
    Joseph W. Hartley, Plaintiff and Respondent, v. Benjamin Tatham and Rebecca C., his wife, (who were impleaded with Samuel W. Dunscomb et al.,) Defendants and Appellants.
    1. The assignee of a mortgage takes it subject to the same equities to which it was subject in the hands of the assignor'; and the rule that only equities residing in the original debtor, and not latent equities of third persons against the assignor, attach, does not exclude one who' so far stands in the place of the debtor as to have acquired his rights.
    2. Thus a grantee of the mortgaged premises, who has succeeded to the rights 'of the mortgagor, and is entitled to the same protection that the law extends to him, is entitled to be credited, as against an assignee of the mortgage, with an actual partial payment made by his vendor, to the mortgagee, while the latter held the mortgage, where the circumstances are such that ordinary precaution would have brought the fact of such payment to the knowledge of the assignee.
    3. Accepting a deed which, by its terms, conveys “subject to a mortgage,” describing it, but without any provision as to its payment, either in the deed or the contract under which it is given, does not estop the grantee from showing,' as against an assignee of the mortgage, who could have ascertained the fact by inquiry, that the mortgage had been in part paid before the deed was given and accepted.
    Before Bosworth, Ch. 7., and Moncrief and Robertson, J. J.)
    Heard, February 10, 1863;
    decided, February 28, 1863.
    Appeal from a judgment in favor of the plaintiff, after a trial of the cause at a Special Term, before' Mr. Justice Moncrief, without a Jury; on the 11th of November, 1862.
    This action was brought to foreclose a mortgage. The defendants were Samuel W. Dunscomb, Hubert Gelston, M. Dinkenspiel, William H. Eobinson, Elisha G. May, Joseph Black, Benjamin Tatham, Eebecca 0., his wife, Michael Ounningham, Mary his wife, Mary Ann Doherty, and P. W. Higginson. The mortgage in question was made by the defendant Cunningham and his wife, and dated on the 30th of May, 1861, upon premises on Second avenue, in the City of Hew York, to secure the payment of a bond at the same time given by Cunningham to the defendant, Samuel W. Dunscomb, conditioned for the payment of the siim of fifteen hundred, dollars to said Duns-comb, or his assigns, on the 30th day of May, in the year 1863, with interest thereon from May 30th, 1861, at the rate of seven per cent, payable semi-annually on the 30th of Hovember and May in each year.
    This action was brought to foreclose the mortgage for the whole sum due, upon a default in the payment of the interest which accrued upon the 30th of Hovember, 1861. It appeared that the mortgage was recorded on the 8th of June, 1861; that said Dunscomb, on the 13th day of May, 1862, duly assigned and transferred the bond and mortgage to the plaintiff, for a valuable consideration, and that the assignment was recorded, and that the plaintiff was still the owner of the bond and mortgage.
    The defendant, Tatham, who was, at the time of the action, the owner of the equity of redemption in the mortgaged premises, answered jointly with his wife, setting up, and on the trial offered proof of facts which may be briefly stated as follows: Some time before the execution of the mortgage in question, the premises belonged to the defendant, Dunscomb, who entered into an agreement with the defendant, Higginson, to sell and convey the premises to him, Avith other property, and Higginson agreed to erect eight houses thereon; and subsequently Higginson assigned that agreement, so far as it related to the premises in question, to one Alfred A. Arment, and authorized him to receive from Dunscomb the deed therefor, Arment agreeing to do the plumbing work upon all the houses to be erected, in part payment for the conveyance of these premises to him. Dunscomb consented to the assignment by Higginson to Arment, of the house and lot which composed the premises in question, and agreed, in writing, “to make and execute the conveyance of the same to the above named Alfred A. Arment,, upon the performance of said agreement. Said conveyance to be made when all the plumbing work shall be finished in said eight houses.” Dunscomb subsequently conveyed this lot to the defendant, Ounningham, and took back the mortgage in suit. After the making of that conveyance and mortgage, Arment assigned the contract assigned to him by Higginson, to the Bull’s Head Bank, as collateral security for a loan of $1,000; and Dunscomb assented to the assignment, and acknowledged the same to be correct. While the bank held this contract, the defendant, Ounningham, conveyed the mortgaged premises to one Smith, who, in turn, and at the instance of Arment, conveyed them to the defendant, Tatham, and, at about the same time, Arment assigned to Tatham all right, &e., which he had by virtue of the agreement between Higginson and Dunscomb, and also a certain debt for work done for Dunscomb in 1861, to the amount of 490.03, which amount Dunscomb had agreed to deduct from the $1,500 mortgage in suit. When Dunscomb assigned the mortgage in suit to the plaintiff, no deduction was made for the amount due Arment for his work.
    On the 9th of July, 1862, Tatham offered the bill of Arment, receipted for $490:03, and tendered to the plaintiff $1,267.54, the amount due on the mortgage, after deducting $490.03, which the plaintiff refused to accept.
    , These facts the Justice held were immaterial, and did not constitute any defense to the action, and accordingly granted the motion of the plaintiff’s counsel to strike out the evidence given in support of them. The defendants, Tatham and his wife, excepted to the conclusions of law, and took the present appeal.
    
      A. Clarke for defendants, appellants.
    I. The assignee of a chose in action, or of anything but commercial paper, when he takes it bona fide, is liable to all the equities which exist against the demand, while in the hands of the assignor. (Roberts v. Carter, 24 How. Pr., 44; Murray v. Lylburn, 2 Johns. Ch., 441; The Niagara Bank v. Rosevelt, 9 Cow., 409, affirming Hopkins’ Ch. R., 579 ; Mangles v. Dickson, 3 Ho. of L. Cases, 702; 18 Eng. Law and Eq., 82; Voorhies’ Code, 6th ed., 82, note (c.); Code of Procedure, §§ 111, 112.)
    1. A chose in action could not be assigned by the rules of the common law. (2 Bl. Com., 442.)
    2. The form of assignment was formerly, and still is in the nature of a declaration of trust, and a permission by the assignor to use his name, in order to recover the possession. (Ib.)
    3. Until the enactment of the Code of Procedure, therefore, when a debt or bond was assigned over, it had to be sued in the name of the original 'creditor, the person to whom it was transferred being rather an attorney than an assignee. (Ib.)
    4. When an action, under the former statute of set-off, was brought in the name of the party, by one to whom he had assigned it, the defendant had only to show that he had a right to make a set-off against .the nominal plain-. tiff. (Beckwith v. Union Bank, 4 Sandf., 610; affirmed, 5 Seld., 211.)
    5. Section 112 of the Code of Procedure was intended to preserve in the same manner, the rights of defendants, in cases where the suit was prosecuted in the name of the assignee, as required by section 111. (Beckwith v. Union Bank, supra.)
    
    6. The right of assignees will be protected only against persons who have either express or implied notice of the assignment. (Johnson v. Bloodgood, 1 Johns. Cas., 51; Wardell v. Eden, 2 Johns. Cas., 121; Van Vechten v. Graves, 4 Johns., 403; see 12 Johns., 343; 19 Id., 95 ; 4 Barb., 47; Stuyvesant v. Hall, 2 Barb. Ch., 151; Truscott v. King, 6 Barb., 346 ; Schutt v. Large, 6 Barb., 373.)
    II. The assignee of a bond and mortgage takes it subject to all the existing equities between his immediate assignor, and the owner of the equity of redemption, whether such owner was the mortgagor or one who had succeeded to his rights by one or several conveyances. (Mickles v. Townsend, 18 N. Y. R., 579; Davies v. Austen, 1 Ves. Jr., 241; Coles v. Jones, 2 Vern., 692; Matthews v. Wallwyn, 4 Ves., 118.)
    1. He cannot be protected in equity as a bona fide purchaser without notice, unless he has acquired the legal as well as the equitable title. (Peabody v. Fenton, 3 Barb. Ch., 451.)
    2. The assignee of a chose in action, not negotiable, obtains only an equitable interest, and is not protected against a prior equity. (Gay v. Gay, 10 Paige, 369.)
    Yarious other sums proved by the defendants to have incumbered the property, besides the sum of $490.03, for plumbing work done by Arment, for Dnnscomb, before the date of the assignment of the bond and mortgage, and which debt or claim was duly assigned by the said Arment to the said defendant, before the assignment to the plaintiff of the said bond and mortgage, amounting' together to the sum of $1,136.38, are a legal and equitable offset to the sum alleged in the complaint to be due on the said bond and mortgage. (Niagara Bank v. Rosevelt, 9 Cow., 402; aff’g Hopkins, 579; Hadley v. Chapin, 11 Paige, 245; Ferreira v. Depew, 4 Abbott’s Pr., 131; Voorhies’ Code, 6th ed., 221, note [h.])
    IV. The agreement to deduct the amount of the work to be done by Arment, and the acceptance by Dunscomb of the work, is a payment pro tanto. (Bouv. Dic., verb “Payment,”) and discharges the debtor from his obligation, to the extent of the payment. (Davis v. Spencer, 24 N. Y. R., 391; 1 Hopk., 579; 9 Cow., 409; Brown v. Feeter, 7 Wend., 301; Eaves v. Henderson, 17 Wend., 190; Toll v. Hiller, 11 Paige, 228 ; Cameron v. Fowler, 5 Hill, 306; 5 Cow., 671; 26 Wend., 555; 2 Paige, 605.)
    4. Payment may be made by the real debtor and other persons from whom the creditor had a right to demand it; an agent may make payment for his principal, and any mode of payment by the agent, accepted and received as such by the creditor, as an absolute payment, will have the effect to discharge the principal, whether known or unknown, and whether it be iff the usual course of business or not. (3 Chitt. Com. Law, 204; 1 B. & Ald., 14; 6 B. & C., 160; 7 Barn. & Cress., 17; Bouv. Dic., “ Payment.”
    V. There was no interest due on the bond and mortgage, as alleged in the complaint, either on the 30th of November, 1861, or at the time of the assignment of the bond and mortgage by Dunscomb to the plaintiff.
    VI. Where the principal is not, but the interest is due, a payment must be applied first to the interest, and the residue to the principal first to become due. (People v. County of New York, 5 Cow., 331; Jencks v. Alexander, 11 Paige, 619; The State of Connecticut v. Jackson, 1 Johns. Ch., 13; Allen v. Culver, 3 Denio, 284.)
    VII. Defendant’s offer to the plaintiff of the receipted bill of Arment for work done for Dunscomb; and his tender to the plaintiff of the balance due for principal, interest, and costs, which plaintiff refused to accept, discharges the lien of the mortgage. (Jackson v. Crafts, 18 Johns., 110; Edwards v. Farmers' Fire Ins. and Loan Co., 
      21 Wend, 467, affirmed 26 Id., 555; Arnot v. Post, 6 Hill, 65; Kortright v. Cady, 21 N. Y. R., 343.)
    VII. The demand is available as a set-off. (Code, § 150, 2 R. S., 4th ed., p. 604, § 12; see Schutt v. Large, 6 Barb., 373; Stuyvesant v. Hall, 2 Barb. Ch., 151; Truscott v. King, 6 Barb., 346; Mickles v. Townsend, 18 N. Y. R., 578; see Downer v. Eggleston, 15 Wend., 51; Lignot v. Redding, 4 E. D. Smith, 285; Bouv. Dic., “ Liquidated.”)
    IX. The defendant may set forth, by answer, any new matter constituting a defense or counterclaim, and as many defenses and counterclaims as he may have. (Code, §§ 149, 150 ; see Ferreira v. Depew, 4 Abbotts’ Pr., 131; Voorhies’ Code, 6th ed., p. 221, note (h), and cases cited; Dillaye v. Niles, 4 Abbotts’ Pr., 253; Vassear v. Livingston, 3 Kernan, 256; Pattison v. Richards, 22 Barb., 146; Gleason v. Moen, 2 Duer, 642; Code, 6th ed., pp. 218, 219, notes (a) and (g).
    
      D. M. Porter, for plaintiff, respondent.
    I. The evidence was properly stricken out, and judgment directed for the respondent, inasmuch as this was the debt of Cunningham, and, as after the contract between Arment and Dunscomb had been entered into and performed, or nearly so,' the appellants took the premises by deed, subject to this mortgage, and are estopped from setting up any equities existing at that time, as, by accepting the deed, they agreed the land should pay the debt secured by it. (Ferris v. Crawford, 2 Denio, 595.) The contract of Arment was in existence, and they ought to have provided for it by a reservation in the deed, in order that it might appear of record. Ho assignment of the right to offset the account was made by Arment to Tatham. At most, this was only a latent equity residing in a third person, not against the debtor and mortgagor, but against the obligee, and cannot be set up as against the respondent. (Murray v. Lylburn, 2 Johns. Ch., 441; Livingston v. Dean, Id., 479 ; 2 Wash., 233; 1 Dow’s Cas., 50; 19 How. Pr., 184; McFarlane v. Griffith, 4 Wash. C. C. 585.)
    I. The bond and mortgage were not due at the time the respondent took the assignment, but became due by his subsequent election, upon a default of interest, consequently no right of set-off existed, as both claims must be due at the time. (Watt v. The Mayor, &c., 1 Sandf., 23.) Again, the appellants cannot base any defense upon the Higginson contract, because at the time Arment entered into the contract for the work in question, the contract for the house (Higginson’s contract) has been transferred to the Bull’s Head Bank, and the bank held it until after this action was commenced, when the appellants took a transfer of it from the bank, and it was assigned to the appellants without Dunscomb’s consent, contrary to its provisions, ffone of these contracts were recorded. There can be no pretense that the respondent had notice of any claim of the appellants, or Arment, before he took the transfer of the bond and mortgage.
    This was not an equity between debtor and creditor, but between the creditor and a third party; therefore, the respondent, if he had gone to Ounuingham to inquire as to the appellants’ equity, could not have learned anything of it, because the debtor was not a party to the transaction between Arment and Dunscomb; consequently the rule is different than it would have been if Ounuingham had had such an equity.
    The cases cited by the appellant, are not applicable to the case, inasmuch as, in those cases, the whole amount due was tendered. Here, only a part of what was due, was tendered, which was a nullity, and the evidence did not make out a defense; therefore, the judgment should be affirmed, with costs.
    III. In further support of these points, see Ferris v. Crawford, (2 Den., 598;) Opinion of Mason, J. in Hartley v. Harrison, (24 N. Y. R., 170;) Burr v. Beers, (24 Id., 178;) James v. Morey, (2 Cow., 246.)
   By the Court—Bosworth, Ch. J.

This action is brought to foreclose a mortgage, dated May 30th, 1861, executed by Michael Ounuingham and wife to Samuel W. Dunscomb, and by the latter assigned to the plaintiff, May-13, 1862.

The defense is founded, in part, on the allegation that while Dunscomb owned the mortgage, one Alfred A. Arment, who, by a written contract with one Higginson, to which Dunscomb was a party, had contracted for a deed of the premises in question, subject to this and a prior mortgage of $4,000, by agreement between him and Duns-comb, performed work and labor to the amount of $490.03, in part payment of this mortgage. That in execution of said written contract, the deed, at Arment’s request, was executed to Tatham, instead of Arment, January 26,1862. The habendum clause of this deed is: “To have and to hold * * subject, however, * * to a certain other indenture of mortgage for $1,500, dated May 30, 1861, and recorded,” &c., being the mortgage in question. The deed does not declare that Tatham.is to pay this mortgage, nor did the agreement between Higginson and Arment require him to do it. That stipulates for a deed of the premises to Arment, free and clear of all incumbrances,” except the said sum of $1,500.” Arment was to do plumbing work to the amount of $3,600 for Higginson, as a consideration for such conveyance, and did the work. The agreement between Arment and Dunscomb for doing the work, &c., "amounting to $490.03, was made prior to January, 1862, and was completed as early as April 8th, 1862; and on the 3d of May, 1862, Arment assigned to Tatham this claim for work, amounting to $490.03. The assignment recites that the work, &c., creating the debt, was done for Dunscomb, upon his agreement to credit the amount on this mortgage. The assignment of the mortgage to the plaintiff was made on the 13th of May, 1862. The important question is, whether Tatham is entitled to be credited with this sum on the mortgage.

A finding by the Court, or. the verdict of a Jury, to the effect that the work was done by Arment, under an agreement between him and Dunscomb, that the amount of it should be in payment of the mortgage pro tanto, could not be disturbed as contrary to evidence given, and subsequently stricken from the case against the objection and exception of Tatham.

If the mortgagor had paid $490 AA on the mortgage before it was assigned, the assignee would necessarily have taken it subject to such payment. That position is not controverted. ,

But it is insisted that this 'equity on behalf of Arment and Tatham is a latent one in a third person, and one existing between him and the mortgagee only, and that the assignee cannot be affected by it.

It was necessary for Arment to pay off the mortgages, or suffer the property to be sold to satisfy them. He was not personally liable to pay them, because he never agreed to do so. If he had agreed to pay them, off, he would be personally liable to pay them, (Burr v. Beers, 24 N. Y. R., 178,) and as between himself and the mortgagor, would have been, in equity, the principal debtor.

Arment, at the time that he agreed with Dunscomb to do work, in payment, to the extent of the value of such work, upon this mortgage, had a valid contract for a deed of the premises in question. To this contract, Dunscomb was so far a party that he assented to it, in such wise that the deed, when executed, was to be executed by him or by some one holding the title for him. And Arment was either to pay the mortgages, in discharge of the liability of the mortgagor, or lose all he paid for the premises, by a foreclosure and sale of the mortgaged premises.

It is said, in the opinion in James v. Morey, (2 Cowen, 298,) that “the assignee can always go to the debtor, and ascertain what claims he may have against the bond or other chose in action, which he is about purchasing from the obligee; but he may not be able, with the utmost diligence, to ascertain the latent equity of some third person against the obligee. He has not any object to which he can direct his inquiries, and for this reason the claim of the assignee, without notice of a chose in action, was prefered in the late case of Redfearn v. Ferrier, (1 Dow’s Cas., 50,) to that of a third party setting up a secret equity against the assignor.”

' A rigid application of these rules to the present case, cannot produce a result adverse to Tatham. An inquiry of the mortgagor would, presumptively, have informed him of the fact of this payment. If the plaintiff did not have notice of it when he took the assignment, he obtained it the same evening, and within a few hours thereafter.

The deed from Smith to Tatham was recorded over two months before the mortgage was assigned to the plaintiff, and as that deed was subject to this mortgage, It pointed out Tatham as a person interested to pay the mortgage, and one who had a right to pay it, even though he may have been under no legal obligation to do so. He was a proper person to a,sk whether he had made any payments upon it or not.

The case of James v. Morey, (supra,) is unlike this in its essential particulars. In that case, the mortgagee, before assigning the mortgage, had become the owner of the equity of redemption, and might, at his election, treat his estate as mortgagee, as merged in the legal estate, or preserve it as a separate estate.

After assigning the mortgage, he quit-claimed the mortgaged premises to the respondent. The latent equity was that of the respondent under such deed, who took it, ignorant of the previous assignment of the mortgage. (Id., 2 Cow., 283.) The mortgage was enforced in behalf of the assignee, as a valid and subsisting security.

Assuming the fact to be that Arment paid to Duns-comb upon this mortgage, while the latter owned it, the sum of $490.03, it is difficult to conceive of any sound considerations of justice, or equity which will make the payment less efficient than if the same sum had been paid at the same time by Ounningham. Payment by the latter, before the assignment, would be allowed, and so would a payment subsequent to the assignment, and before notice of the assignment. (James v. Morey, 2 Cow., 297; 3 R. S., 5th ed., p. 59, § 74, [sec. 41.])

The gist of Redfearn v. Ferrier, (supra,) may be stated thus: On the books of a stock company, one Stewart appeared to be the owner of a certain number of its shares. By the rales of the company, such shares could be owned by individuals only, not by firms, as such.. He assigned the shares to Eedfearn, as security for moneys advanced optima fide, and it was sought to be shown, to defeát the claim of such an assignee, that Stewart, in fact, held the stock for a firm, who were the true equitable owners. The question was whether this latent equity of the firm against the assignee could defeat such an assignee’s title; and, on the facts and circumstances of the case, it was held that it could not.

That case, too, is essentially unlike the present.

The true rule deducible from the cases, I understand to be this: The assignee of a mortgage, takes it subject to the same equity that it was subject to in the hands of the assignor. And the rule, that it is only an equity residing in the original debtor, and not the latent equities of third persons against the assignor that have this effect, does not exclude any one who so far stands in the place of the debtor as to have acquired his equity. It does not exclude a judgment .creditor of the debtor, claiming to-redeem. (Roosevelt v. Bank of Niagara, Hopk., 579; United States v. Sturges, 1 Paine, 525.)

By force of the contracts between Higginson and Duns-comb, (of the 23d of April, 1860, and of the 24th of April, I860,) and of the contracts between Higginson and Arment, (of the date of March 30,-1861,) and Dunscomb’s written assent and cotemporaneous agreement in relation thereto, and of Arment’s assignment to the Bull’s Head Bank, and through the Bank to Tatham, of the right to a deed of the premises in question, and of the execution of such deed to Tatham, and the payment by Arment of the $490.03 on the mortgage, and the formal assignment May 3, 1862, by Arment to Tatham of this claim, and of his right to have it applied as a payment, Tatham was substituted in place of the mortgagor and Arment, with all their rights, equitable as well as legal.

As between him and the mortgagor, the property was a security for the payment of the amount due on the mortgage, because it had been, and, by the aforesaid agreements, was to be conveyed, subject to this and the prior mortgage of $4,000. The mortgage debts, as between the mortgagor and Arment, (or as between the mortgagor and Tatham,) Arment and Tatham were in equity bound to pay, if the premises were an adequate security for their payment. Such being the position of Tatham, he did pay $490.03 on the mortgage while Duuscomb owned it. He, at that time, stood in the place of the mortgagor, and was clothed with all his rights, and his equity to be protected in such payment is as clear as that of the mortgagor would have been, if he had made the payment personally.

From the time of the recording of the deed to Tatham, the record disclosed him as the person having the right, and being under an equitable obligation to pay the mortgage, in exoneration of the personal liability of the mortgagor. He was, therefore, a person, of whom it "was as proper and as much the duty of one about taking an assignment of the mortgage, to inquire as to the fact of payments, as the mortgagor himself.

It is not therefore the case of a defendant attempting to set up against the assignee of a mortgage, the latent equity of a third person against the mortgagee, but the case of one who has succeeded to the rights of the mortgagor and is entitled to the same protection that the law extends to him, insisting upon the fact of an actual partial payment to the mortgagee while he owned the mortgage; a . fact which ordinary precaution would have brought to the knowledge of the assignee, whether he had inquired of the mortgagor or of Tatham.

It is insisted, however, that taking the deed, subject to the mortgage, estops Tatham from questioning the fact of its being a valid security for the face of it.

The deed does not state that no part of it has been paid, and no authority has been cited, which tends to the. support of the proposition, that taking a deed in the form of the deed to Tatham, precludes the grantee from showing that the mortgage has been, in part, paid before the deed was given and accepted.

If the deed had not only, "in terms, been subject to this mortgage, but also declared that the whole amount was unpaid, and that the grantee assumed the payment of it, he might, possibly, be precluded from showing, as between himself and a l)ona fide assignee of the mortgage, the fact of a partial payment. (Burr v. Beers, 24 N. Y. R., 178; and, Hartley v. Harrison, Id., 170.)

But no such question arises here; I think, therefore, that the decision, at Special Term, excluding evidence of the defense, consisting of the facts before stated, and striking from the case the evidence that had been given in support of it, was erroneous, and that the judgment should be reversed, and a new trial granted, with costs to abide the event.  