O'Brien v. Ferguson

LeaeNed, P. J.: This action is brought, first, to restrain a statutory foreclosure of a mortgage, and, second, to compel the satisfaction thereof. The ground of relief is alleged usury. The judgment is that the mortgage is usurious, and that the defendant execute a discharge thereof. There is no injunction restraining the foreclosure. It might be that any person, owning the land, could bring an action to restrain, on the ground of usury, a statutory foreclosure, without a tender of the money borrowed. But it was a well-settled-principle of equity that when an action was brought affirmatively to obtain a; discharge of mortgage on the ground of usury, the money actually received must be tendered. This rule of equity has been altered by statute as to the borrower, and only as to him. (1 R. S., 112, § 8.) This plaintiff is not the borrower. He was not personally liable for the loan, and there is no evidence that he has become liable. He, therefore, is not within the privilege given by the statute.. (Buckingham v. Corning, 91 N. Y., 525; Post v. Bank of Utica, 1 Hill, 391.) Even the actual borrower, who has parted with the incumbered property and then has repurchased it, is no longer the borrower under the statute. And that is the condition of this plaintiff, in the view most favorable to him. (Schermerhorn v. Talman 14 N. Y., 93; Wright v. Clapp, 28 Hun, 7.) The [370] only relief then which the plaintiff should have had, if he had made out a case of usury, was an injunction restraining the statutory foreclosure. He was not entitled to this preventive remedy of a discharge of the mortgage, except on the condition of doing equity. (Fanning v. Dunham, 5 Johns. Ch., 122.) The only matter alleged in the complaint as a ground of action was usury in the mortgage. The plaintiff was allowed to show, against defendant’s objection, that about the same time he sold certain personal property to one Foland, and took back a chattel mortgage for the price, $1,130, which was done to pay off judgments on the real estate, and that he assigned that chattel mortgage to Ferguson’s agent to secure $600, of which said agent gave him $540. This transaction did not show usury in the real estate mortgage. It is not even proved that the sale of this personal property to Foland was fictitious.- The transaction in regard to the mortgage was in substance this: The plaintiff was the owner of a farm, and in April, 1873, applied _to one Silas A. Ferguson to borrow money. There were then there three -mortgages and some judgments on the farm. The jury have found that, at Ferguson’s suggestion, the plaintiff conveyed his farm to James P. Foland, and Foland executed to plaintiff a bond and mortgage for $2,700, and that the plaintiff assigned said bond and mortgage to the defendant for the sum of $2,430. Silas A. Ferguson at the time had money of the defendant in his possession as agent, for the purpose of loaning the same, and used such money in this transaction. There is, however, some inconsistency between the verdict and the findings of the court, for the court finds that Ferguson paid not $2,430, but $2,569.11, by paying off incum-brances on the land, all of the money being applied in that way. This transaction, took place in April, 1873, and in the same month the bond and mortgage were assigned to the defendant. He had no knowledge that the mortgage was bought at a discount until June, 1874. Silas F. Ferguson charged his brother, the defendant, $2,700 for the mortgage, or, as .he says elsewhere, he charged the $250 to his brother April, 1873. In January, 1874, Foland executed a deed to Daniel O’Brien senior, plaintiff’s father, of the aforesaid premises for the consideration of $4,000, subject to the payment by said grantee of said [371] <mortgage, amounting to $2,700 and interest thereon, which deed was duly recorded. Subsequently, in August, 1876, a deed was executed by said Daniel O’Brien, senior, to Hannah O’Brien, plaintiff’s wife, conveying said premises for the consideration of $4,000, subject to payment Toy said grantee of said mortgage, amounting to $2,700, and interest thereon, which deed was duly recorded. Subsequently, in October, 1878, a deed was executed by said Hannah P. O’Brien to Patrick Conway, conveying said premises for the consideration of $500, subject to the payment by the gramiee ■of said mortgage cmd interest, which deed was duly recorded. Subsequently, January, 1879, a deed was executed by said Conway to plaintiff, conveying said premises for the consideration of $3,000, not subject to any condition, and with warranty, which deed was duly recorded. Now, if we assume for the present that the mortgage was usurious, it is plain that Poland was the debtor, and that the mortgage was a lien on land of his. He had the right to sell the land, and on, such sale he could charge the duty of paying the mortgage on the grantee; and, if the grantee accepted the deed on the terms of paying the mortgage, the grantee had no right to assert that the mortgage was usurious. The deed from Poland to O’Brien, senior, specifies the amount of the mortgage at $2,700, and interest, and states that the deed is subject to payment by O' Brien, senior, of this mortgage. O’Brien therefore could not assert that the mortgage was usurious; because, in consideration of the conveyance, he had agreed to pay this definite sum. And that agreement was valid. The same may be said of the conveyance to Hannah, and of her conveyance to Conway. Conway, then, who was the owner of the land when the statutory foreclosure was commenced, was bound to pay the mortgage, and the mortgage was a lien on the premises in his hands. O’Brien, the plaintiff, was not then in any way liable as guarantor, or otherwise, on the bond, and he had no interest in the land. He was not the original obligor, and he had assumed no liability. When, therefore, he took a conveyance from Conway he stood in no better position than Conway stood in respect to the premises. This doctrine may be stated in another way, viz., that usury is a [372] personal defense, which may be waived by the debtor. If waived by him, it cannot be asserted by others. Foland, the debtor, waived this by his conveyance to O’Brien, senior. It cannot now be asserted by a remote grantee of O’Brien, senior. (Union Dime Savings Bank v. Wilmot, 94 N. Y., 221, at 228; Shufelt v. Shufelt, 9 Paige, 145; Sands v. Church, 6 N. Y., 347; Murray v. Barney, 34 Barb., 336.) Bnt, again, a mortgage executed for a valuable and sufficient consideration is not usurious, notwithstanding a previous agreement, with a third person to purchase it. (Dunham v. Cudlipp, 94 N. Y., 129; Smith v. Cross, 90 N. Y., 549.) The consideration of this mortgage executed by Foland to plaintiff was the conveyance by plaintiff to Foland of the premises. This was not a mortgage which had no inception until the delivery to Ferguson. If, for instance, plaintiff, without conveying his land, had executed a mortgage to Foland without consideration, in order that Foland might sell it to Ferguson and that plaintiff might receive the avails, then there would have been the case of a mortgage which had no legal inception until delivery to Ferguson, and if Ferguson had paid less than the face-the transaction would have been usurious. But that is not this case. Foland received value for his bond and mortgage, and there is no finding and no evidence whatever that he was not to pay his bond, In the language of Smith v: Cross (ut supra), O’Brien actually divested himself of all interest in the real estate, and vested his absolute title in Foland. Furthermore, he has affirmed the validity of the conveyance to him hy conveying the premises to O’Brien, senior, and by obtaining an obligation from him to pay the mortgage. It cannot then be said that Foland received no consideration for the m ort-gage, and that the mortgage was invalid until delivery to Ferguson. There is still another question. The defendant did not reside in the same place with his agent, and knew nothing of the alleged usury. The agent had the money of the defendant, and retained to his own use the,difference between $2,700 and the amount paid on the liens, $2,569.11, about $130. The defendant did not, so far as appears, get any benefit from this. It appears to have been retained by his agent by way of compensation. Indeed, the agent says that he charged his principal $250, which is more than the amount deducted. [373] The plaintiff’s counsel urges that this question should be determined according to the law affirmed by the Court of Appeals at the time the decision was rendered (1880), and says that at the time of the trial of this action the leading case was Estevez v. Purdy (66 N. Y., 446). That case does not seem to sustain the plaintiff’s position here. The doctrine of Algur v. Gardner (54 N. Y., 360), in the Commission of Appeals, is not sustained in the more recent-cases of Philips v. Mackellar (92 N. Y., 34); Van Wyck v. Waters (81 id., 352). It cannot be material to the question of usury whether the agent represented to the borrower that the bonus was for the lender’s benefit or for his' own. The question is, what was the actual truth. If the agent took the bonus for his own benefit and without the knowledge of the principal, then under Philips v. Maekellar there is no usury. And if there is no usury at the time of the transaction, subsequent acts cannot make that usurious which was not usurious in its inception. It is true that, about a year after the loan was made, this defendant learned of the alleged usury. But what could he then do ? He could not alter the agreement that had been made a year before. (Miller v. Hull, 4 Denio, 104.) He could not compel the borrower to annul the transaction. To bring an action on the mortgage and to collect interest was not held, in Philips v. Mackellar, to be such a ratification of the transaction as to make it usurious. And at the end of that opinion it is stated that the principal could not be said to have knowledge that the mortgage was usurious until the decision of the court to that effect. For these reasons the judgment should be reversed and a new trial granted, costs to abide event.