Majority
p. 187Jackson, ex dem. Bartlett and others, against J. V. Henry. NEWYORK, May, 1813.
Headnote
of attorney A boncz flJ~ pureIi~ser, without no.~ tice, under sale duly made, pnr~~t~ ant to the st~ tute, (sass. 21~ C. 145.) by vh~ tue of ~a power contained in a mortgage, is not affected by usury in the original debt, for which the bond and mortgage were given. * .Such a sale is equivalent to a foreclosure and Sale under a decree of a court of equity? find canino!. be defeated to the prejudice of a bona fide purchaser.
Though the statute against, usury (sess. 10. c. 13») declares the usurious contract and security utterly void; yet this is only between the original parties where the suit is upon the very instrument infected with usury. And where the original usurious contract has been changed’!)} .a new contract founded on it, in which an innocent person is a party, the defence of usury cannot be set up against such innocent person.
A purchaser for a valuable consideration, without notice, has a good title, though he purchasescf;’ one who had obtained a conveyance by fraud.
This was an action of ejectment, tried before the Chief Justice, at the Montgomery couns, in September, 1812
The declaraflon contained a demise from Jog ith B~r&t19 and IIan~rtah his wife, to the p1aintifl~, from the 1st May, 18O~, for, 15 years; and similar demises from William J~1i1ea, Erastas Mil~a, ~Tosiah Fosgate and his wi~e~ Damiel B~ Miles and Mary Miles~
p. 188
It was proved that Daniel Miles died in possession of the pre. mises in question, in the summer, or early in the autumn, of 1800, leaving the lessors his heirs at law.
The defendant gave in evidence the last will of Daniel Miles-Sated the 5th February, 1800; also a mortgage in fee, dated the 6th May, 1800, from Danid Miles and his wife, to James M‘Gourck, duly acknowledged and recorded, by which the premises in question were mortgaged to secure the payment of a bond for 1,750 dollars, with interest. The mortgage contained a clause, that in case the principal- or interest, or any part thereof, should be unpaid, it should be lawful for the mortgagee, his heirs, executors, administrators or assigns, to sell and convey the premises, at public auction, and on such sale to make and execute to the purchaser, a good and sufficient deed of conveyance, See. pursuant to the statute, &c.
The death of the mortgagee was admitted, and his last will given in evidence, by which he devised to his wife, Sarah, all his debts, bonds, mortgages, Sec. and all his estate, real and personal, and made her sole executrix, and on which letters testamentary were issued to the said Sarah, by the surrogate of Albany, the 22d December, 1804.
The defendant produced in evidence an absolute assignment of the mortgage to him from Sarah M(Gourck, the widow and executrix of the mortgagee, for the consideration of 4,853 dollars and 41 cents. This assignment recited the mortgage, and that Thomas M‘Entee and William Miles, by deed,, dated 23d September, 1800, demised to James MHourck, the mortgaged premises for 10 years from the 5th February, 1800, and that James M‘Gourck, by deed, dated the 21st July, 1802, demised the same premises to John Pride and James Pride, for 6 years from the 1st May, 1803.
The principal and interest remaining unpaid, the defendant, by virtue of the assignment, and the power contained in the mortgage, afterwards, on the 10th October, 1805, advertised the premises, according to the statute, for sale at public auction, in Albany, on the 8th April then next, and they were accordingly' exposed to sale, and struck off to Robert R. Henry, the highest bidder, for 3,050 dollars; and the defendant, thereupon, for the consideration of that sum, released and conveyed the premises to Robert R. Henry, his heirs and assigns for ever; and, afterwards, oil
p. 189
•he 7th May, 1805, Robert R. Henry and his wife, for the consideration of one dollar, granted and conveyed the same to the defendant, his heirs and assigns, &c.
The counsel for the plaintiff then offered to prove that the mortgage was given for a loan of 1,500 dollars in money, and an usurious premium of 250 dollars, beyond the lawful interest, for forbearance, &c. The defendant’s counsel objected to the evidence as inadmissible to impeach the defendant’s title; but the Chief Justice overruled the objection and admitted the evidence, and the defendant’s counsel excepted to his opinion.
The plaintiff’s counsel proved, that the consideration of the mortgage was 1,500 dollars, and that 250 dollars was added to that sum, as an usurious premium on the loan.
The defendant’s counsel offered in evidence a judgment against Daniel Miles, docketed the 12th September, 1799, in favour of James M‘Gourck, for 1,868 dollars and 85 cents; also a lease of the premises from M‘Entee and Miles to M‘Gourck for 10 years, for the yearly rent of 200 pounds; and a lease of the premises, excepting 6 acres, from M‘Gourck to John and James Pride for 6 years; and assignments of the said leases to him, and the conveyance of the 6 acres excepted in the lease to John and James Pride, and of a lease from Daniel Miles of 100 acres of the farm In fee; and also a mortgage of the premises by Daniel Miles to the loan officers of Montgomery county; and which mortgage had been paid off by the defendant; which evidence was objected to on the part of the plaintiff, and overruled by the Chief Justice; the defendant excepting to his opinion.
The defendant also produced in evidence a paper, called for by the plaintiff, which contained a statement read by the auctioneer, at the time of the sale, on the 28th April, 1806, mentioning the above circumstances, and that the sale was for cash, to be paid in half an hour after the premises were struck off, and in default of payment, to be again set up and sold for cash down, and in default of payment, again to be sold and resold until the cash was paid; and that on the payment of the money a deed would be given to the purchaser, with a clause, exempting the seller from any responsibility as to the title.
The jury, under the direction of the Chief Justice, found a verdict for the plaintiff. The defendant’s counsel tendered a bill of exceptions»
p. 190The defendant is a bona fide purchaser under a regular sale of the mortgaged premises, made pursuant to the statute. We contend that such sale is conclusive, and that evidence of usury in taking the mortgage is inadmissible. The statute, (sess. 24. c. 146. s. 5.) authorizing a sale under a power, evidently intended, that the bona fide purchaser should be protected, and that such sale should operate as a perpetual bar to all equity of redemption; that he should stand in the same situation as if he had purchased at a sale made pursuant to a. decree of the court of chancery. The statute makes only three exceptions: 1. Where there is a prior mortgage; 2. Where there is a prior judgment; 3. Where the mortgagor is under 25 years of age. In every other case the sale is absolutely conclusive. It'would be against the express terms of the act to allow of any other exception. If, then, the legislature intended to give the same effect to a sale under the act, as to a decree of a court of equity, this court cannot give it any other effect. In Bergen v. Bennett,[17] the present Chief Justice said that such sale under the statute was a species of foreclosure by law. The statute against usury, in order to avoid a specialty, must be pleaded ;[18] and if not pleaded until after a judgment or decree, it is then too late. It may be said that the statute (sess. 10. c. 13.) declares all usurious contracts void. But the cases show that in order to obtain the benefit of the statute, the party must plead it; and that the contract is not, therefore, absolutely and universally void. Again, the statute gives no relief to the borrower, but on condition that he pays the principal and legal interest. This provision would not have been made, if the statute intended to make the contract absolutely void. The evident meaning is, that the statute should be set up in avoidance, only when the usurious lender sought to enforce the usurious contract. If the borrower who comes to seek relief, can obtain it only on condition of paying the principal and legal interest, the contract is so far protected in a court of equity. The lessors in this case must be considered as the actors who bring this action to set aside the sale and recover their property. Coming, then, to ask equity, they must do equity, by paying the ■principal and interest; and on those terms only will a court of equity relieve them from the excess of interest. Again, it may be said that there has been a sale without the party having had a day in court to appear and plead. It is com-
Van Vechten, for the defendant.
p. 191¡patent to the legislature to prescribe a mode of foreclosure, without giving the party a day in court. But it is not true that a party may mot be concluded, without having had a day in court. Where a bond and warrant of attorney founded on usury are given, and a judgment is entered up, and a scire facias is, afterwards, brought on the judgment, the defendant cannot plead usury.[17] It is true, the court may interpose on motion, in regard to such a judgment, and set it aside, or order a feigned issue to try the question of usury. But suppose a fi.fa. has issued on such a judgment, and the property of the defendant has been regularly sold by the plaintiff, would the court interfere against the bona fide purchaser under such sale ? There are many other cases where parties are concluded, though they have not, in fact, had a day in court, as in the case of absent mortgagors, or in proceedings in partition, where any ©f the parties are out of the state. The statute notice, or advertisement in the Gazette, is deemed sufficient; and whether the party actually receives the notice or not, makes no difference. Again, this is the case of a sale not only by statute, but by virtue of a power of attorney from the mortgagor. The mortgagee is, in this case, a trustee of the mortgagor, with a power to sell. Now, a sale by a trustee can never be defeated against a bona fide purchaser for a valuable consideration, without notice. If there was any defect or legal taint in this instrument, it was known only to the mortgagor; it was a latent defect, and it xvas the moral as well as the legal duty of the mortgagee to have made it known when an attempt xvas made to carry the power into effect. The purchaser had a right to presume, because the laxv presumes it, that the sale xvas made with the consent of the mortgagor; for when public notice of such sale xvas given, he made no objection. Can the mortgagor, or his heirs, be permitted, after such a statute notice and sale, and such tacit consent, to come into court and object to the sale, on the ground of a legal defect in the poxver ? This xvould be against those principles of justice and equity, xvhich are essential to the security of pro* perty. Such a concealment on the part of the mortgagee xvould be fraudulent. The lessors claiuiing under the mortgagee must be supposed to know of the usury, and can be in no better situation than their ancestor xvould have been, had he been living. Where a party, knowing of a defect in the title by the seller, stands by without disclosing it, it is fraudulent.[18]
p. 192If a mortgagee witnesses a second mortgage, without disclosing the prior mortgage, he is concluded.[17] So," where there is a distress for rent, when there is no rent due, and a sale is made, and the party suffers such sale without contesting the validity of the distress, he is concluded.[18] This is an instance of an extrajudicial sale, where there is no action at law, or day in court, given to the party. There is sound policy in the doctrine which renders such sales conclusive, for, otherwise, no person would bid or become a purchaser at a judicial, sale. It may, perhaps, be said that the cases which have been cited were in equity, and that a court of equity only will relieve. But this court has a concurrent jurisdiction in all cases of fraud, and more particularly in cases of usury. This court, after 14 years, has presumed a regular re-entry, though there was no proof of the fact.[7] And in Bergen v. Bennett, a sale of mortgaged' premises, under the act, Was presumed to be regular, after the lapse of 16 years. In case of a deposite, or pawn, on an usurious loan, a court of law will not allow the party to bring an action of .trover for the thing pledged, without tendering the principal and legal interest.[13] In these instances, the court of law, exercising equity powers, proceeds on the same principle as a court of equity. Where is the difference, in this respect, between a mortgage, and a pledge or deposite of a personal chattel. A mortgage is considered as a pledge for the security of the money lent.[14] The mere technical form of the remedy can make no difference ™ the principle. This court, then, can exercise its equity powers, in furtherance of justice, by imposing terms on the borrower ; for the statute was intended as a shield of defence, and not as a weapon of attack. Several other points were raised, and argued by the counsel, but as they were qot noticed by the court, it is unnecessary to state them. The statute against usury was intended to protect parties who act with their eyes open; to protect them against themselves. It is conceded that the mortgage, being founded on usury, was void, as between the parties to it; and yet it is contended that the defendant has acquired a good estate under the mortgage.
Cady, for the plaintiff.
p. 193The 5th section of the statute, (sess. 24. c. 146.) by speaking ‘¿f a person claiming redemption in equity, has reference to a court of equity, and shows that an equity of redemption only was intended to be barred. It is said that the exceptions in this section, show that sales in all other cases are valid and conclusive; but the act intended only to confirm sales valid in equity: not where the sale was void at law. Suppose a feme covert, or an infant, should execute a mortgage with a power of sale, would the statute confirm a sale made under such power, though void at law ? Again, it is said this is a statute foreclosure. This is true, when the mortgage is valid, and the sale is under a valid power. This is not like a judicial sale, by which a party is estopped. An advertisement in a Gasette is not a suit, or proceeding at law, in which a party can come in and object. Where there is a sale under a judgment on a bond, the party rests his title on the judgment which is valid, and not on the bond which is void. In the case cited as to a pledge, the pawnor voluntarily delivered his property to the pawnee. No written conveyance was necessary. Suppose there had been a bill of sale of the goods, could the pawnee recover on such void bill of sale ? Our act expressly declares deposites of goods void in case of usury, but there are no such words in the English statute. The English cases, therefore, do not apply to this point. The lessors were not bound to take any step, in consequence of the advertisement and sale. Their silence, or inaction, therefore,, cannot be deemed fraudulent. But it is said that the defendant is a bona fide purchaser, without notice, and is, therefore, to be protected. In this suit, however, he can defend himself only as the purchaser of a void mortgage. The object of the power was to render a resort to a court of equity unnecessary. If the mortgagee does any act transcending that power, or in violation of it, it is a waiver of it. Here the mortgagee took a lease, and cox-enanted to surrender up the premises at the expiration of the term. He could not exercise the power to sell, until after the end of the term. During the term there was a suspension of the power to sell, and the defendant knew the fact. Again, the mortgagee executed a lease of the premises to Pride, for 6 years. He could not, therefore, sell subject to that encumbrance. The mortgagee must pursue bis power strictly; he eto
p. 194not clog or encumber the .premises, but must sell, simply and unconditionally, the whole interest as conveyed to him by the mortgagor.[17] If this was a valid power of sale, then the lease was an execution of the power. If the sale is irregular, it is only for the mortgagor to object. If the mortgagee sells a part of the premises sufficient to pay his debt, that is legal satisfaction. If a landlord exercises the power of distress irregularly, he cannot afterwards sue for the rent, on the ground that the distress was irregular. A mortgagee, before a foreclosure of the equity of redemption, has no power to lease.[18] The only ground on which this lease could be supported, is under the power to sell, unless the mortgagor objected. If the lease cannot take effect out of the estate of the mortgagee, it must take effect from his power to sell. The giving the lease, therefore, was an execution of the power. This is not like the case of the sale of a distress. By the common law there could be no sale. The statute gives the power of sale, and declares expressly that such sale shall be valid, notwithstanding any irregularity subsequent to the distress. It is not necessary to take advantage of the usury, or the legal defect in the party’s title, by pleading. Suppose a forged bond and mortgage with a power to sell, isr the owner of the property, when advertised for sale, bound to file his bill in chancery, or give notice of the forgery? May he not resort to his remedy, after the sale, to recover his property ? A person claiming under a sale, by virtue of a power contained in a mortgage, must show that it was regular. The regularity of the sale is part of the purchaser’s title; and a slight irregularity in the advertisement, where a sale was postponed, was held to make it void, so that the purchaser could take nothing by his deed.J We admit, as a general rule in equity; that the mortgagee is a trustee to the mortgagor; but a trust cannot be created by a void deed. And we contend that the usury rendered the mortgage absolutely void; so that no estate could pass.[13] If the mortgage is void, the power of sale was also void; for if the power-of sale is not coupled with the interest, it ceased on the death of the mortgagor. The defendant cannot be considered in any other light than as-an assignee of the mortgagee; and in that character it is not pretended that he can be supported.[14] In an action of ejectment it is not necessary to plead the usury g but it may be shown at the trial.[15]
p. 195The defendant shows a mortgage valid on the face of it; that is enough for him, in the first instance. The plaintiff sets up collateral matter to get rid of the mortgage. He claims against it. He then becomes the actor as much as if he had filed a bill in a court of equity; and must, therefore, before he can recover the property, pay the principal and interest.[17] There is no difference, in this respect, between a mortgage and pledge. Between the original parties to the usurious contract, no alteration or change of the security can get rid of the usury. But where a contract tainted with usury is transferred to a third person, without knowledge of the usury, and with the assent of the borrower, the latter, in an action brought against him by such third person, cannot set up the usury as a defence against an innocent and bona fide holder, or purchaser. The lessors or mortgagor had legal notice of the sale in this ease, for a statute notice is to be deemed, in all its consequences, the same as a personal notice. Where the proceeding is regular, a want of notice cannot be alleged. The basis of the argument on the part of the plaintiff is, that the mortgage, by reason of the usury, was utterly and absolutely void. But there is a technical distinction, in this case, between what is void and what is voidable. Wherever an instrument, on the face of it, is good and valid, and can be avoided only by pleading, there it is voidable only. Under a voidable contract, the rights of a third person or innocent purchaser cannot be affected. Contracts made with persons under an absolute incapacity to contract, or contracts mala in se, are, ipso facto, void. In the case of a sale by a feme covert, which is absolutely void, third persons may avail themselves of the fact of its being a void act. But it is not so in a case of usury. Even in the case of a void contract, if the party will lie by and see a third person purchase, without informing him of the defect, he cannot afterwards set up this defect of title. If a borrower might allege usury against the first bona fide purchaser, he might against the hundredth, and for any period of time within the statute of limitations. Such a doctrine is pregnant with the most mischievous and alarming consequences. Again, the defendant claims under the sale, a new contract, not under the mortgage. After the sale there was an end to the mortgage. It was fundus officio. A judgment is an assurance, and
Hoffman, in reply.
p. 196may be made a security for an usurious loan, yet a sale under that judgment is not affected by the usury. The act says “ that no sale of lands, Sec. made in due form of ^aw> ^7 an7 mortgagee, or others thereunto authorized, by special power for that purpose, Sec. shall be defeated to the .prejudice of any bona fide purchaser,” Sec. In Simms v. Slacum,[17] the Chief Justice of the United States considered, the prisoner, who had obtained his discharge by fraud, as discharged by the due course of law, within the meaning of the words of the condition of a bond given for the prison rules. Why does the statute speak of a “ bona fide purchaser,” unless to distinguish him from others? The rule is, that where a stranger acquires the title, by a regular Sale, without nptice of the defect, no transactions between the parties to the usurious contract can affect the sale. In the case of absent mortgagors, after a notice in a Gazette, the bill is taken pro confesso. This is a statute notice and foreclosure. Suppose the legislature had said that in all cases respecting mortgages, a sale after a certain notice should be equivalent to a foreclosure in equity, would not such a foreclosure be absolutely conclusive? In Fletcher v. Peck,[18] Marshall, Ch. J. states the rule, that if a suit be brought to set aside a conveyance obtained by fraud, and the fraud be clearly proved, the conveyance will be set aside as between the parties; but the rights of third persons, who are purchasers without notice, for a valuable consideration, cannot be disregarded. Titles which, according to every legal test, are perfect, are acquired with that confidence which is inspired by the opinion that the purchaser is safe. If there be any concealed defect arising from the conduct of those who held the property long before he acquired it, of which he had no notice, that concealed defect cannot be set up against him. The purchaser of a legal estate, without the knowledge of any secret fraud which may have led to the original grant, can never be affected by that fraud. Again, as long as the usurious contract remains executory, so long the borrower may avail himself of the usury; but not after the contract is executed. If the lender comes into a court to enforce the contract, the borrower may object usury; or if the borrower seeks relief in a court, he can obtain it only on terms. But when the contract is executed, and rights vested under it in due form of law, the borrower can never raise the objection of usury. Suppose the mortgagor releases the equity of redemption, can he afterwards impugn the contract on the ground of
p. 197usury? In the present case, the contract has been executed; there has been a statute sale and a statute foreclosure. The execution of the power, under the statute, is a complete execution of the contract, as it regards third persons.
delivered the opinion of the court. The material and important question presented by the bill of exceptions is, whether a bona fide purchaser, without notice, under a sale duly made according to the statute, by virtue of a power contained in a mortgage, can protect himself against the allegation of usury in the debt for which the bond and mortgage were given. The statute (sess. 24. c. 146.) authorizes and regulates the sale under such a power; and requires it to be at public auction on six months’ notice, and declares that it “ shall not be defeated to the prejudice of any bona fide purchaser thereof in favour, or for the benefit, of any person claiming the equity of redemption.” The statute accordingly renders such a sale equivalent to a foreclosure and sale under a decree in chancery; and it would be against the policy and principles of law, as well as the plain language of the statute, to allow the sale in this case to be defeated. It is true that the statute of usury (sess. 10. c. 13.) declares all “ bonds, bills, notes, contracts and assurances” infected with usury “ utterly void and so are the adjudged cases, when the suit at law is between the original parties, or upon the very instrument infected. But when the contract has been changed by a new contract founded upon if, in which an innocent person was a party, the usury has not been permitted to be set up. Thus in the case of Cuthbert v. Hales, (8 Term Rep. 390.) where A. made an usurious note to B., who transferred it to C. for a valuable consideration, without notice of the usury, and A., thereupon, gave a bond to C. for the amount, the bond was held not to be affected by the usury. And Lord Kenyon observed, in that case, that if the defence “ were to succeed, it might affect most of the securities in the kingdom; for if, in tracing a mortgage for a century past, it could be discovered that usury had been committed in any part of the transaction, though between .other parties, the consequence would be that the whole would be void. It would be a most alarming proposition to the holders of all securities.” The same doctrine was early advanced in the case of Ellis v. Wares, (Cro. Jac. 33. More, 573. Yelv. 47.) which arose under the usury statute of 13 Elis, containing the same words as our set. The defendant there was indebted to
p. 198
Alder in 100l. on an usurious contract, and Alder was indebted the plaintiff in 1001. of just debt, and the defendant, for the paynient of the usurious debt to Alder, joined with Alder in a bond f° 1001. to the plaintiff, and the bond was held good, because the debt to tiie plaintiff was a just debt, and he was ignorant of the usury, and the court said “ for as on the one side it may be said to be the means to defraud the statute, so on the other side it may be a greater mischief to a true creditor, when he shall take security by way of bond with sureties for money, if it should be examined whether there were any corrupt agreement betwixt the creditor and bis surety, whereof he cannot by. intendment have any conusance.” This same doctrine was recognised by Lord Holt, in Hussey v. Jacob, (1 Ld. Raym. 87. Salk. 344.) as applicable equally to gaming and usurious contracts.
The case of Lowe v. Waller, (Doug. 736.) was an action brought by an innocent holder upon the very bill of exchange given on an usurious consideration, and the court of K. B. felt themselves bound, though with visible regret, by the peremptory words of the statute, and by the case of Bowyer v. Bampton, (2 Stra. 1155.) which was on a gaming note under the statute of 9 Ann. and which equally declares the security void. This is the greatest ' length to which the courts in England have gone to the prejudice of an innocent person; and there the suit was necessarily and directly on the usurious instrument. In the present case the defendant holds under a new contract, founded on a sale by statute, and one which the statute expressly declares to be a bar to all equity of redemption. There is no case precisely like this in the English books, because these powers 'are. not in use in Great Britain, but the cases which have been referred to of new security taken by an innocent person, founded on the usurious contract, are very analogous in principle, though this is much the stronger case, because here is a statute sanction to the purchase, rendering it a substitute to a judicial sale under a decree.
The notice given by the advertisement is intended for the party, as well as for the world, and he has an opportunity to apply to chancery, if he wishes to arrest the sale on the ground of usury; and the statute likewise gives him his remedy by action. If he stands by and suffers the sale to go on, and an innocent party to purchase, unconscious of the latent defect; and without any means of knowing it, the purchaser has the preferable claim in equity to protection.
p. 199
The principles of public policy, and the security of titles, are deeply concerned in the protection of such a purchaser. If the purchase was to be defeated by the usury in the original contract, it would be difficult to set bounds to the mischief of the precedent, or to say in what sequel of transactions, or through what course of successive alienations, and for what time short of that in the statute of limitations, the antecedent defect was to be deemed cured or overlooked, so as to give quiet to the title of the bona Jide purchaser. The inconvenience to title would be alarming and enormous. The law has always had a regard to derivative titles', when fairly procured; and though it may be true, as an abstract principle, that a derivative title cannot be better than that from which it was derived, yet there are many necessary exceptions to the operation of this principle. At common law, sales in market overt gave a title to stolen goods ; and in the case of fraudulent conveyances, which the statute of 27 Elis, declares to be “ utterly void,” it has been a long and well settled principle, that a purchaser for a valuable consideration, without notice, has a good title, though he purchases of one who had obtained the conveyance by fraud. The fraud cannot be set up to defeat such a title. (Rodgers v. Langham, 1 Sid. 134. Doe v. Marly, 4 Bos. & Pull. 332. Fletcher v. Peck, 6 Cranch, 133 .) There • is a provision to this effect in the statute of 27 Elis. (which we have adopted,) and that statute was only in affirmance of the common law.
The court are accordingly of opinion that the verdict must be set aside, and a new trial awarded, with costs to abide the event of the suit.
New trial granted.