Majority
p. 439Jackson, ex dem. Sternberg, against Dominick. NEW YORK, October, 1817.
Headnote
Where a mortgage is given as security, on an usurious contract, with a power of sale» and the mortgagee, by virtue of the power, sells the land, under the act concerning mortgages, and becomes the purchaser through an agent for that purpose, and in an action of ejectment brought by a purchaser of the equity of redemption against the mortgagee, the defendant sets up a title so acquired by sale under the mortgage, the plain-till" may prove ««try in the mortgage, -and recover, notwithstanding the mortgage. A foreclosure of a mortgage by virtue, of %i power under the statute, is not founded on any judgment or decree of any court; but is the mere act of the mortgagee. The statute makes such sales a conclusive bar only in favour of a bona Jide purchaser, without notice; and the mortgagee, being a party to the usurious contract, is in do better situation than if no-foreclosure had taken place.THIS-was an action of ejectment brought to recover part of a farm in Minden9 in the county of Montgomery, and was tried before Mr. Justice Spencer, at the Montgomery circuit, in August, 1816.
The plaintiff gave in evidence a deed from Abraham Van Alstine, jun. and his wife, to the lessor of the plaintiff, dated April the 6th, 1812, and proved that Van Alstine had been in possession of the farm for many years before, claiming and using it as his own.
The defendant gave in evidence a mortgage from Abraham Van Alstine, jun. for the premises in question, to the defendant, recorded the 21st of March, 1810, to secure the payment of 278 dollars in one year, with interest, and containing a power of sale, in case of non-payment, in the usual form. The defendant also produced the record of several affidavits, that the premises had been duly advertised for sale, and actually sold under the power contained in the mortgage, pursuant to the statute. The defendant also gave in evidence a deed from himself to one Aaron Haring, as the purchaser, at such sale, dated February the 1st, 1813 for the consideration of 278 dollars, and a deed of release from Haring to the defendant, of the same date, for the premises. The, defendant admitted that Haring purchased the premises at the sale under the mortgage, in trust for him, and for his benefit, and immediately released the premises to the defendant, in pursuance of such trust.
The plaintiff then offered to prove, that the mortgage under which the sale was so made, was given for an usurious consideration and was therefore void under the statute. The testimony was objected to, but admitted by the judge to go to the jury, subject to the opinion of the court, on a case to be made, in case the jury found for the plaintiff on the question of usury. The plaintiff gave evidence of the usury; and the judge submitted to the jury the question of fact, whether the mortgage was usu.rious, and if they found it to be so, that then the plaintiff was entitled lothpir verdict; otherwise, they should find for the defendant. The jury, by their verdict, found that the mortgage was
p. 440that the jury having found that the mortgage was given on an usurious contract, it was void by the statute ;[15] and that the mortgagee himself, being the purchaser, with knowledge of the usury, the mortgagor, or his assignee, might avail himself of the usury, to defeat the mortgage, against the mortgagee. It is admitted, that the purchaser at the sale, under the power contained in the mortgage, acted as the agent or trustee of the defendant, and for his benefit. The defendant himself is, therefore, to be regarded as the purchaser. This case, then, is clearly distinguishable from that of Jackson, ex dem. Bartlett, v. Henry.[16] The ground of that decision is, t h at Henry was a bona fide purchaser, without notice. I he whole reasoning in that case is, to show the hardship, injustice, and danger, of suffering a bona fide purchaser to be defeated, on a plea of usury, when the borrower stands by and permits an innocent person, unconscious of the latent defect, to make the purchase, in good faith, and pay his money, without informing him of the usury. Such a bona fide purchaser, it is there said, has a preferable claim in equity to protection. The court also considered it analogous to the case of an usurious contract, which had been changed into a new contract founded on it, in which an innocent person is h party; in which case the usury is not allowed to be set up. Here the defendant is not an innocent third person, or bona fide purchaser, but a party to the original usurious contract, and can have, therefore, no superior claim to protection. But it will be said, that the sale under the power, pursuant to the statute, was a kind of statute foreclosure, which cannot be defeated ; and that the court, in the case of Jackson, ex dem. Bartlett, v. Henry, speak of such a sale as equivalent to a foreclosure and sale, under a decree of the court of chancery, or as a substitute to a judicial sale. But, the person .who sets up this statute fore-.
given upon an usurious contract, and for an usurious consideratjon) between Van Alstine and the defendant, and gave their verdict for the plaintiff In case the court should be of opinion that the evidence, as to the usury, was proper, and that the mortgage and subsequent sale were void, by reason of the usury, then the verdict was to stand ; otherwise, a nonsuit was to be entered. It appeared in evidence, that the plaintiff knew that the mortgage was given on an usurious contract, at the time he purchased the premises of Van Alstine.
Johnson, for the plaintiff, contended,
p. 441closure, must show himself to be a Iona fide purchaser; for the statute in declaring the effect of such sale, says, that no such sale shall<6 be defeated to the prejudice of any bona fide purchaser,’’ in favour of the person claiming the equity of redemption. This is not like a sale under a judgment, where the purchaser looks only to the judgment, and not to the validity of the contract on which the judgment is given. Here the mortgage and the power, and the regularity of the sale under it, are all essential to the title of the purchaser. If a mortgage after a sale under the power cannot be avoided, where a party to the usurious contract is a purchaser, or where the purchaser has full knowledge of the usury, the penal part of the statute against usury will, in effect, be destroyed, in every case where a mortgage is taken to secure an usurious loan. The mortgagee has only to proceed to a sale under his power, and the mortgagor cannot have the aid of a court of chancery to stay his proceedings, without tendering or bringing into court all the money actually borrowed, with the legal interest.[15] All that the usurious lender would hazard, in case of a mortgage, would be the excess beyond the legal rate of interest. A note given for an usurious consideration is void, even in the hands of an innocent indorsee, who has taken it in the regular course of trade, without notice of the usury.[16] The usurious security is void not only against the borrower, but against all. claiming title under him. If a note is void, for usury, in the hands of an innocent indorsee, on what principle can the lender of money on usury, who has taken a mortgage as security, be allowed to hold that security, as against the mortgagor? In Jack son, v. Henry, Kent, Ch. J. says, “ the statute declares all bonds, bills, notes, contracts and assurances’’ infected with usury “ utterly void;’’ so are the adjudged cases, where the suit at law is between the original parties, or upon the very instrument infected. No innocent person will be affected by declaring the mortgage and sale under it void, in this case. But, if permitted to stands the court will, in effect, repeal the statute against usury, as it respects mortgage securities. that the sale by virtue of the power, under the statute, was equivalent to a sale under a decree of the court of chancery. The statute intended to give
W. J. Dodge, contra, contended,
p. 442it the same operation and effect. It is a statute foreclosure, and is conclusive, so as to be a bar to any inquiry into the validity of the mortgage. This being a mortgage fee, the estate, on a failure to perform the condition, becomes absolute, and on a foreclosure, a complete and perfect title in fee, is acquired under the mortgage. This court has no control whatever, over a proceeding by the mortgagee to foreclose under the statute or in a court of chancery. Before foreclosure, this court may receive proof of the usury. But after a foreclosure or sale under the power, this court cannot interfere, directly or indirectly. A decree of the court of chancery is final and conclusive between the parties; and in every case a judgment or decree is conclusive, unless the judgment at law is reversed by writ of error, or the decree, on a bill of review in equity.[15] A plea of a former decree enrolled, is a bar to a new bill between the same parties; and a decree by default, if an order is made that it be absolute, is final. A decree of foreclosure is absolute and final, unless fraud be shown. The purchaser under such decree, acquires an absolute estate at law.[16] If, then, a sale by virtue of a power, under the statute, is in fact a substitute for a decree of foreclosure in a court of equity, and is to be governed by the same rules, it follows conclusively, that this court cannot inquire into the validity of the original contract, after a sale or foreclosure under the statute. But supposing this court had the same power as a court of equity, in relation to this mortgage, and that no foreclosure had taken place, the mortgage is not void, but voidable only, and unless the party who seeks to avoid the mortgage will do equity, by paying the actual amount borrowed, with lawful interest, he cannot have the protection of the court against the excess of interest.[17] What, then, is a foreclosure ? It is calling on the mortgagor to redeem his land, by paying the principal and interest, for which it is pledged, or be forever barred from all equity of redemption. And this foreclosure may be effected in two ways, either by a sale under the power contained in the mortgage, which is called a statute foreclosure, or by a decree of a court of equity. In this case, the sale was made in due form, according to the statute. The case of Jackson, ex dem* Bartlett, v. Henry, is in point. To avoid the effect of that decision, it is said, that here the mortgagee was the purchaser, by his agent. The mortgagor was also present, and knew of
p. 443the usury, and he ought, if he wished to prevent a foreclosure, to have filed his bill in equity. But the mortgagee was competent to purchase. The act concerning mortgages,[15] expressly declares, that a mortgagee may become the purchaser at such sale, for his own benefit, and that no title derived under such sale, shall be questioned on that account, provided it be otherwise regular and bona fide. It is true, that Kent, Ch. J. in the case of Jackson v. Henry, lays considerable stress upon the fact, that the defendant was an innocent and bona fide purchaser, without knowledge of th.e usury ; but the course of his reasoning and observations fully justify the conclusion, that the material'point decided was, that after a sale under the power, or a statute foreclosure, the party was too late to set up usury in the original contract or mortgage. 61 The statute,” says Chief Justice Kent, “ renders such a sale equivalent to a foreclosure and sale under a decree in chancery ; and it would be against the policy and the principles of law, as well as the plain language of the statute, to allow the sale to be defeated.” Again, he says, “ 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.’’ By a reference to the different statutes relative to mortgages,[16] it will be seen that the object of the legislature, in authorizing a sale under a power, so as to bar the equity of redemption, was to substitute a cheaper and more easy and expeditious method of foreclosure, instead of the dilatory and expensive mode of proceeding by a bill in chancery for that purpose. By thus facilitating the foreclosure, the means of enforcing a repayment of the loan is rendered simple and easy, and lending on mortgage is encouraged. Such appears, also, to be the object of the statute of 7 G$o. II. ch. 20. which became necessary, as Poeell[17] states, as the method of redemption by bill in equity was found dilatory, expensive, and inconvenient, not only to the mortgagee, but also to the mortgagor. If such was the object of the legislature, if the statute mode of foreclosure was intended as a substitute to a suit and decree in chancery, then a sale under the statute ought no more to be questioned, than a decree of the court of chancery. This court would have the same power to examine into the merits of a final decree of the court of chancery, as to revise or set aside
p. 444a sale under the statute. If the sale is to be reviewed any where, it must be in a court of equity; and there the party must appear and plead the usury, or he cannot take advantage of it. Here the mortgagor does not appear and make the objection, but suffers the mortgagee to proceed to a sale, and in case the property sells for more than the amount due on the mortgage, to pay over the surplus to the mortgagor, and the purchaser to bring his ejectment and recover possession of the land, and then, to defeat him, sets up usury in' the original contract. This is permitting a party to derive benefit from his own laches,. Whether, therefore, the sale is considered in the light of a decree of foreclosure in equity, or as a judgment in a court of record, it is conclusive, and cannot be reviewed by this court. It is a proceeding authorized by the statute, over which this court has no controuh It has no jurisdiction, or supervisory power in the case, either at -common law or by statute. , - Admitting there was usury in the original contract, the power of the mortgage is spent, the nature of the thing is changed. Suppose a suit to be brought on the bond accompanying the mortgage, and a judgment recovered by default, and an execution issued on the judgment, under which the mortgaged premises are taken and sold; in an action of ejectment brought by the purchaser, to recover possession of the land, would the defendant be permitted to set up usury in the original bond, and to defeat the plaintiff on that ground ?[15] The court will not permit a party who sleeps on his rights, afterwards to take advantage of a ground of defence which he might have pleaded, in order to vacate the judgment. If the bond were altogether usurious, and the party had suffered a judgment against him by default on the bond,, a court of chancery would not afford him relief against the judgment.[16] It is true, that this court, in the case of judgment bonds, exercises a power, which they do not claim over regular judgments obtained by due course of law. But even in case of a judgment entered up on a xvarrant of attorney, the defendant cannot plead to a scire facias on such judgment, that the bond and warrant were given for an usurious consideration;[17] a judgment not being a contract or assurance within the statute.[14] If such a judgment is set aside by the court for usury it is then open, and the party may plead the usury. But while the judgment remains, its validity cannot be questioned. An
p. 445usurious mortgage, is like any other usurious contract, and the law, as respects a judgment, equally applies to it. If this statute foreclosure is not to have the same effect as a decree of foreclosure in equity; or if it is not similar to a judgment in a court of law, what is its character, or what is to be its operation ? The legislature did not intend so nugatory a thing, as to direct a mode of procedure that was to have no legal force and operation. The court of chancery is not deprived of its jurisdiction, but if the mortgagor files his bill to redeem, the foreclosure by statute is a sufficient answer. If the equity of redemption, so important and inherent a right, can be for ever barred by such a foreclosure, how much more ought the party to be precluded from setting up such a defence as usury ? Again, in equity, a decree of foreclosure will not be opened in favour of a mere volunteer, for a mortgagee is a purchaser, and has equal equity with a volunteer, and an absolute estate in law, by the foreclosure.[15] The plaintiff here was a mere volunteer; he purchased, knowing of the usury, and with the very intention to defeat the mortgage. The amount of the mortgage may have been part of the consideration, and the plaintiff calculated to defeat the mortgage, by making the mortgagor a witness. Again, in the case of a fine levied, and the foot recorded, it can never be inquired into. There can be no averment against the record.[16] In Lloyd v. Say and Seale,[17] it was held, that the fine would not be inquired into in a collateral way, or be invalidated in an action of ejectment; but if there was an error or irregularity, it must be vacated or reversed in a legal mode.
delivered the opinion of the court. In the case of Jackson, ex dem. Bartlett, v. Henry, ( 10 Johns. Rep. 185 .) it was decided, that a bona fide purchaser, without notice, under a sale duly made pursuant to the statute, by virtue of a power contained in a mortgage, is not affected by usury in the original debt for which the bond and mortgage were given. The court there considered such a sale as equivalent to a foreclosure and sale under a decree of a court of equity, and that it could not be'defeated, to the prejudice of a bona fide purchaser, on the ground of usury. That case was likened to the case of a contract originally usurious between the parties, and which has been subsequently changed by a new contract founded on
p. 446
it, with a third person, who had no notice of the usury; in which case, such new contract could not be impeached for the usury which infected the original transaction; and also to the case of an innocent purchaser for a valuable consideration, whose title is valid, notwithstanding he may have bought from one who had obtained his title fraudulently. There are some expressions, it is true, in the opinion delivered in the case referred to, which seem to countenance the idea, that after a statute foreclosure of a mortgage, usury could not, in any case, be alleged to defeat a purchase under it; but that is not the principle upon which the decision proceeds. The general principle, that a derivative title is not better than that from which.it is derived, is specifically recognized; but the fact, that Henry was a purchaser without notice of the usury, was considered as excepting such a purchase from the operation of that principle. Much stress, in that case, was justly laid upon the circumstance of the mortgagor’s standing by, and permitting the sale to take place, and an innocent party to purchase ; who thereby acquired a preferable claim, in equity, to protection. None of these considerations apply to the case before us.
The purchaser here was a party to the corrupt agreement upon which the mortgage was given, and bought, with his eyes open, a disputed title ; he has no superior equity, but stands even in a less favoured situation, than a bona fide holder of usurious negotiable paper, who, it is well settled, cannot recover upon it. The mortgage here forms a part of the defendant’s , title; and he, being fully apprised that the mortgage was void in law, stands in no better situation than if no foreclosure had taken place. He is not in as good a situation, as a bona fide assignee of an usurious mortgage, as to whom there is no question that the mortgage would be void.
Whether, in the case put in the argument, a purchaser under a judgment, recovered upon a usurious debt with notice of the usury, would acquire a valid title or not, is a. point not now presented for decision. Most probably he would; but there is a palpable distinction between that case and this. When a cause of action has once passed in rem judicaiam, the defendant and every other person is, for ever afterwards, precluded from availing himself of any pre-existing matter, w'hich might have been insisted upon1 in bar of the recovery. The original debt ceases to have a legal existence, being merged in the
p. 447
judgment; and the title of a purchaser under it, is derived from the judgment, independent of the debt. The purchaser, in such a case, is not obliged to trace his title further than to the judgment itself, which is conclusive evidence of the existence and legality of the debt upon which it is founded. But where the mortgage, and the power to sell, form the foundation of the purchaser’s title, as they do in this instance, if these are void, so is the title derived under them, except in the case of an innocent purchaser for a valuable consideration. For his protection, upon principles of public policy, the law benignly interposes ; but this protection is not, and ought not to be extended any further, as long as the statute against usury continues to be in force.
Although a foreclosure under the statute is substantially equivalent to a foreclosure in equity, yet it is so only when a sale has been made to a bona fide purchaser. The 5th section of the statute, which declares the effect of such a sale, is in these words: “ that no sale of any lands made, or to be made, in due form of law, by any mortgagee or others thereunto authorized, by special power for that purpose, from any person entitled to the equity of redemption, shall be defeated to the prej udice of any bonafide purchaser thereof, in favour of, or for the benefit of, any persons claiming such equity of redemption.’’ Now, the defendant in this case is not a bona fide purchaser, inasmuch as the mortgage was given upon a corrupt and illegal contract, to which he was a party. A foreclosure of a mortgage under the statute is not founded upon any judgment or decree of any court. It is the mere act of the mortgagee, who cannot make that good and effectual, by a sale, which was, unlawful and void in its inception. We are, accordingly, of opinion, that the plaintiff is ■entitled to judgment.
Judgment for the plaintiff.