Bartlett v. Eddy ( 1892 )

Ellison, J.

The defendant, Mrs. Eddy, is the bona fide assignee for value of a non-negotiable promissory note and deed of trust securing same. The note was given to Silas L. Craig by John Hall, and by Craig assigned to Mrs. Eddy. The plaintiff seeks to enjoin Mrs. Eddy from foreclosing the deed of trust. The case was tried on an agreed statement of facts. The statement is quite lengthy, but the following is believed to be a sufficient epitome to a full understanding of the case.

December 1, 1885, Craig sold to Hall the southwest quarter of the southwest quarter, and the southeast quarter of the southwest quarter, and took note and .deed of trust for $700, due in two years, to secure purchase money. He recorded the deed of trust, January 13, 1886. January 15, 1886, Craig assigned in writing and delivered said note and deed of trust to Mrs. Eddy who paid value in good faith. October 15, 1887, Hall conveyed back to Craig (as he supposed but in reality to one Seals), by quitclaim deed, all the land he bought of him, for the consideration of the $700 note (theretofore assigned and delivered to Mrs. Eddy unknown to Hall), and some other land. Hall demanded his note of Craig, but was put off from time to time till May 17, 1890, when Craig gave him a receipt. Seals had no interest in any of the transactions in this case. He was merely Craig’s shadow, Craig using his name instead of his own.

May 1, .1888, Craig borrowed of Gilbert and Gay $1,000, and to secure same gave (through Seals) deed of trust oh the southwest quarter of the southwest quarter. On the same day he gave a second deed of trust to Bartlett Bros, for $100. Neither of these beneficiaries had actual knowledge of the note and deed of trust which had been assigned to Mrs. Eddy, but relied on Craig’s assurances that the title was clear.

May 1, 1888, Seals conveyed to Craig by warranty deed the southeast quarter of the southwest quarter, and Craig on the same day conveyed same tract by warranty deed to Joseph L. Dunning, Dunning relying on Craig’s representations that the note was paid. May 1, 1888, Dunning borrowed, through Craig, $850 of Grilbert & Gray, and to secure it gave deed of trust on the said southeast quarter of the southwest quarter, Grilbert & Cay relying on Craig’s statement that the title was clear. July 27, 1889, Cilbert & Cay and Bartlett Bros, inquired of both Craig and Hall about the Ha.11Craig note and deed of trust (which had been assigned to Mrs. Eddy more than three years before), and were told by them that they were paid; and Craig on that day did enter satisfaction on the record.

December 10, 1889, Seals conveyed to Craig, by warranty deed, the southwest quarter of the southwest quarter, which, as shown above, had been mortgaged to Cilbert & Cay to secure $1,000 and to Bartlett Bros, to secure $100. December 20, 1889, Craig conveyed, by warranty deed to the plaintiff, the southwest quarter of the southwest quarter, representing that the Hall-Eddy note was paid. August 15, 1890, plaintiff got notice of the assignment to Mrs. Eddy.

November — , 1890, plaintiff purchased at sale, under the Dunning deed of trust to Cilbert & Cay, the southeast quarter of the southwest quarter, and also purchased at sale under the Seals deed of trust to Bartlett Bros, the southwest quarter of the southwest quarter.

In the foregoing transactions of Craig, since his assignment to Mrs. Eddy, he was acting fraudulently and in bad faith.

The question presented by these facts is whether Mrs. Eddy, as assignee, can subject the land in plaintiff’s hands to the lien of the deed of trust securing the note assigned to her. Formerly, at common law, the assignment of choses in action was not recognized. Whatever vitality it had came from equity, and the remedy of the assignee on the instrument was in equity (Story on Contracts, sec. 465), and through, the use of the assignor’s name. Under such conditions it was generally understood that the title to the chose was not perfected in the hands of the assignee as against the dector till he had given notice of the assignment to the debtor. Such is not the rale now as to a bond or note. Our statute now provides that such assignment may be made, and that the action thereon may be in the name of the assignee. The effect of this is that now the legal title is vested in the assignee immediately upon assignment without regard to notice to the debtor. As to that vast variety of choses capable of assignment, other than bonds or notes, such, for instance, as may arise from funds or annuities provided by will or deed, and which are not capable of manual delivery, it seems that notice to the trustee or debtor is necessary to complete the title. The whole object of the rale, either in law or equity, is to put it out of the power of the assignor to commit fraud, and, therefore, possession in the assignee is the requisite to the validity of the assignment. But as to those chosés which have, so to speak, no individuality, and which cannot be delivered, notice to the trustee or debtor is considered a symbolical delivery. In each case fraud is prevented. If the bond or note be delivered to the assignee no one can be imposed upon as a subsequent assignee', for the assignor has not the thing to assign', nor can the debtor be defrauded (except through his own negligence) by paying to his creditor, the assignor; for he should, unless excused by statute, see that such assignor has the note. In the other instance, when possession cannot be bodily delivered, a notice to the trustee or debtor answers every purpose of protection. Leaving the assignor in possession of a bond or note is like leaving him in possession of any other chattel after sale; it gives him the appearance of ownership, and enables him to defraud those •with whom he may afterwards deal. These views are supported by the case of Dearle v. Hall, 3 Russell, and Ryall v. Rowells, 1 Ves. Sr. 347. And considerations similar to these doubtless led Judge Scott to say in Richards v. Griggs, 16 Mo. 416: “When debts are assigned which are evidenced by bond, bill or note, the debtor is never at a loss to know to whom it shall be paid, as he is warranted in taking up the instrument in whosoever’s hands it may be found. But not so with regard to those choses, whose existence is not witnessed by any such instrument. Anybody may obtain a copy of a judgment, or make out an account, anda debtor or trustee pays debts of this character at his peril to any other person than him who is really entitled to them.” See, also, where the same matter is stated in yet stronger terms: Gayoso Savings Inst. v. Fellows, 6 Cald. 467; Mutual Pro. Ins. Co. v. Hamilton, 5 Sneed, 269.

But the statutes of Missouri, -beginning at an early day, made alterations in the law as it stood before its enactment. I will notice these. In 1825 the statute was that it should not be in' the power of an assignor to release a demand after he had assigned it; provided, however, that the defendant could make the same defense against the assignee that he could have made against the assignor if the note had remained in his possession when the defense accrued. The case of Bates v. Martin, 3 Mo. 367, arose under this statute. In that case the note was assigned and delivered, and afterwards the payor paid the sum due on the note to the assignor. The court held (construing the foregoing statute) that the defense of payment accrued while the assignee held the note; that before the payor paid the money he should have seen that the payee still retained the note, and that it was the duty of the payor to look after his note, and to know that he pays his money to whom it is due. To the same effect are the cases of St. L. Perp. Ins. Co. v. Cohen, 9 Mo. 442, and Heath v. Powers, 9 Mo. 774. Our' statute is not now the same. It is now provided as it was formerly: “It shall not be in the power of the assignor of a demand, after assignment, to release any part of it.” R. S. 1889, sec. 2390. But under the heading of “set-off” it is now provided that “ in actions on assigned accounts and non-negotiable instruments, the defendant shall be allowed every just set-off or other defense which existed in his favor at the time of his being notified of such assignment.” Sec. 8161. The present statute, then, puts it out of the power of an assignor to release the note after he has assigned it, but preserves to the payor (and to the payor only) the defense which accrued to him before notice of the assignment. The legal title to the note is in the assignee upon the assignment in writing and delivery. He is the owner, and the only one to whom it can be paid or who can discharge or release it; and so the statute enacts. By force of the same statute, however, if the payor, without notice of the assignment, pays the sum due on the note to the assignor, such payment, while it is not, properly speaking, a payment of the note, will operate •as a discharge of, or defense for, the payor. Rice v. McFarland, 34 Mo. App. 404. But it will not dis■charge the lien of a mortgage on lands in the hands of •a third party who is not connected with the mortgage. Rice v. McFarland, 34 Mo. App. 404. It by no means follows that in all instances of discharge of the debtor the mortgage dies. There may be a discharge of “the debtor without a discharge of the debt. There are numerous instances in which the mortgage lien remains after the discharge of the mortgagor. Hemenway v. Bassett, 13 Gray, 378; Baldwin v. Norton, 2 Conn. 161.

We may concede here that a negligent payment, as made by Hall, of the sum due to an assignor after-assignment and delivery to the assignee, would be one of the “ defenses ” contemplated by the statute. But I am confident that an examination of this question of assignment of choses in action, from its origin down, as it is now influenced or governed by the statute, will show that a payment to an assignor, after assignment, of the sum due on a non-negotiable note amounts to nothing more than a defense to the payor. The importance here of this distinction is that if it be allowed to be good it defeats the plaintiff in this action. Here-the payor, without notice of the assignment, paid the-amount of the note to the assignor after he had assigned it to this defendant, by making a quitclaim deed to the land covered by the mortgage. This land has found its way by successive conveyances to these plaintiffs. Now, can they avail themselves of a defense which the statute only gives to the payor? I am satisfied that they cannot. The statute allows to the payor “ every just set-off or other defense.” It must be conceded that all other defenses than payment would be personal to the • payor. If, in this case, the payor had not paid the sum due on the note, but had had a set-off against the assignor which he might have availed himself of if he had been sued, would it be contended that these plaintiffs could use such set-off in their behalf? There are other defenses which might be asserted by the payor, but which no one would consider available to anyone else.

There is a qualification to be made to the foregoing general statement. It is this: Those, who, by their relation to the payor could compel him to make good their loss, would be entitled to enforce for their protection the right which would exist in the payor if he were sued. It has even been held that judgment creditors were such parties as could be subrogated to the payor’s right. 1 Hopkins, 579; 9 Cowen, 409. However this may be, I should say certainly that, wherever the effect of the disallowance of the defense, when set up by a third party, would be to ultimately throw the loss on the payor, then the defense should be allowed; for in such case it is to the personal benefit and interest of the payor. To illustrate: If .in this, case Hall had made a general warranty deed, instead of a quitclaim, he would have been responsible on such warranty to the plaintiffs for the incumbrance, if they should be compelled to pay it, so that the defense of payment, which in that case should be interposed by these plaintiffs by proper plea, would inure to the benefit of the payor whom the statute intended to protect. This phase of the question was not considered in Rice v. McFarland, supra.

This is in keeping with the principle, asserted in some quarters, that the equities of third parties are not available against the assignee, for, in the instances given, the parties are not properly third parties; they assert, by right, the defenses of the payor. Some of the authorities state the proposition in its full breadth and without qualification, that the equities of third parties cannot be allowed to affect the assignee; and such authorities, holding this extreme, are combated by others. But I know of none that permit the equity of third persons to affect the assignee when such equity is not, or cannot be, connected with the instrument or debt assigned. The case in 61 N. Y. 122 (Trustees Union College v. Wheeler), is an exhaustive and leading one on this subject, and it upholds the doctrine that equities of third persons are available against the assignee; but in that case it is expressly said that the doctrine extends only “to all dealings and acts on the part of the assignor towards those persons whose rights and interest are embraced within the mortgage.''’ And that it is not pretended that it mil reach and protect those claiming u externally ” to the mortgage. But the equities attempted to be set up by these plaintiffs are not such as- are embraced within the mortgage; they are external to the mortgage; they are properly the equities of third parties against the mortgagee which have no relation or connection with the payor, since he merely quitclaimed or released whatever interest he had in the land covered by the mortgage. It can make no possible difference to him what the result of the question may be, for he has given no instrument which connects him with it in any way. The case in 22 N. Y. 548 (Bush v. Lathrop), was regarded as, a strong one in support of the rule that' equities of 'third parties would affect an assignee; but, even in that case, it was conceded that, if the third parties were those “ who had dealt with the original creditor,” their equities could not be set up against the assignee. The court said that u a purchaser (assignee) has no clue by which he can protect himself against'the equities of (such) third persons.” The same thing is held in James v. Morey, 2 Cow. 297. These considerations apply to the facts in the case at bar, and nothing in Bush v. Lathrop, applicable to the facts in this case, is against our position; whatever else appears in that case was overruled in Moore v. Bank, 55 N. Y. 41.

If Craig had retained the land it would -unquestionably have been subject to the lien of the mortgage, for Craig could not, of course, claim that the note had been paid, or that the deed of trust was satisfied. So if Craig and his grantees, down to plaintiffs, had conveyed by quitclaim deeds the land would still have been liable to the lien of the deed of trust in the hands of either of them, for by holding under quitclaim deeds they could not claim to be innocent purchasers (Hope v. Blair, 105 Mo. 90), since, the law does not require an assignment of a note and mortgage to be recorded. Ónr registry statutes permit one without, actual notice who purchases for value to rely wholly upon the deed records, and the records of such purchase will give him the title against all equities or incumbrances not disclosed by such records. Now, does this case properly fall under the principles governing the registry acts as they affect titles? I think it does not. James v. Morey, 2 Cow. 296. Here the assignee, as we have seen, took the title to the note upon the assignment and delivery to her. This carried with it the mortgage security. By no act which she could take, or which the law required her to take, could she notify the successive grantees of Craig, including these plaintiffs. If she had done all that plaintiffs contend she should have done, that is, have given notice of the assignment to Hall, he (Hall) and Craig could still "have done just what they did do. In other.words, notice to Hall, which would be merely a private communication, would not and could not be notice to the grantees of Craig. It is plain that it is utterly impossible for the assignee of a mortgage to know with whom the mortgagee may subsequently deal in relation to the mortgaged premises. And so it is, therefore, said in James v. Morey, 2 Cow. 298, that there is not a cáse to. be found in the books in which the principle of the equity of third persons has been applied to dealings between the mortgagee and third persons since the assignment. It is true that it is said that Craig’s grantees could ask Hall if he had pjiid the note, and that they actually did ask him; but. this can have nothing to do with the registry act, nor can it in any possible way be notice to others. James v. Morey, 2 Cow. 311.

So I consider that the registry statute does not affect the case. And the question finally is, which of the parties have the better equity: The assignee for value of a note who takes possession, hut fails to give notice of the assignment to the debtor; or the grantees for value by warranty deed from the assignor of the land mortgaged to secure the note, such land having been quitclaimed to the assignor by the payor in payment of the note? There ought not to be any doubt that the assignee is in the better position. First. She has the prior right and title which cannot be taken from her except by neglect of some duty owing by her to these grantees. She owed them none. The only duty she owed at all was to the payor, and which, if performed as to him, would not necessarily have benefited these grantees. So conceding that Mrs. Eddy was put upon inquiry, by inquiring of Hall, the payor, what would she have learned? She would have learned that the discharge of Hall was by his releasing his equity of redemption, to Craig, and this would not have altered the situation; for the mortgage would remain good in her hands against Craig. She would not have discovered anything which went to impair her security. James v. Morey, 2 Cow. 311.

By Hall releasing and quitclaiming the equity of redemption to Craig, the mortgagee, there was no merger of the two estates, as Craig, thus holding the two estates, had assigned his interest in one of them; equity would never permit a merger under such circumstances. 2 Washburn on Real Property, 564, sec. 1.

The fact, that Craig more than three years after he had assigned the note to Mrs. Eddy, and more than a year after the deeds of trust to Gilbert & Gay had been executed, made an entry of satisfaction of the Hall deed of trust on the margin of the record, can have no effect on the rights of the parties. Rice v. McFarland, supra, and authorities cited.

The judgment of the circuit court is affirmed.

Smith, P. J., concurs; Gill, J., dissents.