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 An assignee of a contractor has no priority as against one who performed the contract when the contractor abandoned it.3 If an assignment is, by its express terms, subordinate to another assignment, full effect must be given to such provision.4
Other authorities hold that the last assignee takes free from equities between a prior assignor and his assignee.5 So if overdue 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.6 So a prior assignor can not recover non-negotiable notes from the last assignee on the ground that such prior assignor was induced to assign such notes to an intermediate assignee through fraud.7
Colorado. German American Trust Co. v. White, - Colo. - , 165 Pac. 761.
District of Columbia. Metropolitan Loan & Trust Co. v. Schafer, 44 D. C. App. 356.
Illinois. Sutherland v. Reeve, 151 111. 384, 38 N. E. 130.
Maryland. Wernts v. Wells, 130 Md. 53, 99 Atl. 956.
New Jersey. Dixon v. Bentley, 68 N. J. Eq. 108, 59 Atl. 1036.
Oklahoma. Gillette v. Murphy, 7 Okla. 91, 54 Pac. 413.
South Carolina. West bury v. Simmons, 57 S. Car. 467, 35 S. E. 764.
Vermont. Downer v. Bank, 39 Vt. 25.
Tennessee. Horn v. Nicholas, 139 Tenn. 453, 201 S. W. 756 (equitable assignment).
2Westbury v. Simmons, 57 S. Car. 467, 35 S. E. 764.
3 Finkelstein v. Morse, 226 Mass. 368. 115 N. E. 667; Aberdeen v. Equitable Surety Co., 92 Wash. 440, 159 Pac. 683.
See also Hardaway v. National Surety Co., 150 Fed. 465, 80 C. C. A. 283. He has priority as to amounts due under the contract which has been performed by the assignor. Aberdeen v. Equitable Surety Co., 92 Wash. 440, 159 Pac. 683.
4 German-American Trust Co. v. White, - Colo. - , 165 Pac. 761.
5 Canada. Quebec Bank v. Taggart, 27 Ont. 162.
United States. Baker v. Wood, 157 U. S. 212, 39 L. ed. 677.
California. First National Bank of Bridgeport v. Irrigation District, 107 Cal. 55, 40 Pac. 45.
Illinois. 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.
Indiana. Moore v. Moore, 112 Ind. 149, 2 Am. St. Rep. 170, 13 N. E. 673.
An assignee for value takes free from latent equities of third persons of which he had no notice.8 Thus an assignee of a judgment which is a lien on certain realty does not take subject to the interest of a mortgage on the same land, if the mortgage being defective, and therefore not constructive notice, although the assignor having actual notice thereof,9 nor does he take subject to 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.10