted, and unless, by reason of it, they are potent, have no force; by it equities arose between the company, the assignor of the bank, and a party other than the original parties to the instrument assigned.

We deem it best now to turn our attention to the certificates of purchase, at tax sale, etc., which were assigned by the investment company to the bank; of these it is asserted for appellant that they were non-negotiable choses in action, and if assigned, the assignee received them subject to equities, burdens, and offsets which had attached *202to or existed as to them between the immediate assignor and other parties, specifically, in this instance, the appellant. There is some contention for appellee on this point that such certificates are evidences of a special nature, and by reason of the transactions in which they originate, entitled to special consideration and to special rank and immunities as assignable claims or liens. The certificates are of statutory creation, both in substance and form (see Compiled Statutes, ch. 77, art. 1, sec. 116), and are by law made assignable, it being provided: “The certificate of purchase shall be assignable by indorsement, and any assignment thereof shall vest in the assignee, or his legal representative, all the light and title of the original purchaser; and the statement in the treasurer’s deed of the fact of the assignment shall be presumptive-evidence of such assignment.” (Compiled Statutes, ch. 77, art. 1, sec. 117.) Whether such certificates are more than non-negotiable choses in action is not necessary here to consider or determine; for the purposes of the discussion, without deciding it, it may be conceded that they are not. The rule is that the assignee of a nonnegotiable chose in action stands in the shoes of his assignor as to all equities existing between the original parties, or, in other words, receives it subject to all equities existing between the original parties at or prior to the assignment (2 Am. & Eng. Ency. Law [2d ed.] 1080); but this does not apply as to equities between the assignor and a third person of which the assignee had no notice. (2 Am. & Eng. Ency. Law [2d ed.] 1081, and note.) It was said by Chancellor Kent in *Murray v.*Lylburn, 2 Johns. Ch. [N. Y.] 441: “It is a general and well-settled principle, that the assignee of a chose in action takes it subject to the same equities it. was subject to in the hands of the assignor. But this rule is generally understood to mean the equity residing in the original obligor or debtor, and not an equity residing in some third person against the assignor.” There are decisions which support a contrary doctrine, but the weight of authority is favora*203ble to tbe foregoing rule, and the reasons given for it are satisfactory; hence we will adopt it, and applying it to the existent conditions developed in the case at bar the portion of the decree of the district court by which the Jien of the bank was accorded priority was correct and is

Affirmed.

Irvine, C., not sitting.