Beecher v. Ackerman — 1 Abb. Pr. 141

Majority

p. 141

BEECHER against ACKERMAN.

New York Superior Court ;

General Term, May, 1863.

Headnote

Relief against Usuby.—Dismissal of Complaint.—Pleading.

Where an usurious loan is secured by a pledge, one who purchases the thing pledged from the borrower, and agrees to pay the debt, is not a borrower within the meaning of the statute of 1837, which allows borrowers on usury to maintain actions for relief against their contracts, without paying, or offering to pay, the principal or interest.

But in an action by such a purchaser for relief from the usurious contract, the complaint should not be dismissed at the trial merely because it does. not contain an offer to pay what is equitably due • but he may have judgment for such relief, conditioned upon his making such payment, with costs.

Where, after such a transaction, the purchaser of the securities obtains a further usurious loan from the same lender, giving one note for the total amount, and pledges other property to secure the whole, the property last pledged cannot be retained by the lender as security for the original loan.

Where securities are delivered and accepted in payment of a usurious loan, with a guaranty, by the debtor, of the payment of such securities, the debtor cannot recover back the securities; but the guaranty is void, and he may compel the surrender of that.

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Appeal by the plaintiff from a judgment for the defendant, entered on the decision of Mr. Justice Babboub, after a trial before him without a jury, in March, 1862.

The action was brought by Luther Beecher against George Ackerman. On the 8th of March, 1856, Alvin Wilkins applied to the defendant, in the city of Hew York, for a loan of eleven thousand dollars, upon the representation that he had entered into a contract with The Mineral Point Railroad Company to construct its road, and it was thereupon agreed between them that the- money should be loaned to Wilkins by the defendant, at the rate of seven per cent, per annum, and one and a half per cent, per month, in addition, under the name of -a commission, amounting in all to over nine hundred dollars, to be deducted from the eleven thousand dollars at the time of the making of the loan, and retained by the defendant; that Wilkins should give his note to the defendant for the eleven thous- and dollars, payable with interest, four months from date, and should collaterally secure the same by an - assignment and transfer to the defendant of certain bonds issued by the County of Iowa, in the State of Wisconsin, to the amount of twenty-two thousand dollars, then held by Wilkins ; all of which was then done.

In June, of the. same year, the plaintiff and Wilkins, together’, called upon the defendant, and stated to him that the plaintiff had purchased the interest of Wilkins in the railroad contract, and in all his property connected with it, including the pledged bonds, and had assumed the payment of his debt to the -defendant for his loan; and, at the same time, an application was made by the plaintiff to the defendant for loans to be made by the latter to him. An agreement was thereupon made between the plaintiff and the defendant, to the effect that the latter should lend to the former sums of money, from time to time, as they might be wanted, upon the plaintiff’s promissory or stock notes, secured by the pledge of Iowa County bonds, or drafts of the Mineral Point Railroad Company, and that the plaintiff should allow and pay to the defendant two per cent, per month for the use of the money so loaned, either in money or by giving other notes for such percentage. It was also further understood between them, that the plaintiff should assume the payment of Wilkins’ note for eleven thousand dollars; and that

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the twenty-two thousand dollars of Iowa county bonds in the hands of the defendant, and subject to his lien, had been purchased from Wilkins by the plaintiff.

Under and in pursuance of this agreement, the defendant, prior tó Fovember,' 1851, loaned to the plaintiff, at sundry times, various sums of money to a large amount, receiving from him, upon the making of such loans, for the use thereof, the percentage so agreed upon, either in money or notes, and taking therefor the plaintiff’s notes, collaterally secured as agreed upon. When Wilkins’ note for eleven thousand dollars became due, that note was extended for thirty days, and again for sixty days; the plaintiff, upon each occasion, paying or accounting to the defendant for the extension, at the rate of two per cent, per month ; and upon maturity of the sixty days’ notes, a note of the plaintiff for twelve thousand dollars, payable to the defendant four months from date, was substituted in place of the Wilkins notes;—upwards of nine hundred dollars of which being for the interest upon that twelve thousand dollar note, and the difference being paid or accounted for by the defendant to the plaintiff.

In April, 1851, the twelve thousand dollar note, which had been renewed upon the same terms, for sixty days, together with another note, which had been given to the defendant, by the plaintiff, for loans made to himself under the agreement, were consolidated in one note, then given by the latter to the former at sixty days, including interest to maturity, at the rate of two per cent, per month; and in July following, a new note at sixty days, for thirty thousand dollars, was given to the defendant by the plaintiff in renewal of that twenty-eight thousand dollar note, being the amount of the last mentioned note, with interest at the rate of two per cent, per month, and the amount of a check then given to the plaintiff by the defendant for the difference, for the payment of which note the defendant then held, as collateral security, sundry bonds of the Mineral Point Railroad Company, to the amount of sixteen thousand five hundred dollars, and eleven thousand dollars in bonds of the County of Iowa, which had been put in his hands, by the plainfifij and also the Iowa County bonds for twenty-two thousand dollar’s, so originally pledged by Wilkins, making in all the sum of forty-nine thousand five hundred dollars. ■

Other loans, which may be considered as a distinct series,.

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were also made to the plaintiff by the defendant from time to time, under their usurious agreement, for which sundry notes, including interest upon the sums loaned, after the rate of two per cent, per month, were given by the plaintiff, collaterally secured by drafts drawn by the president of the Mineral Point Eailroad Company upon its treasurer, payable at future dates. In November, 1857, all the last-mentioned notes, with the interest, were found to amount to thirty-five thousand eight hundred and eighty-two dollars ; and it was then agreed between the plaintiff and the defendant, that those notes should be given up and cancelled; that the plaintiff should give his promissory note at six months to the defendant for the eight hundred and eighty-two dollars; that, for the balance, the defendant should receive from the plaintiff, and hold in absolute ownership, nine certain drafts,-dated and payable at Mineral Point, in the State of Wisconsin, drawn by the president of the Eailroad Company upon its. treasurer, and accepted by him, amounting in the aggregate, to thirty-five thousand dollars; and that the plaintiff should, by a separate instrument in writing, guaranty the payment of such drafts. The plaintiff’s notes were thereupon given up, and cancelled, the drafts were delivered to the defendant, and the guaranty executed to him. The note for eight hundred and eighty-two dollars was subsequently paid. Several months after this settlement, an agreement was made between the defendant and the Eailroad Company, whereby the time of payment of those drafts was extended by the defendant, and, in consideration thereof, the company placed in his hands further securities as collateral.

The plaintiff brought this action to procure the delivery and cancellation of his thirty thousand dollar note, and of his written guaranty, and to obtain possession of the county bonds, and the bonds and acceptances of the railroad company, on the ground of the usury in the loan. His complaint' set up, substantially, the foregoing facts; but did not allege that he has paid, or offered to pay, the principal sums loaned, and representéd by such securities, or any part of it.

The judge before whom the cause was tried held that the plaintiff could not be considered as a borrower, within the meaning of the statute, of the eleven thousand dollars loaned by the defendant to Wilkins; and that as he had not offered to repay that sum with legal interest he -was not entitled, either as the

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owner of the Iowa county bonds, deposited with the defendant by Wilkins, or by virtue of any substitution in place, or subrogation to the rights, of the latter, or otherwise, to the relief prayed for, so far as concerned that eleven thousand dollars, or the securities pledged to secure its payment; and inasmuch as that eleven thousand dollars, with the usurious interest upon it, after a certain date, was included in the note for thirty thousand dollars given by the plaintiff upon settlement, and as the collaterals placed in the hands of the defendant were held, as an entirety, as security for the payment for the whole of that note, so that the Court could not determine what part or proportion of the securities was held for the payment of the eleven thousand dollars, and what portion was intended to secure the remaining nineteen thousand dollars, even if it were proper to make such severance, the plaintiff could not in this action have any relief touching that note, or the collaterals held by the defendant as security for its payment.

In respect to the other series of loans, terminating in the transfer to the defendant of the drafts of the railroad company, the judge held that the transfer by the plaintiff to the defendant of the drafts of the railroad company to be held by him absolutely as owner ; the plaintiff’s separate written guaranty of the payment of those drafts; andthe giving up and cancelling of the thirty-five thousand dollar note, in consideration of such absolute transfer and guaranty, operated as a payment and extinguishment of that note, and terminated the relation theretofore existing between the parties as borrower and lender; and hence that the plaintiff was not entitled to the relief granted by the statute.

In accordance with this decision a judgment was entered dismissing the complaint with costs.

James C. Carter, for plaintiff appellant.

I. The plaintiff was at least entitled to a decree that the note should be surrendered and cancelled, and prosecution on it enjoined.

This point is not answered by saying that the plaintiff had a perfect defence at law to the note. This objection should have been insisted on in the answer. The defendant waived it by putting his defence upon the merits alone (Gilbert's Practice in Chancery, p. 220; Ludlow v. Simond, 2 Caines' Cases in Error, 40; Grandin v. Leroy, 2 Paige, 509 ; Fulton Bank v. N. Y. & Sharon Canal Co., 4 Paige, 132; Cumming v. The Mayor, &c., 11 Paige, 596 ; Hawley v. Cramer, 4 Cowen, 726; Under-

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hill v. Van Cortlandt, 2 Johns. Ch., 339 ; Truscott v. King, 2 Seld., 147; Leroy v. Platt, 4 Paige, 77 Wiswall v. Hall, 3 Paige, 313).

II. He was also entitled to a decree to the same effect in reference to the written guaranty and his own note for eight hundred and éighty-two dollars.

HI. The plaintiff is certainly entitled to a decree, that the county bonds, and the railroad mortgage bonds pledged by himself to secure the payment of the moneys borrowed by himself from the defendant, should be restored to him, or that the defendant account to him for the proceeds, or the value of them, in case he has parted with them.

IV. Without reference to the provisions of the Revised Statutes, or the Act of 1837, but upon the general principles of equity, a court of chancery would never have imposed upon the plaintiff as a condition of granting him its relief in respect of the particular securities which he himself had pledged to secure the loans to himself, the payment of what was due on the Wilkins loans. A multo fortiori should such a condition not now be imposed.

V. But the plaintiff was entitled to a decree for the cancellation of the thirty thousand dollar note of July 30th, 1857, and the surrender of all the securities mentioned in it, for the reason that he was the “ borrower ” as to all the loans embraced in it. And this on the assumption that the Wilkins loans were never, in fact, paid.

1. The term “ borrower,” in the provisions of the R. S. and in the statute of 1837, is to be construed to embrace a surety liable on the original contract.

This construction proceeds upon the reasonable ground that term “ borrower ” is used as the correlative of “ lender ” to indicate the party liable on the contract. (Perrine v. Striker, 7 Paige, 598 ; Cole v. Savage, 10 Id., 583 ; Post v. Bank of Utica, 7 Hill, 391 ; Morse v. Hovey, 9 Paige, 197; Hungerford’s Bank v. Dodge, 30 Barb., 626 ).

VI. But further, the plaintiff was the “ borrower ” as to all the loans embraced in the thirty thousand dollar note, in the strictest and narrowest sense which can be given to that term.

VII. If it were necessary for our purpose to maintain that the loan to Wilkins was in this manner actually paid, we should not hesitate to do so. Should the defendant now bring

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an action against Wilkins in any form for the amount of the eleven thousand dollars, a plea of payment would be abundantly sustained by proof of the facts found by the Special Term.

VIII. We may concede that by the transaction of November 2d, 1857, the relation of borrower and lender between the plaintiff and the defendant, as to the loans made on the acceptances, was terminated ; but this makes the conclusion, which we think has been entirely established on other grounds, quite irresistible, namely, that the Wilkins loan was extinguished by the transaction of October 15th, 1856, and that by necessary consequence, the plaintiff was the “ borrower ” as to all the loans embraced in the thirty thousand dollar note of July 30th, 1857, and is entitled to have it cancelled, and to have the securities pledged for its payment restored, and an account of the proceeds or value of such as the defendant has parted with.

■ IX. It follows from this, that the judgment appealed from should be reversed; and as this result is reached without questioning the conclusions of the Court below on matters of fact, the plaintiff is entitled to a decree to the above effect, without a new trial (Marquat v. Marquat, 12 N. Y. [2 Kern.], 336 ; Hannay v. Pell, 3 E.D. Smith, 432).

David Dudley Field, for defendant respondent.

I. There are two fundamental rules of courts of equity, which should prevent the plaintiff from recovering in this action:

The first is, that when a plaintiff seeks equity, he must first do equity; and the second, that he cannot come into equity, if his remedy is complete at law (1 Story’s Equ, Jurisp., § 33, 49, 64, e.; Willard’s Equ. Jurisp., 44 to 49).

II. The statute of 1837 does not give a right to come into a court of equity if there was no right before. It only dispenses, in favor of a borrower, with one of the conditions on which he could obtain relief, that is to say, that one which required him to offer to repay the money borrowed, before he could obtain a recognition from the court (Act of 1837, chap. 430, § 3, 4, 5; Minturn v. The Farmers’ Loan and Trust Co., 3 Coms., 498; referring to and approving Perrine v. Striker, 7 Paige, 598; Morse v. Hovey, 9 Paige, 197; Post v. Bank of Utica, 7 Hill, 391 [approved, 2 Coms., 131], in which the

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contrary decision in the case of Cole v. Savage, 10 Paige, 583, is overruled ; Boughton v. Smith, 26 Barb., 635 ).

III. As to the eleven thousand dollars, borrowed by "Wilkins, the plaintiff is, by his own showing, not a borrower. ' He is therefore not within the statute of 1837, and must do equity, if he would have equity. To the extent, therefore, of eleven thousand dollars, with the interest on it, the plaintiff can sustain no action here without offering to repay. And inasmuch as that sum is included in the thirty thousand dollar note, and he made no offer of repayment, he was properly denied relief as to that note (Rexford v. Widger, 2 Comst., 131 ; Sands v. Church, 2 Seld., 347; Schermerhorn v. Talman, 14 N. Y., 126 ; Curtis v. Leavitt, 15 Id., 254 ).

IV. If the plaintiff’s allegations were true, he had a perfect defence against any action which could be brought against him, and a right, by a legal action, to recover back any of the securities if the pledge of them was really illegal (Causland v. Davis, 4 Bosw., 619 ).

In such actions the parties would not lose their constitutional right of trial of jury (Schroeppel v. Corning, 2 Seld., 107).

When this action was brought, the thirty thousand dollar note and the thirty-five thousand dollars of acceptances had been long past due, and therefore could not be passed, so as to give a holder any new rights. This consideration of itself was sufficient for dismissing the complaint (Folsom v. Blake, 3 Edwd. Ch. R., 442 and 445 ; Vilas v. Jones, 1 Coms., 278).

V. The nine acceptances being dated and made payable in Wisconsin are governed by the laws of that State (Berrien v. Wright, 26 Barb., 208 ; Cutler v. Wright, 22 N. Y., 474 ; Potter v. Tallman, 35 Barb., 182 ), and by that are presumed to be valid. If that lawprohibited them, it should have been proved.

VI. These acceptances being, moreover, given in payment, cannot be recovered back.

VII. The plaintiff’s guarantee given for these acceptances must follow the fate of the principal obligations (Scott v. Johnson, 5 Bosw., 213 ).

VIII. The same rule applies to the county and second mortgage bonds held as collateral for the note. If the note cannot be obtained by the plaintiff in this action, neither can the col-laterals.

I. The eleven thousand dollars first loaned were borrowed by Wilkins; Beecher was not originally connected with the loan as principal, agent, or surety. The plaintiff, subsequently to the loan, bought of Wilkins the interest of the latter in the contract to construct the Mineral Point Railroad; and the securities originally pledged to secure the payment of the eleven thousand dollars, and assumed the payment thereof, and so informed the defendant.

The plaintiff, therefore, was not, in fact, a borrower from the defendant of the eleven thousand dollars; nor is he a borrower of it within the meaning of the Act of 1837 (chap. 430 ; Schermerhorn v. Talman, 14 N. Y., 93 , 126, 131).

He cannot reclaim those securities without paying the eleven thousand dollars and interest thereon; and by assuming the payment of it, as part of his contract of purchase, is personally liable to pay it (Hartley v. Harrison, 24 N. Y., 170 ; Burr v. Beers, Id., 178 ; and see Murray v. Judson, 5 Seld., 73).

H. The complaint should not have been dismissed at the trial merely because it did not contain an offer to pay the eleven thousand dollars. The plaintiff was entitled to a judgment that, on paying that sum with interest and the costs of the action, the securities originally pledged for the payment of it should be surrendered to him (Schermerhorn v. Talman, supra, 129, 142 and 143).

HE. The securities subsequently pledged, as well to secure a usurious loan made at the time of the pledge, as the original loan of eleven thousand dollars, cannot be retained as security for the payment of the eleven thousand dollars. The taint of usury destroys the whole security; makes the contract void in toto, and in every of its parts. The plaintiff has an unqualified right to a restoration of all such securities (Rice v. Welling, 5 Wend., 595 ; Jackson v. Packard, 6 Id., 415; Hammond v. Hopping, 13 Id., 505). The cases last cited are decisive, that the note for thirty thousand dollars is void. It should be given up.

IY. There is no consideration for the guaranty except the usurious loans, in payment of which the acceptances to which the guaranty relate, were received. The acceptances themselves being delivered and accepted as payment, the defendant has a right to retain them. The obligation or note of the plaintiff for the sum thus paid, if received alone, would be

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clearly void under the decisions above cited. It is difficult to perceive that a' guaranty of the payment of the notes, received in payment, is not as clearly void. That must be surrendered.

The judgment must be modified to conform to these views, and, as thus modified, affirmed. If the parties cannot agree what securities were originally pledged to sécure the payment of the eleven thousand dollars only, so as to specify them in the judgment to be entered hereon, there must be a reference to ascertain and identify them.

No costs of this appeal will be given to either party. Neither party has wholly succeeded on the appeal.