Fernan v. Doubleday

By the Court — Miller, P. J. It is insisted that the referee erred in holding that the defendant having himself proved the consideration for the extension to be usurious and void, the plaintiff may avail himself thereof, and that there was no valid agreement to extend the time of payment so as to discharge the indorser. In order to establish a defence of the character interposed in this case an agreement must be proved which is valid and binding upon the parties. In this case the consideration was a usurious one, which was not paid by the indorser and therefore it is exceedingly questionable whether under any circumstances, it being unexecuted in part, it could be made available by the defendant. In La Farge v. Horton (5 Seld., 241), the principle involved in the case at bar was discussed, and it was held, that the usurer is not allowed to show that an obligation, which he has taken in satisfaction of a prior demand, is usurious and therefore void in order to avoid the effect of such obligation as a satisfaction of'the prior demand. Ritggles, Ch. J., lays down the rule as applicable to the case, that a party to an illegal transaction is not allowed by an allegation of his own turpitude to recover back, what in pursuance of a forbidden bargain he has delivered to the other party, or in any way to avoid the bargain when once executed, and asserts what is well understood, that the borrower and not the lender may avoid a contract tainted with usury. He states the principle in these words : “In respect to this question usury must stand on the same footing as fraud. A fraudulent contract cannot bo [219] avoided by the party guilty of the fraud. A party to a fraud is estopped from setting it up, for his own advantage, but if his opponent alleges and proves it as a part of his own case, the guilty party will then be entitled to the benefit while he incurs the disadvantages resulting from such a state of things.” This case was cited approvingly in Billington v. Wagoner (33 N. Y., 31), by Davies, J., in Ms opinion. In the last case cited, the judge refers to the case of Vilas v. Jones (1 Corns., 274), and says “ that the doctrine is stated as being the opinions of Benson, J., and Jewett, Ch. J., that an agreement made by the creditor with the principal debtor, to forbear the payment of the debt in consideration of an usurious premium paid for such forbearance, is void and cannot therefore operate to discharge the action.” Unless the rule referred to has been overruled by authority, the referee was clearly right in Ms finding. Draper v. Trescott (29 Barb., 401), is cited as sustaining an adverse doctrine. This case holds that a creditor who has agreed to pay, and who actually did pay to the principal debtor, without the consent of the surety, a usurious consideration to extend the time of the payment of the debt cannot avail himself of the usury as rendering the agreement invalid; when the agreement and usurious consideration are proved by the surety, for the purpose of establishing a defence that he is discharged from liability. In the case last cited the consideration had been paid, and although Stbong, P. J., says it makes no difference in principle, whether the premium beyond the legal interest is paid down or only agreed to be paid, a remark which was not necessary for the decision of the case, I think there is a broad distinction in the authorities between a case where usury is paid and one where it is only agreed to be paid. In the first case the contract is executed, while in the last it is only executory and is yet to be enforced. The one is a verbal contract without consideration to do a certain act, while the other is an agreement actually carried into effect. This distinction is discussed with ability in Vilas v. Jones (10 Paige, 79, 80). See [220] also Billington v. Wagoner (33 N. Y., 37, 38, etc.), where the distinction between the two cases is also commented upon. Kone of the cases to which our attention has been directed, decide that where the contract is executory, and the usury has not been actually paid it is a defence, and except the intimation in 29 Barb., before referred to, it is nowhere held that a promise to pay a usurious premium is a sufficient consideration for an extension. It is quite obvious that the weight of authority is decidedly in favor of the doctrine, that where the usurious contract to extend the time has not been executed, it cannot be interposed as a defence by the surety: The judgment entered on the referee’s report must be affirmed with costs. Judgment affirmed.