and another for assignments operating under the federal bankruptcy act.

IV In the second portion of his argument Professor Williston argues that the ownership of the assignee should not be recognized as “legal” because to do so would necessarily involve consequences which in his opinion would be not only unfortunate and unjust, but also violative of sound legal principles and inharmonious with the general trend of the decisions of the courts. He discusses cases involving:

1. The debtor's right to set off against the assignee claims against the assignor;

2. The effect of latent equities; 3.

The effect of a subsequent total assignment on a prior partial assignment.

He states the law relating to the first of these problems as follows:

“The debtor is generally allowed to set off against the assignee not only claims existing at the time of the assignment, but those arising subsequently prior to the debtor's notice of the assignment. On the other hand a claim against the assignor acquired after notice of the assignment cannot be set off. There are a number of cases qualifying in one or another kind of case the right of set-off against the assignee, but the decisions need not be examined here, for all that is of importance to the present argument is that certainly everywhere the general rule is admitted that a claim matured at the time of assignment may be set off against the assigned claim. There seems no possible ground on which to support this general rule, except that the legal title to the assigned claim still is in the assignor.84

It should be noted first of all that my statements as to the assignee's complete ownership of the claim, at law and in equity, were expressly confined to the situation after notice to the debtor. The situation before notice was stated as follows:

"Clearly here the assignor retains some of the powers of an owner - he can extinguish the claim by release, accepting payment, etc. Such acts on his part, of course, are wrongs against the assignee and render him liable to actions for damages. Translating this into the terms of our analysis, we may say that the assignor retains some of his legal powers but has lost his privileges as owner of the chose, and the assignee is as

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yet only partly owner because he lacks the immunities which are essential to complete ownership. The situation may be compared to that of a grantee of land under an unrecorded deed. In such a case we think of the grantee as owning the land, but his title is not complete: it is subject to a power on the part of the grantor to extinguish it by a conveyance to another purchaser who buys in good faith and complies with the recording act. Notice to the debtor plays the same part in the assignment of the chose in action that recording the deed does in the case of the grant of land.” 85

That portion of the statement of Professor Williston which I have placed in italics seems sufficiently answered by this quotation from my previous article. It is not necessary that at all stages of the transaction we attribute complete ownership to either assignor or assignee. 86 Surely Professor Williston would not contend that "there is no possible ground on which to support” the results of recording acts except that "the legal title” to the land is in the grantor in the case of an unrecorded deed. 87 Suppose, for example, that under the particular recording act a creditor of the grantor may obtain a valid attachment on the land after the deed has been given but not recorded. Is this because "the legal title" is in the grantor? Surely not. No more need we say so in the case of the assignment before notice has been given. 88


HARV. L. REV. 834. 86 The American law of mortgages, especially in so-called "lien-theory” states, is understandable only if we recognize that neither mortgagor nor mortgagee has complete “legal ownership.”

87 The effect of a recording or registration act is clearly stated by Cozens-Hardy, L. J., in Capital & Counties Bank, Ltd. v. Rhodes, (1903) 1 Ch. 631, 655–56. Speaking of what happens when the “registered proprietor” has made a second transfer which has been registered, the first not having been registered, he says: “The transfer by registered disposition takes effect by virtue of an overriding power, and not by virtue of any estate in the registered proprietor. . . . Notwithstanding that the land has become registered land, it may still be dealt with by deeds having the same operation and effect as they would have if the land were unregistered, subject only to the risk of the title being defeated ... by the exercise of the statutory powers of disposition given to the registered proprietor, against which the mortgagee must protect himself by notice on the register.” (The italics are those of the present writer.)

88 In this case the grantee, while vested with many of the jural relations which go to make up that complex called "ownership,” lacks some of them. If he were complete owner he would have a right that creditors of the grantor should not attach as well as an immunity from a valid attachment by them. They would be under both a correlative duty to refrain from attaching and a correlative disability to make a valid attachment. As it is, with the deed unrecorded, they have both a privilege and a power


In making the comparison which I have between notice in the case of assignments and recording in the case of deeds, I must not be understood to say that notice plays the same part in all respects that recording does. All that is meant is that in relation to the power of the assignor or grantor to defeat the assignee or grantee by a subsequent assignment or grant, notice and recording are alike in terminating this power. It may well be that as between the assignee and a creditor of the assignor who garnishees the debtor, after the assignment but before notice of the assignment has been given to the debtor, the former might be preferred.89

The justification for permitting creditors of the assignor to set off the claims referred to is to be found ultimately in principles of fairness, of public policy, etc., rather than in the supposed requirements of logic. Doubtless many decisions of the courts have, because of defective analysis of the problem, been based, at least ostensibly, upon these supposed logical requirements. It is believed, however, that in many of these cases notions of fairness and business convenience played, subconsciously, a larger part than appears upon the surface.

The second unfortunate effect which Professor Williston conceives would necessarily be the result of recognizing the “legal ownership” of the assignee is stated as follows:

“The effect of equities of third persons against the assignee seems also to depend upon the legal or equitable character of the assignee's rights. Though it is well settled that an assignee is subject to the equities of the obligor, it is a matter of dispute how far the assignee is subject to equities of third persons against the assignor; as, for instance, where the assignor was himself an assignee of the chose in action under an assignment which he had procured by fraud, or where for any reason the assignor held the assigned claim subject to a trust, actual or constructive, in favor of a third person. . . Even though the assignee paid value with no knowledge of any outstanding claim, it is still true that the defrauded original owner or person beneficially entitled to the assignment has an equity prior in time and, therefore, superior to that of


to attach; i. e., the grantor has “no-right" that they shall not attach and also is under a "liability" to have a valid attachment made.

89 The analysis here is similar to that in the preceding note relating to attaching creditors. The creditors of the grantor possess before notice privileges and powers of which notice deprives them. The authorities are collected in AMES. CASES ON TRUSTS, 2 ed., 413.

the ultimate assignee, if the latter's right is merely equitable. If, however, the latter could be regarded as the owner of a legal right, his right would be superior to the original equity. In fact, the latent or collateral equity against the assignor of an intangible chose in action has prevailed over the right of the subsequent purchaser in good faith, in the absence of an estoppel, in England and in a majority of the United States where the question has been raised.” 90

Here again the antithesis between "legal” and “equitable” appears. “Legal” means “not equitable” and vice versa. To

Το make the objection apply to my conclusions we must amend the italicized portion so that it will read somewhat as follows. "If however the latter (the assignee) could be regarded as having a concurrently legal and equitable ownership, he would have priority over the holder of the original equity.” The question at once arises, Why would he? Does the word "would” mean that that result would necessarily and inevitably follow? If so it must be because some principle of logic or some far-reaching and well-settled legal principle requires it.

Obviously logic in the abstract will not do. What legal principle is it that Professor Williston has in mind? Doubtless that relating to bonâ fide purchasers for value. Apparently, although he does not say so explicitly, he is assuming that there is a wellsettled principle of our law that every bonâ fide purchaser for value of a "legal title” or “legal right” is protected from “equities.” This was of course the view of the late Dean Ames, maintained with much vigor in his essay upon "Purchase for Value without Notice." It is there stated as follows:

“A court of equity will not deprive a defendant of any right of property, whether legal or equitable, for which he has given value without notice of the plaintiff's equity, nor of any other common law right acquired as an incident of his purchase.'

The facts seem to be that this wide and sweeping statement of a principle which Dean Ames regarded as “a far-reaching principle of natural justice”92 is not justified by the cases. They have never established so broad a principle so far as the actual decisions go. **

" 91


92 Ibid., 272.

30 Harv. L. REV. 102. The italics are those of the present writer. 91 LECTURES ON LEGAL HISTORY, 254-55.

% See, for example, the cases on overdue commercial paper, note 98, infra; also Baker v. Snavely, 84 Kan. 179, 114 Pac. 370 (1911), which seems to be directly contra

To go into the matter fully would require a whole essay by itself. I can do no more than suggest what seems to me to be the true point of view, viz., that the doctrine in question can be understood only in the light of its history. It has even been suggested by one writer that in many cases it produces entirely arbitrary results and that it is less equitable as applied, for example, to real estate held in trust than a rule which would divide the loss due to the rascality of a defaulting trustee between the innocent cestui and the equally innocent purchaser. 94 The truth seems to be that the doctrine as we have inherited it is the result of various more or less clear or confused ideas of expediency, justice, and supposed logic. As a principle in the living law of to-day it must be defended, if at all, upon grounds of real social policy and business convenience.

Recognizing that this is so, the real problem in connection with latent equities is this. Granted (for the sake of argument) that down to the time when choses in action became legally alienable the rule protecting innocent purchasers for value applied to all “legal titles” which could be transferred, does it follow that the same principle must be extended to cover the transfer of choses in action, when for the first time they become alienable at law? Logic does not require this, for confessedly the decisions do not cover the case. True, courts are likely to be misled by sweeping statements in prior opinions into thinking that the law upon the point really is settled, when as a matter of actual decision it is not. No doubt they have been so misled more than once. What ought to be done is to inquire into the real reasons back of the rule governing the rights of innocent purchasers and to try to find out whether the same reasons which justify the rule in the ordinary case - if indeed they do justify it — apply to this kind of property which can now for the first time be transferred at law. They may or may not; and the chances are we shall find that some kinds of choses in action ought to be brought within the rule and others excluded. Each class of chose in action — bond, share of corporate stock, insurance

, policy, etc., etc. — must be considered from the point of view of the needs of the business community in the long run. This may

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to Dean Ames's statement (on page 257 of his LECTURES ON LEGAL HISTORY) as to the effect of depositing a deed in escrow.

94 Edward Jenks, “The Legal Estate,” 24 L. QUART. REV. 147, 154-55.

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