This section is from the book "The Law Of Contracts", by William Herbert Page. Also available from Amazon: Commercial Contracts: A Practical Guide to Deals, Contracts, Agreements and Promises.
Whether in case of successive assignments each by a prior assignee to his assignee, the last assignee takes subject to equities existing between some prior assignor and his assignee is a question upon which there is a conflict of authority. Some authorities hold that the last assignee takes subject to equities existing between a prior assignor and his assignee.1 Thus where an insurance policy payable to A was assigned by A to B as collateral to secure A's debt to B, and then by B to C as collateral to secure B's debt to C, it was held that C took no greater right in the policy than B had had; and hence if on A's death C collects the policy he must refund to A's estate all in excess of A's debt to B.2 Other authorities hold that the last assignee takes free from equities between a prior assignor and his assignee.3 So if over-due notes which have ceased to be negotiable are assigned apparently absolutely, but really as collateral, an assignment by such assignee to a bona fide assignee for value passes absolute title.4 So a prior assignor cannot recover nonnegotiable notes from the last assignee on the ground that such prior assignor was induced to assign such notes to an intermediate assignee through fraud.5 An assignee for value takes free from latent equities of third persons of which he had no notice.6 Thus an assignee of a judgment is not bound by the interest of a mortgagee on the same land as the judgment, the mortgage being defective and therefore not constructive notice, but the assignor having actual notice thereof,7 or by the interest of a third person in the notes secured by the mortgage on which the judgment assigned had been rendered, where some of such notes had been assigned to such third person, but on foreclosure he had returned said notes to his assignor for the purpose of the suit and had allowed him to take judgment in his favor on all the notes.8
9 Reddin v. Dunn, 2 Colo. App. 518; 31 Pac. 947.
10Galbraith v. McLaughlin, 91 Ia. 399; 59 N. W. 338.
11 Morrow Shoe Mfg. Co. v. Shoe Co., 57 Fed. 685; 24 L. R. A. 417; affirmed in 60 Fed. 341.
1 Sutherland v. Reeve, 151 111. 384; 38 N. E. 130; Gillette v. Murphy, 7 Okla. 91; 54 Pac. 413; West-bury v. Simmons, 57 S. C. 467; 35 S. E. 764; Downer v. Bank, 39 Vt. 25.
2 Westbury v. Simmons, 57 S. C. 467; 35 S. E. 764.
3 Quebec Bank v. Taggart, 27 Ont. 162; Baker v. Wood, 157 U. S. 212; First National Bank of Bridgeport v. Irrigation District, 107 Cal. 55; 40 Pac. 45; Y. M. C. A. Gymnasium Co. v. Bank. 179 111. 599; 70 Am. St. Rep. 135; 46 L. R. A. 753; 54 N. E. 297; Moore v. Moore, 112 Ind. 149; 2 Am. St. Rep. 170; 13 N. E. 673; Williams v. Donnelly, 54 Neb. 193; 74 N. W. 601; Moore v. Bank, 55 N. Y. 41; 41 Am. Rep. 173; overruling Bush v. Lathrop, 22 N. Y. 535.
4 Y. M. C. A. Gymnasium Co. v.