Lennig's Appeal

Mr. Justice Trunkey delivered the opinion of the court, March 8th 1880. Among the facts reported as admitted are these: 1. That the mortgage for $7000 was given to Lennig et al. for $6720, which was the sum actually paid to the mortgagor; 2. That the building association make no objection to the amount of the judgment on [306] the mortgage, except for usurious interest; and 3. That there is no allegation of fraud, and the only objection to Lennig’s judgment is, “ that there had been what is known as a bonus mortgage at the rate of four per cent, discount.” Hence, the sole question is, Can a second mortgage-creditor, where there has been no fraud, defeat distribution to so much of the judgment obtained on the prior mortgage as might have been prevented against the mortgagee, had he set up a defence of usury in the consideration ? This the auditor denied, and was overruled by the court on the authority of Greene v. Tyler & Co., 3 Wright 361. That case originated prior to the repeal of the Act of March 2d 1723, was a feigned issue, awarded for what was deemed good cause, for trial of facts in dispute, and it was decided that a subsequent mortgage-creditor could attack a judgment founded on a prior mortgage, on the ground of usury. The meagre report furnishes no facts except what are stated in the opinion, and that reveals that the mere fact that usurious interest was included in the mortgage and judgment was held a fraud as to creditors. It is said, “ If a mortgagee may have an issue, what fact is more fit for him to allege than that the prior mortgage was usurious — that all the money is not legally demand-able upon it which is nominated in the bond ?” “ When creditors claim equities through their debtors, they are usually estopped by what the debtors do; but fraud never estops creditors. What Greene alleges is a fraudulent setting up of the prior mortgage for more than is due upon it. Call it usury or what you will, it is an attempt, in his view of the case, to take away from his lien, by virtue of the prior mortgage, more money than the mortgagees in that mortgage have a right to take.” Treating such fact as a fraudulent collusion against subsequent lien creditors, by all authority, they could attack the judgment collaterally. But the law of usury is not the same now as then. The Act of 1723 enacted that no person should, directly or indirectly, on any bond or contract, take for the loan or use of money, or any other commodities, above six per centum per annum ; and that if any person should receive or take more than six per centum per annum, on any bond or contract, he should forfeit the money and other things lent, one-half to the governor for use of the government, and the other half to the person who should sue for the same. Under that statute, the receipt of money on account of an usurious contract was a consummation of the offence, from the consequences of which the party could not relieve himself by a subsequent release of the excess which was usurious: Kirkpatrick v. Houston, 4 W. & S. 115. Immediately on commission of the offence, any person could sue for the penalty in a qui tam action. The taking of usurious interest was unlawful — sometimes considered fraudulent, as already seen. The Act of May 28th 1858, Pamph. L. 622, made a radical [307] change in the law, but the adjudications under the former statute were not quickly effaced from the judicial mind. In distributions it often occurred that judgments were reduced because of usury, and, in some instances, with the apparent, if not real, sanction of this court, as in Bachdell’s Appeal, 6 P. F. Smith 386, where it was done before an auditor. The real ground of such procedure was the same as the footing of the decision in Greene v. Tyler & Co., namely, the giving and receiving of usury is a fraud upon subsequent lien creditors, said taking being unlawful. As recent as Duquesne Bank’s Appeal, 24 P. F. Smith 426, the plaintiff in a judgment was enjoined from collecting any part thereof, until he entered credit for the amount of usury therein, this court saying: “ The defence is one under a statute which lays its hands upon the usury as an illegal act; contrary therefore to equity also; and it becomes the duty of all courts to maintain the law.” Still later decisions, however, have settled “ that the more fact that a debtor has paid or agreed to pay in good faith, and in the usual course of business, more than six per cent, interest, is not enough to establish a fraud upon creditors, and that the mere refusal' of a debtor to contest the claim against him does not of itself amount to such fraud; and that it is only when an usurious contract is entered into collusively as a scheme to hinder and delay creditors, that the latter have any standing to contest a judgment entered upon such usurious contract:” Wheelock v. Wood, ante, p. 298. Referring to Greene v. Tyler & Co. and Bachdell’s Appeal, the court say: “At that time the taking of more than six per cent, interest was unlawful, and subjected the lender to a penalty. It is not so now. The Act of 28th May 1858 has made a radical change in this respect.” “ It is not, therefore, now unlawful for a debtor to pay and a creditor to receive more than six per cent.” “ A man who has, in good faith, contracted to pay more than six per cent., has committed no violation of any law, and is not bound to repudiate his contract:” Appeal of Second Nat. Bank of Titusville, 4 Norris 528; see Miners’ Bank v. Roseberry, 31 P. F. Smith 309. An auditor appointed to distribute moneys cannot inquire into a judgment rendered in court, but must take it as conclusive: Dyott’s Appeal, 2 W. & S. 557. This has been the unbending rule in all judgments wherein there was no fraudulent collusion against creditors. There is no difference in legal effect between a judgment confessed, or for want of appearance or plea, and a judgment on the verdict of a jury. One is as conclusive as the other until reversed or set aside. A judgment by collusion between the parties to it, for the purpose of defrauding creditors, may be attacked collaterally by the creditors intended to bo defrauded, whether the judgment was by confession, or in default, or on a verdict. Creditors may show it is a nullity as to themselves : Clark v. Douglass, 12 P. F. Smith 408; Thompson’s Appeal, 7 Id. 175. [308] A judgment on a mortgage is a conclusive adjudication of the amount due from the mortgagor to the mortgagee, at the time of its rendition: Carlisle v. Bindley, 10 Norris 229. A subsequent mortgage or other lien creditor is bound by it till he shows fraud against himself. By reason of the change in the law respecting usury, Greene v. Tyler & Co. is not applicable to the case in hand; and we but follow the decisions directly in point in ruling that the admitted facts do not entitle the building association to the money. Decree reversed, and now it is considered and decreed that the money in dispute, $280, be appropriated to the judgment of Lennig et al. The appellees to pay the costs of this appeal and costs below which accrued subsequent to July 7th 1879.