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Knickerbocker Life Insurance v. Hill

16 Abb. Pr. 321 Court Supreme Court, Second Department, Second District, General Term, English

Delivered by Tappett, J.

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KNICKERBOCKER LIFE INSURANCE COMPANY against HILL.
Supreme Court, Second Department, Second District, General Term,
February, 1875.

Headnote

Usury.—Mortgage.—Mechanics’ Lien.
The purchasers at the foreclosure sale under a mechanics’ lien, which attached subsequently to the record of a mortgage of the same estate, may set up as a defense in a suit for the foreclosure of the mortgage, usury in the transaction on which the mortgage is founded.
The practice on proving bond and mortgage discussed by counsel, citing cases.
The powers of life insurance companies to make loans considered by counsel, citing the authorities.
The Knickerbocker Life Insurance Company brought this action against Charles A. Hill, Curtis L. North, Thomas Tremonger, George Tremonger, William Tremonger and others, in March, 1874, in this court, to foreclose a mortgage made by the defendant Hill, to the plaintiff, and recorded in December, 1872, as collateral security for the payment by Hill to the plaintiff of the sum of six thousand dollars on January 1, 1874, with interest thereon until paid.
The complaint in addition to the above facts alleged the guaranty by the defendant North of such payment.
The defendants Tremonger, answering, set forth that a notice of a mechanics’ lien in their favor, on the premises in suit, was duly filed by them on September 6, 1873, and that they then commenced an action for the foreclosure of that lien against the defendants Hill and
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North, in which they obtained judgment, and under the judgment bought in the interest of Hill and of North. The defendants Tremonger furthermore alleged that the transaction between the plaintiff and Hill and North was usurious, and that the mortgage was void for usury.
. They also set up that the act of the company in making the loan was ultra vires, in that the property on which the mortgage was taken, was not worth fifty per cent, more than the sum for which it was alleged to have been taken as security.
The cause having been referred, at the trial plaintiffs put in evidence the bond and mortgage, which last named instrument had been duly acknowledged and recorded.
Defendant’s counsel objected to the admission of the mortgage in evidence till the bond was duly admitted ; and to the admission of the bond before the execution thereof was proved by the attesting witness.
Objections overruled and bond and mortgage received. Defendants except.
The defendants offered to prove that the loan was really for the sum of fifteen hundred dollars, and that at the time it was made, which was before the building on which the mechanic’s lien attached was upon it, the lot was worth only seven hundred and fifty dollars, and that the value of the property mortgaged in its present state was far less that six thousand dollars. The referee refused to admit evidence to prove the defenses of usury or ultra vires. Defendants except.
It appeared that plaintiff was not made a party to the action to foreclose the mechanics’ lien, and that the sale was made subject to prior liens as is the usual practice.
At the close of the testimony defendants’ counsel moved to dismiss the complaint on the grounds;
That there was no proof of the bond.
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That the property was not worth six thousand dollars, and so the contract founded on it was void.
That the lot before the building was on it was worth only seven hundred and fifty dollars, and so that the loan of even fifteen hundred dollars thereon was void.
That the mortgage was given for a usurious considertion ; and upon other grounds.
The referee denied the motion and defendants excepted.
The referee reported in favor of the plaintiff, and on this report judgment was entered.
The defendants had also excepted to report alleging among the grounds of exception, error in that the referee had refused to find what was the value of the lot of land, and what consideration was paid for the bond and mortgage on which the action was founded, and other facts to sustain the defenses of usury and ultra vires.
They now appeal from the judgment.
John 3. Bergen and Philip Beilly, of counsel for the defendants appellant {John B. Kuhn, attorney).—
The mortgage should not have been received in evidence until after proof of the bond (Jackson v. Blodget, 5 Cow., 202 ; Jackson v. Willard, 4 Johns., 43 ; Langdon v. Buel, 9 Wend., 83 ; Runyan v. Mesereau, 11 Johns., 534 ; Jackson v. Bronson, 19 Id., 325; Broom's Legal Max., 360; Green v. Hart, 1 Johns., 580 ; Rose v. Baker, 13 Barb., 230 ; Parmele v. Dann, 23 Id., 461; Cooper v. Newland, 17 Abb. Pr., 342 ; Merrit v. Bartholick, 36 N. Y., 44 ). The plaintiff should have called the attesting witness to prove the execution of the bond ; or have shown that such witness could not be produced, or was incapable of being examined (Hodnett v. Smith, 41 How. Pr., 190 ; 2 Phill Ev., 386, 394; Cow. & Hill's Notes, 424-428; Holledeck v. Fleming, 6 Hill, 303 ; Story v. Lovett, 1 E. D. Smith, 153; Borst v.
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Empie, 5 N. Y., 36 ; 1 Greenl. Ev., 572 ; Jackson v. Gager, 5 Cow., 383 , and cases cited ; 1 Selwyn’s N. P., 561, 562). The mortgage is null and void since the contract on which it is based was ultra vires of the company (Collins v. Blantern, 2 Wils., 347 ; Nickelson v. Wilson, 4 Supm. Ct. [T. & C.], 105; Broom's Com., 354-385; U. S. Bank v. Davis, 2 Hill, 451 ; Smith v. Strong, Id., 241 ; Paxton v. Popham, 9 East, 408; L. 1866, p. 1132, ch. 525, § 1; L. 1853, p. 889, ch. 463, § 8 ; L. 1849, p. 441, ch. 308 ; Leavitt v. Palmer, 3 N. Y., 24 , and cases cited ; 1 R. S, 600, § 1, subd. 3 ; 2 Kent's Com., 291, 298; 5 Am. L. Rev., 272 ; Brady v. Mayor of N. Y., 20 N. Y, 48 , 49, 312 ; Morris v. City of Lawrence, 98 Mass., 219 , 221; Cowen v. Village of West Troy, 43 Barb., 48 ; McSpedon v. Mayor, 7 Bosw., 601 ; Donovan v. Mayor, 33 N. Y., 291 ; Brady v. Bullard, 55 Ill., 414 ; Brice on Ultra Vires, 27; Osgood v. Toplitz, 3 Lans., 184 ; 2 R. S. 142, § 1; Olmsted v. Elder, 3 N. Y., 144 ; Beatty v. Marine Ins. Co., 2 Johns., 114 ; Hodges v. City of Buffalo, 2 Den., 110 ; Ang. & Ames on Corp., 239; Mechanics’ Bank v. N. Y. & N. H. R. R. Co., 13 N. Y., 618 ; Starin v. Town of Genoa, 23 Id., 454 ; Gould v. Town of Sterling, Id., 463 ; Buffett v. Troy & Boston R. R. Co., 40 Id., 178; Commonwealth v. Erie & N. E. R. R. Co., 27 Penn., 355 ; Marbury v. Madison, 1 Cranch, 176 , per Marshall, C. J. ; Bissell v. Michigan L. R. R. Co., 22 N. Y. 258 , 276, per Comstock, J. ; Taylor v. C. & M. R. Co., 5 Am. Law Rev., 276 ; East Anglian R. Co. v. Eastern R. Co., 5 Id., 274 ; Buffett v. Troy & Boston R. Co., 40 N. Y., 178 , and note; Tracy v. Talmage, 14 Id., 162; N. Y. & N. H. R. R. Co. v. Schuyler, 34 Id., 30). The referee erred in refusing to allow proof of the defense of usury (Dix v. Van Wyck, 2 Hill, 522 ; Morris v. Floyd, 5 Barb., 130 ; Brooks v. Avery, 4 N. Y. [4 Comst.], 225 ; Mole v. Savage, Clarke Ch., 361; Bardwell v. Howe,
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Id., 281 ; Gatlin v. Gunter, 11 N. Y., 368 ; Schermerhorn v. Talman, 14 Id., 108 ; Bank of Salina v. Alvord, 31 Id., 478 ; Bullard v. Raymor, 30 Id., 200; Mason v. Lord, 40 Id., 486 ; Thompson v. Van Vechten, 27 Id., 568 ; Merchants’ Exchange Bank v. Com. W. Co., 49 Id., 636, 639; Dry Dock Co. v. Am. Life Ins. Co., 3 Id. [3 Comst.] 344, 361). The issues were fixed by the pleadings and referred to be tried. It was therefore error for the referee to refuse proof of the defenses interposed (Hammon v. Terry, 3 Lans., 186 ; Hunt v. Chapman, 51 N. Y., 555 ; Ayers v. O’Farrell 10 Bosw., 143 ; Waddell v. Darling, 51 N. Y. 327 ; Winterson v. Eighth Av. R. R. Co., 2 Hilt., 389 ; Ludington v. Taft, 10 Barb., 447 ). The defendants are not estopped from interposing any defense (Candee v. Lord. 2 N. Y. [2 Comst. ], 269, 276).
H. W. JoTisnon, of counsel for the plaintiff respondent {Johnson & Qantine, attorneys).
It is not claimed by the defendants that they performed any labor or furnished any materials before the mortgage was recorded. There is no allegation that either of the Hills or North had any interest in the property at the time the mechanics’ lien was filed. The plaintiff was not made a party to the action to foreclose the lien. The property must, therefore, be sold subject to the prior incumbrance, and was in fact so sold {L. 1862, ch. 478, p. 951, § 12). One who has had the benefit of a contract with a corporation can not question the validity of the contract by impeaching the capacity of the corporation (Steam Nav. Co. v. Weed, 17 Barb., 378 ; Silver Lake Bank v. North, 4 J. C. R., 370; Bissell v. Mich. So. R. R. Co., 22 N. Y, 259 , 262 ; Parish v. Wheeler, 22 Id., 494; Ang & Ames on Corp., § 256, note [9th ed.] Vt. & Canada R. R. Co. v. Vt. Central R. R. Co., 34 Vt. 2 ). The defense of usury is not avaible, since the defendants were not parties to the
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loan, and had no interest in the property at the time the mortgage was made (Post v. Bank of Utica, 7 Hill, 391 ; Rexford v. Widger, 2 N. Y. [2 Comst.], 131; Chamberlain v. Dempsey, 36 Id., 144, 148 ; Ohio, &c., R. R. Co. v. Kasson, 37 Id., 218). The plaintiff’s counsel also relied on some of the cases cited on this point in behalf the defendants. The recital of the execution of the bond contained in the mortgage which was duly acknowledged, estopped not only the mortgagor but all claiming under him from denying the execution of the bond (Cooper v. Newland, 17 Abb. Pr., 342 ; Skinner v. Smart [at Gen’l Term, 2nd Jud. Dist. March, 1862] ; Jackson v. Halstead, 5 Cow., 216 ; 1 Cow. & Hill’s Notes, 380).

By the Court.[1]

This is an appeal by certain of the defendants from a judgment entered upon the report of a referee in favor of the plaintiff in an action for the foreclosure of a mortgage.

The only questions which will be considered in this opinion, are whether the defendants Tremonger had acquired an interest in the mortgaged premises which entitles them to question the validity of the mortgage, and whether the defense of usury set up in their answer is available to them as subsequent incumbrancers or purchasers of the premises.

The complaint avers a mortgage made by the defendant Charles A. Hill, a guarantee thereof in writing by the defendant Curtis L. North, and that the defendants therein including the defendants Tremonger, who defend this action, have or claim some interest or lien in the mortgaged premises which lien or interest if any accrued subsequent to the lien of the mortgage,

* Present, Babnakd, P. J., and Tappbn J. (Donohue, J., sat at the argument, but was not present when the opinion was handed down.)

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and the usual judgment of foreclosure and sale is sought.

Among other matters set up by the defendants Tremonger in their answer, is an averment, that they furnished labor and materials towards the erection of a house on the premises, that they filed a builder’s lien on September 6, 1873, that they foreclosed the lien and had judgment on February 34, 1874, and a sale thereunder whereby they became the purchasers and owners of all the right, title and interest of the defendants Hill, North, &e. ; they further aver, that the mortgage in suit was usurious, and specify the usurious agreement, and ask judgment for the cancelation thereof. At the trial the referee ruled that the defendants had no right to interpose the defense of usury, and that no testimony to establish it would be received, and the defendants excepted.

The referee also refused to allow them to show that they went into possession under the deed made on the sale under the judgment foreclosing their builder’s lien. It appears by the testimony that the defendant Curtis L. North was at one time owner of the premises, that conveyance went from him to Hill, and that Hill mortgaged to the plaintiff.

The facts show that the defendants Tremonger had acquired by operation of law, and not strangers, an interest in or lien on the premises entitling them to question the plaintiff’s mortgage, and the defense of usury is available to them.

The case of Cavan v. Kelly (3 Alb. Law Jour., 373) holds that an execution creditor having a levy, may avoid a prior chattel mortgage for usury; and that such defense is available is also held in Dix v. Van Wyck ( 3 Hill, 522 ) ; Thompson Van Vechten ( 27 N. Y., 568 ).

In Williams v. Tilt ( 36 N. Y., 319 , 325), quoting Post v. Dart (8 Paige, 640), it is said a mere stranger

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can not insist on the invalidity of an usurious security, but it may be set up by one claiming under the mortgagor.

In Mason v. Lord ( 40 N. Y., 476 , 488), it is held, that a judgment creditor having a lien upon the property, has a right to avoid a mortgage prior to his lien by showing it usurious—numerous authorities are quoted at the foot of this case as to what parties may and what parties may not raise the defense of usury, and while the courts seem to have been occasionally in conflict on this question, yet the weight of authority and the later decisions are all in favor of the proposition that it may be set up by a subsequent lienor or a grantee who does not take the estate with an express reservation as to the mortgage security sought to be defeated.

Other cases are cited, in the Merchants Exchange Bank y. Commercial Warehouse Co. ( 49 N. Y, 635 , 643), which case also embodies the opinion of Jokes, J., of the superior court, in which certain rules are stated and approved upon this question.

On the authority of these cases we hold, that on establishing an interest in the mortgaged premises, which was acquired without any reservation as to the mortgage, the defendants Tremonger were entitled to offer proof of usury to defeat the mortgage in question.

The judgment should, therefore, be reversed, and a new trial granted at special term, costs to abide the event.

Cases cited