Case Name: Merchants' Bank of Buffalo, Appellant, v. Louis Weill, Respondent, Impleaded with Others
Court: New York Supreme Court, Appellate Division
Jurisdiction: New York
Decision Date: 1898
Citations: 29 A.D. 101
Docket Number: 
Parties: Merchants' Bank of Buffalo, Appellant, v. Louis Weill, Respondent, Impleaded with Others.
Judges: 
Reporter: Appellate Division Reports
Volume: 29
Pages: 101–117

Head Matter:
Merchants' Bank of Buffalo, Appellant, v. Louis Weill, Respondent, Impleaded with Others.
Bond and mortgage — given by a vendee to a vendor of the mortgaged premises — an oral agreement that the transaction may be rescinded is not binding on an assignee of the bond and mortgage — estoppel by payment of interest to the assignee.
A bond for the payment of money at future periods (secured by a mortgage upon real estate), containing no provision for its rescission, cannot, after it has been assigned, with the consent of the obligor and obligee, to a third party in good faith and for value, be rescinded by the joint action of the obligor and obligee, pursuant to an undisclosed parol agreement existing between them and entered into when the bond was given; 'and an agreement between a vendee of real property, who has given his bond and mortgage thereon to secure part of the purchase price, and the vendor and mortgagee, that the vendee and mortgagor might, at any time within two years of the date of the bond and mortgage, elect to rescind the purchase and reconvey the premises to the vendor, and thereby discharge the bond and mortgage, does not, when executed by a reconveyance of the property in accordance therewith, constitute a defense to an action brought for the foreclosure of the bond and mortgage by an assignee to whom it has been assigned to secure the payment of obligations owing to him by the mortgagee, and as a continuing security for any such obligations thereafter to be held by him.
Semble, that a payment by the mortgagor, with knowledge that the bond and mortgage had been so assigned, of the first six months’ interest, to the assignee, without giving notice to such assignee of such secret agreement with the mortgagee, estops the mortgagor from subsequently asserting the existence of such an agreement and attempting to enforce it as against such assignee, who has subsequently made further advances upon the securities.
Oreen, J., dissented.
Appeal by the plaintiff, the .Merchants’ Bank of Buffalo, from a judgment of the Supreme Court in favor of the defendant Louis Weill, entered in the office of the clerk of the county of Erie on the 12th day of June, 1897, upon the decision of the court, rendered after a trial at the Erie Special Term, dismissing the complaint, in so far as a personal judgment is demanded on the bond.
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 representative or assigns, $6,000 in five equal annual payments, with semi-annual interest on the first'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 Erie. 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 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 Avas 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 ivas discharged. When the assignment Avas executed to the bank, it held commercial paper made and indorsed by Thorne & Angelí, and Avlien this action Avas begun they ivere indebted to the bank in the sum of §15,343.69 on commercial paper, all of Avhich was dated after the assignment of the bond and mortgage, and much of Avhich 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 com^eyance 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.
George J. Sicard, for the appellant.
Simon Fleischmann and Louis E. Desbecker, for the respondent.

Opinion:
Follett, J.:
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 cases was a corollary of the rule of the common law as laid down hy 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 he the occasion of multiplying of contentions and suits, of great oppression of the people, and the subversion of the due and equal execution ojt 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 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 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 ivas 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 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 of the-debtor. (Chance v. Isaacs, 5 Paige's Rep. 592.) All that the 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 Mort. § 847.)
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.
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 obligee to a third party, in good faith and for value, be rescinded by the joint action of the obligor 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 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.