Helmer v. Parsons

Mortgage—Purchase of Secured Note—Non-negotiability—Subjection op Purchaser to Defenses—Payment of Face Without Knowledge Immaterial.—A note which shows on its face that it is secured by a mortgage is nou-negotiable, and notice of such non-negotiability is thereby imparted to a purchaser thereof, and he is chargeable with notice that if the maker has any defense against the original payee, he takes the note subject to such defense, and it is immaterial that he has paid the full face of the secured note to the original payee, without actual notice of any defense thereto.

Id.—Assignment of Mortgage—Duty of Proposed Assignee to Inquire as to Defenses—Effect of Neglect.—One who is about to take an assignment of a mortgage is in duty bound, in protection of his own interest, to make inquiry of the mortgagor as to the validity of the instrument and of the transaction on which it is founded and as to the amount due, and whether the mortgagor has any defense or setoff to interpose against it. But if he neglects to make such inquiry, he takes the mortgage subject to all defenses against the original mortgagee, and is charged with knowledge of all facts which such an inquiry would have disclosed.

Id.—Construction of Code Provisions—Indorsement of Non-negotiable Instrument—Assignment of Thing in Action.—Section 1459 of the Civil Code, making the transfer of a non-negotiable instrument “subject to all equities and defenses existing in favor of the maker at the time of the indorsement,” and section 368 of the Code of Civil Procedure, providing that, “in the case of an assignment of a thing in action [not negotiable] the action by the assignee is without prejudice to any setoff or other defense existing at the time of or before notice of the assignment,” are to be construed as though passed at the same moment of time and as parts of the same statute; and the law as declared by the two sections is that a defendant may avail himself of any setoff or defense acquired before notice of assignment of any non-negotiable cause of action.

IP.—Partial Failure of Consideration of Note and Mortgage Existing at Time of Transfer—Notice of Assignment Immaterial.—Where the payee of a note and mortgage for $3,500 - agreed to advance that full sum to the mortgagor in specified installments, but only advanced the total sum of $1,250, the partial failure of consideration as to the residue of the note and mortgage being a complete defense as to the residue against the original payee, which existed at the time of the transfer of the note and mortgage by the payee to the plaintiff, it would be a like defense as against the plaintiff, as assignee, which cannot be affected by any notice of the assignment given by the assignee to the defendant.

Id.—Recording op Assignment op Mortgage not Constructive Notice to Mortgagor.—The mere recording by the assignee of the assignment of the mortgage only operates, under section 2934 of the Civil Code, as notice to all persons subsequently deriving title, •to the mortgage from the assignor, and constitutes no constructive notice of the assignment to the mortgagor.