general maxim. In that sense it is used in such judicial expressions as the following: "If there is one rule more perfectly established in a court of equity than another, it is this, that whoever takes an assignment of a chose in action takes it subject to all the equities of the person who made the assignment" (a). "It is a rule and principle of this Court, and of every Court, I believe, that where there is a chose in action, whether it is a debt, or an obligation, or a trust fund, and it is assigned, the person who holds the debt or obligation, or has undertaken to hold the trust fund, has as against the assignee exactly the same equities that he would have as against the assignor" (b). This is in fact the same principle which is applied by courts of common law as well as of equity for the protection of persons who contract with agents not known to them at the time to be agents (c). What is meant by this special use of the term "equities" will be best shown by illustration. A debt is due Illustra from B. to A., but there is also a debt due from A. to B. which tions. B. might set off in an action by A. In this state of things A. assigns the first debt to C. without telling him of the set-off. B. is entitled to the set-off as against C. (7). Again, B. has contracted to pay a sum of money to A. but the contract is voidable on the ground of fraud or misrepresentation. A. assigns the contract to C. who does not know the circumstances that render it voidable. B. may avoid the contract as against C. (e). Again, in a somewhat less simple case, there is a liquidated debt from B. to A. and a current account between them on which the balance is against A. A. assigns the debt to C. who knows nothing of the account. B. may set off as against C. the balance which is due on the current account when he receives notice of the assignment, but not any balance which becomes due afterwards (ƒ). (a) Lord St. Leonards, Mangles v. Dixon, 3 H. L. C. 702, 731. (b) James, L. J. (sitting as V.-C.) Phipps v. Lovegrove, 16 Eq. 80, 88. (c) See more on this in the Appendix A. to this chapter. (d) Cavendish v. Geaves, 24 Beav. 163, 173, where the doctrine is fully expounded the rules laid down by : the M. R. are given at length by (e) Graham v. Johnson, 8 Eq. 36. The rule contract But it is open to the contracting parties to exclude the operamay be excluded by tion of this rule if they think fit by making it a term of the agreement original contract that the debtor shall not set up against an of original assignee of the contract any counter claim which he may have ing parties. against the original creditor. This is established by the decision Asiatic Banking of the Court of Appeal in Chancery in Ex parte Asiatic Banking Corpora Corporation, the facts of which have already been stated for tion's case. another aspect of the case (a). Subse quent decisions: Two alternative grounds were given for the decision in favour of the claim of the Asiatic Banking Corporation under the letter of credit. One, which we have already noticed, was that the letter was a general proposal, and that there was a complete contract with any one who accepted it by advancing money on the faith of it. The other was that, assuming the original contract to be only with Dickson, Tatham, & Co. to whom the letter was given, yet the takers of bills negotiated under the letter were assignees of the contract, and it appeared to have been the intention of the original parties that the equities which might be available for the bank against Dickson, Tatham, & Co. should not be available against assignees. "Generally speaking (said the L. J. Cairns) a chose in action assignable only in equity must be assigned subject to the equities existing between the original parties to the contract; but this is a rule which must yield when it appears from the nature or terms of the contract that it must have been intended to be assignable free from and unaffected by such equities." Where assignees of a chose in action are enabled by statute to sue at law, similar consequences may be produced by way of estoppel (b) which really comes to the same thing, the doctrine of estoppel being a more technical and definite expression of the same principle. The principle thus laid down has been followed out in several later decisions on the effect of transferable debentures issued by form of in- companies. The question whether the holder of such a debenture takes it free from equities is to be determined by the original intention of the parties. strument how far material. (a) 2 Ch. 391; p. 184, supra. sioners, L. R. 5 Q. B. 642. The form of the instrument is of course material, but the general tenor is to be looked to rather than the words denoting to whom payment will be made; these cannot be relied on as a sole or conclusive test. Making a debenture payable to the holder or bearer does not necessarily mean more than that the issuing company will not require the holder who presents the instrument for payment to prove his title, especially if the object of the debenture is on the face of it to secure a specific debt (a). But an antecedent agreement to give debentures in such a form is evidence that they were meant to be assignable free from equities (b); and debentures payable to bearer without naming any one as payee in the first instance are prima facie so assignable (c); so again if the document resembles a negotiable instrument rather than a common money bond or debenture in its general form (7). Even when there is nothing on the face of the instrument to show the special intention of the parties, the issuer cannot set up equities against the assignee if the instrument was issued for the purpose of raising money on it (e). The general circumstances attending the original contract-e.g. the issue of a number of debentures to a creditor instead of giving a single bond or covenant for the whole amount due-may likewise be important. Moreover, apart from any contract with the original. creditor, the issuing company may be estopped from setting up equities against assignees by subsequent recognition of their title (f). The rule extends to an order for the delivery of goods as well as to debentures or other documents of title to a debt payable in money (). (a) Financial Corporation's claim, 3 Ch. 355, 360. (b) Ex parte New Zealand Banking Corporation, 3 Ch. 154. (c) Ex parte Colborne & Strawbridge, 11 Eq. 478, which cannot now be taken as warranting any thing beyond the statement in the text, cp. Crouch v. Crédit Foncier, L. R. 8 Q. B. 374, 385. (d) Ex parte City Bank, 3 Ch. 758. (e) Dickson v. Swansea Vale Ry. Co. L. R. 4 Q. B. 44. Graham v. Johnson, 8 Eq. 36, seems not con sistent with this. (f) Higgs v. Northern Assam Tea Co. L. R. 4 Ex. 387; Ex parte Universal Life Assurance Co. 10 Eq. 458 (on same facts); Ex parte Chorley, 11 Eq. 157: cp. Re Bahia & San Francisco Ry. Co. L. R. 3 Q B. 584. Qu. can Athenæum Life Assurance Soc. v. Pooley, 3 De G. & J. 294, be reconciled with these cases? It seems not: Brunton's claim, 19 Eq. 302, 312. (g) Merchant Banking Co. of London v. Phanix Bessemer Steel Co. 5 Ch. D. 205. Р Qu. when It may be doubted whether this doctrine can apply in a case the original where the original contract is not merely subject to a cross claim contract is voidable. but voidable. For the agreement that the contract shall be assignable free from equities is itself part of the contract, and one would think it should have no greater validity than the rest. A collateral contract for a distinct consideration might be another matter: but the notion of making it a term of the contract itself that one shall not exercise any right of rescinding it that may afterwards be discovered seems to involve the same kind of fallacy as the sovereign power in a state assuming to make its own acts irrevocable. Nor does it make any difference, so long as we adhere to the general rules of contract, that the stipulation is in favour not of the original creditor but only of his assignees (a). However the point has not been distinctly raised in any of the decided cases. In Graham v. Johnson (b), where the contract was originally voidable (qu. if not altogether void, the plaintiff having executed a bond under the impression that he was accepting or indorsing a bill of exchange) (c), an assignee of the bond as well as the obligee was restrained from enforcing the bond: but the decision was rested on the somewhat unsatisfactory ground that, although the instrument was given for the purpose of money being raised upon it, there was no intention expressed on the face of it that it should be assignable free from equities. Limits to what can However, if the contract were not enforceable as between the original parties only by reason of their being in pari delicto, as not having complied with statutory requirements or the like, an assignee for value without notice of the original defect will at all events have a good title by estoppel (). The transferable debentures the effect of which came in question in the cases we have just reviewed were no doubt be done by agreement intended to be equivalent to negotiable instruments, and there of parties have been dicta in the Court of Chancery favouring the view But a later decision of the contract cannot be that they were such in fact (e). (a) In principle it is the same as but the Court took this view of the facts: see p. 43. (d) See Webb v. Herne Bay Commissioners, L. R. 5 Q. B. 642. (e) See especially Ex parte City (c) The evidence was conflicting, Bank, 3 Ch. 758. gotiable: Crouch v. Court of Queen's Bench shows that this intention cannot be made nefully carried out. The debtor may contract in such a way as to alter or abandon his own rights as against assignees of the con- Crédit Foncier. tract; but he cannot alter or abandon the rights of subsequent assignees, and therefore cannot enable an intermediate transferor having no title to give a good title to his transferee (a). This marks the extreme limit of the extension which can be given to the power of transferring rights under a contract consistently with the general rules of law. instru ments. We are now in a position to see the nature of the difficulties Negotiable which make the mere assignment of a contract inadequate for the requirements of commerce, and to meet which negotiable Difficulties of assignee instruments have been introduced. of ordinary The assignee of a contract is under two inconveniences (). contract. The first is that he may be met with any defence which would have been good against his assignor. This, we have seen, may to a considerable extent if not altogether be obviated by the agreement of the original contracting parties. The second is that he must prove his own title and that of the intermediate assignees, if any; and for this purpose he must inquire into the title of his immediate assignor. This can be in part, but only in part, provided against by agreement of the parties. It is quite competent for them to stipulate that as between. themselves payment to the holder of a particular document shall be a good discharge; but such a stipulation will neither affect the rights of intermediate assignees nor enable the holder to compel payment without proving his title. Parties cannot set up a market overt for contractual rights. The complete solution of the problem, for which the ordinary Remedy by special law of contract is inadequate, is attained by the law merchant (c) rules of law in the following manner :merchant. (i) The absolute benefit of the contract is attached to the ownership of the document which according to ordinary rules. would be only evidence of the contract. (a) Crouch v. Crédit Foncier of England, L. R. 8 Q. B. 374. (b) Cp. Savigny, Obl. § 62. (c) Extended to promissory notes by statute: 3 & 4 Anne c. 8 (in Rev. Stat.) ss. 1-3. |