Wethrill's Appeal

The opinion of the, court was delivered at Harrisburg, by Strong, J. Whatever may have been the rights of Almeron Field or his assigns against the holder of the Cox judgments, after they had been purchased by John Abel with David Abel’s money, it is clear that the judgments were not actually paid. They were regularly assigned to John Abel as living judgments, and the intention of the arrangement was to keep them alive.. Admitting that Field might have enforced the entry of satisfaction upon them had he retained his contract with David Abel, it is not so sure he could have done so against Milliken, a subsequent bona fide holder, and purchaser without notice. But even if he could, can the holder of a subsequent mortgage ? Not as mortgagee, because the equity did not arise from the mortgage, and did not pass to him by its assignment. It had its origin in the agreement of' June 8th, 1846, by which the mortgagor engaged to assume the payment of the Cox judgments. That agreement was a mere personal contract of Field with David Abel, the purpose of which was not to give additional security to the mortgage which Field was taking, or to give it priority over the judgments. That was impossible without the consent of Cox. The agreement was designed rather to secure the payment of that part of the purchase money of — 285 — the “Mansion House” property which should not be included in the mortgage. On the 29th of June, 1847, all the rights of Field under this agreement were transferred to Quincey, the assignee of the mortgage, and they constituted the basis of whatever equity he has against Milliken, the present holder of the judgments. In the hands of the assigned the agreement became a contract collateral to the mortgage, and tending to enlarge its security. Since the assignment Field has had no rights under it, and has not been able to use it for any purpose against any person. Treating it, then, as a secret equity outstanding, not in the debtor but in a third person, the aspect most favorable to the appellant in which it can be regarded, can it prevail against the assignee of the judgments for value without notice of it ? It is to be observed, that though at first it was an equity existing in the obligor in the judgment bonds, yet it was not an equity against the obligee, nor was it, while it remained in Field, against any assignee of the obligee. There never was a time when Field could have called upon the holder of the judgments to extinguish them. If, when John Abel took assignments of them, a chancellor would have ordered them to be satisfied, it must have been at the instance of Quincey, who was the owner of the agreement under which the equity against David Abel arose. Is, then, the assignee of a chose in action affected by secret equities existing against his assignor, not in. the debtor but in third persons, of which he had no notice when he purchased. This is a question not free from difficulty and not fully settled by authority. It is not easy to see how an assignee can take an interest superior to that which the assignor had to give. An outstanding equity against the owner of a chose in action is an ownership of part of the title to it, or a deduction from its value; if this ownership, or a right to a deduction be in the debtor, all the cases agree that an assignment of the chose passes it to the transferee with all its defects upon it. Is not an equity in a third person as much a defect in title as if it existed in the obligor? Yet it has not been so treated. The assignee of a mortgage, it would seem, is protected from secret equities of all others than the mortgagor. A mortgagee is, however, in form a purchaser, although he has no estate in the land mortgaged. The contract is a mere security for money, yet it'is recognized as having some of the incidents of a purchase, and is governed by different principles from those which apply to a chose in action. And when a chose is capable of a legal assignment, as under the act of assembly of 28th of May, 1715, a bond, specialty, or note, and when the chose is thus assigned, the assignee must take it discharged of the equities of third persons, for, in such a case, he stands on his legal right, and needs no — 286 — interposition of a chancellor. His title is complete without equitable aid, and there is, therefore, no contest between two equities. In regard to equitable assignments of other choses in action, the same considerations do not exist. In such cases an assignee must appeal to a chancellor to make his assignment available, and when before him, why is not the equity of the third person, if prior in time, superior in right? Yet the tendency of modern authority seems to be, that the only equities that affect the assignee are those which exist in the obligor or debtor. In Redfearn v. Femier, 1 Dow. 50, a case ruled in the House of Lords, it was argued by Sir Samuel Romilly that a bond assigned by the assignee is subject to the demands of the obligor upon it, but not those of a third person; and Lord Elden, in delivering the judgment, declared such was the law. He had looked anxiously and carefully to see where latent equities had prevailed against intimated assigns — (assignments with notice to the debtor) and had found none. In Murray v. Lylburn, 2 John Cha. 441, the same doctrine was strongly asserted by Chancellor Kent as a general proposition. His language was, that “ it is a general and well settled principle, that the assignees of a chose in action take it subject to the same equities it was subject to in the hands of the assignor. But this rule is generally understood to mean the equity residing in the original obligor or debtor, and not an equity residing in some third person against the assignor. He takes it subject to all the equities of the obligor, say the judges in the elaborately argued case of Morton v. Rose, 2 Wash. 233 and 254, on this very point touching the rights of the assignee of a bond. The assignee can always go to the debtor and ascertain what claims he may have against the bond, or other chose in action which he is about purchasing from the obligee, but he may not be able, with the utmost diligence, to ascertain the latent equities of some third person against the obligee. He has not any object to which he can direct his inquiries; and for this reason the claim of an assignee, without notice, of a chose in action was preferred in the case of Redfearn v. Ferriee et al., 1 Dow. 50, to that of a third person setting up a secret equity against the assignor.” The same doctrine was asserted in Livingstone v. Bean, 2 Johns. Cha. 479. Both of these cases, indeed, arose upon assignments of mortgages, and both were ruled upon other circumstances appearing in them; but the chancellor asserted the principle as applicable to assignments of all choses in action. The same rule was laid down in Moore v. Holcomb, 3 Leigh. 596, and it has .been repeatedly recognized in Pennsylvania as extending to assignments in choses in action generally. In Mott v. Clark, 9 Barr, 399, the case of Murray v. Lylburn is cited with approbation. This, also, was a case of an — 287 — assignment of a mortgage. But, in Hendrickson's Appeal, 12 Harris, 363, the doctrine was more distinctly announced, and was applied to the ease of an assignment of a j udgment. There it had been agreed between all the parties to a mortgage, and a judgment registered on the same day, that the lien of the mortgage should have a priority over that of the judgment. An assignee of the latter, for value without notice of the agreement, was held not to be affected by it. His equity prevailed over the prior equity of the holder of the mortgage who set up the secret agreement. Black, J., in delivering the opinion of the court, said: “The judgment, however, had been assigned for a valuable consideration, without notice to the assignee of the parol promise to postpone it. Is the assignee bound to carry out the agreement by giving the mortgage preference ? or may she stand upon her legal rights ? It is very firmly established that the assignee of a chose in action takes it subject to all its equities which affected the right of the original holder to recover it from the debtor. In other words, the debtor can make any defence to a whole or a part of the claim after the assignment of it which he could have made before. But it does not necessarily follow from this that an assignee is bound by a parol agreement not known to him, which has been made with a stranger to the contract he bought, and which was intended to destroy the legal effect of the record. If I take an assignment in good faith, or a judgment which the record shows to be the earliest lien on an insolvent estate, can a junior creditor, who would otherwise get nothing, defeat me by producing a secret agreement like this between himself and my assignor ? Without hesitation we answer this in the negative. * * * One who has bought and paid for a judgment which appears on its face to occupy a certain position among the liens, is not bound by his conscience to take a lower place upon the record, because of a promise to that effect, -made by his assignor, unless he had notice of it.” The same principle is to be found in Taylor v. Gill, 10 Barr, 431, and in- McConnell v. Wenrich, 4 Harris, 365. This is sufficient to indicate, if it does not fully determine, that the rule is that the purchaser for value of a chose in action is not to be affected by latent equities of third persons. He is a only bound to inquire of the debtor, and there is much reason " for such a rule. Secret equities in third persons are clogs upon alienation, and cannot, therefore, be favorites in law. The holder of them virtually empowers the creditor to practise a fraud upon the innocent — a fraud against which no vigilance can guard. Where an equity exists in the debtor the assignee knows where to inquire, but not so for latent claims of strangers. It may be said indeed that such claimants cannot know — 288 — to whom the creditor may assign the security, and cannot, therefore, give notice of his. right, but his position as a secret claimant is the cause of the loss, if any occur, and where one of two innocent persons must suffer, the rule is that he must .bear the burden or loss who§e act or neglect has been the occacasion of the suffering. Without pursuing this subject further, it may be said that all the authorities agree that the presence of laches in the holder of a secret equity will postpone him. Even an equity in the obligor may be lost by neglect to assert it, and a fortiori will a third person lose his right by any laches which causes an injury to a purchaser of a chose in action. This is well illustrated in Fisher v. Knox, 1 Harr. 622. There the moiety of a judgment had been assigned, but the assignee' did not mark his interest upon the docket, and the whole judgment was afterwards assigned by the creditor without notice to the assignee of any equity in a prior assignee. The court postponed the first assignee to the second, and this though no law requires an assignment of judgment to be docketed. Gibson, O. J., remarked that any one who leaves it within the power of another to deceive may be said to collude with him beforehand. Certainly a chancellor would not execute an equitable assignment in his favor. The principle is that the holder of such a secret equity against the obligee, an equity collateral to the contract, may not by any action or inaction unnecessarily expose others to loss in purchasing the contract. Applying this principle to the facts in this case, how stands .the appellant ? His rights originated in the agreement of June 8, 1846, by which David Abel undertook to assume the payment of the Cox judgments. That was an assumption of immediate liability. Until July 29th, 1847, when the agreement was assigned to Quincey, Eield could have compelled payment by Abel by suit on any day. After the assignment Quincey might have done the same. He had knowledge of the judgments, and of the fact that their lien was superior to that of his mortgage, for the record and agreement gave him notice, and he took a transfer of the agreement to enable him to enforce the extinction of the judgments. They, were assigned to John Abel in 1847, revived at his instance against the land bound by the mortgage, and purchased by Milliken in 1851. For nearly five years the appellant, and those under whom he claims, holding a secret equity, suffering it to remain dormant, allowed the world to believe that the judgments were what they appeared to be, and enabled the judgment creditor to sell them to a purchaser, whose utmost vigilance could not have discovered what is now set up to strip him of the fruits of his purchase. It cannot be permitted that the holder — 289 — of a secret contract may lie by for so many years, suffer a false appearance to be held out to the world which he could have prevented, and then assert his contract against an innocent purchaser for value, on the ground that he is prior in time. Had Quincey been vigilant in the assertion of his rights, the purchase by Milliken would never have been made. The decree of the Court of Common Pleas is affirmed, with costs to be paid by the appellant.