Case Name: MERCHANTS' BANK OF BUFFALO v. WEILL et al.
Court: New York Supreme Court, Appellate Division
Jurisdiction: New York
Decision Date: 1898-05-07
Citations: 52 N.Y.S. 37
Docket Number: 
Parties: MERCHANTS’ BANK OF BUFFALO v. WEILL et al.
Judges: 
Reporter: West's New York Supplement
Volume: 52
Pages: 37–48

Head Matter:
(29 App. Div. 101.)
MERCHANTS’ BANK OF BUFFALO v. WEILL et al.
(Supreme Court, Appellate Division, Fourth Department.
May 7, 1898.)
Bond for Payment of Money — Defeasance Agreement — Innocent Purchaser—Estoppel.
The original parties to a bond secured by a mortgage entered into an optional executory contract of defeasance providing that at any time the obligor might, by conveyance of the property, rescind the purchase, and reconvey the premises, which reconveyance should discharge the bond and mortgage. The bond and mortgage were thereafter assigned in good faith for value, without any notice to the assignee of the defeasance, and the obligor, after the assignment and before the option was exercised, made a payment thereon. Held, that such option could not be exercised as against the assignee.
Green, J., dissenting.
Appeal from special term, Erie county.
Action by the Merchants’ Bank of Buffalo against Louis Weill, impleaded with others. From a judgment in favor of defendant Weill, the plaintiff appeals.
Beversed.
This action was begun June 18, 1896, to foreclose a bond and mortgage, and to recover a judgment for a deficiency against the obligor on the bond in case any should arise upon a sale of the premises. November 5, 1890, George L. Thorne and Byron P. Angelí were partners, under the firm name of Thorne & Angelí. The firm owned a piece of land fronting on the north side of Forest avenue, in the city of Buffalo, which land is 370 feet long on the street, and 252 feet deep, the legal title to which was vested in Byron P. Angelí, who held it for the benefit of the firm. On that date (November 5, 1890), Byron P. Angelí conveyed the land to Louis Weill. The conveyance is not in evidence, but it is assumed to be an ordinary warranty deed. Weill testified that the consideration of the conveyance was $8,302, of which sum $2,302 were paid down; and on the same day (November 5, 1890) Louis Weill executed his bond to Byron P. Angelí, by which he bound himself to pay to the obligee, or to his representatives or assigns, $6,000 in five equal annual payments, with semiannual interest on the 1st days of May and November in each year; and, as collateral thereto, the obligor executed a mortgage to Byron P. Angelí on the premises so conveyed, to secure the payment of the bond, in which mortgage it is recited that it is given to secure the payment of part of the purchase price of the mortgaged premises. This mortgage was acknowledged November 29, 1890, and on the same day was duly recorded in the office of the clerk of the county of Brie. January 23, 1891, Byron P. Angelí, the mortgagee, assigned his bond and mortgage to the plaintiff as collateral security for the payment of the notes held by the bank, made or indorsed by Thorne & Angelí, and as a continuing security for all the obligations of Thorne & Angelí thereafter to be held by the plaintiff. This assignment was duly recorded in the office of said clerk February 3, 1891. The cashier of the bank testified that, within a month or two after the assignment, he wrote Louis Weill, informing him of the assignment. Louis Weill was called as a witness in his own behalf, and did not deny the receipt of the letter, but testified: “I had paid the interest just once before, on the mortgage at the Merchants’ Bank, in May, 1891, and I was informed in some way that the Merchants’ Bank held this mortgage and bond.” May 1, 1891, a representative of Louis Weill, accompanied by a clerk of Thorne & Angelí, called at the bank, and Weill’s representative then paid §176, interest then due on the bond, which the cashier indorsed thereon. April 30, 1892,' Louis Weill and his wife duly executed, acknowledged, and delivered a deed of the mortgaged premises to George L. Thorne and Byron P. Angelí, which was recorded in the office of said clerk June 7, 1892. The plaintiff began an action to foreclose this mortgage, and asked for a personal judgment against Louis Weill on his bond for the deficiency, if any should arise. Louis Weill answered, setting up the defense that, when the bond and mortgage were executed, it was agreed between himself, as mortgagor, and Thorne & Angelí, that the mortgagor might at any time within two years from the date of the bond and mortgage elect to rescind the purchase, and convey the premises to Thorne & Angelí, which should discharge the bond and mortgage, and that by his deed to Thorne & Angelí of April 30, 1892, the bond was discharged. When the assignment was executed to the bank, it held commercial paper made and indorsed by Thorne & Angelí; and, when this action was begun, they were indebted to the bank in the sum of $15,343.69 on commercial paper, all of which was dated after the assignment of the bond and mortgage, and much of it was for loans made after the assignment. The trial court held that the amount unpaid on the bond and mortgage was an equitable lien upon the land in the hands of Thorne & Angelí, who had received the conveyance from Louis Weill, but held that the executory agreement between Louis Weill and Thorne & Angelí, and its execution subsequent to the assignment of the bond and mortgage to the plaintiff, was a valid discharge of the bond of Louis Weill, and that he could not be held liable thereon for the deficiency, if any. From this judgment, the plaintiff appeals.
Argued before HARDIN, P. J., and FOLLETT, ADAMS, GREEN, and WARD, JJ.
George J. Sicard, for appellant.
Simon Fleischmann, for respondents.

Opinion:
FOLLETT, J.
The defendant rests his defense on Lord Thurlow'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 a universal rule." Davies v. Austen, 1 Ves. Jr. 247.
This rule was declared more than 100 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 choses 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 cases, was a corollary of the rule of the common law as laid down by Lord Coke in Lampet's Case, 10 Coke, 46b, 48a:
"The great wisdom and policy of the sages and founders of our law have provided that no possibility, right, title, nor thing in action shall be granted or assigned to strangers; for that would be the occasion of multiplying of contentions and suits, of great oppression of the people, and the subversion of the due and equal execution of justice."
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 transfer able 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 by which the obligors undertake unconditionally to pay definite sums of money, at stated periods. Snell, Eq. (9 Eng. Ed.) 89 et seq.; 2 Pom. Eq. Jur. § 704. The cases of which Bush v. Lathrop, 22 N. Y. 535, Union College v. Wheeler, 61 N. Y. 112, Green v. Warnick, 64 N. Y. 220, Crane v. Turner, 67 N. Y. 439, and Frear v. Sweet, 118 N. Y. 462, 23 N. E. 910, 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 in a secret collateral contract, after the bond had been assigned, in good faith and for value; the assignment being known to the obligor and obligee before the option was exercised, the parties to the bond not having disclosed to the assignee the existence of the defeasance, but allowed the assignee to make advances thereon upon the faith that it was a valid bond, and the obligor having made a payment to the assignee after the assignment, and before the exercise of' the option. 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 mort gagor 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 devested by any subsequent event or after-accruing right or equity of the debtor. Chance v. Isaacs, 5 Paige, 592. All that a court of law or equity can do in such cases, since they recognize and protect the rights of assignees of choses in action, is to allow them to take, subject always to any defense, legal or equitable, which existed in favor of the debtor against the original holder or creditor at the time of the transfer or assignment." 1 Jones, Mortg. § 847.
Suppose a secret executory contract had existed between the mortgagor and a 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 case 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 this 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. A bond for the payment of money at future periods, containing no provision for its rescission, cannot, after it has been assigned with the assent of the obligor and the obligee to a third party, in. good faith and for value, be rescinded by the joint action of theobligor and obligee, pursuant to an undisclosed parol agreement existing between them, and entered into when the bond was given, or-at any time subsequent to its date, and before the assignment. 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 Ms option, at any time within two years from its date. 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 now es-topped 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.
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 the bond and mortgage, and should not be liable under the same after such reconveyance; and that he should be reimbursed and' reinstated in his original position. Those three instruments were made- and executed in November, 1890. In January following that date, Thorne & Angelí assigned the bond and mortgage which is the subject of this litigation to the plaintiff bank, as a further continuing collateral to other collateral which the bank held for the general debts of Thorne & Angelí to the bank. Within the time specified in the agreement between Weill and Thorne & Angelí, the defendant Weill availed himself of his right to rescind, and in May, 1892, deeded back the property, was paid the money he had disbursed in the transaction, and was thus reinstated in his original position, pursuant to his-agreement. The bank continues to be the owner and holder of the bond and mortgage. Upon default in some of the payments therein agreed to be paid,. it brought this action for the foreclosure of the mortgage, and for a deficiency judgment against the defendant Weill, if, upon a sale of the premises, sufficient was not realized to pay the amount of the bond and mortgage.