Frank v. Davis — 25 N.Y. St. Rep. 207

Majority

p. 207

Julius J. Frank, Resp’t, v. Edward A. Davis, App’lt.

(Supreme Court, General Term, First Department,

Filed July 9, 1889.)

Headnote

Usury—What dabs not constitute.

Usury cannot be predicated upon an agreement to sell real estate and receive in payment therefor a purchase money mortgage bearing the legal rate of interest to be calculated from a date prior to the agreement. In such a contract the provision for computing interest is simply a means of increasing the purchase price; the transaction involves neither any loan of money nor any forbearance in respect to a pre-existing debt, and when there is no proof of any intent to use the transaction as a cloak for any usurious agreement, refined theories should not be resorted to for the purpose of making out usury by construction.

Appeal from a judgment rendered at special term in favor of the plaintiff in a suit to foreclose a mortgage in which the defense was usury.

Donohue, Newcombe and Cardozo, for app’lt; Samuel W. Weiss, for resp’t.

This appeal is based solely on the allegation that there was usury in the making of the mortgage sought to be foreclosed.

On January 23, 1887, a contract was entered into between Isidor Cohnfeld, and Elias T. Hatch, whereby Cohnfeld agreed to sell, and Hatch agreed to buy certain real property in the city of New York for $40,000. The title was to pass on March 1, 1887. Hatch failed to fulfill his part of the contract, and it was adjudged in the supreme court of the city of New York, that Cohnfeld was entitled to retain as liquidated damages, $6,000, which Hatch had paid to him on account of the purchase price. Pending the appeal from this decision, Cohnfeld and Hatch entered into negotiations for a settlement of their differences by a sale and purchase.

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of the premises at an advanced price. Payment of the advance was to be made by giving a bond and mortgage. The amount of this mortgage, as first proposed, was to be $4,500. Then Hatch asked Cohnfeld to make some payments on his account to attorneys and others to enable him to effect the contemplated adjustment, and Cohnfeld made these payments, which aggregated $1,000. It was then agreed that the mortgage should be given for $5,500, with interest at six per cent. These negotiations were had about the middle of July, 1887, but as the title was to have been closed under the original contract of sale on March 1, 1887, it was agreed that the mortgage should bear date on that day. On July 13, 1887, Hatch executed an instrument, in writing and under seal, by which he released Cohnfeld from all obligations to him under the original contract between them, and requested Cohnfeld to convey the premises to Edward A. Davis, the defendant herein, upon such terms as he deemed proper. This instrument empowered Cohnfeld to retain the proceeds without any claim to the same, or any part thereof, in behalf of Hatch, who expressly surrendered to Cohnfeld all his right, title and interest in and to the property. Cohnfeld thereupon conveyed to the defendant Davis, taking from him in part payment, the purchase money mortgage for $5,500 now in suit. It is dated March 1, 1887, and bears interest at the rate of six per cent, from that date. It was in fact, executed, acknowledged and recorded on July 14, 1887.

The plaintiff, Julius J. Frank, sues as- the assignee of Cohnfeld, the mortgagee.

The appellant insists that the mortgage is usurious because it was given in part to secure the $1,000 advanced in July, while the interest thereon by the terms of the mortgage is payable from March.

No usury can be predicated on an agreement to sell real estate and receive in payment therefor a purchase money mortgage bearing the legal rate of interest to be calculated from a date prior to the agreement. In such a contract the provision for computing interest from some past date is simply a means of increasing the purchase price. The transaction involves neither any loan of money nor any forbearance in respect to a pre-existing debt. No serious question, therefore, would arise in the present case if the mortgage, which was dated back, had been for $4,500 only, or if it had been given for $5,500 irrespective of the $1,000 advanced or loaned by Cohnfeld to Hatch. But inasmuch as it represents and secures that advance or loan to the extent of $1,000, the defendant argues that it is usurious because six per cent interest is charged on that amount not from the date in July, on which it was actually advanced or loaned, but from March 1, 1887.

Notwithstanding the fact, however, that the amount of the mortgage does appear to have been augmented by $1,000

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in consequence of this advance or loan, we do not think the transaction should be pronounced void for usury. The main design which both parties had in view was a sale and purchase of the property at a price higher than that provided for in their agreement. It was to enable Hatch or his assignee, the defendant, Davis, to become a purchaser at an increased price, that Cohnfeld consented to advance the $1,000. Having done this, he was unwilling to sell unless the amount to be secured by the purchase-money mortgage should be increased to $5,500, and unless this sum of $5,500 should bear interest at the legal rate to be computed from the time which had been fixed for passing title under the original coutract. These were conditions which he might lawfully insist upon, and in so doing he merely raised the price for the property. It was as though he said, after Hatch had executed the instrument requesting him to convey to the defendant on such terms as he deemed best: “ I will not sell unless I am paid by means of a purchase-money mortgage the $4,500 originally contemplated; the $1,000 which I advanced to Hatch; and interest on this $1,000 for the time which has elapsed since March 1, 1887.” If the reservation of this interest is deemed to be merely an augmentation of the purchase price, it was not usurious. We think it should be so regarded.

A transfer of the real property was the main object which both parties were seeking to accomplish. There is no evidence of any intent to use that transaction as a cloak for any usurious ageeement, and under such circumstances “ refined theories should not be resorted to for the purpose of making out usury by construction.” Clarke v. Sheehan, 47 N. Y., 188 , 195. Viewed as a whole, and fairly, the transaction seems to have been nothing more than a method of agreeing upon a higher purchase price for the land to be sold than that provided for in the first contract.

It may be added that there is no proof of any knowledge on the part of the defendant Davis of the negotiations between Hatch and Cohnfeld, or of the advance or loan by Cohnfeld to Hatch, except that Hatch, in testifying to what occurred, speaks of himself as “representing Mr. Davis.” The transactions between Cohnfeld and Hatch, looking toward a settlement between them, were wholly oral, and no enforceable agreement relating to the land was ever entered into by them subsequent to their first contract, until the execution of the instrument of July 13, 1887, whereby Hatch released Cohnfeld and directed him to convey to Davis on such terms as he deemed proper. It is not proved, though it may be surmised, that he undertook to convey to the defendant Davis on the terms discussed with Hatch; but he certainly was under no legal obligation to do so. Cohnfeld did convey to

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Davis on terms which included taking this $5,500 mortgage, bearing six per cent interest from March 1, 1887, in part payment. No money had been loaned to Davis, and so far ns he is concerned, there is little or nothing to show that the mortgage was to any extent based on the advance of a thousand dollars to Hatch. Indeed, the recital in the mortgage that it is given for purchase money implies "that if there was any loan from Cohnfeld for which Davis "was to be made responsible, it had been secured in some way, for certainly a loan would not ordinarily be spoken of ns purchase money.

The court below properly held that the defense of usury was not made out, and the judgment directing the foreclosure and sale of the property should be affirmed, with •costs.

Van Brunt, Ch. J., and Macomber, J., concur.