Sillce,th"erefore, the want of pd1ver in equity to interfere in criminal proceedings 'is general, and without reference to· the separate jurisdictions of thefedetal and state courts, it is unnecessary in this case to consider the effect oithe 720th section of the Revised Statutes of the United States;ptoviding that "the writ of injunction shall not be granted by any court of the United States to stay proceedings in any court ofa state except in cases where such injunction may be authorized by law relating to proceedings in bankruptcy;" I purpose to consider the effect and the limitations of this section in deciding the applications which have been submitted to restrain certain civil proceedings in the state. courts under the prohibition, law. Theapplication in the present case is denied.
STARx 'and another.
(CM/;'Uit Oourt, No D. lUinoiB.
Where '& mortgage on real estate in Illinois is given to secure payment of two negptiJl,ple ilotes, containiu$'a,cQvenant that, upon failure to pay any stallment. of interest. the prinCIpal of both notes,shall become due, a bona, fide purchaser of such'notes and mortgage before maturity, upon default in, the payment of the interest. may avail himself of that covenant, and foreclose the mortgage for the entire principal sum, without regard to equities existing Original parties. , That oJl'eof the notes, to secure which the mortgage was given, will not become due till 1891, does not affecHheright of a bona fide holder to foreclosethe mortgage upondefauIt in the P&yment of interest, as. the mortgage, with all itli <lovenants; was givllnto secure the'notes, and' add to their commercial value, by giving the' holder the right to collect the entire debt when the makers fail to pay any installment of interest; and such bona fide holder may enforce the covenant without destroying the negotiable character of the notes. The rule established by the supreme court of Illinois that a negotiable note' and mortgll,ge. transferred to a bona fide holder before. maturity, are held subject to all eqJIities between the original parties, is not binding on the federal courts. which follow the rule laid down by the United States supreme court, that 'where a mortgage to secure negotiable notes is transferred, before ma-, turity, to a fide holder for value, and a suit in equity brought to foreclose the mortgage, no other defenses are allowed agaInst the mortgage than: would be allowed in an action at law to recover on the notes.
2. SAYE-,.:M:.i'1'tffii:ty OF NOTES.
COURTS--:-STATln DECISIONS-FORECLOSURE OF MORTGAGE.
R08itington, Smith &: DaUas. for complainant; .EdsaU &: Edsall, lor defendant.
GRESHAM, J."On the eighteenth ,day of January, 1885, the defendants executed their two negotiable promissory 'botes,-one for $2,000, payable to Mark P. Hillyer on the first day of May of the same yeari and the other for $3,000, payable to the same person on the eighteenth day of January, 1891. .:Both notes were l:',xecuted at Thomson, Illinois t
· SWETT'll. STARK:·
.and pay.able at that place; and, to secure their payment, the defendants executed a mortgage upon real estate in Illinois. The mortgage contained a covenant whereby the principal of the notes was to become due if default occurred in the pay.ment of any installment of interest; the interest being payable yearly. The notes and ,mortgage were sold and assigned to the plaintiff, before maturity, for value. Default occurred in the payment of interest on both notes, and the holders elected to declare the principal sum due, a.nd brought this suit to f9reclose the mortgage. After setting up defenses which would be good against the payee, the anSWl;lt' avers that the notes and mortgage were execnted in Illinois, (where the notes were made Payable,) with reference. to the laws of that state, bywbich an assignee of such a mortgage could acquire no greater right, against the maker of the notes and mortgage, than the payee and mort,. gagee had; and that, in this suit to foreclose the mortgage, the defendants are entitled to all the defenses which they might plead ifthe mortgageewere complainant. The answer is excepted to as insufficient. It is not QIaimed that there is a statute in Illinois under which the defendants.may assert against the complainant, as the assignee and bona fide holder of the notes, the same equities or defenses which he would be entitled to against the payee. It has been held by the supreme court of Illinois, not under local statute, but as a question of general or that if a mortgage is given to sec\lrea nE'gotiable note, and both tbe note and mortgage are transferred before maturity to a bona fide indorsee, he holds the mortgage subject to all equities between the ,()riginal, parties. But the supreme court of the United States has established a different rule for the federal courts. That court has held that where a negotiable note, secured by a mortgage, has been transferred to a bona fide holder for value before maturity, and a bill is filed to foreclose the mortgage, no other or further defenses are allowed, as against the mortgage, than would be allowed were the action brought in a court of law upon the note; that the maker bound himself to pay the note at maturity to any bona fide indorsee, without reference to any defenses to which it might be liable in the hands of the payee; and that, in proportion as the remedy is denied to the indorsee to enforce the security, his rights are violated and set at naught. Caryenter v. Longan, 16 Wall. 271; Kenicott v. Supervisors, Id. 452; Sawyer v. Prickett, 19 Wall. 146. It is urged, however, that because the second note will not, by its terms, become due until 1891, before which time its payment cannot be enforced, either at law or in equity, without also declaring on the covenant in the mortgage, which is not negotiable, that therefore the makers are entitled tQ the defense set up in their answer. This assumption is based upon a misconceptionofwhat the makers agreed to do by the execution of the notes, as well as of the relation which exists between the notesa.nd the mortgage. The contract was that the makers would pay the notes at maturity to any bona fide indorsee, without reference to defenses to which they might be liable in the hands of the payee; and the mortgage, with all its covenants, was executed to secure the fulfillment of that contract. The covenant in question added to the commercial
860 value of the notes, and it was doubtless intended to have that effect. It imparted additional value to the security by giving to the holder of the notes the right to collect the entire debt by foreclosure, whenever the makersfailed to pay any installment of interest. One of the notes, by its terms, would not become due for six years, and meantime the security might become inadequate, and the makers insolvent. The covenant is not to be treated as an independent, non-negotiable contract. It is an important element of the security, which the complainants, as innocent holders of the notes, are entitled to enforce, according to its terms. It cannot be disputed that if the complainant saw fit to wait until 1891, he could then foreclose the mortgage for the full amount of the notes, regardless of equities between the original parties; and yet we are told, because the suit is brought before the last note is due by its terms,but not before it is due by virtue of the covenant in the mortgage, that the complainant should be treated as if he were not a bona fide holder, or as if he were seeking to foreclose a:mortgage to secure a non-negotiable contract. The mere statement of the proposition shows its unsoundness; The mortgage, as an incident to the notes, is inseparable from them. It has no separate existence, and it cannot be treated as an independent chose in action. Carpenter v. Longan, supra. The plaintiff bought the notes in good faith, before maturity, on the faith of the security, including the covenant in question; and it would be inequitable and unjust to hold that it was the intention of the makers and the payee that this covenant should not be enforced without destroying the negotiable character' of the notes. The exceptions to the answer are 'sustained.
STANLEY and others '11. MATHER
(Oircuit (Jourt, N: D. Illi'[toiB. July 30,1887;)
MORTGAGE-RIGHT OF HEIRS TO FORE'CLOSE-ESTATE OF DECEDENTS.
An administrator having paid all debts and expenses of administration, and distributed the surplus to the heirs designated as the onl;}' persons entitled, under the order of the court, after approval of the distribution, and without further direction of the court, handed over to such heirs certain mortgage notes, which, being deemed of little value, had not been brought to the attention of the, probate court. The distribution was approved by the court, but it did not appear that the administrator was ever discharged. Held, in a suit to foreclose the mortgages by the heirs, that a demurrer to the complaint could not be sustained on the ground that, the notes being part of the personal estate, and never delivered to the heirs by the administrator, under the direc-. tioD of the probate court, suit to foreclose the mortgages could only be brought by the personal representatives of the mortgagee, but the heirs, being the equitableo:wners, could sue.
Isham, Lincoln « Beale, for complainants. Roberts, Hutchinson & Thomas, for defendants.