Reich v. Cochran

The plaintiff, by this action, seeks to enjoin the defendants from using certain judgments against which relief is asked, and to have certain assignments of a lease declared to be a mortgage instead of assignments, and to be void for usury. Also to recover possession of the leasehold premises, which are used as a hotel, and for an accounting of the rents and profits collected by the defendants since the eviction of the plaintiff. Since the action was tried, the original defendant has died, and the defendants above named have been substituted in his place. For convenience of expression, the word “Cochran” will be used to designate the original defendant.

The history of the controversy between the plaintiff and Cochran is a long one, and the resulting litigation has been varied and incessant for a period of more than io years. The facts necessary to be stated are as follows: On February 14, 1886, the trustees of the Astor will, so called in the action, leased to the plaintiff the premises situated on the southwesterly corner of Fifth avenue and Thirty-Third street, in the city of New York, known by the street numbers 328, 330, 332, and 334 Fifth avenue, and now known as the .Cambridge Hotel, for a term of five years, beginning May 1, 1886, at an annual rental of $25,000," with a further agreement to extend the lease at the same rental for an additional term of fifteen years, provided the plaintiff, at the expiration of the five-year term, to wit, on May 1, 1891, should have made improvements upon the premises at a cost of not less than $50,000, and also that if the lease should be subsisting at the expiration of the second term, to wit, on May 1, 1906, and improvements had been made costing not less than $50,000, to pay the plaintiff the value thereof, not exceeding $100,000, or to give him a further lease for a term of twenty years from May 1, 1906, at an annual rental of 5 per cent, upon the fee value of the premises. There was evidence that when the plaintiff obtained this lease he was offered $100,000 for it. The plaintiff, without contradiction, testified that the total cost of equipping the hotel was $550,000. Shortly after obtaining it, the plaintiff had negotiations with Cochran and

Total payments of rent by Reich as above shown......... §948,000

Last payment made by Reich provided for in defeasance agreement .»«.................... 2.................. 100,000

Total ...........................................

Payments to be made by Cochran to the Astors, §25,000

per year for 18 years.................................

Interest on §275,000 at 6 per cent, for 18 years. ..........

Principal loaned .......................................

$1,048,000

§450,000

297.000

275.000

Total ..

1,022,000

Surplus over and above principal and interest, at 6 per cent....... $ 26,000

Cochran continued to press for such an agreement, and the plaintiff continued his refusal. While the latter was sick in bed, Cochran and Stewart called upon him, and at this interview, so Stewart testified, Cochran assured the plaintiff that he wanted the lease only as security.

Finally, on February 11, 1888, the plaintiff yielded, and the papers were signed, being (1) a surrender of the lease by the firm of “L. Reich” to Lorenz Reich, the plaintiff; (2) an agreement for the dissolution of the firm of “L. Reich"; (3) assignment of the Astor lease by the plaintiff to Cochran; (4) bill of sale of the furniture in the hotel by “L. Reich” and the plaintiff to William F. Cochran; (5) lease by Cochran to the plaintiff of the same premises; (6) an agreement between Cochran and the plaintiff that the latter might reobtain possession of the Astor lease by paying Cochran $185,000 on May 1, 1900, or $100,000 on May 1, 1906; (7) an agreement between the same parties enumerating-items and charges against the plaintiff, stating the amount of $275,000 as the consideration in the assignment of the Astor lease; and (8) an agreement as to certain mechanic’s liens.

The plaintiff testified that before he signed these papers Cochran visited his room, and assured him that he took the lease only as security, and furthermore promised him that, if he would pay $6,000 within six months, he (Cochran) would reduce the rate of interest to whatever the plaintiff was able to pay. The plaintiff also testified that he had paid this $6,000 the first part of June, 1888, in the presence of his wife and Will K. Stevens. Stevens corroborated this testimony, and a check dated June 12, 1888, made by the plaintiff to his own order, was put in evidence in further corroboration, the proceeds of which check it was claimed furnished the money which was paid over. The plaintiff’s wife did not corroborate this testimony, as she was not called as a witness. In March, 1891, the first or five-year

It is denied on behalf of the defendants, by their counsel, that some of these letters claimed to have been sent by the plaintiff to Cochran were in fact ever sent, the claim being made that they were concocted after the plaintiff was in desperate straits, with the deliberate purpose of subsequently claiming usury, and thus freeing himself from Cochran’s entire claim. On June 27th, however, Cochran wrote to the plaintiff, assuring the latter that he could rely upon Cochran’s fulfilling every agreement, oral or written, but making no denial of the statement alleged to have been contained in the letter of the same date, which it is claimed the plaintiff sent to him. Neither is it explained by the defense to what this assurance did relate, nor is any other letter from the plaintiff to Cochran to which it could have been in response offered in evidence. This circumstance, therefore, lends strong corroboration to the plaintiff’s assertions in regard to the correspondence and the contents of the letters he claims to have sent, and copies of which he produced in evidence, but the receipt of which is denied by the defense. The fact that Cochran himself was not put on the stand as a witness to contradict the plaintiff on this point and others, as well as the testimony of Stevens and Stewart, is significant.

A few months after this, on September 19, 1891, the litigation between the parties, which has proved so involved and protracted, was begun by the filing of a petition in summary proceedings in the district court in the city of New York for the Sixth Judicial District, by Cochran, to dispossess the plaintiff. On the same day the plaintiff wrote to Cochran, complaining of the proceedings, and that he understood that everything was settled between them, and that Cochran would keep the contract, which was for 4 per cent, interest, and asked why he (Cochran) did not tell him of such proceedings. On the same date Cochran acknowledged the receipt of the plaintiff’s note, and stated that he did not know what papers had been served, and that his instructions to his attorney did not contemplate any other arrangement than he had advised the plaintiff. On the 30th day of September the taxes were paid, and the summary proceedings discontinued. In the same month—September, 1891—an action was begun in the Supreme Court, Westchester county, on a note given by the plaintiff in payment of rent due under the lease in suit, in which action the defense of usury was pleaded, the answer

The details of this proceeding, necessary to be stated, are as follows: The statutory notice required by section 2231 of the Code of Civil Procedure, demanding the payment of the rent, is claimed by the defendants to have been served on the plaintiff in New York City, on August 5th, by one Bagg. That the plaintiff was not in New York City on that day, nor for some days preceding and following, is abundantly established by evidence not necessary to be reviewed, it being sufficient to say that several persons, among them guests at his summer house at Brentwood, Long Island, testified that they were with him constantly at that place during the days mentioned. The petition in the proceeding is dated August gth. A precept was issued, returnable on August 17th. When the case was called in the Sixth District Court, an attorney named Hewitt answered, and asked for an adjournment. Hewitt had been met that morning on the courthouse steps by the plaintiff’s attorney, and had been asked to make this request for an adjournment, the attorney explaining that he could not remain because of other engagements. Hewitt and the plaintiff’s attorney had never met until this occasion, and Hewitt’s appearance was entirely accidental and casual. The circumstances of the case were not explained to him, nor was he asked to do anything more than to request an adjournment, which he did, but which was refused by the justice presiding on that occasion, in the absence of the justice of the said court. After some colloquy between the justice and Cochran’s attorney, which Hewitt could not recall at the trial, the justice refused an adjournment, and a final order was rendered in favor of the petitioner that a warrant issue, but a stay until the next day was granted. It is claimed on behalf of the plaintiff that the justice who regularly presided in that court was familiar with the summary proceedings theretofore had between the parties, and with the fact that the rent was uniformly paid after the institution of the proceeding; this course being deemed advisable by the plaintiff’s attorney, in order to preserve his rights by not appearing to waive his defense of usury by acquiescing in the payment of rent, or any other recognition of the existence of the relation of landlord and tenant, except under compulsion. But, how

Shortly after this final order was obtained, leave was procured to serve a supplemental answer setting up this adjudication in the suit víliich the plaintiff had commenced against Cochran, as above stated, to set aside and cancel the lease as usurious. As a consequence, when that action came on to be tried in the Supreme Court before Mr. Justice Ingraham, the complaint was dismissed on the ground that the final order was an adjudication conclusive between the parties that the relation of landlord and tenant existed between them, which necessarily involved an adjudication that the lease was a valid one, and untainted with usury. An appeal was taken from this decision, but it was sustained in the General Term ( 74 Hun, 551 , 26 N. Y. Supp. 443 ) and in the Court of Appeals ( 151 N. Y. 122 , 45 N. E. 367 , 37 L. R. A. 805 , 56 Am. St. Rep. 607 ).

Shortly after the decision of Mr. Justice Ingraham just referred to, a motion was made in the summary proceedings in the Sixth District Court for an order opening the default of August 17th, which motion was denied on the ground, among others, of lack of power, and upon appeal to the Appellate Term ( 20 Misc. Rep. 593 , 46 N. Y. Supp. 441 ) it was held that no such power resided in the trial justice in the case of summary proceedings as distinguished from actions, the opinion concluding as follows: “So that, irrespective of the merits (if any there were), the application was properly denied.” A motion was also made before Mr. Justice Ingraham to open the judgment taken before him, in order that the case might be tried on its merits; but this motion was not argued until after another summary proceeding to dispossess the plaintiff had been instituted, in which an attempt was made to set up the defense of usury, but the district court refused to entertain such defense, holding that the lease was a valid instrument, and that the judgment so rendered by Mr. Justice Ingraham was conclusive as to all matters adjudicated thereby, or which the parties might have litigated as an incident to the subject-matter of the litigation, which decision was upheld on appeal. 20 Misc. Rep. 623 , 46 N. Y. Supp. 443 . In pursuance of the final order in that proceeding, the plaintiff was dispossessed on March 17, 1893. Subsequently, and on June 30, 1893, the motion to open the judgment just referred to was denied by Mr. Justice Ingraham. Subsequently, and in the year 1895, two other judgments were taken by Cochran against the plaintiff in actions brought upon notes given in payment of or upon demands for rent accruing under the lease. One of these actions was tried before Hamilton Odell, Esq., as referee, and the other was tried before Mr. Justice Dugro, and in both actions the final order in the Sixth District Court and the judgment in the action before Mr. Justice Ingraham were held to constitute a bar to the plaintiff’s efforts to set up the defense of usury.

I am satisfied, from an examination of all the evidence in the case, that such contracts were intended to be and were usurious. From the time of the first loan up to the time when the plaintiff was finally dispossessed from the premises there is apparent a steady purpose on the part of Cochran to exact and receive more than the legal rate of interest. This purpose was more or less disguised under various forms of agreements, such as the copartnership agreement, and finally the assignment with the defeasance clause, and the lease by Cochran to the plaintiff, but through all these changes the relations between the parties seem clearly to be those of debtor and creditor, the plaintiff remaining always in possession of the property, and paying money to Cochran, sometimes in the form of profits of the copartnership and sometimes in the form of rent, and again in the form of the free use of apartments, but always in reality as interest, and in excess of 6 per cent.; and with equal uniformity the amount the plaintiff was bound to pay to recover his property was increased by the full amount of the various advances and investments of Cochran, even by the sum put in as a contribution when he entered as a copartner, and which, on his theory that the copartnership was insolvent, he was not entitled to claim as a loan to the plaintiff. I am not unmindful of the fact that the plaintiff is contradicted, and to some extent discredited, in his testimony; but, on the other hand, he is powerfully corroborated in his claim that the assignment of the lease' was given merely as security, and that the sums he paid were paid as interest. Thomas E. Stewart, a reputable member of the bar, testified unqualifiedly that at the time Cochran was pressing the plaintiff to make this assignment he admitted that he wished it merely as security for the amount due.

There is the further circumstance that in one of Cochran’s letters to the plaintiff he virtually admits that there was some oral understanding between them when he assures the plaintiff that the latter can depend upon his fulfilling every agreement, oral or written. There is also apparent in the correspondence which admittedly passed between them, even after leaving out of account the letters which it is denied that Cochran ever received, the existence of some understanding between them which Cochran was unwilling to have reduced to writing, and which the plaintiff was growing increasingly anxious to have put in that form. There is also the fact that in an agreement made May 1, 1887, there was a provision for the payment of 6 per cent, interest upon such portion of the $175,000 therein mentioned as was advanced prior to April 1, 1887, and upon the residue thereof at the rate of 3 per cent, per annum from the 1st day of April, 1887, since which time it was stated in the agreement such balance had been held and would be held in reserve by Cochran. That this 3 per cent, was collected at least a portion of the time appears from the evidence. ' Nevertheless, as appears by a letter written by

There remains the question whether or not, usury being established, the plaintiff should be permitted at this late day to have the various adjudications set aside, in order that he may avail himself of such defense. On behalf of the defendants it is strongly urged that an action in equity to set aside a judgment can be sustained only upon the allegation of fraud in the concoction of the judgment (citing Mayor v. Brady, 115 N. Y. 599 , 22 N. E. 237 ; Stilwell v. Carpenter, 59 N. Y. 414 ; Ross v. Wood, 70 N. Y. 8 ; Smith v. Nelson, 62 N. Y. 287 ; Sanders v. Soutter, 126 N. Y. 199 , 27 N. E. 263 ; Black Judg. § 367), and that it is an established principle that where, as here, the ground for seeking relief is simply the negligence or incompetence of the attorney, without fraud, the proceeding must be upon motion in the action; and the broad distinction is pointed out between the effect of setting aside a judgment by an independent action, and merely vacating and opening it by a motion in the same action; the proceeding in the latter case being preserved up to the time of the judgment, and a new trial granted, while in the former the entire proceeding is nullified and terminated. I do not conceive, however, that the effect of the authorities just cited is to deny an applicant all relief in a case where only negligence is shown, and where the remedy by motion would be impracticable. Unless he can show fraud, the rule is to relegate him to a motion as the preferable proceeding. There may, nevertheless, be a case so exceptional in its features that an action, rather than a motion, will better answer the purposes of justice, and such, I think, this case is. The real consideration which should guide courts in determining whether to grant relief, either by motion or by separate suit, is well expressed in the following words used in Levy v. Joyce, 14 N. Y. Super. Ct. 622 , 625, quoted with approval in Gideon v. Dwyer, 17 Misc. Rep. 233 , 40 N. Y. Supp. 1053 , affirmed 7 App. Div. 608 , 41 N. Y. Supp.1116:

“There may he a case so novel and peculiar in its nature, in which it is so palpable that actual injustice may and probably has been done, and where there are no other means of relief, that the court will feel bound to relieve the party from the consequence of the inadvertence and mistake of his counsel, although it arose from a misapprehension of the law or rules of practice, if that can be done without prejudice to the rights of the other parties; by which is meant without any loss to them other than such as may nécessarily result from establishing what may be shown to be the rights of the party applying.”

Assuming, then, that relief should be granted, the only question is in what form—by motion or by action ? Under the peculiar facts

On behalf of the plaintiff, it is strenuously insisted that the court has no power to impose the above condition that the amount due, with lawful interest, shall be paid as a condition to granting relief, it being claimed that such power is taken away by the statute (1 Rev. St. [1st Ed.] p. 772, pt. 2, c. 4, tit. 3, § 8), which declares that: “Whenever any borrower of any money, goods or things in action, shall file a bill in chancery for a discovery of the money, goods or things in action taken or received, in violation of either of the foregoing provisions, it shall not be necessary for him to pay, or offer to pay, any interest whatever on the sum or thing loaned, nor shall any court of equity, require or compel the payment or deposit of the principal sum or any part thereof, as a condition of granting relief, to the borrower, in any case of a usurious loan, forbidden by this chapter;” citing Williams v. Fitzhugh, 37 N. Y. 444 ; Birdsall v. Patterson, 51 N. Y. 43 ; Minturn v. Farmers’ Loan & Trust Co., 3 N. Y.

The statutory inhibition above quoted does not restrain the court in this case, in my opinion, because the relief granted is not against usury alone primarily, but is against a series of adjudications which have been obtained against the plaintiff, and which he asks a court of equity to set aside. Such being the situation, it is entirely competent for the court to inquire what use the suitor intends to make of the freedom he seeks at the hands of the court, and if it is apparent that he purposes to defeat the creditor’s claim to principal and lawful interest, the court clearly has the power, notwithstanding the statute above cited, to impose such terms as" conscience requires, not as a condition to granting relief against usury, but against the judgments.

Let a decision and judgment in accordance with the views above expressed be submitted for settlement upon eight days’ notice, at which time the question of costs will be determined.

Judgment accordingly.