Court Opinion

ID: 5184235
Source: CourtListenerOpinion
Date Created: 2022-01-06 04:46:15.623355+00
Date Added: 2024-06-11T08:26:40.904152
License: Public Domain

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 *104cases 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 The rule is no longer applicable when the question of title arises to instruments within the recording acts.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 *105in 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 *106of 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.
*107A 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.