Case Name: Appeal of the Mifflin County National Bank
Court: Supreme Court of Pennsylvania
Jurisdiction: Pennsylvania
Decision Date: 1881-06-20
Citations: 98 Pa. 150
Docket Number: 
Parties: Appeal of the Mifflin County National Bank.
Judges: 
Reporter: Pennsylvania State Reports
Volume: 98
Pages: 150–154

Head Matter:
Appeal of the Mifflin County National Bank.
1. The assignee of a judgment takes it subject to all defenses of the defendant against the plaintiff, but not subject to the secret equities of third parties.
%. The bona fide assignee for valuable consideration of a judgment confessed to indemnify the plaintiff ns surety on cenain notes given by the defendant to a third party, takes free and discharged of the equity of 'that third parly to have the fruits of the judgment applied ou account of the payment of the notes.
3. There is no obligation on the part of such assignee to make inquiry as to the existence of such an equity.
May 24th 1881. Before Merour, Gordon, Paxson, Trunkey, Sterrbtt aitd Green, JJ. Siiarswood, C. J., absent.
Appeal from a decree of the Court of Common Pleas of Mifflin Coimty: Of May Term 1881, No. 160.
This was an appeal by the Mifflin. County National Bank from a decree of the said court making distribution of tlie fund in court arising from the sale of the personal property of the Screw, Mower and Reaper Company under several writs of execution.
Before the auditor, to whom the matter was referred for distribution, the fund was claimed, on the one band, by John M. Weldon, as assignee of Andrew J. Farrand of a judgment for $5,000 confessed to Farrand by tbe Lewistown Engine and Brass Company, and, on the other hand, by the Mifflin County National Bank, on the ground that the said judgment was confessed to Farrand to secure or indemnify him as surety on certain notes given by the Lewistown Engine and Brass Company to the bank, amounting to $5,000, for money loaned to said company by the bank. The bank claimed that Weldon took his assignment of the judgment subject to the equity of the bank to have its fruits applied to the payment of the Lewistown Company’s notes, held by the bank.
The material facts found by the auditor were as follows: The Lewistown Engine and Brass Company was a firm com-' posed of several partners or associates, of whom the “ Screw, Mower and Reaper Company” was one, and Adam R. Reese was another. There were several other partners. All the partners signed the confession of judgment to Farrand, and it was not denied that this judgment was given to indemnify him against his liability as surety on the said notes. This judgment was entered August 24th 1876. On the next day the Lewis- town Engine and Brass Company executed an assignment for the benefit of its creditors.
On January 1st 1877, Farrand assigned this judgment to "Weldon for a inll and valuable consideration. At the time the negotiations for the purchase of the judgment were had between Farrand and W eldon, there were present John W. Dean, secretary of the Screw, Mower and Reaper Company, and all the other obligors, members of the firm of the Lewistown Engine and Brass Company, except Adam R. Reese. He was absent. Weldon and his counsel inquired of all the obligors present whether the judgment was all right. They were assured by Dean and Farrand, in the hearing of all present, that it was, that the Screw, Mower and Reaper Company and A. R. Reese were each abundantly good, and that the money could be made of them. No inquiry was made, however, as to what was the consideration of the judgment. No one present said or in any way intimated any thing about the judgment having been given to Farrand to secure him on account of bis liability to the Mifflin County National Bank. Upon the faith of these inquiries and declarations Weldon parted with his money and purchased the judgment.
The Mifflin County National Bank contended before the Auditor that Dean, the secretary of the Screw, Mower and Reaper Company, had no power to bind that company by his declarations; and further that, as Adam R. Reese was not present, and was not inquired of by Weldon, the latter could not claim to hold the judgment as a bona fide assignee for value not subject to the equity of the bank to have its fruits applied to the purpose for which the judgment was given, namely to secure payment of the notes held by the bank.
The auditor adopted this view, and awarded the fund to the bank. Upon exceptions to his report, the court overruled his distribution, holding, in an opinion filed by Bucher, P. J., that, as the judgment was a partnership judgment, an inquiry by a proposed assignee of any one or more of the partners was sufficient to bind the partnership ; and that the failure of Weldon to inquire of a single one out of five partners could not ■operate to affect him with notice of the secret equity of the bank. Further, that if he had bought the judgment without any inquiry at all, while he would have taken it subject to any existing equities of the obligors, yet he would not be affected by any collateral equities of third parties or strangers, of which he was ignorant. ,
The court therefore entered a decree awai’ding the fund to Weldon as assignee of the Farrand judgment. The Mifflin County National Bank thereupon took this appeal, assigning for error the said decree.
A. Reed, for the appellant.
The equity of the bank to have the judgment applied to its debt was admitted as against Ear-rand. The court, in holding that Weldon’s inquiry of Farraud and of some but not all of the obligors relieved him from the effect of such equity, fell into error by failing to distinguish between the law applicable to such case during the continuance of the partnership, when the declarations of one partner may bir.d all, and after its dissolution, when an inquiry of each and every one of the late partners is necessary. In this case the firm made a general assignment for the benefit of creditors on August 25th 1876, which was i/pso facto a dissolution of the partnership: Cochran v. Perry, 8 W. & S. 262 ; McKelvy’s Appeal, 22 P. F. Smith 409 ; Burns v. McKenzie, 23 Cal. 101; Gleason v. Clark, 9 Cowen 59; Baker v. Stackpoole, Id. 434; Robbins v. Willard, 6 Pick. 464; Miller v. Neimerick, 19 Ill. 172 ; Schoneman v. Fegley, 7 Barr 433.
Woods and McKee, for the appellee.
The assignee of a judgment, who takes it without inquiring of the debtor, tabes subject to the equities of the debtor, but not .subject to equities of strangers, of which he was ignorant: Mott v. Clark, 9 Barr 399; Taylor v. Gitt, 10 Barr 428; McConnell v. Wenrich, 4 Harris 365 ; Wethrill’s Appeal, 3 Grant 281. And while the principal creditor is entitled in equity to the benefit of a security given by the debtor to a surety of the debt, yet the creditor cannot pursue such security in the hands of a bona fide assignee thereof for value and without notice ; although it is otherwise if he has notice: Hancock’s Appeal, 10 Casey 156; Kramer and Rahm’s Appeal, 1 Wright 71; Heath v. Hand, 1 Paige 329.
June 20th 1881.

Opinion:
Mr. Justice Green
delivered the opinion of the court,
It was found as a fact by the learned judge of the court below, and is not denied, that Weldon paid a valuable consideration for the judgment of Farrand against The Lewistowu Engine and Brass Company. It was also found that before or at the time he purchased the judgment, he inquired of several of the parties, who, as partners composing the defendant company, executed the confession of judgment in question, whether the judgment was all right, and was assured by them that it was. It is not pretended that Weldon had any actual notice of any equity existing in the appellant, or in A. R. Reese, to have the judgment applied to the benefit of either of them. In point of fact, neither the company defendant nor any of the parties who signed the confession of judgment, have any defense whatever against its payment. Weldon holds, by valid assignment, the entire title of -the plaintiff in the judgment. The fund in court is the proceeds of an execution issued on this judgment, and it is claimed by, and has been awarded to, Weldon as the assignee of the plaintiff Farrand. Why should he not have it? The only reason urged, is, that the appellant, having discounted certain paper given by the company defendant, indorsed by A. R. Reese, A. J. Farrand and T. B. Reese, had an equity to have the judgment applied to its use, because it was given to indemnify the indorsers against their liability as such. The claim is pressed upon the ground that Weldon made no inquiry of A. R. Reese, when he took the transfer, and that the latter was not bound by the declarations of his co-obligors, because-the partnership was then dissolved. We do not perceive the materiality of this contention. The appellant's' claim is in no sense whatever a defense against the judgment. On the contrary, it is a claim to have the fruits of the judgment paid over to the appellant. In other words, the appeílaut claims the ownership of the judgment,.not by force of any transfer or assignment, but because of its equitable right as a creditor, to have securities given by the debtor to protect the indorsers, applied in satisfaction of the debt. This would be all very well as between the bank and Farrand, if they only were the parties to the controversy ; but how can such a claim affect an innocent purchaser from Far-rand, for value actually paid, and without any notice of the equity set up by the appellant ? It is very true that the assignee of a judgment or mortgage takes it subject to all the defenses of the obligor against the obligee, but it is equally true that he does not take it subject to the secret equities of third persons. This is very familiar doctrine and has been repeatedly enforced by this court. In Davis v. Barr, 9 S. & R. 140, it was said by Gibson, J., " It certainly is not a general principle of equity, that a purchaser for valuable consideration of the legal title to any kind of property, should take it subject to an equity of which he had not notice." And again, on p. 141: " But with any agreement between the original parties inconsistent with the purport or legal effect of the instrument, the assignee has nothing to do. No such agreement is within the purview of the act; and the assignee is not bound to call on the obligor for information about matters, the existence of which he has no reason to suspect, the necessity of inquiry being limited, as I have said, to want of consideration and set-off." In Mott v. Clark, 9 Barr 404, it was said of the assignee of a bond and mortgage: " He takes it subject to all the equity of the mortgagor, but not to the latent equity of a third person. To subject him to such an equity he must have express or constructive notice at the time of the assignment." The same doctrine has been held in the cases of Taylor v. Gitt, 10 Barr 428 ; Wetherill's Appeal, 3 Grant 281; McConnell v. Wenrich, 4 Harr. 365 ; and Twitchell v. McMurtrie, 27 P. F. Smith 383. As A. R. Reese had no defense against the judgment, it was not necessary to apply to him to learn whether he had any secret agreement with the appellant that the judgment was to be held for the benefit of the latter. In any point of view Weldon was not subject to tlie duty of inquiry for such latent equities as it is sought to set up against him, and can stand upon his clear legal' title to the judgment and its fruits.
Decree affirmed and appeal dismissed at the cost of the appellant.