Story Case

Henry Sanaman entered into a written contract with Joseph Donovan by which it was agreed that Sanaman should deliver a bay horse to Donovan who promised to pay $100 on delivery. Immediately after this contract was made, Sanaman assigned his right to the one hundred dollars to Howard Sherman. Later, when Donovan refused to pay the money, Sherman brought suit for the amount. Donovan put in defense that Sanaman had never delivered the horse. Sherman contended that this was not a defense, since he had paid value for the assignment, and did not have notice of Sanaman's failure of delivery. For whom should judgment be given?

Ruling Court Case. Wetter Vs. Kiley, Volume 95 Pennsylvania State Reports, Page 461

Kiley, in order to assist Wetter in raising money, made a note to the order of Kiley for his accommodation. Kiley procured a bank to discount the note. The bank, at maturity, demanded payment of Kiley, who refused to pay. The note was non-negotiable, so this suit was brought by Wetter on behalf of the bank, which discounted the note. In defense, Kiley set up the fact that it was given to Wetter without consideration and for his accommodation.

It was contended on behalf of the bank, however, that the want of consideration could not be raised against it, since it was a bona fide purchaser of this note, and had no knowledge of the lack of consideration.

The court, however, was of the opinion that the defense was good. This note was a non-negotiable note, and such a note could only be assigned, and the assignee takes claim subject to all defenses between prior parties, even though he be a bona fide purchaser without notice.

Mr. Justice Gordon said: "In the first place the note was not negotiable; it could pass only by assignment, and that assignment would convey to the assignee only that which the payee was entitled to receive from the maker after settlement of all accounts and equities between them." Judgment was given for Kiley.

Ruling Law. Story Case Answer

It was stated in the foregoing section that an ordinary claim or chose-in-action was, originally, incapable of being assigned. But later, assignment was permitted. But the assignee took no more by the assignment than his assignor had. In other words, the assignee took the claim, subject to all defense between original parties. Therefore, in the Story Case, Donovan's defense is valid. It is effective against Sanaman, and also against any of Sanaman's assignees. Had Donovan given a promissory note for $100, and Sanaman had indorsed this to Sherman for value, Sherman might enforce it, notwithstanding: the fact that Sanaman had never delivered the horse. This, then, illustrates the meaning of the statement that an assignee gets only the interest that the assignor had in a given claim or chose-in-action. It further illustrates the meaning of negotiability; in that negotiation not only means the passing of title to the instrument, but that it also means that a negotiation for value passes the entire right the instrument purports to have.