Berdan v. . Sedgwick

Hunt, C. The general principles by which this case is to be decided, are well settled. The mortgage in suit has been adjudged to have been given upon an usurious agreement for the loan of money. This is not now controverted. The statutes of this State declare that all such agreements and all securities given as collateral to them are void. They are void, however, in a limited sense. They are not so absolutely void that the borrower is prevented from making payment, if he desires to do so. If he voluntarily does this, he cannot reclaim the money thus paid. They are not so far void, that the borrower is not at liberty to direct the payment of the debt. Thus the maker of a general assignment for the benefit of creditors may lawfully include in it and direct the payment of an usurious debt. (Pratt v. Adams, 7 Paige, 615 ; Murray v. Judson, 5 Seld., 73.) So the borrower of money upon an usurious contract, which is secured by a mortgage upon land, upon making sale of the land, may lawfully contract with his vendee for the payment of the usurious mort *631 gage, and the vendee will not then be at liberty to set up the objection of usury. (Cole v. Savage, 10 Paige, 583; Hartley v. Harrison, 24 N. Y., 171; Mason v. Lord, 40 N. Y., 476.) That the borrower only is entitled to interpose the defence of usury, is also a well settled principle. (Cole v. Savage, supra; Williams v. Tilt, 36 N. Y., 319.) Like the preceding one, this principle is also subject to many exceptions. Thus, it is not doubted that hems may make the defence with equal effect, as the ancestors could make it. The defence may be made, upon the same principle, by devisees, by subsequent mortgagees and purchasers, and by trustees. The heir is privy in blood. The devisee or purchaser is privy in estate, and each, in this respect, succeeds to the right of his ancestor or grantor, (Cole v. Savage, supra; Hartley v. Harrison; Post v. Dart, 8 Paige, 639.) As it is expressed in the head note to the last mentioned case, “ the defence of usury may be set up by any one who claims under the mortgagor, and in privity with him. For the usurious mortgage is void, not only as to the mortgagor, but as to all others who succeed to his rights in the mortgaged premises, either by operation of law or otherwise. In the present case, Sedgwick and Cowles were the subsequent grantees of the mortgaged premises and of the whole interest therein, with no agreement to assume the disputed mortgage. They are sought to be excluded from setting up the defence of usury upou two grounds, 1st. That a judgment having been rendered against Dillaye, the mortgagor, establishing the validity of the mortgage, the other and subsequent parties are concluded thereby. In the case of Post v. Dart, supra, judgment pro confesso, had been taken against the mortgagor, by which his liability to pay the debt was fixed by judgment. The court, nevertheless, granted to the Bank of Utica, a subsequent purchaser, an order and a commission, for the purpose of establishing the usury, assuming that the purchaser might litigate that point, although the liability of the mortgagor was not open to further *632 question. Here Dillaye’s liability is fixed. But he does not represent Sedgwick & Cowles, nor are Ms acts or declarations, after their purchase, evidence against them. As a witness, indeed, Ms declarations might impair their rights, as could the testimony of any other witness. But like other witnesses, his statements, when not under oath and in reference to this particular case, possess no virtue. The judgment against Dillaye was rendered in 1859. The purchase by Sedgwick and Cowles was made in 1853. After this purchase, the rights and interests of the parties were different, perhaps hostile to each other. Dillaye did not own the-property, was not in its possession, and could neither say or do or suffer anything wMch could affect the interests of his vendees. The action in which judgment was given against him was of a personal character simply; Sedgwick and Cowles were not parties to it, and could take no action in it for their defence or the protection of their rights. Hpon no principle can they be deemed to be bound by it. » It is said, secondly, that the agreement of December 1st, 1853, between Dillaye, and Sedgwick and Cowles, amounted to an agreement, on the part of the latter, to assume or provide the means of payment of the Burdan mortgage. There is no dissent among the counsel here, or in the books, to the proposition that, if the purchaser undertakes to pay the mortgage, or if the conveyance is made subject to it, the vendee cannot set up the defence of usury. This is upon the principle already stated, that the defence is personal, that the borrower has the right to waive it, and that by thus providing for its payment, he does waive it. To permit the defence in such case would also be a fraud, in allowing the vendee to obtain a valuable interest- which, by the terms of Ms purchase, it was agreed that he should not possess. In the instance before us, Sedgwick and Cowles, by money and by mortgages, paid to Dillaye the whole amount of the purchase-money, to wit, $41,000. The Berdan mortgage •also was in form a lien upon the property. It is not recited that the parties did not assume it, or that Dillaye intended, *633 or desired to contest it. It is assumed, and all the provisions of the agreement are directed to that end. To meet the views of the vendor and vendees, the latter gave a mortgage of $7,500 (the amount of the Berdan mortgage), which was to be recorded before any of the other mortgages given by them. This mortgage was to be placed in the hands of Judge Comstock for this purpose, viz.: That if Dillaye should fail to set aside the Berdan mortgage, Comstock should dispose of this mortgage, and deliver the proceeds to Sedgwick and Cowles for the purpose of paying off the mortgage given to Berdan. If Dillaye succeeded in setting aside the Berdan mortgage, then Comstock should deliver this mortgage to Dillaye, to be used by him as his own property. It is to be observed that Sedgwick and Cowles were bound in any event to pay this mortgage. The only uncertainty was, as to what should be done with the proceeds of it. In one event they were to be applied in extinction of Berdan’s mortgage. In the other they were to be handed over to Dillaye. As the parties thus provided absolutely for payment of the whole amount of their purchase-money, without reference to the Berdan mortgage, they cannot be said to have assumed the payment of that mortgage as a part of the purchase-price. It is said, however, that Sedgwick and Cowles substantially agreed to pay the Berdan mortgage, in the event that Dillaye did not succeed in setting it aside; that he did not so succeed, and that the obligation to pay has, therefore, attached. This is not an accurate deduction of fact from the terms of the contract. Sedgwick never agreed to pay the Berdan mortgage. If he had, in terms or by implication, 'a different question would be presented. 'He simply agreed, that if the Berdan mortgage is not adjudged usurious, and if Comstock delivers to him certain proceeds of his own mortgage, he will apply those proceeds in payment of the Berdan mortgage. Ho such proceeds have been delivered to him. On the contrary, by assuming that the decision at the Special Term, that the mortgage was usurious, was final, and by acting upon *634 it in delivery by Comstock of this mortgage to Dillaye, the power of receiving such proceeds and of so applying them is forever gone. That mortgage is a lien upon his property, and a claim against him personally. Thus the condition, upon which he agreed to make application of certain moneys upon the Berdan mortgage, to wit, the receipt from Comstock of the proceeds of the sale of his own mortgage, has never occurred. Ho such sale has been made, and no such proceeds have been delivered to him. This provision of the contract has become inoperative. The rights of the parties stand as if no such provision had ever been made. Hor can I perceive any basis for the application of the principle of estoppel. What has Berdan done or omitted in consequence of the acts or promises of Sedgwick? What inconsistency in the transactions between Berdan and Sedgwick could arise by permitting this defence? Where has Sedgwick promised Berdan that he would not interpose this defence ? Some of these conditions are necessary to create an estoppel. I do not perceive 'that any of them exist. The transactions were between persons other than Berdan. He was no party to the contract; and, as to Dillaye and Sedgwick, there is no pretence of even a breach of promise. The agreement of December, 1853, was one in which Berdan had no interest. It was an attempt on the part of Dillaye to guard his right to contest the Berdan mortgage; an attempt on the part of Sedgwick to protect himself against the prior lien of that mortgage. This he could do by his covenants of title; and, if Dillaye had been a man of pecuniary responsibility, that would have been sufficient. In that event, no one would claim that he had forfeited his right to contest the mortgage. He could litigate it fully, and, in the event of failure, could resort to his covenants. He could have effected the same puipose by stipulating that $1,500 in money should remain in Judge Comstock’s hands, as a deposit, until the Berdan mortgage was paid, or was adjudged to be invalid in a suit to be prosecuted for that purpose. Such a stipulation could not be construed into an estoppel against contesting the *635 mortgage, .or into an agreement for its payment. In any of these modes o'f guarding against a prior mortgage, I see nothing to prevent a pimchaser, who has obtained the whole estate of the mortgagor, not undertaking its payment, from insisting that a prior mortgage is usurious and shall not be enforced against the land he has purchased. Although not, in my judgment, an agreement to pay Berdan’s mortgage, or creating a fund for his benefit, the right of the parties to dispose of the mortgage for their own benefit, and its exercise, would end the trust, even if Berdan had been interested in the fund. (Kelly v. Roberts, 40 N. Y. R., 432.) It is said, further, that this defence is for the benefit of Dillaye, and that the respondents cannot do for him what he cannot do for himself. As judgment has gone against him in a suit where he raised this question, the inference is drawn that the present defence must go down. Generally, and as a rule, the defence of usury is made for the benefit of the original borrower. When no deduction is made on account of the existence of such a mortgage, the benefit to him is direct and positive. I have never heard that this was an objection to the raising of the question by the subsequent purchaser. On the contrary, the books are full of such cases. I have endeavored already to show that the judgment against JDillaye creates no estoppel against these respondents. That he will be an ultimate gainer by the success of the present defence, is no argument against its interposition by the respondents. In every case where there are covenants of title, the same point arises, as they afford an indemnity in case of loss. It is not necessary that the purchaser should himself be an ultimate sufferer, to justify the defence. Upon the whole case, I am for the affirmance of the judgment below.