author: Mr. Justice Scott Mr. Justice Dickey,

text:
    Leopold Miller et al. v. Russell M. Larned et al.

      Filed at Ottawa March 28, 1882

      Rehearing denied September Term, 1888.

      1. Accommodation paper—defined. Accommodation paper is either a negotiable or non-negotiable bill or note made by one who puts his name thereto without consideration, with the intention of lending his credit to the party accommodated. As between the party accommodated and the maker, the note or bill is not collectible.
    2. Same—what constitutes accommodation paper. Land actually belonging to A, stood of record in the name of B, who conveyed the same to 0, taking back O’s two promissory notes to B, for $6000 each, secured by deed of trust upon the land, and B, the payee, indorsed the same in blank, and delivered the same to A, with the understanding of all parties that the notes were to be used by him as he pleased, without any restrictions, the conveyance in fact not being in pursuance of any contract of sale: Held, that such notes were to be taken and treated as accommodation paper.
    3. Same—as to the use of such paper by the beneficiary—and of defences by the maker. It is a principle of general application that the beneficiary of an accommodation note without restriction as to the mode of its use, may transfer it, either in payment of his indebtedness, or as collateral security for a concurrent or even an antecedent debt, and the maker will have no defence.
    4. As to the holder of an accommodation note into whose hands it has come in the usual course of business for a valuable consideration, the maker will have no defence, and it makes no difference that the holder may have taken the note with full knowledge that it was accommodation paper.
    5. Same—sale of land for accommodation of vendor—rights of third persons. Although the sale of real estate is colorable and for the accommodation of the vendor or real owner, yet as to third persons who have in good faith acquired an interest in the notes given for the purchase money, or the property itself, the vendee or nominal purchaser will not be permitted to allege his purchase was for the mere accommodation of the vendor, and for that reason not binding on him. As to such third persons all parties to the transaction will be concluded by the record they have made, and it will be treated as an absolute sale.
    6. Same—release of security for accommodation paper—by whom—and under what circumstances. Accommodation paper, so long as held by the beneficiary, may be negotiated for his benefit even after maturity; and while such paper is in such condition it is not in the power of the beneficiary to release the lien of a trust deed securing the same, given by the maker on land of the beneficiary conveyed to the maker for his protection and indemnity, nor can any one else release the same, and the trustee can not, without evidence of the surrender of such paper to the maker or its cancellation otherwise.
    7. Same—pledge of accommodation paper, and payment of the principal 'debt—whether a discharge of a mortgage given to secure the paper pledged, as against holders of suck paper pledged a second time. A, the owner of real estate, procured B, in whom the record showed the title, to convey the same to 0, for C’s two notes, of $6000 each, secured by deed of trust on the premises to D, and C then conveyed the premises to A, who conveyed the same by warranty deed to E for the full value of the land. Before the conveyance to E, B had indorsed the notes in blank to A, who had pledged them as collateral security to a bank for a loan of $10,000; but A’s name did not appear upon the notes so pledged, or his interest therein. Afterwards A paid off his debt and took up the notes of O which were pledged, but still left them with the bank, and some time afterwards again pledged them as collateral security for another loan from the bank, and the bank transferred A’s note with the collaterals to innocent purchasers for value. E contended that when A paid off his first note of $10,000, and redeemed the pledge of the notes which were secured by the trust deed, that deed was discharged, and the debt secured by it paid: Held, that the trust deed was not thereby discharged, and that the notes of O, though accommodation paper, still' remained valid obligations in A’s hands, and that the second pledge of them was valid.
    8. Recording act—claimant under trust deed—conveyances subsequent to suck deed. A person buying or taking as collateral security notes secured by trust deed, is under no obligation to search the records before buying or taking the same, to ascertain what conveyances the grantor in the trust deed, or his grantee, has made since the making and recording of the deed of trust. The law charges such purchaser with notice of conveyances in the direct line of the title he is buying, and nothing more.
    9. Assignee—subject to what defences. The assignee of a mortgage takes it subject to the same equities that have attached to it in the hands of his assignor. But this rule does not apply to one pledging a note secured by mortgage not payable to him, but held by him under a blank indorsement of the payee, as to which paper he is not a party. Equities against such pledgor will not affect the pledgee or holder of such note.
    10. The rule that a mortgagor having the oldest equity may make the same defence against an equitable assignee as he could against the assignor, has no application to an assignee or holder of accommodation paper secured by mortgage. The msiker of such paper can not make any defence against one who has taken it in good faith in the usual course of business.
    11. Same—whether the mortgage should accompany the paper secured. Where accommodation paper which is secured by a mortgage has been indorsed and placed in a bank as collateral security for a loan, it is not essential to the protection of the rights of the bank in respect to the security afforded by the mortgage, that the mortgage itself should have passed to the hands of the bank concurrently with the notes secured by it. The assignment of the notes carried with them an equitable assignment of the mortgage, and it did not matter that the assignee did not at the same time obtain possession of the mortgage. That he could obtain at any time when needed.
    Appeal from the Appellate Court for the First District;— heard in that court on writ of error to the Circuit Court of Cook county; the Hon. E. S. Williams, Judge, presiding.
    Messrs. Rosenthal & Pence, for the appellants :
    No one is bound to search the records for conveyances made by the same person subsequent to the record of the deed under which he claims. He is only bound to look for prior conveyances or mortgages. Iglehart v. Crane, 42 Ill. 268; Matteson v. Thomas, 41 id. 113; Hosmer v. Campbell, 98 id. 572; Heaton v. Prather, 84 id. 332; Connecticut v. Bradish, 14 Mass. 296.
    Hansbrough is estopped from alleging that these notes were not for a valuable consideration. Silverman v. Bullock, 98 Ill. 11; Commonwealth v. City of Pittsburg, 34 Pa. St. 520. A contract will be construed according to its legal effect,
    and not according to a pretended secret agreement different from that expressed on its face. Mason v. Burton, 54 Ill. 353; Jones v. Allen, 70 id. 34.
    A mortgage being non-negotiable, its assignee takes in equity subject to all the equities residing in the notes secured, in favor of the original maker; but no secret or collateral equity which merely grows out of the note itself, there being no equity between the assignee and a third person, can be asserted against an assignee who takes after maturity. Olds v. Cummings, 31 Ill: 188; Ullman v. Kline, 87 id. 268; Silverman v. Bullock, 98 id. 11; Colehour v. State Savings Inst. 90 id. 156; Murry v. Lylburn, 2 Johns. Ch. 441; Mott v. Clark, 9 Pa. St. 339; Pryor v. Wood, 31 id. 142; Davis v. Barr, 9 S. & R. 141; Livingston v. Dean, 2 Johns. Ch. 479; Commonwealth v. Councils, etc. 34 Pa. St. 496; Putnam v. Clark, 29 N. J. Eq. 412; Losey v. Hoagland, 3 Stockt. 246; Woodruff v. Depute, 1 McCart, 174; Starr v. Hoskins, 26 N. J. Eq. 416; .2 Daniell’s Neg. Instr. secs. 1435-1437.
    The maker of commercial accommodation paper negotiable after maturity to one having notice of its accommodation character, can not defend against the same where no limitation has been imposed upon its negotiation. 1 Daniell’s Neg. Instr. sec. 726; Redfield & Bigelow’s Leading Cases, 216, 217; Story on Promissory Notes, sec. 194; Brown v. Mott, 7 Johns. 362; Grant v, Ellicott, 7 Wend. 227; Charles v. Marsden, 1 Taunt. 224; First National Bank v. Grant, 71 Maine, 374; Smith v. Knox, 3 Esp. 46; Harrington v. Dow, 3 Rob. 283; Dunn v. Weston, 71 Maine, 270; Parr v. Jewett, 81 Eng. C. L. 684; Maitland v. Citizens’ National Bank, 40 Md. 540; Commonwealth v. City of Pittsburg, 34 Pa. St. 520.
    The trust deed was given not only to secure the holder of the notes, but also to indemnify the maker against loss. His personal liability on the notes gives him a right to hold the trust deed as his indemnity. Burdett v. Clay, 8 B. Mon. 291; Comstock v. Hitt, 37 Ill. 546; Fowler v. Fay, 62 id. 377.
    The conveyance of the equity of redemption by quitclaim by Hansbrough to Walker, made the land the primary fund as between Hansbrough and Walker for the satisfaction of the notes, and Hansbrough had the right to enforce the security for their payment against the land. Funk v. McReynolds, 33 Ill. 495; Tice v. Annin, 2 Johns. Ch. 125; Matthews v. Aiken, 1 N. Y. 604; Cox v. Wheeler, 7 Paige, 248; McKinstry v. Curtis, 10 id. 503; Dow v. Peters, 3 Edw. Ch. 141; 2 Washburn on Real Property, pp. 216, *575.
    Hansbrough being entitled to this security for his indemnity, then the holders of his notes are entitled to be subrogated to his rights, and may enforce his security before ' payment by him. Curtiss v. Tyler, 9 Paige, 432; Moses v. Murtgatroyd, 1 Johns. Ch. 129; Phillips v. Thompson, 2 id. 418; Russell v. Clark, 7 Cranch, 69; Burdett v. Clay, 8 B. Mon. 291; Bank v. Thorp, 18 Johns. 505.
    Mr. E. C. Larned, for the appellee R. M. Larned :
    Complainants’ sole claim to enforce the trust deed is upon an equitable assignment made to them of the same as collateral security to the note of S. J. Walker, of $12,000. By such equitable assignment they take the trust deed subject to all the equities which attached to it in the hands of their assignor, S. J. Walker. If he was estopped from enforcing the mortgage against his grantor, his equitable assignee is equally estopped. Foster v. Strong, 5 Bradw. 207; Davis v. Beecher, 69 Ill. 440; Jones v. King, 25 id. 388; .Walker v. Dement, 42 id. 272; Gregory v. Savage, 32 Conn. 261; Brooks v. Ricord, 47 id. 30; Stafford v. Fargo, 35 id. 454; Fortier v. Darst, 31 id. 218; Sumner v. Waugh, 56 id. 539; Crane v. Turner, 67 id. 439; Kleeman v. Frisbie, 63 id. 489; Clute v. Robinson, 20 Johns. 611; Schaffer v. Reilly, 50 N. Y. 61.
    The indebtedness evidenced by the notes being that of S. J. Walker, when he became the owner of the notes the debt, as between him and the maker, was satisfied, and he could not create a new indebtedness against Hansbrough by the reissue of these notes, nor could the mortgage be .enforced by him against the premises to the prejudice of his grantee. Bush v. Lathrop, 22 N. Y. 543; Turpin v. Ogle, 4 Bradw. 611.
   Mr. Justice Scott

delivered the opinion of the Court:

The appeal of Leopold Miller and Jacob Leibenstein brings before this court the decision of the Appellate Court for the First District, in the case of Augustus Bauer v. S. J. Walker, touching the matters involved in their cross-bill in that ease. So much of the decree of the circuit court made in the principal case as dismissed the cross-bill of Miller and Leibenstein, by which it was sought to foreclose a trust deed on the tract of land claimed by Bussell M. Larned, was affirmed by the Appellate Court, although the decree in other respects was reversed and the cause remanded. As the judgment of the Appellate Court as to Miller and Leibenstein was final and conclusive of their rights, they prayed, and were allowed, an appeal to this court touching the matters adjudged against them.

As elaborate arguments have been made on every phasis of the case as now presented in this court, rather more than the usual elucidation will be required to express the views entertained by the court concerning the question raised and discussed. A concise statement of the facts will be necessary to an understanding of the questions of law discussed. ' Both parties concede that on and prior to October 24, 1870, the title to the tract of land in controversy was in Henry H. Walker. On that day Henry H. Walker, by warranty deed, conveyed the property to William Hansbrough, and took back a trust deed on the property made to John Gr. Bogers, to secure two promissory notes, each for the sum of $6000, bearing date the 24th day of October,-1870, and payable to the order of Henry H. Walker, in one and two years, respectively, after date, with interest thereon at the rate of eight per cent per annum. The deed to Hansbrough and the trust deed to Bogers for the security of the notes to Henry H. Walker were both placed on file and recorded in the proper office in Cook county, where the land is situated, on the 5th day of November, 1870. It seems the original trust deed was either lost or destroyed, and afterwards Hansbrough executed a new trust deed describing the same property, and reciting on the face of it that it was made in lieu of the one lost or destroyed. On the 17th day of December, 1870, Hansbrough, by quitclaim deed, conveyed the equity of redemption,—for that was all the interest he then had in the land,—to Samuel J. Walker; and afterwards, on the 12th day of January, 1871, Samuel J. Walker, his wife joining with him, hy warranty deed, for a full, valuable consideration, conveyed the premises to Bussell M. Larned: This latter deed was filed for record in the proper office on the 26th day of January, 1871. Leopold Miller and Jacob Leibenstein claim to be the assignees and holders of the Hansbrough notes, and to have the right to foreclose the trust deed and subject the land to their payment, while Russell M. Larned insists he is the owner of the premises under his deed from Samuel J. Walker, divested of the lien created by the trust deed to Rogers,—and this is the real contention between the parties to this appeal.

Had the transaction ended here, the ease would have presented no difficulty. Larned, the grantee of Samuel' J. Walker, would have taken nothing by his deed from him but the equity of redemption that was in Hansbrough, and the premises in his hands would have been subject to the lien created by the trust deed to Rogers, as the notes to Henry H. Walker secured by the trust deed were outstanding and unpaid. The complications in the case arise out of collateral facts, and the subsequent conduct of Samuel J. Walker, with which Hansbrough and Henry H. Walker had no direct or immediate connection, although it is doubtless true, as the sequel will disclose, that he had their implied, if not express, consent to do as he pleased with the Hansbrough notes. It will, therefore," be necessary to note the connection of Samuel J. Walker with the transaction.

There is evidence tending to show that Samuel J. Walker was the equitable owner of the premises at the time the same were conveyed to Hansbrough, although the legal title was in Henry H. Walker. Be that as it may, it is not a matter of much consequence, as the fact of its existence could not be known to strangers dealing with the land, or the notes secured on it. It appears that soon after the making of the notes and trust deed by Hansbrough to Henry H. Walker, the latter indorsed the notes in blank, and delivered the same to Samuel J. Walker.

There can be no doubt the transaction between Hansbrough and Henry H. Walker was colorable, and that the conveyance to Hansbrough was not an actual sale. It was a mode adopted to make accommodation paper of such unquestionable value as that it could be readily negotiated by Samuel J. Walker, for whose benefit it was made. Hansbrough incurred no risk in making the paper, for the land on which the notes were secured afforded ample indemnity against his personal undertaking as maker of the notes; and if it is true, as defendant insists it is, that Samuel J. Walker was the equitable owner of the premises, Henry H. Walker was also well secured against personal loss on account of his indorsement of the notes, by the real estate pledged for their ultimate payment. That it was accommodation paper is evident from the testimony of the maker and indorser of the notes. Both admit their personal legal liability thereon, but expected, as the notes were secured on real estate, the party accommodated would take care of them. Neither of them ever expected to pay the notes. It may therefore be assumed, that for the purposes of this decision the notes of Hansbrough in the hands of Samuel J. Walker, were, in the strictest commercial sense, accommodation paper. Such being the case, Samuel J. Walker had the implied consent (which, under the circumstances, was' equivalent to express consent,) of both the maker and indorser to negotiate the notes to whomsoever would purchase them, whether due or not. In that regard no limitation was placed on the party for whose use the notes were made as to when or how he should use them. What is called accommodation paper, is, where the maker loans his note to the payee, with a view the latter may negotiate it for his personal benefit. It is not essential such paper should have any consideration to support it. A recognized definition of accommodation paper is, either a negotiable or non-negotiable bill or note made by one who puts his name thereto without consideration, with the intention of lending his credit to the party accommodated. It is a principle of general application, the beneficiary of an accommodation note, without restriction as to the mode of its use, may transfer it, either in payment of his indebtedness or as collateral security for a concurrent or even an antecedent debt, and the maker will have no defence. The notes in this case are none the less accommodation paper because the maker and indorser are secured against personal liability by a trust deed on real property, alleged to have been equitably owned by the party accommodated. That fact only made the notes that much more valuable in the hands of subsequent holders.

As between the original parties there never was a time when the notes could have been collected off the maker. The reason is, the transaction was for the sole accommodation of Samuel J. Walker, and it was never understood the maker of the notes was obligated to make payment to him or to the payee, Henry H. Walker. But the rule of law is different as to the holder into whose hands the notes may have come in the usual course of business for a valuable consideration. As to him the maker can interpose no defence, and it makes no. difference the holder may have taken the notes with the knowledge they were accommodation paper. Accommodation paper is made for the express purpose it may be sold or negotiated for the benefit of the person accommodated, and after it has been sold or negotiated in the usual course of business for value, the maker will not be listened to if he asserts it was without consideration. It is a reasonable rule that one who puts his note or bill in the hands of another to be sold or negotiated, after it is done, will not be permitted to answer the holder, who has taken it in good faith for value, that he does not owe the note or bill. ‘-The very purpose of making accommodation paper is, that the party favored may dispose of it, and unless restricted he may transfer it either before or after maturity, and the maker will be equally bound. The usage in this regard is sanctioned by the practice that has prevailed in mercantile transactions everywhere, in this country and in England. That usage has now the consistence of law. Any other rule would permit the maker of such paper to practice a fraud on persons who should take paper he had put out to be negotiated in the usual course of business. The only safe rule is, that where a bill or note is given, with no restriction as to the mode or time of using it by the party accommodated, and the same has been transferred in good faith in the usual course of business, the holder, if he paid a valuable consideration for it, will be entitled to recover the full amount, although he may have had full knowledge it was accommodation paper. The authorities on this branch of the law are consistent and numerous. A few of them will be cited to illustrate the views expressed: 1 Parsons on Notes and Bills, pages 183, 226; 2 Parsons on Notes and Bills, page 27; National Bank v. Grant, 71 Maine, 374; Dunn v. Weston, id. 270; Brown v. Mott, 7 Johns. 360; Harrington v. Dow, 3 Rob. 275; Commonwealth v. City of Pittsburg, 34 Pa. St. 496; Smith v. Knox, 3 Esp. 46; Maitland v. Bank, 40 Md. 540.

Whether the notes in this ease shall be regarded as accommodation paper in the strict commercial sense in which those terms are used, or whether it shall be held they were given on a fictitious sale of real estate, not intended by either party to be a valid sale, can make but little difference in the ultimate decision of the case. Should they be regarded as coming within the former definition, the principles of the cases cited are applicable; but if the latter shall be adopted, then the principle of Silverman v. Bullock, 98 Ill. 11, applies with equal force. The principle of the latter case is, that although the sale of real property is colorable, and for the accommodation of the vendor, yet as to third parties who may have acquired in good faith an interest in the notes given for the purchase money or the property itself, the vendee or nominal purchaser will not be permitted to allege his purchase was for the mere accommodation of the vendor, and for that reason not binding on him. The reason for the rule adopted in that ease has its foundation in the plainest principles of natural justice. On the record it appeared to all the world the sale to him was absolute, and as to parties dealing either with the land or the notes secured on it, he was held to be concluded by the record he had himself made. It was therefore held he was personally liable to the assignee of his notes, as was also the estate pledged for their payment. There is much similarity between that ease and the one in hand. If the notes are not strictly accommodation paper, then it must be admitted they were given to secure the alleged purchase of a colorable sale of real estate to Hansbrough, which was not intended by any of the parties to the transaction to be a valid sale. On that hypothesis the principle of Silverman v. Bullock applies, and as to third persons dealing with the notes secured on the property, or with the property itself, all parties to the transaction will be concluded by the record they have made, which shows an absolute sale; and so far as it may be necessary to the protection of persons obtaining in good faith an interest in the notes or land, it must be treated as an absolute sale of the property to Hansbrough.

But the better definition is the one insisted on by defendants,—that is, that the notes of Hansbrough are accommodation paper for the use of Samuel J. Walker, and were so intended to be by both the maker and the indorser. The conveyance to Hansbrough of the land may have been done with a three-fold purpose: First, that the trust deed given on it to ¡Rogers might secure the maker of the notes against personal liability on account of his undertaking; second, that it might afford a like security to the indorser; and third, that it might give additional credit to the notes when the party accommodated came to negotiate them. In the further consideration of the case the Hansbrough notes will be treated as accommodation paper made for the use of Samuel J. Walker, to be by him negotiated, with no restriction as to the mode or time of using them. As to how or when the accommodated party was to use the notes, neither the maker nor the indorser had any concern, and imposed no restrictions. So far as they were concerned he had unlimited authority to use the notes as he pleased and when he pleased. With this understanding of the character of the paper, and the use the maker and indorser intended should be made of the notes by the party favored, the subsequent conduct of the parties may be more readily comprehended. As previously stated, soon after the making of the notes and trust deed, the notes were indorsed in blank by the payee, Henry H. Walker, and delivered to Samuel J. Walker. On the 28th day of November, 1870, Samuel J. Walker borrowed of the International Bank $10,000, and as collateral security to his own note given for the money borrowed, he pledged the two notes of Hansbrough, with the blank indorsement thereon of Henry H. Walker, by delivering the same to the bank. The name of Samuel J. Walker does not appear on either Hansbrough note, as indorser or otherwise. The principal note was sold by the bank to Amos S. Seely, and the Hansbrough notes were delivered to him in the condition they were received by the bank, as collateral security for the note sold to him. It appears the note held by Seely was afterwards, on the 14th day of June, 1872, paid by the check of Samuel J. Walker, and the collateral notes returned to the bank. On the 2d day of July, 1872, Samuel J. Walker borrowed $12,000 of the same bank, giving his own note, at ninety days, without interest until after maturity, and again pledged the Hansbrough notes as collateral security for his debt. - One of the Hansbrough notes had then become due, but it is apprehended that can make no difference, as the law is well settled the obliged party of accommodation paper, so long as the maker permits him to retain it, may pledge or negotiate it, and the maker has no defence to it against a holder who has taken it in good faith in the usual course of business, for value. Of course, the rule is different as to other paper. As against an assignee of other paper taken after maturity, the maker may defend as successfully as against the original payee. But the rule does not, and it has 'never been understood to, apply to accommodation paper. The authorities cited supra sustain this view of the law. ■’*

Treating the Hansbrough notes as strictly accommodation paper, as is warranted by the construction the parties themselves have given to the transaction, the case would seem to present no difficulty. Complainants are the holders of the notes in good faith for a valuable consideration, and would appear to have the clear right to enforce payment, either from the maker, or the indorser, Henry H. Walker, or out of the estate pledged by the trust deed for their payment. Whatever moral obligation may have rested on Samuel J. Walker to make payment of the notes, it does not appear he ever took upon himself any legal obligation to -pay them. His name nowhere appears on the notes, as indorser or otherwise. It is to be observed neither Hansbrough, the maker of the notes, nor Henry H. Walker, the payee and indorser, never did and do not now deny their personal liability on the notes. The defence interposed is made solely by Larned, and only by him so far as payment is sought to be enforced against the estate pledged for their payment.

Larned, it will be seen, defends on the ground he took the property, under his deed from Samuel J. Walker, discharged from the lien created by the trust deed. One position taken is, the lien of the trust deed was in fact discharged at the time of the conveyance of the property by Samuel J. Walker to Larned, by the substitution of other collaterals with the bank for Walker’s note of $10,000, or by the subsequent discharge of the debt secured. Of this there is no satisfactory evidence in the record. It is certain the notes were never surrendered to Hansbrough, or to Henry H. Walker, or any one else, to be canceled, nor were they ever in fact canceled. Great stress is laid on the fact the trust deed was not found with the other papers, as showing the collaterals must have been changed at the time of the conveyance to Larned. That fact proves nothing satisfactorily. The assignment of the notes carried with them an equitable assignment of the mortgage by which they were secured, and it is a matter of no consequence whether the trust deed was delivered to the bank at the time. It could be delivered at any time when needed. It was not essential to the protection of the rights of the bank there should have been a concurrent delivery of the mortgage at the time of the delivery of the notes. Nor is it certain the mortgage was not delivered with the notes when they were first hypothecated with the bank.

It may be, and doubtless is, true that Samuel J. Walker agreed, and confidently expected, to procure the Hansbrough notes to be surrendered, and a formal release of the trust deed to be made, when he conveyed the property to Larned, and no doubt the attorneys who acted for Lamed as confidently expected and believed he would do so; but the fact remains he did not do it. Past all cavil it is proven the notes remained all the time with the bank, or in the hands of parties holding the notes of Samuel J. Walker, and to whom they were delivered as collateral security for his indebtedness to them. In this connection it is suggested Samuel J. Walker did not intend to pledge the Hansbrough notes as collateral security for the second loan obtained from the bank,—that it was done inadvertently by some officer of the bank. The evidence warrants no such belief. The col-laterals are described in the body of the notes over his own signature, and after rights of third parties have attached he will not be permitted to say it was done by mistake. It will be held he intended to do exactly what he did do, and he will be bound by the legal effect of his act. Nor is there any improbability the bank would accept the notes as sufficient security for the debt of Samuel J. Walker. It is not accurate to say the collateral security' was exactly the same amount as the principal debt. These notes had then been bearing interest nearly or quite eighteen months before the loan was effected, and the principal debt would not bear any interest until after the expiration of ninety days. That would make the collaterals considerably in excess of the debt they were to secure. Besides this fact, the opinion of title presented with the notes stated the title to the real estate upon which the notes were secured was perfect in Hansbrough, and that made the collaterals of the highest grade, and abundant security for the principal debt.

The argument the lien of the trust deed was merged in the fee of the estate when Walker paid his note to Seely, and became entitled to the possession of the notes pledged as collaterals, does not seem to have any tenable ground on which to rest. It does not appear that Samuel J. Walker ever had the legal title to the property embraced in the trust deed to Rogers, and it is not perceived how there could be any merger of the equitable title with the fee in him. Nor is it understood how the fact insisted upon could extinguish the indebtedness, or release the lien of the trust deed. The position taken on this branch of the case utterly ignores a fact frequently conceded by defendant, that the Hansbrough notes in the hands of Samuel J. Walker were accommodation paper, and hence he had no rightful authority to discharge the lien of the trust deed while the notes were outstanding and uncanceled, either in his hands or in the hands of any one else other than the maker. Hansbrough himself had an interest in the trust deed that it should be kept alive as indemnity against his personal liability on the notes. Being mere accommodation paper, his notes were liable to be negotiated at any time, and so long as that contingency existed it was not in the power of Samuel J. Walker or any one else to release the lien of the trust deed. Certainly Samuel J. Walker had no right to do it, nor would the trustee, in whom was the legal title to the property, he authorized to release the lien of the trust deed, until evidence was presented to him the notes had been surrendered to the maker, or had been, in some rightful manner, canceled. It is, therefore, clear there was no release of the trust deed by merger or otherwise, in fact, by a surrender or canceling of the notes.

Another view presented is, that complainants are chargeable with notice of the conveyance by Samuel J. Walker to Larned, which it is said would operate as a release of the trust deed after payment of the Seely note, and he became thereby entitled to the possession of the notes secured. There is no warrant for this position, either in fact or law. Nothing in the evidence authorizes the belief either the bank or Miller and Leibenstein, at the time the notes were pledged a second time, or at any time before, had any actual notice of the deed from Samuel J. Walker to Larned, nor would the law charge them with notice of that fact. Neither of them was under any obligation to search the record before buying the notes, to ascertain what conveyances the grantor in the trust deed or his grantee had since made. The law only charges such purchasers with notice of conveyances in the direct line of the title he is buying, and nothing more,—as, for example, the law charges a dealer in such securities with notice of a release by the mortgagee or trustee, and that is because it is in the direct line of the title he is buying. The decisions of this court that declare this doctrine, are numerous and consistent. A recent case restating the rule is Hosmer v. Campbell, 98 Ill. 572. But if the law were otherwise, and it had been the duty of the bank, or Miller and Leibenstein, to examine the record of deeds, what would have been discovered ? It is well understood the registry of deeds makes known only such legal or other titles as are recorded. Secret equities existing in others of course are not shown. On examination it would have been discovered Larned had the equity of redemption that was in Hansbrough, and nothing more. It is simply stating that which is self-evident, to say that Samuel J. Walker could convey no greater interest in the land to Larned than he had. By the record,—and certainly no one would insist complainants were bound to discover secret equities,—it appeared he only had the equity of redemption that was in Hansbrough, and that was all he could convey to Larned. The form of the conveyance adopted, whether by quitclaim or warranty deed, could make no difference. A quitclaim deed would have passed the equity of redemption Samuel J. Walker had, as effectually as did the warranty deed employed for that purpose. Charging complainants with notice of all the record disclosed,—if, it were allowable, which it is not,—the title to the security pledged for the payment of the notes they were taking was perfect in Rogers, the trustee, and they could purchase with safety. The legal title to the real estate was in him, and it did not appear of record that he had ever released it.

The doctrine is well understood an assignee of a mortgage takes it subject to the same equities that attached to it in the hands of the assignor. It is because a mortgage or a deed of trust is not assignable either at common law or under the statutes of this State. By the common law, choses in action are not assignable so as to vest the absolute title in the assignee, nor has any statute of this State changed the common law in that respect. This has been the rule adopted and acted upon ever since the decision in Olds v. Cummings, 31 Ill. 188, and has been many times restated in more recent decisions. In the case now before this court the assignment of the notes carried with them an equitable assignment of the trust deed by which they were secured, and under the doctrine stated it is insisted complainants, by such equitable assignment, took the trust deed subject to all the equities which attached to it in the hands of Samuel J. Walker; and as he at the time of such equitable assignment to them was equitably estopped from enforcing the trust deed as a mortgage against his grantee, in like manner complainants were estopped to enforce it against Larned. The argument assumes as a fact that which does not appear by this record to exist, —that is, that Samuel J. Walker was the assignor of the notes and trust deed. Such is not the fact. As previously noted, his name nowhere appears, either on the notes or on the trust deed. Henry H. Walker was the assignor, and he is the only person whose name appears on the notes in that capacity. How was Henry H. Walker estopped? There was nothing to operate by way of estoppel as to him that would make it inequitable for him to foreclose the mortgage, had he been compelled to pay the notes on his personal indorsement. But treating the transaction as a valid sale, and under the rule in Silverman v. Bullock, after the rights of third parties have attached the parties will not be allowed to treat it otherwise than as a valid sale, what defence had Hansbrough to the notes ? Certainly none at all, for he had the land by a perfect title, and might have retained it had he removed the incumbrance he placed on it. As was said in the ease last cited, a court of chancery will not listen to him when he asserts a transaction fair on the record was secretly colorable for the benefit of his grantor, and, it may be added, nor for the benefit of any other person.

But there is another view that can be taken that is even more forcible and more satisfactory. As between Hansbrough and Henry H. and Samuel J. Walker, it is conceded the notes were mere accommodation paper, although when executed they were secured on real estate. The principle underlying the decision in Olds v. Cummings, and other analogous cases in this court, is, that the original mortgagor has equities that are older and superior to any possessed by the assignee of the notes secured, and on the doctrine the oldest equity must prevail, the mortgagor has been let in to make the same defence to the mortgage in the hands of an equitable assignee as he could against the assignor. But what application can this doctrine have to an assignee or holder of accommodation paper? It would be most unreasonable to affirm the grantor in a mortgage to secure accommodation paper, has any equities superior to those of the assignee of the note, who thereby becomes the equitable assignee of the mortgage. Any application of the doctrine of Olds v. Cummings to the maker of a mortgage to secure accommodation paper, would be to make a most equitable and reasonable doctrine the means of enabling a party to perpetrate a great wrong on another. A court of equity will not lend its aid for any such purpose.

Of course the party accommodated could never recover the amount of the bill or note from the maker, but the settled law is, wherever the common law prevails, to accommodation paper in the hands of one who has taken it in good faith in the usual course of business for value, the maker can make no defence. Were it the law the assignee of accommodation paper was affected by the equities existing between the maker and the party accommodated, such paper, although well secured on real estate, would be utterly worthless in the hands of the assignee who may have taken it in good faith for value in the usual course of business among merchants or other traders. To allow the equities existing between the original parties to accommodation paper secured by mortgage to prevail over the equities of the assignee of the note, would be to carry the doctrine of Olds v. Cummings to such an unreasonable extent as would ensnare honest dealers in such securities. It is therefore wholly immaterial whether Samuel J. Walker be regarded as the assignor of complainants, as the mortgage in their hands is not subject to the same defences as it would be in his hands.

There are equitable considerations that strengthen very much the conclusion reached. It is evident if the notes are to be collected, either off the parties personally liable, or by subjecting the mortgaged premises to their payment, or if not collected at all in either mode, some one connected with the transaction must suffer loss. It will fall either upon the present holders, or on Larned, or on Hansbrough, or on Henry H. Walker, as Samuel J. Walker is not now, and never was, personally legally liable to pay the notes. The principal note is worthless on account of the insolvency of the maker, S. J. Walker. The rule of law is, where one of two or more persons must suffer a loss, upon him whose negligent conduct made it possible for loss to occur will the consequences ultimately rest. It is his duty to use reasonable precaution to avoid imposition. That one who stands fair in a transaction should suffer loss for the negligent conduct of another, conflicts with the common understanding of right and justice. Anderson v. Warne, 71 Ill. 20. In the light of this equitable rule it is proper to ascertain, if possible, on account of whose fault has the complication surrounding this transaction arisen. Whose conduct made it possible for loss to occur ? It was not on account of any negligent conduct on the part of complainants. The notes, in suit-were accommodation paper in the hands of the party accommodated, to be negotiated or hypothecated by him, with the tacit consent of the maker and the indorser, to or with any one willing to receive them. The present holders took them in the usual course of business, as they might rightfully and safely do. It was not for any fault of the indorser, for no negligence can be imputed to him. The same may confidently be affirmed as to the maker of the notes. But how is it as to Larned? It is said he paid full value for the land as for an estate in fee. That is conceded; but did he observe the necessary or even the usual precautions to avoid ultimate loss ? It can hardly be maintained that he did. He knew the notes secured on the land he was buying were negotiable paper not then due, and as they were outstanding the presumption would be, wholly unpaid. The attorneys conducting the negotiations on behalf of defendant were' entirely familiar with the title to the land. Shortly anterior they had given an opinion the title to the land was perfect in Hansbrough, and hence the trust deed to Rogers was valid. That opinion was sent with the notes, when they were sent out to be negotiated or hypothecated. Familiar as they certainly were with all these facts, they ought, as a matter of common prudence, to have insisted the notes described in the trust deed should be delivered up to be canceled. Not to do so was the want of ordinary care usually observed in such matters. No matter if the utmost good faith was intended, the grantee had no right to rely on the promise or undertaking of Samuel J. Walker to take up the securities and cancel them. Leaving the notes in the hands of Samuel J. Walker made it possible for him to negotiate or hypothecate them again in the usual course of business, and unless valid, it would be to the great detriment of an innocent taker. The very contingency the negligent conduct of the grantee made it possible to occur, did in fact happen. The notes were hypothecated with complainants, and were taken by them in the usual course of business for value, and without any actual or constructive notice that defendant had any interest in the land pledged for their payment. Had defendant insisted, as was his duty, the notes should be actually surrendered up and canceled before completing his purchase, it would not have been possible for loss to occur. Under the circumstances it is a reasonable conclusion the equities of complainants in the cross-bill in the premises are superior to, and must prevail over, any equities defendant may have.

The judgment of the Appellate Court will be reversed, and the cause remanded to that court, with directions to reverse the decree of the circuit court dismissing complainants’ cross-bill, and to remand the cause for further proceedings conforming to this opinion.

Judgment reversed.

Mr. Justice Dickey,

dissenting:

I can not concur in the conclusion reached in this case. Hansbrough, having title to the land in question, conveyed the same to Rogers, in trust, to secure the payment of his two notes to H. H. Walker, or order, for $6000 each. This placed the naked fee in Rogers, leaving an equity of redemption in Hansbrough, and the equitable interest in the land for security of the notes in H. H. Walker. In equity Rogers had no interest in the land. The whole of the land in equity was in Hansbrough and in H. H. Walker. Thus stood the title of record. The interest, then, in H. H. Walker is the thing in controversy now, between Laimed on the one side, and Miller and Leibenstein on the other. No other parties have any interest in the controversy.

The interest of H. H. Walker was in equity transferred by him to Samuel J. Walker, by H. H. Walker indorsing his name upon the notes and 'delivering the same to Samuel J. Walker. This equitable, assignment to S. J. Walker was not recorded. This same equitable interest originally in H. H. Walker was transferred to the bank, by a delivery of the notes from S. J. Walker to the bank, with the blank assignment of H. H. Walker thereon. Thus the ownership in equity of the whole interest in this land was in Hansbrough and in the bank, Hansbrough still holding merely the equity of redemption. In this condition Hansbrough, by quitclaim deed, under date of December 17, 1870, conveyed the land to S. J. Walker, and this deed was recorded January 23, 1871. On January 12, 1871, Samuel J. Walker conveyed, by deed, with full covenants, the land in question to Lamed, and this deed was recorded January 26, 1871. At this time the equitable interest in this land (given originally to H. H. Walker by the trust deed to Bogers) which is the subject of controversy, was in the bank, held for Seely, who had acquired the Hansbrough notes secured by the trust deed.

The covenants in the deed of Samuel J. Walker to Larned, on record, were in substance a contract by Samuel J. Walker that he would take up and procure the discharge of the notes, or, in other words, that he would purchase the equitable interest in controversy and transfer the same to Larned. All this was of record.

Samuel J. Walker did, June 14, 1872, pay Seely, through the bank, for this equitable interest, now in controversy, and as against all the world except Larned, that interest became the property of Samuel J. Walker. But as between Samuel J. Walker and Larned, the land at once became vested in Larned by operation of the covenants in his deed of record. .It seems to me that1’ this was the effect not only as against Walker, but as against all other persons claiming this interest through Walker by subsequent purchase from Walker, with notice, either actual or constructive. After this, and on July 2, 1872, Samuel J. Walker borrowed of the bank some $12,000, and pledged these Hansbrough notes as collateral security for the payment thereof, at ninety days, and gave to the bank as evidence of that debt, and pertaining thereto, a paper in the following words, that is:

“No. 2233. Chicago, July 2, 1872.
“Ninety days (no grace) after date, for value received, I promise to pay at the office of the International Bank, to the order of the International Bank, the sum of $12,000, with interest at ten per cent per annum after maturity; and in ease this note shall not be paid within ten days after the maturity thereof, interest shall thenceforth be charged at the rate of twenty per cent per annum. Such rate was agreed upon as the measure of damages for the non-payment hereof at maturity.
“Having deposited as collateral to secure the payment hereof, two notes, William Hansbrough, $6000 each, and secured by trust deed to John G-. ¡Rogers, the east half of the north-west quarter, section 4, town 38 north, range 13 east, which notes I hereby give the legal holder of this note authority to sell, or any part thereof, on the maturity of this note, or at any time thereafter, or before, in the event .of said securities depreciating in value in the opinion of said holder, at public or private sale, at his discretion, without advertising the same or giving me any notice, (notice is hereby expressly waived,) and to apply so much of the proceeds thereof to the payment of this note as may be necessary to pay" the same, with all interest due thereon, and also the payment of all expenses attending the sale; also five per cent as a brokerage or commission for selling the collaterals; and in case the proceeds of the sale of the said notes shall not cover the principal, interest and expenses, I promise to pay the deficiency forthwith after such sale.
(Signed) Samuel J. Walker. ”

With the above paper was given to the bank at that time, by S. J. Walker, the Hansbrough notes mentioned in the trust deed to ¡Rogers. These notes, with the memoranda upon them, are set out in the record as exhibits 28 and 29, and are as follows. Exhibit 28 reads as follows:

“$6000. Chicago, October 2é, 1870.
“Two years after date I promise to pay to the order of Henry H. Walker $6000, at the Second National Bank, Chicago, Hlinois, value received, with interest from date at eight per cent per annum.
(Signed) William Hansbrough. ”

Secured by trust deed of this date, duly stamped. Indorsed on the back of said note, “Henry H. Walker.” Written across the face of said note is the following memorandum: “East half, north-west quarter, section 4, town 38 north, range 13 east third principal meridian. ”

Exhibit 29 reads as follows:

“$6000. . Chicago, October 24, 1870.
“Two years after date I promise to pay to the order of Henry H.JWalker $6000, at the Second National Bank, Chicago, Illinois, for value received, with interest from date at eight per cent per annum.
(Signed) William Hansbrough. ”

Secured by trust deed of this date, duly stamped. Indorsed on the back of said note, “Henry H. Walker.” On the face of this note was written (as on exhibit 28) the words: “East half, north-west quarter, section 4, town 38 north, range 13 east third principal meridian. ”

This note of Samuel J. Walker, of July 2, 1872, (being indorsed in blank, thus: “Without recourse. International Bank, Francis A. Hoffman, Cash’r, ”) was sold and delivered to Miller and Eeibónstein, with the collaterals above mentioned. Under this purchase it is that they claim an equitable interest in this tract of land to the extent of paying the amount due on the $12,000 note given to the bank July 2, 1872. Thus it will be seen the only title they claim to an interest in this land is under and through Samuel J. Walker, and this by virtue of an assignment by him of such interest, dated July 2, 1872. If they have any interest, in this land it is by purchase from the bank of such interest in the same as the bank derived from Samuel J. Walker by purchase from him on July 2, 1882. Before that time Samuel J. Walker had sold and conveyed that very interest (as well as all other interests, to make a full title,) to Earned, by his deed of warranty, and this was on record, and in the direct line of the title bought by them. They had record notice of Larned’s rights, and could not undermine them by a subsequent purchase.

Lay aside our recording laws, and Larned’s equity is first in time, and therefore superior to that of Miller and Leibenstein. If Larned had neglected to record his deed until after Leibenstein had placed the assignment from Samuel J. Walker on record, by recording the same in the office of the recorder, or by filing a bill in a court of record, setting up their equity, then their equity under the recording laws would be superior. It is a matter of no significance that Samuel J. Walker’s name does not appear in the trust deed to Bogers, or on the Hansbrough notes, so long as it appears affirmatively on the face of the assignment of these notes (as collaterals), not written on the notes, that Samuel J. Walker was in possession of the notes, with the blank indorsement of H. H. Walker upon them, and claiming to be the owner, and did assign his supposed interest in the notes, and in this land, by another paper.

I concede that if Miller and Leibenstein had bought these notes of the bank without notice that they were derived from Samuel J. Walker, they would not have been put upon inquiry as to whether he had parted with his interest in this land. He would not then have stood in the line through which they deraign title. I am persuaded that some of my brethren who concur in this decision have not given due consideration to this feature of the case. Miller and Leibenstein have no standing as claimants of an equitable interest in this property, except through and by the purchase from S. J. Walker on July 2, 1870. Before that time Samuel J. Walker had conveyed, for a full price, this very interest to Larned, and his deed was on record.


source: Caselaw Access Project

author: Mr. Justice Walker

license: Public Domain

text:
    Chicago and Northwestern Railway Company v. Robert E. Jenkins.

      Filed at Ottawa May 12, 1882

      Rehearing denied September Term, 1882.

    1. Plea in abatement—bankruptcy. A plea of the bankruptcy of the plaintiff: and the transfer of his property and rights to an assignee after the commencement of the suit, in abatement of the action, without any prayer of any kind, is subject to demurrer.
    2. Parties—assignee in bankruptcy—substitution as plaintiff. Under section 5047 of the Revised Statutes of the United States, the assignee, at any time after his appointment, has the right to be substituted as plaintiff, on his request, in an action pending in the name of the bankrupt for the recovery of a debt or other thing which might or ought to pass to the assignee, who may thereafter prosecute the suit the same as if originally brought in his name, and such substitution will furnish a good replication to a plea in abatement of the plaintiff’s bankruptcy.
    3. Action—commencement of suit—what constitutes, as affecting the limitation of actions. The bringing of a suit is the issuing of a summons or other process to bring the defendant into court. The substitution of the assignee of a bankrupt as plaintiff in a suit, is not to be regarded as the commencement of the suit by the assignee, within the meaning of the United States statute limiting such actions to two years after the assignee’s appointment.

      4. Limitations—as to suits by assignee in bankruptcy—under the act of Congress—to what suits the statute applies. The statute of the United States limiting the bringing of suits by the assignee of a bankrupt within two years from the time of his appointment, was designed only to apply to suits brought by him, and not to actions already pending in which he maybe substituted as plivntiff, although such substitution may be more than two years after his appointment.
    5. Same—generally—as to cases embraced in the statute. In construing statutes of limitations, the courts can only hold that they embrace such subjects as are specifically named or embraced in enumerated classes. Gases or classes not enumerated are excluded from their operation by implication.
    6. Same—does not run during pendency of suit. The Statute of Limitations does not run against a cause of action after a suit thereon is commenced, and during its pendency, and numerous cases hold that the mere commencement of a suit without service within the statutory period, will prevent the statute from becoming a bar.

      7. Same—effect of making new parties, or introducing new matter, by amendment. Where not only new parties are made in a pending suit, but by amendment also new rights or causes of action already barred are brought before the court, the Statute of Limitations may be properly set up as to such new matter, but not where no new rights are brought into the suit which were not barred when the suit was brought.
    8. Lien—how created, and by whom—lien of carrier for demurrage. All liens are created by law or by contract of the parties, and when the law gives none, neither party can create one without the consent or agreement of the other. Hence the consignee of goods shipped by railroad is not bound by rules and regulations of the railway company providing for a lien for demurrage, though published] without his or the consignor’s assent thereto 1 when the contract for shipping the goods was made. Even a knowledge of such rules, without assent thereto, will not affect the shipper or consignee.
    9. Same—presumption as to assent. The law will never indulge in the presumption of assent to rules of a railway company for a lien for damages caused by delay in receiving the goods shipped] from the publication of the same.
    10. Demurrage—allowable only on maritime contracts. The right to demurrage does not attach to carriers by railroads. If it exists at all as a legal right, it is confined to the maritime law, and only exists as to carriers by sea-going vessels, and even then it is believed to exist alone by contract.
    Appeal from the Appellate Court for the First District;— heard in that court on appeal from the Superior Court of Cook county; the Hon. Bollin S. Williamson, Judge, presiding.
    Mr. A. M. Herrington, for the appellant:
    Under the Bankrupt law the action in favor of the assignee was barred after the lapse of two years. Gifford v. Holmes, 98 U. S. 252; Bailey v. Glover, 21 Wall. 346; Moore v. State Ins. Co. 2 Tenn. Ch. Rep. 380.
    L If the assignee is not made a party to a pending action until more than two years after his appointment, his claim will be barred, for the amendment by which he is made a party will not relate back, and thereby make him a party ab initio, and thereby defeat the limitation. Cogdell v. Exume, 10 N. B. 327; S. C. 69; N. C. 464.
    The rule, without an exception, is, that all causes of action are vested in the assignee upon the execution of the assignment, and the limitation begins to run from that time, and this applies equally to courts of equity and courts of law. Bailey v. Wier, 21 Wall. 342.
    And the limitation applies to the State court as well as to the Federal courts. Comegg v. McCord, 11 Ala. 932; Archer v. Duvall, 1 Fla. 219.
    This court has held that when a new party is brought into the suit against whom the Statute of Limitations has run, it may be pleaded, and the fact that thg suit was pending does not stop the statute. Clark v. Manning, 95 Ill. 581; Crowl v. Nagle, 86 Ill. 440.
    The bankruptcy of a plaintiff after suit brought may be pleaded, and thereby defeat the action, and the assignee will be compelled to proceed de novo. 1 Chitty’s Pleading, (16th Am. ed.) 27; Kinnear v. Tarrant, 15 East, 630; Biggs et al. v. Cox, 4 Barn. & Cres. 921; Eyster v. Goff et al. 92 U. S. 524.
    Where a party to an action has received his discharge in bankruptcy pending the action, he has no further interest in the suit. Knox v. Exchange Bank, 12 Wall. 379; Herranden a v. Howard, 9 id. 665.
    In trover a lien must be specially pleaded, and can not be given in evidence under the general issue, and hence the pleas were proper, and were not subject to the objection that they amounted to the general issue. 1 Chitty’s Pleading, (16th Am. ed.) 530; Hahn v. Ritter, 12 Ill. 80.
    Messrs. Sleeper & Whiton, for the appellee:
    This action was pending in the name of Noyes & Messenger at the time the proceedings were had in bankruptcy, and Jenkins was admitted to prosecute the same in his own name. Revised Statutes of the United States, sec. 5047.
    The provisions of sec. 5057, United States Statutes, only limits the maintenance of actions which are commenced by or against ap assignee, and do not purport to interfere with the prosecution of actions pending in the name of the bankrupt at the time when the bankruptcy proceedings are commenced. Kane v. Pilcher, 7 B. Mon. 651; Judson v. Lathrop, 6 La. Ann, 587; Lotting v. Fassman, 17 N. B. 183; Walker v. Towner, id. 285; Steele v. Moody, id. 558; Wilt v. Stockton, 15 id. 23; Norton v. Villebeuve, 13 id. 304; Holbrook v. Brenner, 31 Ill. 501; Stevens v. Hauser, 39 N. Y. 302; In re Masterton, 4 N. B. 180; Sedgwick v. Casey, id. 161; Dubois v. Anderson, 6 id. 145.
    Admitting the assignee to prosecute the suit, was only continuing the same, and was not the commencement of a new suit, and is analogous to continuing a suit by an executor after the plaintiff’s death. Kane v. Pilcher, 7 B. Mon. 651; Morris et al. v. Swartz, 10 N. B. 305; Mirus et al. v. Swartz, 37 Texas, 13.
    The special pleas were bad on special demurrer, as amounting to the general issue. Knobel v. Kucher, 33 Ill. 308; Illinois Central R. R. Co. v. Johnson, 34 id. 389; Johnston v. University, 35 id. 518; Kennedy v. Strong, 10 Johns. 289; Cullett v. Flinn, 5 Cow. 466; Hunt v. Cook, 19 Wis. 463.
    The third plea professes to set up a lien on the paper for demurrage, and seeks to justify the conversion by reason of that lien, but in fact shows none. The rule recited does not pretend to create or-impose any lien, and no agreement for any lien is stated. The law does not impose a lien as it does for freight. 2 Redfield on Railroads, title “Demurrage,” 191; Crommellin v. New York and Harlem R. R. Co. 10 Bosw. 77; 4 Keyes, 90.
   Mr. Justice Walker

delivered the opinion of the Court:

It appears that Noyes & Messenger, a business firm in Chicago, had consigned to them a quantity of paper, from Clinton, Iowa, by the road of appellant. It arrived at its depot in Chicago on the 4th of July, 1872. The consignees were afterwards notified of its arrival. On the 11th of that month they paid the freight and removed one dray load, but the company refused to deliver the balance of the paper until the consignees should pay five dollars a day for each day it remained on the track after twenty-four” hours from the time of its arrival, which was claimed for demurrage. This the consignees refused to pay, and after a demand and refusal, brought trover to recover damages for its conversion. The defendant pleaded the general issue.

The case remained on the docket in this condition until in April, 1874, when Noyes & Messenger were declared bankrupts by the United States District Court, and appellee was appointed assignee of their estate, and the requisite assignment was made to him. No further action was taken in the case until on the 12th day of April, 1878, when, with the leave of the court, the company filed a plea that the plaintiffs had been adjudged bankrupts. Jenkins thereupon filed his petition for leave to be substituted as a party plaintiff, and to be permitted to prosecute the suit, and the substitution was made, and the leave granted by the court.

Afterwards, the company filed four pleas in bar of the action. The first, the general issue; second, the Statute of Limitations of two years; third, a plea that the defendant had the right to retain the property to secure its lien for demurrage; and fourth, the paper was delivered to defendant, to be held until plaintiffs should pay all moneys due or to become due on account of the transportation of the paper, and to pay all charges to become due for demurrage, unloading or warehousing the same. Appellee took issue on the first, and replied to the plea of the Statute of Limitations that the cause of action had accrued to Noyes & Messenger within two years of the commencement of the suit; that plaintiff had been 'substituted since the original plaintiffs had been declared bankrupts. To the third and fourth pleas he demurred specially that they severally amounted to the general issue. Afterwards, defendant filed a plea of the Statute of Limitations of five years, which, was traversed. Subsequently the demurrer was heard to the replication to defendant’s second plea, and it was carried back and sustained to that plea. The parties waived a jury, and by consent submitted the case to the- court for trial, on an agreed statement of facts, and the court found the issues for plaintiff, and assessed his damages and rendered judgment for $1370.45. Defendant appealed to the Appellate Court for the First District, where the judgment was affirmed, and the case is brought to this court by appeal.

It is urged that the court erred in sustaining the demurrer to the plea averring that Noyes & Messenger had become bankrupts; that Jenkins had been appointed their assignee, and all of their property and rights were assigned to and became invested in him, and he became, thereby entitled to the cause of action. This plea has no prayer of any kind, but is in the nature of, or was intended no doubt as, a plea in abatement. All pleas of that character must conclude with a prayer that the suit abate. It was for that reason subject to a demurrer. Again, if it could be held that the suit could be abated for the want of a proper party plaintiff, under the provision in the 5047th section of the United States Eevised Statutes, appellee was substituted as plaintiff. That provision is this: “If at the time of the commencement of the proceeding in bankruptcy an action is pending in the name of the debtor for the recovery-of a debt or other thing which might or ought to pass to the assignee by the assignment, the assignee shall, if he requires it, be substituted to prosecute the action in his own name, in like manner and with like effect as if it had been originally commenced by him.” This is clear and emphatic that he shall be thus substituted. Nor does it fix or limit any time within which the substitution shall be made. The statute says it shall be done if the assignee shall require it. This substitution, then, was a sufficient replication to the plea, had it been good'. It supplied the necessary and proper party plaintiff, and authorized him to prosecute the suit with like effect as had he been the original plaintiff in the case.

It is insisted that the court erred in sustaining the plea of limitations of the Bankrupt act. The 5057th section of the United States Statutes provides: “No suit, either at law or in equity, shall be maintainable in any court between an assignee in bankruptcy and a person claiming an adverse interest, touching any property or rights of property transferable to or vested in such assignee, unless brought within two years from the time when the cause of action accrued for or against such assignee. And this provision shall not in any case revive a right of action barred at the time when the assignee is appointed. ” Appellant contends, that inasmuch as more than two years expired after appellee w'as appointed assignee, and his substitution as plaintiff, the bar of this section became complete,—that the statute began to run as soon as he was appointed,—that an action accrued to him at that time, and that his substitution was the commencement of the suit by him. If this be the true construction of the statute, then the court erred in sustaining the demurrer to the plea. The fallacy of the argument consists in calling appellee’s substitution as plaintiff, the bringing of a suit. „The bringing of a suit is the issuing of a summons or other process, to bring the defendant into court. This is one of the most familiar, best settled and recognized rules of the law. See Stephens’ Pleading, page 5, (2d ed.); S Blackstone’s Commentaries, 273; 1 Chitty’s Pleading, page 107.

It then follows that this suit was brought by Noyes & Messenger, and not by appellee. Instead, then, of this suit being brought more than two years after appellee’s appointment, it was brought before, and was pending at the time, and so continued until his substitution as plaintiff. Had no objection been made by plea by appellant, the suit could have progressed to its' final termination in the name of Noyes & Messenger. This was fully recognized by appellant in filing the plea that they had ceased to have any interest in the cause of action.

In the common acceptation of the term the suit was not brought by appellee by being substituted as plaintiff. All persons would understand it was a misuse, if not a perversion, to so use the term, and we must presume Congress used the term in its ordinary and general sense, unless repelled by the context. A careful consideration of the entire section, we think, does not show that it was intended in a different sense. The 5047th section gave the assignee the right, without limitation or any restriction, to be substituted. Nor is there any limitation or proviso that he shall be thus substituted within two years of his appointment. If such had been the purpose it could have been easily expressed, and the natural inference is that it would have been so expressed. The terms of the statute relate alone to the bringing of the suit within the statutory period, and the courts have no power to add to or bring cases under its provisions not provided for in terms or by necessary implication. In construing statutes courts can only hold that they embrace such subjects as are specifically named or embraced in enumerated classes. To go beyond that is judicial legislation. This ease is not named, nor is it embraced in a class. It is excluded by implication from actions brought after appellee’s substitution as plaintiff. It clearly is not embraced in that class, and by the previous section he had the right to be substituted without limitation, terms or conditions. We are clearly of opinion, from the language of these two sections, that there was no bar of the action. While statutes of limitation under modern rules must be fairly and reasonably construed to effectuate the intention of the legislature, like other enactments, the courts are prohibited from straining construction to embrace cases not within the language or meaning of the enactment. The ancient rule was to construe them strictly, so as to exclude all cases not expressly named in the statute, but the rule has been modified by the more modern decisions.

It is, however, urged that other courts have given the section a different construction, and the case of Binley v. Glover, 21 Wall. 342, is referred to as being in point. If this is true, it is conclusive, as that court has the constitutional right to give authoritative construction to all acts of Congress, and so given, all other tribunals must conform to it. But does it decide this question? That case was where the assignee brought suit, more than three years after his appointment, for the recovery of property rights transferred from the bankrupt to him by the assignment. That was a suit brought by him, and is within the very terms of the statute, and the decision could not be otherwise than the action was barred. The surprise is that it was so far doubted as to have been contested. But this is wholly a .different question from that. This is debatable, but that was too clear for dispute. In that case the court say, in considering this section, that “it is precisely like all other statutes of limitation, and applies to all judicial contests between the assignee and other persons' touching the property, or rights of property, of the bankrupt, transferable to or vested in the assignee, where the interests are adverse, and have so existed for more than two years from the time the cause of action accrued for or against the assignee. Such is almost the language in which the provision is expressed in the section.” This is not in point, because this question was not before the court. But stress is laid on the language, “and applies to all judicial contests between the assignee and other persons.” And because this was a contest between appellee and appellant, this language requires the bar to be applied. How does it apply to all judicial contests? Why, as the court, in the same sentence, said, like all other statutes of limitation. This is the manifest and only reasonable meaning of the language. We must consider it in its connection, and not as a separate and distinct clause, giving a definition.

If like all other statutes of limitation, then who ever heard of the statute running while an action to recover the matter in dispute was pending? Such a claim, we apprehend, was never made in a court. On the other hand, the books are full of cases holding the mere commencement of a suit, without service within the statutory period, will prevent it from becoming a bar. This action, we have seen, was clearly pending, and if, as that court says, this section is precisely like all other statutes of limitation, how is it possible to hold the statute could run and bar the action, when it was all of the time pending? Would any person contend that were the assignee to begin an action just before the close of two years after his appointment, and it were to be undecided for more than two years from its commencement, the defendant might plead this two years statute and bar a recovery ? Surely not. And why ? Because the suit was not barred when the action was brought, and after it was commenced the statute could not run while the suit was pending. This is the construction given by all court's to all statutes of limitation. There is the same reason for applying the statute to the case at bar.

The statute gives the right to the assignee to be substituted in the place of the bankrupt plaintiff, and to prosecute the suit in his own name, “in like manner, and with like effect, as if it had been originally commenced by him. ” Was it ever supposed that under any other statute of limitations, where an executor, administrator or other person was substituted in the stead of the plaintiff who brought the suit, the defendant might plead the statute, and bar a recovery ? Surely not. And the Federal Supreme Court says this Limitation law is precisely the same in its application as all others. If it be said that in such cases the suit abated by the death of the plaintiff, at common law, and in such cases the statute authorizes it to be revived and continued in the name of the representative, and its revival was the commencement of a new suit,—if this be true, still the suit was never abated. . It was still pending, and the act authorized the assignee to continue its prosecution. Had the suit abated by the bankruptcy of the plaintiffs, theré would be more seeming plausibility for saying that the substitution of appellee was the commencement of a new suit by him, and for claiming the plea could have been interposed. But that is not the fact in this case. Nor does the case of Gifford v. Holmes, 98 U. S. 248, announce a different rule. The other cases referred to in the lower Federal courts, if they announce a different rule, are not binding on us, further than supported by reasoning to convince our judgment. We think that the canons of construction not only support, but require, the conclusion announced by us. In these views we are supported by the case of Kane v. Pilcher, 7 B. Mon. 651. In that case this precise question was presented, and the court held the statute did not apply. And the case of Herndon v. Howard, 9 Wall. 664, seems in principle to support this doctrine, if it needs support.

The cases of Clark v. Manning, 95 Ill. 581, and Crowl v. Nagle, 86 id. 437, are claimed to have a bearing on this question. These cases have no application, because there were not only new parties made, but rights already barred before they were brought into court for the first time were brought before the court. Here no new rights were brought into the contest. Had appellee amended the declaration so as to embrace a new cause of action not before the court, these cases would then be applicable. But that was not done in this case, but it remained precisely the same, as to the matter in litigation, after as before the substitution of appellee as plaintiff.

• It is claimed that appellant had the right to hold the property until its charges for demurrage were paid,—that they were a lien on the property, and it was not required to make delivery until they were paid. The claim is based on rules and regulations adopted and published by the company. It I will be conceded that all liens are created by law, or by con- ¡' tract of the parties. Where the law gives no lien, neither party can create it without the consent or agreement of the I other. Noyes & Messenger were therefore not bound by these rules unless they assented to them when the contract for shipping the goods was entered into by the parties, and such a contract is not claimed. But it is insisted that as the rules were public, and generally understood, it must be presumed they assented. For the purpose of creating such a lien on property the law will never indulge such presumptions. There is no evidence or ° agreement that either the consignor or consignee ever had notice or knew of such regulations. But even if ° they had, unless they agreed to be bound by them the rule could create no such lien.

We held in the case of Illinois Central R. R. Co. v. Alexander, 20 Ill. 23, that railroad companies, when they had carried goods to their destination, if not removed by the consignee might store them in their warehouses, and thus terminate their liability as common carriers, and thereby assume the relation and liabilities of warehousemen. To the same effect is the case of Richards v. Michigan Southern and Northern Indiana R. R. Co. id. 404; and in the case of Porter v. Chicago and Rock Island R. R. Co. id. 407, it was held it was their duty to do so, or remain liable for loss as common carriers. It was held in the former of these cases, that when stored, and they had placed the goods in their warehouse, they were entitled to charge the customaiy price for such services, and on such charges being paid or tendered, and a refusal by the company to deliver on demand, it became liable for a conversion.

The_ right to demurrage, if it exists as a legal right, is confined to the maritime law, and only exists as to carriers by sea-going vessels. But it is believed to exist alone by force of contract. ■ All such contracts of affreightment contain an agreement for demurrage in case of delay beyond the period allowed by the agreement, or the custom of the port allowed the consignee to receive and remove the goods. But the mode of doing business by the two kinds of carriers is essentially different. Railroad companies have warehouses in which to store freights. Owners of vessels have none. Railroads discharge cargoes carried by them. Carriers by ship do not, but it is done by the consignee. The masters of vessels provide in the contract for demurrage, while railroads do not, and it is seen these essential differences are, under the rules of the maritime law, wholly inapplicable to railroad carriers.

Perceiving no error in the record, the judgment of the Appellate Court is affirmed.

Judgment affirmed.


author: Mr. Chief Justice Craig

text:
    Francis A. Riddle et al. v. Levi Rosenfeld et al.

      Filed at Ottawa May 12, 1882

      Rehearing denied September Term, 1882.

    1. Usury—whether recoverable back when whole debt is voluntarily paid. Usurious interest once voluntarily paid on a note or contract which has been fully paid and surrendered, can not be recovered back either in a court of law or equity.
    2. Same—in, respect to distinct and separate transactions. Where five notes were given, each for a distinct and separate loan, procured at different times, and a note secured by deed of trust was deposited with the holder as collateral security for their payment, and all such original notes were paid and taken up except one, which was assigned, together with the collateral, it was held, on bill to foreclose the mortgage by the assignee against a subsequent purchaser of the mortgaged premises and others, that usurious interest voluntarily paid on the four original notes so taken up could not be allowed as a credit upon the remaining unpaid note, as the giving of the collateral did not convert these several notes into one transaction, but each remained a separate cause of action, the same as before.
    3. Mortgage—subsequent purchaser—application of payments—duty of holder of mortgage. The holder of a note secured by deed of trust as collateral security, without actual notice of a subsequent purchase from the mortgagor, is not bound to act with reference to such purchaser’s rights in applying payments as a credit.
    Appeal from the Appellate Court for the First District;— heard in that court on appeal from the Circuit Court of Cook county; the Hon. M. F. Tuley, Judge, presiding.
    Mr. W. T. Burgess, for the appellants.
    Messrs. Rosenthal & Pence, for the appellees.
   Mr. Chief Justice Craig

delivered the opinion of the Court:

This was a bill, filed by Rosenfeld and Rosenberg, to foreclose a deed of trust executed by Samuel J. Walker to J. G. Rogers on certain lots in Chicago, to secure a note for $25,000, which was held as collateral security for a note of $7000, bearing date April 23, 1873, due in ninety days, and numbered 2729. Jenkins, assignee of Walker, and Biddle, a subsequent purchaser of the premises, were defendants in the bill. These defendants filed cross-bills to redeem, and for an account. The circuit court found the amount due on the $7000 note, and also on the note held as collateral security, and decreed a sale of the mortgaged premises in payment of the amount found to be due on the principal note. The defendants appealed to the Appellate Court, where the decree was affirmed, and to reverse that decision they have appealed to this court.

It appears from the evidence that appellees held against Samuel J. Walker five notes, which they had purchased from the International Bank of Chicago, which were as follows: No. 2783, for $5000, dated May 15, 1873, at ninety days; No. 2894, for $7000, dated June 21, 1873, at ninety days; No. 2434, for $15,000, dated November 9, 1872, at fifty-seven days; No. 2729, for $7000, dated April 23, 1873, at ninety days; No. 2961, for $8000, dated June 12, 1873, at ninety days. Walker had pledged with the holders of these notes other securities to be held as collaterals, and the mortgage for $25,000 was taken as additional security for the payment of the five several notes above described. We shall not stop to comment upon the testimony in regard to the payment of these notes, but we are satisfied that the evidence fully establishes the fact that all of the notes had been paid before the filing of the bill, except No. 2729.

It is, however, contended by the defendants that usurious interest was charged and taken on all of the five notes, and although four of them may have been paid by Walker and taken up, still, as this is a proceeding to collect one of the notes, they are entitled to an accounting, and entitled to a credit on the note in suit of all the usurious interest taken on the other notes, with six per cent interest thereon from the time such interest was paid on each of the notes, and that the court erred in directing the master in chancery to state an account only on the $7000 note, rejecting all evidence of usury as to the other four notes. The fact is not denied that more than the legal rate of interest was paid on the four notes which had been taken up, and the same is also true in regard to the note No. 2729, which has not been paid. These five notes were all given for money loaned, and it will be observed that no two of them were given at the same date, nor are they in any manner connected, but each seems to be a transaction by itself—each note was given for a distinct loan of money, made at the time the note was executed. Under such circumstances can the usury, which has been voluntarily paid by Walker on four of the notes which have been paid and taken up, be set up as a defence to the action brought to collect the fifth note ?

This question, as we understand it, has been settled by a number of decisions of this court against the position of appellants. In Hadden v. Innes, 24 Ill. 381, where a similar question arose, it is said: “It is manifest that the legislature had no intention of giving a cause of action to the person who has paid usury, and fails to make the defence when sued for the debt upon which the usury has been paid or agreed to be paid. If he voluntarily pays the principal sum due and the usury agreed to be paid upon it, that is an end of the matter, so far as the statute is concerned. Suppose the party sued upon an usurious note fails to make the defence authorized by statute, but suffers judgment to go against him for the principal and the usurious interest, and pays it, the statute gives him no right to recover back the interest thus paid; and yet he can have no greater right where he pays it voluntarily. ” In Carter v. Moses, 39 Ill. 539, the question arose, and it was held the same principle which prevented a recovery of usurious interest voluntarily paid, at law, applied where a remedy was sought in equity. In Tompkins v. Hill, 28 Ill. 519, the question arose, and it was held that where a party voluntarily pays a note and usurious interest, he can not have an action to recover anything back. Other cases to the same effect might be cited, but the law on the question is so well settled we do not regard it necessary to cite further authorities.

These five notes constituted five separate and distinct contracts, each one of which might have been the subject matter of a separate action to recover the amount due thereon, and whatever usury may have been paid on the four notes which have been paid and taken up, can not be relied upon as a defence to an action brought on the fifth note, for the reason that usurious interest once voluntarily paid upon a note or contract which has been fully paid and surrendered, can never be recovered back either in a court of law or a court of equity. The fact that these five several notes may have been secured by the collateral note of $25,000, and mortgage, does not, in our judgment, affect the question. That collateral did not transform the five several and distinct notes into one debt or one contract, but each, after the collateral was taken, retained its individual character, the same as before. The collateral was a mere security for the several debts. Nor did the fact that money was collected from collaterals, and applied on the various notes, change their character from separate and individual debts or obligations to one single debt or obligation.

It is also urged, as the deed to Biddle was recorded October 24, 1873, appellees could not, after that time, apply, under the blanket agreement on the Bartlett note, two certain payments indorsed thereon. It does not appear that appellees had actual notice that Biddle had purchased the property, and without such notice they were not bound, under the facts of this case, to act with reference to his rights. The doctrine of Iglehart v. Crane & Wesson, 42 Ill. 261, we think, applies here.

We perceive no substantial error in the record, and the judgment of the Appellate Court must be affirmed.

Judgment affirmed.

Mr. Justice Walkeb : I am unable to concur in the conclusion reached by the majority of the court in this case.

Mr. Justice Dickey also dissents.


author: Mr. Justice Scholfield

text:
    Nathan B. Craig v. Isaac A. Miller.

      Filed at Ottawa May 12, 1882

      Rehearing denied September Term, 1882.

      1. Payments—of their application, in case of several debts. A debtor by note, and also on an account, has a right, on making a payment, to direct its application to either the note or the account.
    2. Evidence—as to application of payments—indorsement of the payment by the creditor. Where the maker of a note in a suit thereon testified that in making a payment he directed it to be applied on the note, and the plaintiff that it was made to be applied on an account, it was held, error to allow the plaintiff to give in evidence to the jury a copy of the account with his indorsement of the credit thereon, made of his own motion, without the privity of the maker of the note or his surety, and to allow the jury to take such account and indorsement with them on their retirement. The entry of a payment on an account by a creditor instead of on a note of the person paying, is of itself no evidence of any authority to make such application.
    Appeal from the Appellate Court for the Second District; —heard in that court on appeal from the Circuit Court of Jo Daviess county; the Hon. William Blown, Judge, presiding.
    Mr. M. Y. Johnson, for the appellant.
    Messrs. D. & T. J. Sheean, for the appellee.
   Mr. Justice Scholfield

delivered the opinion of the Court:

This was assumpsit, by appellee against appellant, on a promissory note executed by W. R. Craig and appellant to P. M. Spencer, and by Spencer assigned to appellee. The defence was that the note had been paid before suit was brought, by W. R. Craig. That a payment was made to appellee by W. R. Craig, equal to, and, indeed, greater than, the amount of the note, was admitted by appellee; but he claimed that such payment was made upon an account, while appellant claimed that it was upon the note. .

Appellee- was permitted by the court, over appellant’s objection, to read a copy of the account, with the payment in question thereon indorsed as a credit, in evidence to the jury; and the jury were also permitted, over appellant’s objection, to take with them in their retirement to consider of their verdict, the paper on which this copy of account and indorsement of credit thereon were written. This was error. There was no controversy in regard to the account, nor as to the fact that a certain amount of money had been paid by W. E. Craig to appellee, the only controversy being whether W. E. Craig had directed that payment to be applied on the note. He testified, in substance, that he so directed, and appellee testified that he did not. The question was thus one upon which there was evidence both ways, and to be settled in favor of the party best sustained under all the circumstances.

There was no pretense that W. E. Craig or appellant was privy to, or in any way personally bound by, the entry of the credit on appellee’s account. It was made by appellee of his own motion, and it was only questioned whether he had authority to make such an application of the payment. If appellee was authorized to apply the payment on the account, that was the end of the controversy, and it was simply impossible that the entry itself could have been any evidence that appellee had authority to make it. Yet, by admitting it in evidence, the court, in effect, told the jury it was evidence, and by permitting them to take the paper in their retirement, they were, in effect, told that this paper, a mere copy of an ex parte entry, was a competent instrument in evidence to be considered by them, in a case where the sole issue was whether the party making the original had authority to do so. There is no principle which allows a party to thus bolster and prop up his evidence.

It may be that, in point of fact, the jury were not misled by this evidence. But we can not assert this as a matter of judicial knowledge. If it had any effect (and the more reasonable presumption is that it did have some effect) it was an improper one.

The other objections against the ruling below, discussed in argument, are, in our opinion, untenable. But for this error the judgment below will be reversed, and the cause remanded.

Judgment reversed.