delivered the opinion of the court:
This was a bill in chancery to foreclose a mortgage, filed by the administrator of William Peck, against the widow and heirs of Alpha Bligh. The mortgage, and the note secured by it, were given by Bligh to H. S. Durand, who was President of the Racine and Mississippi Railroad Company, and bore date May 12, 1855, maturing in five years from the 10th of February, 1855. The bill averred, and the answer admitted, that Durand was only a nominal parly to the note and mortgage, and that they were really given to the railroad company for its sole use and benefit. The complainant claimed the note and mortgage by virtue of an instrument executed by the railroad company on the 30th of July, 1855, and guaranteeing to the “ holder hereof” the payment of the note, this instrument being executed upon a separate paper, and attached to the note. It appeared, upon the hearing, that Bligh subscribed to thirty shares of stock in the railroad company; that he executed the note and mortgage in payment for said stock; that one Clough was the authorized agent of the company in procuring subscriptions, and that, at the same time with the execution of the note and mortgage by Bligh, Clough, as agent for the company, executed to him an instrument in writing, reciting the transaction, and guaranteeing him against loss on the thirty shares of stock. The execution of these different instruments was all one transaction, and Clough swears that he was authorized by the board of directors to give the. guaranty. The stock became utterly worthless before the maturity of the note, and these facts are relied upon as an equitable defence against the note and mortgage.
The defendants, besides their answer, filed a cross-bill, asking that the note and mortgage be cancelled. The court below refused the relief prayed in the original bill, and decreed upon the cross-bill, that the complainant, Peck, and all persons claiming under him, should be forever barred from bringing an action on .the note, except as against Durand or the railroad company, and that the administratrix of Bligh execute to the company an assignment of the certificate for said thirty shares of stock. The complainant appealed.
The instrument executed by Clough to Bligh, at the time the latter gave his note and mortgage, was as follows:
Whereas, Alpha Bligh has executed a note and mortgage in favor of Henry S. Durand, or bearer, bearing1 date on the 12th day of May, A. D. 1855, payable on the 10th day of February, A. D. 1860, for the sum of three thousand dollars, with interest at the rate of ten per cent, per annum from and after the 10th day of February, 1855, which said note and mortgage have been executed by him to the said Henry 8. Durand, for the purpose of loaning the said sum of three thousand dollars to pay for thirty shares of the capital stock in the Racine and Mississippi Railroad Company, by him subscribed. How, therefore, in consideration of the relinquishment and assignment by the said Alpha Bligh to the said company of so much of the dividends on said stock which the said Alpha Bligh may become entitled to as shall be sufficient to pay the interest on said note, the said company agree to pay the interest on said note and mortgage until the same shall become due; and the said company, in consideration of the premises, agree to become responsible to the said Alpha Bligh for all money so loaned by the said Henry 8. Durand on said note and mortgage. Said Bligh is hereby guarantied against any loss whatever upon said thirty shares of stock.
S. D. CLOHGH,
Agent for said Company.
Dated at Rockton, Ill., May 12,1858.
There can be no question but that in a suit brought by the railway company to foreclose the mortgage, the defence here made would have been allowable on the ground of recoupment of damages or equitable set-off. The company, at the time of taking the note and mortgage, and as a part consideration therefor, expressly stipulated to protect Bligh from all loss on his thirty shares of stock. The stock having become worthless, Bligh, if he had paid his note, would have had a valid claim against the company for damages, and not having paid the note, could set up the damages in a suit brought by the company for its collection. The case would be precisely analogous to one in which a breach of the covenant against incumbrances in a conveyance of land is set up as a defence to a suit upon a note for which the conveyance was given, and is as available upon the chancery as upon the common law side of the court.
It is urged, however, that the complainant in this suit is the assignee of the note and mortgage, that they were assigned before they fell due, and that this defence was thus cut off. The alleged assignment is not by endorsement upon the note, but by an instrument attached to it, and in the following form:
UNITED STATES OF AMERICA, \ STATE OF WISCONSIN. J
Racine and Mississippi Railroad Co.—Bond.
Know all men by these presents, that the Racine and Mississippi Railroad Company, for a valuable consideration, hereby acknowledged, have guarantied, and hereby do guarantee, to the holder hereof the payment of the principal of the annexed promissory note and mortgage securing said note executed by Alpha Bligh to Henry S. Durand, or bearer, dated on the 12th day of May, 1855, payable in five years from the 10th day of February, 1855, with interest at the rate of ten per cent, per annum, payable annually; and said company further hereby guarantee to said holder the payment of the interest on said note and mortgage semi-annually, and both the principal and interest thereof shall be paid at their office in the city of New York, and that said note and mortgage may be transferred in connection with this bond (but not otherwise) to any party or purchaser whomsoever.
In witness whereof, the said company have caused this bond to be signed by their president, and attested by their secretary, and their corporate seal to be affixed this 3d day of July, 1855.
[seal.] H. S. DURAND, President
A. J. Redbtjrn, Secretary.
It has been several times decided by this court that a guaranty of a note by the holder amounts also to an assignment and passes' the legal title. Is this instrument such a guaranty ? On its face it purports to be a bond of the railway company, and while it purports to guaranty the payment both of the principal and interest of the note, it guarantees that they shall both be paid in a manner different from that provided for in the note itself. By the latter, the interest was payable annually. By this bond it is guaranteed to be paid semi-annually. The note on its face was payable in Ha-cine, Wisconsin. By this bond it is guaranteed to be paid in the city of Hew York. With what propriety can one instrument be said to guarantee another, when the alleged guaranty is, not that the contract shall be performed according to its terms, but in a manner materially different? But this instrument, regarded as an assignment, is not open to these objections alone. It provides that the “ note and mortgage may be transferred in connection with this bond, but not otherwise.” The reason, we presume, for the insertion of this clause, is to be found in the contract between the company and Bligh. It had agreed with him, itself to pay the interest on the note, and to protect him against loss on Ms stock. When, therefore, it issued this bond assuming obligations different from those of the note, and providing that the note should be transferred only in connection with the bond, it must be considered as issuing the latter as an independent instrument. Instead of seeking to assign and guarantee the note, which it could have done by a few words written thereon, it clearly sought to make its own bond the principal, and the note the incident. But whatever the object, the language referred to qualified the assignment, and was sufficient to put purchasers upon their guard.
But besides these objections to this instrument, when set up as an indorsement, there is another which is fatal, and upon which we more especially place the decision of the case. The note was in the following form:
« $3,000.
Five years from the 10th day of February, 1855, for value received I promise to pay Henry S. Durand or bearer, the sum of three thousand dollars, at his office in the city of Racine, Wisconsin, for money loaned together with interest from said 10th day of February, at the rate of ten per cent, per annum, payable annually at the office as aforesaid until said principal is paid. Dated at Rockton, in the county of Winnebago, State of Illinois, this twelfth day of May, 1855.
A. BLIGH.”
It will he observed that this note is payable, not to the company, nor even to Durand as its President, but to him individually, and could be assigned so as to give the holder the rights of an assignee, only in his name. In no other way could the legal title to the note pass. But the instrument relied upon as an assignment, is not the assignment of Du-rand. It is, and purports on its face to be, a bond of the railway company, executed under their corporate seal, attested by their Secretary and purporting to be signed by Durand only as their President. He assumes no obligations by this instrument. Ho action would lie against him for a breach of its covenants. It is not his guaranty, but that of the company. Yet the note was payable to him, and as he has neither indorsed nor guaranteed it, where does the complainant get his legal title, by which alone he can claim the position and privileges of an innocent indorsee of negotiable paper ? Ho has none, and must hold the paper subject to the same equities and defences that could be set up against it in the hands of the payee. On the common law side of the court a suit upon it could only he brought in the name of the payee, and on the chancery side, the same defence may be made as if the ; suit were thus brought. The only assignment which will cut off the equities of the maker of the note, is an assignment made in conformity with the statute, and passing the legal title. Olds v. Cummings, 31 Ill., 188.
The decree refusing the relief prayed in the original bill and granting that prayed in the cross-bill was proper and must be affirmed.
Decree affirmed.