Draper v. Trescott

T. R. Strong, P. J. The question in this case is, whether a creditor who has agreed with a principal debtor, without the consent of a surety, to extend the time of payment of the debt, for a usurious consideration paid at the time, may avail himself of the usury, as rendering the agreement invalid, when the agreement and the usurious consideration are proved by the surety, for the purpose of establishing a defense that he is discharged from his liability. It is declared by statute that all usurious contracts “shall be voidand there is nothing in the language of the statute expressly qualifying those words; neither does the statute, in express terms, prohibit the creditor in such contract, or any natural person, from alleging and proving the usury when it may be for his interest to do so. But in reference to this statute, as to all others, the courts seek to ascertain its spirit and meaning, and to so administer it as to accomplish the object of its enactment. In numerous cases effect is given to some extent to contracts infected with usury; the word void is construed to mean voidable; and restriction is imposed in regard to making the objection of usury by other persons than the party paying, or contracting to pay, the usurious premium. Many of those cases are referred to in Dix v. Van Wyck, (2 Hill, 522.) The policy of the statute of usury is the protection of borrowers against oppressive exactions by lenders. It is not essential to the promotion of this policy that other persons than the victim of the usurer, or persons standing in legal privity with him, should have the benefit of this statute; hence it is a rule well settled, that the objection of usury cannot be raised by a mere stranger to the usurious transaction. If the borrower prefers, as the best for his interest, in his opinion, oías required by a proper regard for honesty, to abide by his agreement, there does not seem to be any good reason why he should not be permitted to do so. He ought not to be compelled to accept the aid which the statute proffers, against the convictions of his judgment and conscience. The law allows — 404 — him to pay the usurious debt, and will not aid him thereafter to recall what he has paid. So he may convey property in payment and the conveyance will be valid. On the same principle, he may waive the advantage of the statute; and it is a general rule that a person may waive the benefit of a statutory, or even of a constitutional, provision made for his advantage. And if the borrower does not insist upon the statute benefit, the lender ought certainly to be held to the contract. Like the party to a conveyance in fraud of creditors, he should not be heard to urge his own violation of the law as a reason why his agreement should be pronounced invalid. The borrower may do so, because such is the design of the statute; but it contemplates no favor to the usurer. There is a close analogy between the case of a usurer, and a party to a fraudulent conveyance, in respect to the right to claim a benefit from the usury or fraud. The usurious contract is declared void by statute ; thereby, as the courts have held, meaning voidable, at the instance of the borrower and his privies. A fraudulent conveyance is declared by the statute to be void as to the creditors defrauded. The contract and the conveyance are alike illegal; but looking at the objects of the statutes, and limiting their operation to those objects, only those persons as to whom the contract or conveyance is void, can set up their illegality. It is true that an agreement of extension, in order to discharge a surety, must be a valid agreement; one which the principal debtor might enforce against the creditor, and which therefore suspends the remedy of the surety to compel payment of the debt of the principal; but a usurious agreement is valid and may be enforced against the lender, and has such an'effect upon the remedy of the surety, if the lender cannot make the objection of usury. A distinction has been suggested between cases where the lender seeks to prove the usury to avoid the effect of the contract upon the liability of the surety, and cases where the surety proves the usury in making the defense of his discharge — 405 — by the agreement; and it has been argued that if the usurer may not prove the usury for his advantage, he may have the advantage of it when proved, by the surety. But this distinction has no foundation in principle. If the borrower may set up the usury, he may prove it for that purpose; and if he cannot set it up, he cannot avail himself of it when proved by his adversary. The argument in support of the distinction is, that as only a valid agreement will work the discharge of a surety, if the evidence given by the surety proves the usury, it shows' an invalid agreement. But the answer is, as above stated, that it does not show an invalid agreement as against the usurer. If a creditor who has agreed to extend the time of payment for a usurious premium paid, should commence a suit to collect the debt, it would be making the statute of usury a sword for slaying the borrower, whom the statute was specially designed to protect, if he could not defend the action upon his agreement. The extension contracted for might be more valuable to him than all the aid offered by the statute, and yet he would be refused it, and in addition lose what he had paid for it, if he omitted for a year after the payment to bring an action to recover back what he had paid beyond the legal interest. It may be said that if the surety might avail himself of the agreement to give time for his discharge, the principal debtor might after the discharge of the surety, within a year, bring an action to recover back what he had paid; or if he had only promised to pay a usurious premium, that he might set up the usury in defense to an action on the promise, and that thus the usurer might lose both his claim on the surety and the consideration of the agreement; but the answer is, that this would be the penalty of his transgression. In the present case, the usurious premium was paid at the time of making the agreement for further time; but it makes no difference in principle, in such cases, whether the premium beyond legal interest is paid down, or only agreed to be paid — 406 — in future, The promise to pay is a simple consideration for the promise to extend, if the lender cannot set up the usury; if he can set it up, whether the usurious consideration b¿ paid, or only agreed to he paid, the promise to extend being executory, he may avoid it. In Vilas v. Jones, (10 Paige, 76,) a contrary doctrine is laid down, the agreement in the first case being held a discharge of the surety, but not in the latter. Tudor v. Goodloe, (1 B. Monroe, 322,) and Kenningham v. Bedford, (Id. 325,) are to the same effect; but the reasoning in the cases has failed to commend the distinction to my judgment. The case of Vilas v. Jones, above cited, in the court of appeals, (1 Comst. 274,) throws some light Upon the question under consideration, but does not decide it. The views of three members of the court are given, but no opinion on the subject is expressed by the court,. The case of La Farge v. Herter, (4 Barb. 346 ; 11 id. 159 ; 5 Seld. 241,) is somewhat distinguishable from the present, but essentially aids the foregoing reasoning. The decision of the court of appeals, in that case, is put upon the ground that the agreement for the satisfaction of the judgment was executed. (What is said in the prevailing opinion in that court, about the guilty party being entitled to the benefit of the usury, if his opponent alleges and proves it as a part of his own case, means simply that the usurer in such a case, as a general rule, occupies his former position. Whether he would thereafter have a remedy against the surety is not decided. The plaintiff in this case is a purchaser of the note in suit from the holder, with whom the agreement for further time was made, subsequent to the maturity of the note and the making of the agreement; and of course he took the note subject to any defense which might have been made to it in the hands of the former; and has no greater rights in respect to the agreement than the former possessed. My conclusion is, that it is not competent for the plaintiff to avoid for usury — 407 — that agreement; and that by reason of the agreement the defendant, as surety, is discharged from such liability. The judgment of the comity court and that of the justice múst therefore be reversed'. E. Darwin Smith, J. The only point presented in this case is, whether the surety is discharged from his liability by a usurious contract between the creditor and the principal debtor for the extension of the time of payment. This question was presented in several cases at the last term, and I have come in my own mind to the conclusion, as the result of all the cases cited and decided, that a contract otherwise unobjectionable,- made between the principal debtor and the creditor for the extension of the time of payment, is valid when set tip by the surety or by the debtor, to extend the time, and that it does riot lie with the creditor whó has received the consideration to allege the invalidity of the contract. He cannot be permitted at any time to set up, allege or prove that his contract is void. It is valid until the principal debtor—the borrower-elects to disaffirm it. The Usurer cannot make such election. Usury as a defense, or an affirmative ground of action, is a personal privilege confiried to the borrower alone and his representatives. (Boughton v. Smith, 26 Barb. S. C. Rep. 635.) This consideration seems to me to have been overlooked by the judges who express opibiotis ih the case of Vilas and Bacon v. Jones and others, (1 Comst. 274.) But as there were other questions in that case, arid as it does not appear, as the same is reported, that the cotirt concurred in, or put the decision on, stich opinions, I think We are at liberty to regard the point as an open one, and decide it according to our view of the question, upon principle. The argument on the other side of the question is that the surety must show a valid contract for the extension of the time of payment, to discharge hiin, and that a usurious contract is not a valid but a void contract, by statute. The error in this argument consists in holding that an usurious contract is absolutely void. The — 408 — cases under the usury laws of this state uniformly hold that the contract is valid as against all persons, except the victim of the usury; that it is voidable only at his election, and unless and until he elects to disaffirm it for the usury, it is to be held, treated and enforced every where, and as against all persons, as a valid contract. (Post v. Bank of Utica, (7 Hill, 391. 10 Wheaton, 367. 4 Kernan, 131, 2 Comst. 131. 26 Barb. 633.)