Appeals, in reference to actions upon negotiable paper: "Under the code of procedure, if it appears that the plaintiff is not the real party in interest, it is a bar to the action, and no further defence is necessary. The question was very elaborately discussed by the courts of New York in Eaton v. Alger,1 which was an action by the indorsee of a note. The Supreme Court held that the defendants might prove that the plaintiff had no interest in the note, but was a mere agent of the payee, and was bound to account to him, on demand, for the proceeds, and that these facts would constitute a complete defence to the action.

§ 130. Cases of higher authority, because decided by the New

York Court of Appeals, have established the other rule for that State. In City Bank of New Haven v. Perkins,1 the rule which prevailed prior to the code was reaffirmed and applied to the facts before the court, although no allusion was made in its opinion to the provisions of § 111. The doctrine was stated as follows: "Nothing short of mala fides or notice thereof will enable a maker or indorser of such paper to defeat an action brought upon it by one who is apparently a regular indorsee or holder, especially when there is no defence to the indebtedness. As to any thing beyond the bona fides of the holder, the defendant, who owes the debt, has no interest." The same rule was repeated in Brown v. Penfield; but in this case also there was no reference made to the provision of the code relating to the real party in interest. It might be considered doubtful whether the question had been put to rest by these two decisions, but all doubt has been removed. The case of Eaton v. Alger was carried to the Court of Appeals ; the opinion of the Supreme Court was overruled; and the original rule of the law in reference to suits upon negotiable paper was expressly held not to have been changed by the code. In this conflict among the decisions, the judgment of the court of last resort of course prevails; and the question is thus settled in New York by the force of authority, whatever may be thought of the comparative weight of the argument in support of either rule.

§ 131. The doctrine which prevails in Iowa seems to be the same as that now established in New York. The construction given to the statutory provision by the court of Indiana is en

1 City Bank v. Perkins, 29 N. Y. 554, 568, per Johnson J. The learned judge also said: "It will be time enough to determine whether any other person has a better title when such person shall come before the court to claim the bills in question, or their proceeds, from the plaintiff."

2 Brown v. Penfield, 36 N. Y. 473. The remarks of Davies C. J., in which this doctrine was reasserted, were, however, mere obiter dicta. The action was by the plaintiff as assignee of T. & Co. The referee before whom the cause was tried found, as a fact, that T. & Co. never assigned the bills in suit to the plaintiff. The Supreme Court reversed this finding, on the ground that it was contrary to the evidence; and the Court of Appeals affirmed the latter decision. These two

courts thus held that the plaintiff was the assignee of T. & Co., and was the owner of the paper. This ruling completely disposed of the case; and the whole discussion which the learned chief justice thought proper to add was entirely unnecessary.

2

3 Eaton v. Alger, 47 N. Y. 345; s. c. Keyes, 41.

4 Cotter v. Cole, 20 Iowa, 481, 485, per Dillon J. "The course of decision in this State establishes this rule; viz., that the party holding the legal title of a note or instrument may sue on it, though he be an agent or trustee, and liable to account to another for the proceeds of the recovery; but he is open in such case to any defence which may exist against the person beneficially interested."

tirely different, as it is held to include the indorsee and holder of negotiable paper as well as the assignee of any other thing in action. Such indorsee or holder, although possessed of the naked legal title, is not the real party in interest, and is not authorized to sue, if the beneficial interest and the whole right to the proceeds of the recovery is in another party. It is, however, a settled rule of pleading in Indiana, that an answer merely averring that the plaintiff is not the real party in interest, but that some other person named is the real party, without alleging any facts from which these conclusions would arise, presents no issue.2 In Kentucky also the defence that the plaintiff is not the real party in interest may be set up in an action upon a promissory note or other negotiable instrument brought by the person who is the apparent holder, or who has the naked legal title, although in that State, by virtue of an express provision of the code, the person having the legal title must also be made a party,

1 Swift v. Ellsworth, 10 Ind. 205. Ellsworth sued on a note made by Swift to one Rowe, and transferred by R. to the plaintiff. The answer set up, as the fourth defence, that the note was assigned by Rowe to the plaintiff to secure the sum of $2,500, which Rowe owed to the plaintiff, and for no other consideration; that afterwards the defendant paid to the plaintiff the said sum of $2,500, being all the interest of the plaintiff in the said note, and that the plaintiff has not since acquired any interest in the residue of the said note; that the plaintiff is not the real party in interest in this action, but that the said Rowe is the exclusive owner of said note. This defence was held to be good on demurrer thereto. After citing the Revised Statutes of Indiana, which permit the assignment of negotiable paper, and expressly declare that the assignee may sue thereon in his own name, and quoting the provisions of the code passed subsequently to the statute first referred to, which provide for suits being brought by the real party in interest, and also by a trustee of an express trust or a person expressly authorized by statute to sue," Hanna J., who delivered the opinion of the court, proceeds as follows: "Is the assignee of a promissory note, who may hold it as such without any real interest, one of that class of persons here referred to as being

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'expressly authorized by statute' to sue? Or does the provision have reference to another class of persons, such as guardians of an idiot, &c.? We are of opinion that the clause of the section above quoted does not have reference to the rights of an assignee of a promissory note, but to such persons as may be authorized to sue in their own names, because of holding some official position, as the president of a bank, or the trustee of a civil township. It therefore follows that the real party in interest, as was formerly the rule in equity, must bring the action, subject to the provisions and exceptions of the statute, and that, if any other than those thus authorized should bring suit as plaintiffs, an answer showing affirmatively the facts is a good answer." It will be noticed that the general provision of the code in question was made to override an express permission given by a prior statute to all assignees of negotiable paper to sue upon the same in their own names. This is therefore a much stronger case than any which has arisen in New York. See also Gillispie v. Fort Wayne, &c. R. R., 12 Ind. 398.

2 Lamson v. Falls, 6 Ind. 309; Mewherter v. Price, 11 Ind. 199; Garrison v. Clark, 11 Ind. 369; Swift v. Ellsworth, 10 Ind. 205; Hereth v. Smith, 33 Ind. 514, and cases cited.

either plaintiff or defendant. In an action by the assignee of a note against the maker thereof, it is no defence to show that the assignment was made with intent to defraud certain creditors of the assignor. This does not make the plaintiff any the less the real party in interest. As the assignor participates in the fraud, he could not repudiate his transfer, and has parted with all possible interest in the note.2 Whenever the defence that the plaintiff is not the real party in interest is allowable, it must be pleaded in the answer; if not, it will be regarded as waived.3

§ 132. Analogous to the subject discussed in the preceding paragraph is the question whether an assignee, to whom a thing in action has been transferred by an assignment which is absolute in its terms, so as to vest in him the entire legal title, but which, by means of a contemporaneous and collateral agreement, is, in fact, rendered conditional or partial, is the real party in interest. It is now settled by a great preponderance of authority, although there is some conflict, that if the assignment, whether written or verbal, of any thing in action is absolute in its terms, so that by virtue thereof the entire apparent legal title vests in the assignee, any contemporaneous, collateral agreement by virtue of which he is to receive a part only of the proceeds, "and is to account to the assignor or other person for the residue, or even is to thus account for the whole proceeds, or by virtue of which the absolute transfer is made conditional upon the fact of recovery, or by which his title is in any other similar manner partial or conditional," does not render him any the less the real party in interest: he is entitled to sue in his own name, whatever collateral arrangements have been made between him and the assignor respecting the proceeds. The debtor is completely protected by the assignment, and cannot be exposed to a second action brought by any of the parties, either the assignor or other, to whom the assignee is bound to account. This is the settled doctrine in most of the States. Notwithstanding the general unanimity of the courts in

1 Carpenter v. Miles, 17 B. Mon. 598, 44 N. Y. 349, 353 (facts similar to the 602 last); Wetmore v. San Francisco, 44 Cal. 294 (assignment made as collateral secu

2 Rohrer v. Turrill, 4 Minn. 407.

3 Savage v. Corn Exch. Ins. Co, 4 rity); Durgin v. Ireland, 14 N. Y. 322 Bosw. 2.

4 Allen v. Brown, 44 N. Y. 228, 231 (assignment without consideration, and assignee to be accountable to the assignor for all the proceeds); Meeker v. Claghorn,

(assignment in writing absolute, but by a contemporaneous agreement the assignors were to have one-half the proceeds); Castner v. Sumner, 2 Minn. 44; Williams v. Norton, 3 Kans. 295; Cottle v. Cole, 20

sustaining this doctrine, there are still some indications of a different opinion, although it can hardly be said that this difference has been embodied in an adjudication as the ratio decidendi. The opinion to which I refer will be found at large in the note, as it is an able argument upon that side of the question. Embraced within the same principle, and governed by the same rule, is the case of an assignee of a thing in action who, by the terms of the transfer, is not bound to pay the consideration thereof until the