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Griggs v. Howe

2 Abb. Ct. App. 291 Court N.Y. English

Delivered by Peckham, J.

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p. 291
GRIGGS v. HOWE.
September, 1866.

Headnote

Affirming 31 Barb. 100 .
Under an answer alleging usury at a rate equivalent to about two per cent, a month, proof of usury at about four per cent, a month is a material variance, if the plaintiff be misled thereby.
A party whose evidence is objected to for variance from his pleading, waives his right to require proof that the objecting party has been misled, if he does not insist upon it at the trial.
Where a creditor recovers judgment on a collateral security for his debt, and succeeds in collecting a part of the debt, it is proper to deduct from the proceeds a reasonable counsel fee, especially if attorney’s fees were not included in the judgment, before applying the balance to the extinguishment of the principal debt.
George M. Griggs, Miles W. Bennett and William L. Lothrop sued Otis B. Howe, S. T. Arnot, E. G. Herrick and H. H. Howe, in the supreme court, on defendants acceptances of two bills of exchange, drawn by H. L. Webb, for one thousand two hundred and fifty dollars each, dated June 9, 1855, and accepted by the defendants under the name of Otis B. Howe & Co.
The answer among other defenses set up usury and alleged that plaintiffs had in one contract discounted the drafts at the rate of two per cent, a month, or twenty-four per cent, a year, and that the illegal interest thus taken was one hundred and twenty-five dollars.
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On the trial it was proved that the drafts were drawn and accepted in blank as to the amount, under an agreement that they were not to be filled up for an amount exceeding one thousand dollars.
Webb, the drawer, afterward filled them up with the sums of one thousand two hundred and fifty dollars each, and negotiated them to the plaintiffs before maturity. The evidence respecting this negotiation of the drafts offered on the trial went to show that plaintiffs discounted them at the rate of one-eighth of one per cent, per day, or about twice the discount alleged in the answer.
The defendants also proved that they had transferred to plaintiff a note made by others, for two thousand dollars, as security for these drafts, and that plaintiffs had sued on this note, and collected by judgment and execution over one thousand nine hundred dollars, of which they were bound by their agreement to apply the net proceeds to the payment of the drafts. To meet this evidence plaintiffs proved that the total proceeds of the sale on execution were one thousand nine hundred and twenty dollars and seventy-four centsthat their attorneys received one thousand five hundred and ninety-eight dollars and seventy-six cents, and paid over to plaintiffs one thousand four hundred and ninety-eight dollars and seventy-six cents, reserving one hundred dollars for their own fees, as they had entered the judgment without waiting to tax costs.
At the close of the evidence defendants asked leave to amend them answer to conform it to the evidence as to the amount of usury. The court, after hearing both sides (plaintiffs objecting on the ground that they were surprised), granted the motion on condition that the cause go over, &c., which defendants refused to accede to, and the court submitted the case to the jury.
The judge charged that failure to prove the usurious agreement as alleged in the answer was a failure to prove that defense. Proof of usury was not a substantial proof of the particular allegation in the answer, and that accepting the drafts for the purpose of taking up outstanding paper on which defendants were indorsers, was not accepting for accommodation merely; and that if plaintiffs were Iona fide holders, the drafts
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were not void because of the excess in filling them up. Plaintiff had a verdict and judgment.
The supreme court, at general term, held, that defendants, in pleading usury, were bound to set up in their answer the terms of the usurious agreement, and the amount of the usurious premium or interest taken by the lender, and that the usury must be proved as set up in the pleading. They also held that the terms imposed by the court as a condition of amendment were just, and in answer to defendant’s objection that the judge erred in imposing conditions of amendment since there was no legal proof offered that defendants had been surprised or misled, the court said that plaintiffs had waived that objection by failing to take it at the trial, in which case the proper proof might have been made by affidavit. In reference to the alteration in the notes made by Webb, the court held that this would not invalidate the notes in the hands of plaintiffs, who were holders for value, and that the acceptors having themselves put it into Webb’s power to do the wrong, they could not be allowed to shift the loss from themselves, and cast it upon a bona fide holder for value. (Reported in 31 Barb. 100 .) Defendants appealed to this court.
John II. Reynolds, for defendants appellants;
That there was no variance under the code between the proof and the answer, cited Catlin v. Gunter, 11 N. Y. (1 Kern.) 368; Fay v. Greensteed, 10 Barb. 321 ; Dugal v. Summers, 23 N. Y. 491 . Plaintiffs, having come into possession of the notes under a corrupt and usurious agreement, cannot be regarded as bona fide holders. The sheriff’s claim for rent and auctioneer’s fees was without semblance of law, and there was no evidence to show that the retention of one hundred dollars by the plaintiffs’ attorney was proper. For aught that appears they might with equal propriety have retained one thousand dollars.
Waldo Hutchins and Lyman Tremain, for plaintiffs, respondents;
That the variance was material, cited Manning v. Tyler, 21 N. Y., 567 . That it could not be now objected that there was no proof that plaintiffs had been misled. Brown v. Cayuga & Susq. R. R. Co., 12 N. Y. (2 Kern.) 486. The filling up of
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the drafts hy Webb for a larger amount than he was authorized to do is no defense against the plaintiffs if they are bona fide holders. Mitchell v. Culver, 7 Cow. 336 , and cases there cited.

The only questions presented in this case arise upon the charge, and the refusal to charge, of the judge. His refusal to charge that the answer was broad enough to admit the defense of usury I think was right. The answers set up that the interest deducted by the plaintiffs, by agreement on discounting the two drafts, was one hundred and twenty-five dollars, which was at the fate of two per cent, a month, or twenty-four per cent a year for the time the draft had to run. The proof showed that the drafts were discounted at different times, and hy several separate contracts, and at a rate of interest of about one-eighth of one per cent, a day. The amount received by the drawers on the discount of both or either of the drafts the witness could not state, as he did not recollect the date of either discount.

There was certainly some variance. Two several contracts • set up as one, and there was a large difference in the amount of interest reserved, between the proof and the answer.

The defendant’s counsel seemed at first of the opinion that the variance was material, and they asked “permission to amend the answers to conform to the facts,” in reference to the amount of usury taken.

The court granted the motion upon terms, which the counsel declined to accept, and then insisted that the answers were sufficient without amendment.

Prior to the Code this variance would have been fatal to the defense of usury in • any court. Catlin v. Gunter, 11 N. Y. 368 , 373; Hew Orleans Gaslight Co. v. Dudley, 8 Paige, 452, 457; Morse v. Cloyes, 11 Barb. 100 ; Cloyes v. Thayer, 3 Hill 564 , 565.

The Code provides a new rule as to the question of variance; it declares that “no variance between the allegation in a pleading and a proof shall be deemed material unless it has actually, misled the adverse party to his prejudice in maintaining his action or defense upon the merits.” Code of Pro. § 169.

The plaintiffs in this case claimed to have been actually

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misled to their prejudice. It was not insisted by the defendants that any proof thereof should have been given to the court, as required by the Code, but without objection it was apparently assumed that the statement was true, and on that assumption the amendment was granted upon terms, and no objection or exception was made or taken by the defendants. It is too late to object now either to the absence of proof of being misled or to the decision of the court as to the terms upon which the amendment was allowed.

In the absence of any objection to the want of proof of being misled, it must be assumed that the parties assented to the truth of the statement, and to the propriety of a decision being made without such proof. The defendants had the legal right to demand the proof as the' Code provides, or they might.waive the strict proof and accept a statement of counsel in lieu of proof, nor was any objection or exception taken to the decision of the court on the application to amend. Of course that decision cannot be reviewed.

It was then legally decided that this was a material variance under the Code. The proof to establish the defense of usury was, therefore, inadmissible under this answer.

The defendants insist here, that these drafts-having been filled up by the drawer for sums larger than he was authorized to do by the acceptors, are void as against any but bona fide holders, and that the plaintiffs are not bona fide holders, hfo such point was taken at the trial.

On the contrary, the defendants insisted there, in various forms, that the drafts, under the circumstances, were forgeries, and were absolutely void. To the charge of the court that they were not void, but valid in plaintiffs’ hands, if the plaintiffs were bona fide holders, the defendants excepted, though their counsel here properly concedes that the proposition was legally

The court, so far as the case shows, did not direct a’verdict. It must be presumed, in the absence of any evidence to the contrary, that the court decided properly and charged legally. Indeed, if the charge or decision were otherwise, and no exception taken, this court could not review it or reverse for any

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such cause. This court can only review such decisions of a trial court as are excepted to.

It is insisted here that the plaintiffs are not bona fide holders; whether they were or not, under the evidence, is an interesting question.

The question of usury, as such, with all its penalties, is out of the case.

It seems to me quite clear that a party may be a bona fide holder of commercial paper void for usury, and he may recover upoñ it, provided the usury is not pleaded.

If a note, usurious in its inception, in the hands of A., the payee who had exacted and received usurious interest on its discount, were then before its maturity passed to B. for full value advanced in the ordinary course of business, I think B. would be a bona fide holder, and would recover unless usury were pleaded. - '

Banks are in the daily habit of discounting notes for their customers, without a word of inquiry as to the origin or consideration of the note; occasionally they may take a note void for usury, or by the statute against betting and gaming, still I think it cannot be denied that they are bona fide holders. Yet, even such holders cannot recover upon paper void for usury, or as given for a gaming debt, if such defense be pleaded. If not pleaded, as in the case at bar, but some other defense is relied. upon, the bona fide character of the holder would exclude that defense, unless it made the paper void.

If the holder himself had intentionally taken usury, I agree that he could not be deemed a holder in good faith. Such are the cases of Ramsdell v. Morgan, 16 Wend. 574 ; Dean v. Howell, Hill & D. Supp. 39; Keutgen v. Parks, 2 Sandf. 60 .

But suppose the holder did not give the full amount of the draft in purchasing, does it necessarily follow that he cannot be a bona fide holder F

Had these drafts been accepted for value, of course they could have been legally sold at any price. Had the drawer so represented them by the authority of the acceptors, they could have been sold as any other chattel and the parties estopped from setting up usury. Holmes v. Williams, 10 Paige, 326.

Suppose the holder purchased the drafts at a usurious rate

p. 297
of interest, in the honest conviction that they were business paper, but without any such representations by the drawer, would he then be a Iona fide holder ? There are authorities in the affirmative. Gould v. Segee, 5 Duer, 260 , 270; Mechanics’ Bank of Williamsburgh v. Foster, 44 Barb. 87 .

Such may have been the purchase in this case. The facts disclosed on the trial leave it uncertain. The only proof by the defendants simply showed that the drawer “negotiated these drafts to the plaintiffs,” and the amount he received for them. The plaintiffs offered to prove “ statements made to plaintiffs by the drawer at the time of the transfer,” which the court rejected on the defendants’ objection; although it is quite clear that the transaction between the parties was usurious, and the drafts would have been void for that cause had that defense been pleaded.

Possession of these drafts by the drawers was prima facie evidence of ownership for a good consideration. James v. Chalmers, 6 N. Y. (2 Seld.) 209.

Had the plaintiffs a right to rely upon this, or upon any other evidence of a like tendency, and purchase the drafts at their fair market value, subject only to the peril of usury if they were not business drafts and usury were pleaded P

To constitute a party a Iona fide holder, it is now only necessary that he should have taken the paper for value advanced in in the ordinary course of business. He is not bound to make inquiries, nor to act upon circumstances which would put an an ordinarily careful man upon inquiry, unless they are of such a character as to impeach the honesty of the holder. Gross negligence, even, has been held insufficient to impeach his holding, “where a party has given consideration for the bill.” Goodman v. Harvey, 4 Ad. & E. 870; Belmont Branch Bank v. Hoge, 35 N. Y. 65 , and cases there cited.

I do not deem the decision of this point necessary to the determination of this case, and therefore express no opinion upon it.

The only other ground of error urged is, that the court allowed a deduction from the amount of the proceeds of the judgment upon the security assigned to the plaintiffs “ beyond the legal poundage and fees of the sheriff.”

p. 298
The gross amount proceeds of the notes were one thousand nine hundred and twenty dollars and seventy-four cents. From which were deducted by the sheriff:

For auctioneer’s fees,...... $108 79

Rent, ........118 57

Sheriff’s bill,....... 94 64

Attorney’s fees, . . . . „ . 100 00

$421 98

No special objection to any particular item was made, only the judge was requested to charge that no deduction could be made “ beyond the legal poundage and fees of the sheriff.” Therefore, if either or any part of either of the other items might properly be deducted, the objection fails.

In entering up the judgment no attorney’s fees were included* and the judgment was not all collected, from insufficiency of property. It was entirely proper, then, to deduct a reasonable compensation for the attorneys; not entirely to be governed by the fee bill, but a sum proper as between attorney and client.

The judgment should, therefore, be affirmed, with costs.

All the judges concurred, except Smith and .Htxmt, JJ., and except Porter, J., not voting.

Judgment affirmed, with costs.

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