Hass v. Lobstein

Mr. Justice Freeman

delivered the opinion of the court.

It is contended in behalf of appellants that the debt secured by the original trust deed transferred by Schintz to Charlotte Louis, was paid when the new note for $900 and new trust deed securing the same, were executed and delivered to Schintz. The evidence tending to show that the new note was taken by Schintz with an agreement that it should constitute full payment and satisfaction of the former note, supposed by the makers to be still in his hands, is not disputed. “ Where a subsequent promissory note is given for the same consideration as a former one, it is a question of fact for the determination of the jury, whether the former note is thereby satisfied. If the subsequent note was executed and accepted by the respective parties for that purpose, the satisfaction is complete.” Yates v. Valentine, 71 Ill. 644; Belleville Savings Bank v. Bornman, 124 Ill. 200, 206-8. It is not denied that the note for $900 was executed and delivered by the makers and accepted in payment of the former note by Schintz as the supposed holder of the latter note. The satisfaption of the old note was therefore complete as between Schintz and the makers, without reference, however, to the rights of its assignee and holder. “ The mortgagor, to release himself from liability on his note, must see that he pays the money to the holder of the note, who has re.ceived it by assignment before maturity, but not so to discharge the mortgage, because it is not assignable at law.” Towner v. McClelland, 110 Ill. 542-551; Schultz v. Sroelowitz, 191 Ill. 249-254. The delivery of the new note was in effect a payment to Schintz of the old note.

It is conceded that Schintz deceived all the parties; that appellants Hass, finding the coupon interest notes in Schintz’ hands as they became due, with nothing in the way of indorsement to indicate any other ownership than his, were led to believe him to be the owner of the first note and paid it to him by delivery of the new $900 note in that belief. On the other hand Charlotte Louis, who was the real owner of the old note at the time of its payment in this way to Schintz, knew nothing of such payment. She had, however, by failure to give notice to the debtors of the assignment to her of the first note and trust deed, and by placing the coupons in Schintz' hands for collection, put it in his power to deceive the debtors as he did.

At the time of its transfer to Charlotte Louis, February 25, 1895, the first note was by its terms matured and overdue. An agreement for its extension three years from February 3, 1895, when it matured, had been signed by the makers of the note, but not by Schintz, its then holder, or by the subsequent holder, Charlotte Louis. The extension agreement was therefore not completed, and being invalid did not have any effect. The note therefore came into the hands of Charlotte Louis after its maturity. Hide & Leather Bank v. Alexander, 184 Ill. 416-420. The makers of the note, however, at the time they signed the extension agreement and delivered it to Schintz, had also executed and delivered to him six interest notes or coupons, for.$21 each, covering interest upon the first note for the period of three years after its maturity, being the time covered by the incomplete extension agreement. They paid these interest coupons to Schintz as they became due, for two years in regular sequence. In June, 1897, when the new note for $900 was made and delivered, only two of the three years had elapsed for which the debtors had signed the extension agreement, and two of the interest coupons covering the interest which would become due during the remaining year were unpaid. While it appears that Charlotte Louis received the old note after its maturity as a matter of law, yet she apparently consented to the extension afterward in writing on the back of the note, and there were, in fact, no defenses to the debt in her hands up to that time—two years after its maturity—when the new $900 note was delivered by the debtors to Schintz.

The only question we. deem it necessary to consider, is the effect upon appellee’s right to foreclose the first trust deed, of the failure of Charlotte Louis as assignee to give notice to the makers of that trust deed of its equitable assignment to her with the first note of which she was the holder. It is urged that in view of her failure to give such notice, the delivery of the new $900 note to Schintz, her agent, was a satisfaction of the first trust deed, and constitutes a defense to the action brought in her behalf to foreclose it.

It is the rule in this state that the maker of a trust deed or mortgage, in the absence of any notice of an assignment, may interpose to a foreclosure proceeding brought by the assignee, any defense arising out of the transaction with the mortgagee, which could be set up in case the bill was filed by the latter. McAuliffe v. Renter, 166 Ill. 491-496. Under that rule, appellants Hass may interpose against the foreclosure by appellee any defense which they could set up against Schintz, the trustee and assignor, had this bill been filed by him. Schintz could not maintain such a bill, because as to him the debt has been paid and the trust deed satisfied. The assignee not only failed to notify the debtors of the assignment to her, but she put it in the power of Schintz to deceive, by placing the coupon interest notes in his hands for collection, which the debtors paid to him regularly as they became due. There was, so far as appears, nothing to indicate to them that Schintz was not the actual owner, as ho appeared to be, of the note, the interest coupons of which were found regularly in his hands as they matured. What is said in the case last cited is applicable to the parties in this case with a mere, change of names. (P. 500.) “ So far from having any information to put them upon inquiry, by finding in the hands of Sdhintz their coupon notes, which they paid as they matured, appellants Hass were justified in the conclusion that the notes and-trust deed were there also.”

A mortgage or trust deed is not assignable so as to vest the legal interest, and it is the duty of the purchaser of a mortgage to inquire of the mortgagor if there be any reason why it should not be paid. Failing to do this, the purchaser takes it subject to all the infirmities to which it would have been liable in the hands of the assignor. Olds v. Cummings, 31 Ill. 188; Humble v. Curtis, 160 Ill. 193; Towner v. McClelland, 110 Ill. 542; Shippen v. Whittier, 117 Ill. 282. The trust deed not being assignable at law, and the assignee having to rely on a court of chancery to enforce his rights, the court of equity will not enforce it in his favor if it ought not to be enforced in the hands of the assignor by reason of payment made to the latter in good faith, when the assignee has given and the mortgagor has received no notice of the assignment. It is said in McAuliffe v. Reuter, supra (p. 499): “ Besides, upon principle, an assignment of a chose in action other than a negotiable instrument is not perfect so as to protect the assignee as against equities between the original parties, without notice of the assignment to the debtor. This is the general rule, and, unless mortgages and deeds of trust are to be treated as exceptions, the rule must be applied to them.” In order to protect herself, the assignee should have given notice, actual or constructive, of the assignment to the debtors. Schultz v. Sroelowitz, supra (p. 252). The payment to Schintz of the note held by Louis can be set up in bar of a decree of foreclosure, without reference to the effect of such payment upon the note itself in an action at saw. To relieve from liability on a negotiable note, it should be paid to the actual holder, but this is not necessary to discharge a mortgage, which is not assignable at law.

By the decree, the cross-complainant, Johnson, holder of the $900 note and trust deed, is allowed to foreclose only for the $300 supposed to have been paid by Schintz to appellants Hass, when the last mentioned note was executed. The amount of such payment appears to have been, in fact, only $258. We are compelled to regard the cross-complainant entitled to foreclosure for the full amount of her note. The note and trust deed were in her hands as an innocent purchaser before maturity for full value, and as has been said by our Supreme Court, “ without any written assignment, the mortgage as an incident to the note, passed to him (her) as assignee, and was enforceable in equity as an equitable assignment.” Schultz v. Sroelowitz, supra (p. 253). The question is not free from, difficulty, in view of the rule above referred to, that a mortgage or trust deed not being assignable at law, will not be enforced in equity in favor of an assignee, if it ought not to be enforced in the hands of the assignor. If, however, the trust deed passes as an incident to the note, it would seem that logically it should be good as against the maker, for the full amount of such note, as security in the hands of an innocent assignee before maturity for full value, if it is enforceable as to a part. Inquiry by the cross-complainant of the mortgagors Hass, would have disclosed no defense to the trust deed at the time the former acquired it. Examination of the record would only show that it appeared to be a' second mortgage, which, for aught that appears, the cross-complainant may have known and been willing to accept. As against the maker the equities are certainly with the cross-complainant for the full sum.

The decree of the Circuit Court must be reversed and the cause remanded for further proceedings not inconsistent with the views above expressed.