Mumford v. American Life Insurance & Trust Co.

Our attention is called in the first place to [466] the character of the transaction; and the question is whether it was a sale of the first six installments of the Ingersoll bond and

In June, 1838, Wm. W. Mumford, a resident of Eochester, and the holder of the Ingersoll bond and mortgage for nineteen thousand dollars, payable in eight annual installments, with interest from the 1st of January, 1838, six of which installments amounted to $14,250; and being indebted at the same time to the Eochester Oity Bank in about that amount, which the bank was desirous should be paid, he prepared to raise the money for that purpose of the American Life Insurance and Trust Company, then doing business in the city of New-York, with which company it appears he had other transactions about the same period of time to a large amount. Whether he raised the money in question by way of a loan, or by a sale of the Ingersoll bond and mortgage accompanied by a guaranty, could make no difference to him, for either would equally well answer his purpose. It is probable that something had previously passed between him and the company on the subject, and therefore anticipating a sale, he prepared certain papers at Eochester to be offered to the company. These were, first, a deed of assignment, absolute in its terms, purporting to be founded on the consideration of $19,000, by which he (Wm. W. Mumford) sold and assigned to the Trust Company the Ingersoll mortgage, describing it particularly, and the bond also, and all the money due and to grow due thereon, whether principal or interest; with a covenant that the whole amount was due—that no payments had been made, and no set-off existed ; and with a personal guaranty for the punctual payment of the interest and the final collection of the principal. 2d. A deed of the Eochester City Bank reciting that Wm. W. Mumford being the holder of the Ingersoll bond and mortgage, and being indebted to the bank, he had proposed to sell and dispose of the bond and mortgage for the purpose of applying the proceeds of the six first installments to [467] his indebtedness, upon receiving from the bank their guaranty of those installments and. the interest to accrue thereon, to enable him to effect the sale; that Mumford, in pursuance of the .arrangement, having executed an assignment of the bond and

¡Next we find Mr. Mumford in the city of New-York on the 28th June, submitting a proposition in writing of that date to the Trust Company, “ to sell and dispose of ” to the company, the six first installments payable by the bond and mortgage, describing them and describing the property, and saying, that “ as a collateral security to the company for the payment of the interest and the final collection of the principal, he is enabled to offer to the company (in addition to his own covenants) the authorized written guaranty of the Eochester City Bank, duly executed and ready to be delivered with the bond and mortgage, and the assignment thereof to the company.”

Mr. Duer, the vice president and principal acting officer of the company, being examined as a witness on the part of Mr. Mumford, for the purpose of proving the acceptance of his proposal and how it was carried out, testifies, that the proposition contained in Mr. Mumford’s written application for the sale of the six first installments was accepted by the company, he agreeing to receive in exchange or payment a certain amount in the certificates of deposit of the company, payable in pounds sterling in the city of London, and bearing an annual interest payable half yearly, of five per cent. The agreement, he says, as finally concluded, was for an exchange of certificates for the six first installments mentioned in the application. On his cross-examination, the witness says “ he is positive in his recol- [468] lection that Mr. Mumford in making the proposition offered to receive certificates.” We have thus far from the papers pre

Some things occurred in carrying out the agreement which it must be confessed are calculated to change the ostensible character of the transaction. These are, 1st, the taking of Mumford’s separate bond to the company in the penal sum of $28,500, conditioned for the payment of $14,250 in six equal annual installments, corresponding with the installments payable by the Ingersoll bond and mortgage, this bond bearing the same date as the assignment and the guaranty. 2d. A certificate signed by Mr. Duer as vice president of the company, acknowledging' that thé company held the Ingersoll bond and mortgage “ as a collateral security” only for the payment of the bond of Mumford to the company, bearing date the 18th June, 1838, for the $14,250 in installments, and upon payment of that bond the assigned bond and mortgage were to be given up. This certificate bears date “ August, 1838.” These instruments show upon their face, that Mumford had assumed the relation of debtor to the company, that he was primarily to be looked to for the repayment of the $14,250 by installments with interest, and the Ingersoll bond and mortgage were but security collateral to his individual liability; a condition of things inconsistent with the idea of a purchase of the latter securities ; but [469] though inconsistent, not intrinsically irreconcilable with the other acts of the parties, and the other phase of the transac tion. It is doubtless’open to explanation, how and why it was!

With respect to the bond executed by Mumford, he says: “That Mumford’s application of June 28, was doubtless immediately submitted to the finance committee or to the board— my impression is, to the finance committee—accompanied by a statement from me that Mr. Mumford would receive certificates at a certain rate, in payment of .the six first installments on the Ingersoll mortgage, which he proposed to sell, and the proposition was acceded to.” The original written proposition of Mr. Mumford contains no offer to give his bond, but offers to the company the guaranty of the bank in addition to his [470] own covenant. “ And it was agreed between him and myself, that he should give a bond directly to the company, instead of

The like remarks are applicable to the manner in which the transaction is spoken of in the petition presented to the court in behalf of the company in the foreclosure suit; and which, it is said, was verified by Hr. Duer’s signature and oath, on the 4th of October, 1841, wherein the assignment is stated to have been made by Humford to the company as collateral security for the payment of his bond ; following in that respect the allegation of the foreclosure bill.

The loose way of consummating the business, and of thus speaking of it afterwards, are, it must be admitted, pretty strong indications of its being a loan ; but the preponderance of evidence is in favor of considering the transaction a sale of the Ingersoll securities, to the extent of the six installments; and that in carrying the sale into effect, the parties did not intend to deviate or depart from the terms originally proposed. The controlling evidence on this subject is furnished by Hr. Hum-ford himself, in his written proposals—in the assignment which he prepared and executed—in the guaranty of the bank which he procured and tendered, and in the testimopy of Hr. Duer, his witness ; and when all this is considered, it seems to me we ought not to hesitate about giving to the transaction the character of a sale. If this is left equivocal, and a doubt remains of its being a loan, we are bound to give the company the benefit of that doubt; but I think the evidence places it beyond [472] a reasonable doubt, that here was an intentional sale and exchange of securities, and not a loan, hi or is there evidence

If this is the truth of the case, then it is not within the statute against usury, whatever may have been the loss sustained by Mumford in the sale of the certificates of deposit, or whatever profit the company may have made by the bargain. (Dry Dock Bank v, American Life Insurance and Trust Co., 3 Comst. 344, 358.)

But suppose the transaction to have been a borrowing and lending between the parties, then was there usury in it, such as the statute forbids ?

To determine this question, we must first ascertain what was loaned; whether the mere credit of the Trust Company, or money, or a substitute for money ? Usury cannot he predicated of the use which one person may be allowed, or author- ■ ized to make of another’s credit, as is very clearly shown in the opinion of the court by Gardiner, J. (3 Comst. 356,) because credit, a “ capacity of being trusted,” is neither money, goods, nor a chose in action. In this case, however, it was something more than a credit in that sense which Mumford sought for and obtained. It was money that he wanted for the purpose of paying a debt to the bank, and he sought to raise it upon the strength of the security of the Ingersoll bond and mortgage, accompanied by his own obligation and the guaranty of the bank. The Trust Company not being prepared to part with so much money, he proposed to take their certificates of deposit so called, payable in British sterling at a future day in London, with interest at five per cent, and these the company agreed to issue, and did accordingly make out and deliver to him. Their amount in- currency was ascertained, and at that amount they were taken. If, therefore, it can be called a loan, it was substantially a loan of so much-money, though in form choses in action. In Mumford’s hands even, they were valid as evidences of debt against the company, because he had given value for them in other securities. They were not naked promises, nor bare [473] licenses to raise money on the credit of the company.

The next inquiry then is, whether the company as lenders, have reserved, or taken any thing in the shape of interest, or gained any advantage in the way of a profit to themselves, exceeding the lawful rate upon a loan ? • Only seven per cent interest is reserved to be paid in and by the securities taken for the payment of the $14,250. It is not pretended that any thing more was directly reserved or agreed to be paid, or has ever been exacted as an inducement for making the loan. Indirectly has the company made a profit out of the borrower to swell the interest beyond seven per cent 1

The testimony shows that in the sterling certificates of deposit, with two small sums added and taken into the account, the full amount of $14,250 was advanced and paid to Mumford. The English sovereign, or pound sterling, which are equivalent, was computed at $4,85, that being the intrinsic value of the sovereign in the United States, according to the quantity of gold it contains ; and this allows of an addition, or premium of nine per cent and a fraction over, on $4,44$, the artificial or nominal value, in our currency, of a pound sterling, to make it equal or par with the sovereign. Turning the sterling certificates into currency therefore, at $4,85, was allowing to them their par value ; and at the same valuation or rate, the holders of them will be entitled to receive payment in London when they fall due, and the company is bound to provide funds to that amount to meet them there. It is • clear, therefore, that there has been no overcharge in the value of the certificates and no gain to the company on that score. Indeed, I do not understand the counsel to contend that any advantage in that way has been gained.

The complaint is, that the certificates being in sterling monej payable in London and intended for that market, and not being saleable in New-York, Mumford has been put to expense in sending them forward and in obtaining an advance upon them, and finally subjected to a considerable loss in the sale, owing to their depreciation in London. But is the company [474]

Usury must have some other basis than the difference between seven per cent stipulated for the loan, and any lesser rate payable by “ things in action” delivered to the borrower; because it by no means follows that what is thus furnished as money, is not worth its face. There are many kinds of stocks and public securities drawing an interest of less than seven per cent, that always command their full par value. Look for instance at the six per cent government stocks, how much above par they range in the market as means of investment for capital, and even the five per cents, having a number of years to run, are so desirable for permanent investment, as often to command a premium when offered for sale. Suppose then a lender, instead of furnishing the money agreed to be loaned, should deliver to the borrower the scrip of a five per cent stock, or bonds or securities of some sort drawing five per cent interest, and these should readily command the full amount of their face in the market at the time, would any body say the lender was guilty of usury ? He would in that case part with the equivalent to him of so much money which the borrower would at once [476]

This two per cent is certainly not a “ premium” for the use of money or for its loan or forbearance, which is the definition of “ interest” such as the statute concerning usury undertakes to regulate, for no money has in fact passed between the parties ; and therefore it has always seemed to me that a difficulty exists in ever giving to an exchange of one man’s notes, bonds or legal liabilities which he chooses to issue, for another of similar character as between themselves, the effect or character of a loan of money within the meaning of the statute. I admit however the doctrine is too well settled to be now controverted, that such an exchange may under circumstances be regarded as covering a loan; yet if I am not greatly mistaken, the difference of interest is not, of itself, by any possibility an ingredient of usury in such a transaction. According to the views which I have thus endeavored to present of the case, treating it even as a loan, the company are not chargeable with usury, either because of the loss sustained by Mumford in the negociation or sale of the certificates of deposit, or by reason of the two per "cent difference of interest.

We are now to consider other objections taken on the part of Mumford to the transaction, and on which it is insisted he is entitled to relief. These relate to alledged violations of the charter of the company, and of the restraining laws of the state.

The only ground on which the first is put by his bill of complaint, is that the manner of making the certificates payable to the order of the secretary, was a mere shift or device to evade the letter and spirit of the charter of the company, (being in substance and legal effect payable to bearer,) and that they were so made and issued within the prohibition contained in the charter. Hence they were unauthorized and when issued were absolutely void, and furnished no legal or valid consideration for Ms bond and the assignment of the Ingersoll mortgage. Some other grounds will be found stated in the counsel’s points used on the argument, but which are not made a part of the bill, and therefore are not to be noticed.

If ext, is the objection founded on the alledged infringement of the laws of this state.

The bill alledges that this company (a foreign corporation) did, at the time of the transactions with Mumford, and without

The provisions oí the statute above referred to, were so far repealed or modified by an act passed February 4,1837, (Laws of 1837, p. 14,) as to permit any person or association of persons not incorporated, to keep offices for the purpose of receiving deposits, or discounting notes or bills. But it is deplared that this modification is not to authorize or permit “ any corporation created by the laws of any other state or country, to keep any office for the purpose of receiving deposits, or discounting notes or bills, or issuing any evidence of debt to be loaned or put in circulation as money within this state.”

This company could not therefore lawfully engage in any business, which to every foreign corporation is prohibited in this state as a matter of domestic policy. Has this company done so ? It is not denied that the company opened and kept an office in Wall-street- in the city of Hew-York, where for several years, and at the time of the transaction with Mumford, the principal part of the business of the company was conducted under the management of officers and directors appointed for the purpose ; but the complainant is bound to prove more than that. The burthen is on him to show that the business transacted belonged to the class or description of prohibited business. We can have no difficulty in understanding what that is. The

Mr. Thurston was also required to state the nature of the business done at their office in Hew-York, and he says “ we received deposits of money in trust, insured lives, made loans on bonds and mortgages and other securities. This comprises the principal business.” With respect to certificates issued by the company he says, the amount issued at the office in Hew-York during the year 1838 was ¿6535,434 sterling payable in London, 500,000 in francs payable in Paris, and $761,563 payable in Hew-York. The larger portion of all these were drawn to his order and indorsed by him ; they were generally, and the larger portion, issued for money paid to or received by the company from the parties receiving the certificates, and entered on the books as deposits in trust. Those issued not for money so received were principally in exchange for bonds and mortgages and other securities. The money so received or deposited, and for which certificates were issued, was principally loaned out on bond and mortgage. The company, he says, was also engaged in the city of Hew-York in buying and selling exchange, and in the purchase and sale of stocks. How it seems to me that all this is outside of the general routine of business conducted by our banks. Here are, it is true, deposits of money spoken of as having been [481] made, but they were deposits in trust, upon interest, for

There is no proof furnished of the company’s discounting any bills or notes at any time; and with respect to the issue of their certificates of debt, there is no evidence that even that portion of them which were payable here in our own currency, were put in circulation in the place of money like bank notes, or were calculated or intended for that purpose; and much less probability is there that those which were payable in foreign coin in London and Paris, were thus to be used here, or even could be. But to enable Mumford to avoid his contract with the company on the ground, either of the disregard of their own charter or of the restraining law of this state, he should show that the particular contract, itself was entered into by the company, in violation of the one or the other, or both. He can not avoid it, because the company may have carried on a course of unlawful dealing with other persons, any more than he could get rid of the payment of a note or bond, by showing that the payee or obligee was a notorious usurer, and generally in his dealings took excessive interest. The cases in which the question has arisen upon the statute against unauthorized banking were cases of actions brought upon contracts shown to have been unlawful in themselves, or to have grown out of transactions forming a part of the forbidden business. (Pennington v. Townsend, 7 Wend. 276 ; De Groot v. Van Duzer, 20 id. 390 ; New Hope Co. v. Poughkeepsie Silk Co. 25 id. 648.)

Then was there any thing about the contract or dealing between Mumford and the company to render it unlawful by the statute? It took place at their office in Wall-street, where the principal part of the business was conducted, but this did not render it unlawful. There is nothing in the charter of this company, nor in the laws of this state, which prevented its officers and agents from making contracts any where in this state.

But if my view should be erroneous and the complainant should appear to be entitled to relief upon any ground except that of usury, does he present himself to the court in a proper manner to receive it ? He obtained the company’s certificates, or bills of credit to a large amount, and if they were issued contrary to law, he is in pari ddieto; and by directly or indirectly assenting to receive them, he, as well as every other person engaged in the transaction, incurred the penalty declared by the seventh section of the statute. He was instrumental in putting these certificates into the market, where they were sold for his benefit and he has received the avails. There is no evidence that the company has ever sought to repudiate them. Mumford’s sale of them has given to the purchasers a right to rely on the honesty and good faith and ability of the company to pay them. How then can Mumford be allowed to set up their illegality and withdraw from the company the securities which he furnished, on which its ability to pay in some measure depends ? He comes into a court of equity, and by virtue of its general jurisdiction, asks the court to undo a contract and

There is still another point in the case which it may be worth while briefly to notice, and that is, as to the legal effect of the proceedings, and decree, and sale, in the foreclosure suit upon the Ingersoll mortgage. The answer sets up those proceedings as a bar to any relief in this suit. It can only be necessary however, to examine this part of the case upon the supposition that there is enough in one or more of the other points to produce a different result from what I have arrived at. The bill in the foreclosure suit, filed by Mr. Mumford, in the joint names of himself and the company, recognizes very fully the right of the company to be paid out of the mortgaged property! The decree asked for and obtained upon a master’s report of the amount due and to become due and of the propriety of selling the whole premises, was for a sale of the whole and for the proceeds to be paid to the company and himself. True, it does not specify how much to each. Ho distinction is made between them, and no reservation. It is as much a judgment or decree, establishing the right of the company to be paid, as the right of Mumford. Is it not therefore, as definitive between them upon the matter of right, as if they had been. adverse parties to the suit ? I perceive no difference. Again. The decree thus obtained has been followed by a sale made by an officer of the court, a regular and valid sale which remains in full force ; not yet consummated it is true, by the delivery of a deed to the purchaser, nor by the actual payment and application of the purchase money; but in equity, the title to the land is already virtually in the purchaser; and the plaintiffs in the foreclosure

It appears to me therefore, that Mr. Mumford and his representatives are estopped from setting up usury, or any other illegality, to defeat the rights of the company, as the assignee of the Ingersoll mortgage, or to deprive them of any interest they may have acquired by the sale, either as purchasers of the land through the medium of the solicitor’s bid, or as recipients of the money produced by it; and that the only thing now remaining to be done between the litigant parties, is to adjust between themselves the value of the property to the company as purchasers, to be credited on Mumford’s bond and the guaranty of the bank, and to take the directions of the court below for perfecting the title in them accordingly, or in George H. Mumford the nominal purchaser, with directions to him to resell "the property and apply the proceeds as above mentioned.

The judgment of the supreme court appealed from, and the decree of the late vice chancellor, which that judgment affirmed, should both be reversed, and the bill be dismissed with costs.

Mumford alledges that his assignment of the mortgage to the Trust Company was illegal and void, on the ground of usury; and also on the ground that the company violated our restraining law, and its own charter. For these reasons he seeks by the bill to get rid of his bond and assignment to the company, and to have the master’s deed executed to himself. "Whatever objection there may have been originally to the transaction, I think Mumford is not now at liberty to say that the assignment was illegal and void. It is .in direct conflict with what he did and said when he caused the bill to be filed for the foreclosure of the mortgage. He then not only used the name of the Trust Company as a necessary party to the bill, but he alledged, and swore to the truth of the allega

If the company had foreclosed the mortgage without the concurrence of Mumford, he might perhaps still alledge that the assignment was void for usury, and treat the company as trustees for him. But that would be a very different case from this, where Mumford directed, and was a party to, the foreclosure suit, and where he continually affirmed the validity of the assignment, and carried forward the proceedings until they resulted in the satisfaction of the company’s debt, so far as the

If we assume that Mumford is right in any or all of the objections which he now urges against the assignment, the objections came too late. I am of opinion that the decrees of the courts below should be reversed, and the bill be dismissed.

Jewett, J. also delivered an opinion in which he only considered the question whether the transaction was a sale of the six first installments of the Ingersoll bond and mortgage, or a. loan by the Trust Company to the plaintiff of the sum which the latter received in the certificates of the company. He came to the same conclusion with McCoun, J. that the transaction was a sale.

A majority of judges were of opinion that the contract did not involve a loan, but was a mere sale and purchase of the six installments of the bond and mortgage; ■ and upon the whole case the decrees of the vice chancellor and supreme court were reversed, and the bill directed to be dismissed.