the ground of fraud;1 and the vendor's right of lien on land sold, for the purchase price thereof.2

SECTION FOURTH.

THE EFFECT OF AN ASSIGNMENT OF A THING IN ACTION UPON THE DEFENCES THERETO.

§ 154. The statutory provision found in the various State codes which relates to the subject-matter of this section is the following: "In the case of an assignment of a thing in action, the action of the assignee shall be without prejudice to any set-off or other defence existing at the time of or before notice of the assignment; but this section shall not apply to [negotiable bonds, Ohio, Kansas, Nebraska] negotiable promissory notes and bills of exchange, transferred in good faith and upon good consideration, before due." 3 In Ohio, Kansas, Nebraska, and Washington, the phraseology is slightly different. It reads: "The action of the assignee shall be without prejudice to any set-off or other defence now allowed." The consideration of the topics embraced in this provision should, in a strictly scientific method, form a part of the general subject of Defences, and might properly be postponed until this portion of the work is reached; but I have chosen to pursue the order of the codes themselves, which is the same in all the States, rather than to adopt one more theoretically correct, yet perhaps not more practically advantageous. § 155. It is important that the defences which this clause admits, should be carefully distinguished from the counter-claim ́ subsequently provided for by the statute. This section speaks of defences which, as they ask no affirmative relief, and simply prevent the plaintiff from succeeding, may be made available against an assignee as well as against the original creditor. The counter-claim is more than a defence: it assumes a right of

1 Smith v. Harris, 43 Mo. 557.

2 Baum v. Grigsby, 21 Cal. 172; Lewis . Covillaud, 21 Cal. 178; Williams v.

Young, 21 Cal. 227.

New York, § 112; Minnesota, § 27; California, § 368; Wisconsin, ch. 122, § 13; Indiana, § 6; Florida, § 63; Kentucky, §31; South Carolina, § 135; Oregon,

§§ 28, 382; Nevada, § 5; Dacotah, § 65; Iowa, § 2546 (slightly altered); North Carolina, § 55; Idaho, § 5; Montana, § 5; Washington, § 3; Wyoming, § 33; Arizona, § 5.

4 Ohio, § 26; Kansas, § 27; Nebraska, § 29; Washington, § 3, slightly varied.

action against and demands a recovery of affirmative relief from the plaintiff in the suit, and is, therefore, impossible as against an assignee suing, if it existed against the assignor. The proposition here stated is very simple and plain, and yet the defences permitted against the assignee by this section have been sometimes confounded with counter-claims, and that even by judges and courts.

§ 156. The section quoted above, and which is substantially the same in all the States, does not change the then existing law as to defences under the circumstances mentioned in it. It was not intended to alter the substantial rights of the parties, but only to introduce such modifications into the modes of protecting them as were rendered necessary by the provisions of the preceding section requiring the real party in interest in most cases to be the plaintiff. Taking the two sections together, the plain interpretation of them is: The assignee of a thing in action must sue upon it in his own name, but this change in the practice shall not work any alteration of the actual rights of the parties; the defendants are still entitled to the same defences against the assignee who sues, which they would have had if the former rule had continued to prevail, and the action had been brought in the name of the assignor, but to no other or different defences. In other words, the section must be interpreted as though it read as follows: "In the case of the assignment of a thing in action, the action of the assignee shall be without prejudice to any setoff or other defence [now allowed or] existing at the time of or before notice of the assignment, which would have been available to the defendant, had the action been brought in the name of the assignor." This construction is now firmly and universally established.1

§ 157. As the pre-existing rule is thus re-affirmed, a full discussion of the statutory provision requires an examination and statement of that rule itself. In the first place, the general doctrine is elementary that the purchaser of any thing in action, not negotiable, takes the interest purchased subject to all the defences legal and equitable of the debtor who issued the obligation or security. That is, when the original debtor, the obligor on the bond, or the promisor, in whatever form his promise is

1 Beck with v. Union Bank, 9 N. Y. 211, 212, per Johnson J.; Myers v. Davis, 22 N. Y. 489, 490, per Denio J.

made, if it is not negotiable, is sued by the assignee, the defences legal and equitable which he had at the time of the assignment, or at the time when notice of it was given, against the original creditor, avail to him against the substituted creditor. This doctrine has been applied to all kinds of defences as well as to set-off, and to all forms of contract not negotiable: as, for example, in an action on a bond and mortgage by the assignee, the defence that the bond and the mortgage collateral thereto were given on consideration that the obligee should perform certain covenants contained in an agreement between the parties which was set out, and that he had wholly failed to perform the same, was held good; in an action brought on a warehouseman's receipt, the same being held not negotiable; in an action by an assignee for the benefit of creditors; and in an action to compel a specific performance, brought by the assignee of the vendee, under a contract for the sale of lands, although the vendee was in posses

sion.5

§ 158. The doctrine is not confined, however, in its operation to the case of the debtor- the promisor in the thing in actionsetting up a defence to an action brought by an assignee upon the demand itself to enforce the collection or performance thereof; it applies also to the second and subsequent assignees of a nonnegotiable thing in action, although transferred to the purchaser and holder for full value, and without notice, if there were equities subsisting between the original assignor and his immediate assignee in favor of the former. If the owner and holder of a thing in action not negotiable transfers it to an assignee upon. condition, or subject to any reservations or claims in favor of the transferrer, although the instrument of assignment be absolute on its face, this immediate assignee, holding in it a qualified and

Ingraham v. Disbrough, 47 N. Y. 421; Andrews v. Gillespie, 47 N. Y. 487; Bush v. Lathrop, 22 N. Y. 535, 538, per Denio J.; Blydenburgh v. Thayer, 3 Keyes, 293; Callanan v. Edwards, 32 N. Y. 483, 486, per Wright J., who thus states the rule: "An assignee of a chose in action not negotiable takes the thing assigned, subject to all the rights which the debtor had acquired in respect thereto prior to the assignment, or to the time notice was given of it, when there is an interval between the execution of the transfer and

limited property and interest, cannot convey a greater property and interest than he himself holds; and if he assumes to convey it to a second assignee by a transfer absolute in form, and for a full consideration, and without any notice on the part of such purchaser of a defect in the title, this second assignee nevertheless takes it subject to all the equities, claims, and rights of the original owner and first assignor. The doctrine of so-called "latent equities," which has received some judicial support,that is, the doctrine that the equities of the original assignor, under the circumstances thus stated, are latent and cannot prevail against the title of the second assignee, is unsound; it is an attempt to extend the peculiar qualities of negotiable paper to things in action not negotiable, and destroys the fundamental distinction between the two classes of negotiable and non-negotiable demands.1

§ 159. A few illustrations of this rule will serve to show its true meaning, and the extent of its application. The holder of a bond and mortgage for $1400 assigned and delivered them to secure an indebtedness of $270, the assignee giving back a written undertaking to return the same upon being paid that amount. This assignee afterwards transferred the securities to a second, and he to a third assignee, the latter paying full value, and having no notice of any outstanding claims or defects in the title. The original owner tendered to this assignee the $270 and interest thereon, and demanded a return of the bond and mortgage. Upon refusal, he brought an action to compel such return; and it was held by the New York Court of Appeals, after a most exhaustive discussion, that he should recover.2

1 Bush v. Lathrop, 22 N. Y. 535; Anderson v. Nicholas, 28 N. Y. 600, approved by Woodruff J. in Reeves v. Kimball, 40 N. Y. 311; Mason v. Lord, 40 N. Y. 476, 487, per Daniels J.; Williams v. Thorn, 11 Paige, 459; McNeil v. Tenth Nat. Bank, 55 Barb. 59, 68; Schafer v. Reilly, 50 N. Y. 67; Mangles v. Dixon, 3 H. of L. Cas. 702. 2 Bush v. Lathrop, 22 N. Y. 535. The opinion of Denio J. is a most able review of all the authorities which seem to sustain the doctrine that certain so-called "latent equities" are not protected against an assignment. He shows that all the expressions of judicial opinion to that

effect are obiter dicta, while a large num ber of direct decisions necessarily involv ing the question are opposed to the doctrine. I would add that the course of adjudications in reference to the sale of goods and chattels by conditional vendees who have been put in possession, and who have been held unable to transfer an absolute title to bona fide purchasers for value, fully supports the reasoning and conclusions of Judge Denio. There is no pos sible ground of valid distinction between the transfer of a thing in action when the transferrer appears to be clothed with the complete ownership, but is actually

Certificates of stock being wrongfully taken from the owner and sold to the defendant, it was held that the latter acquired no better or higher title than that held by his immediate transferrer, -the one who wrongfully converted the stock,-and that the original owner could recover the value of the securities with interest; but the decision was partly placed upon the special circumstances of the transfer, which deprived the defendant of the character and position of a bona fide purchaser. The lessee of premises assigned the lease by an instrument valid on the face, but the transfer was in fact given as security for an usurious loan made to him by the assignee. This lease was afterwards transferred by the assignee, passed through divers hands, and was finally purchased by the defendant, who knew that the first transfer was intended as a security for a loan, but who had no knowledge nor notice of the usurious taint which affected the loan, and who paid full value as the consideration of the transfer to himself. Subsequent to the original assignment by the lessee, but before the transfer to the defendant, the plaintiffs recovered a judgment against such lessee, which was regularly entered and docketed, and the lessee's interest in the premises leased and in the lease itself was sold on execution, bought in by the plaintiffs, and a sheriff's deed of such interest was delivered to them, which deed, however, was executed after the assignment to the defendant. The plaintiffs thereupon commenced an action to recover possession of the leased premises, and to avoid the transfer of the lease to the defendant on account of the usury which affected and nullified the first assignment

made no allusion to the defendant's want of good faith. Another, Denio J., dwelt upon the facts which showed the bad faith, but was, at the same time, very careful to protest against any inference from his course of argument to the effect that, if the purchase had been in good faith, the assignee would have been protected. The third judge who delivered an opinion, Hogeboom J., seems to have adopted the view of the case taken by Davies J. On the whole, although the fact of bad faith was an element in the decision, the doctrine laid down applies to all cases of transfer, those in good faith as well as those in bad faith.