Clayes v. Hooker — 11 N.Y. Sup. Ct. 231

Majority

p. 231

EDWARD D. CLAYES, Appellant, v. HENRY HOOKER and ALFRED BAKEN, Respondents.

Headnote

Umry—governed by lex loci contractus—how pleaded—varriamce.

A promissory note, made, dated and payable in this State, is, so far as the question of usury is concerned, a New York contract, and its validity is to be determined by the laws of this State, although negotiated in a foreign country, at a rate lawful there but usurious here.

In pleading usury, the transaction should be correctly set out in substance; but where on the trial the evidence tends to prove a usurious agreement, differing from the one alleged in the answer in several particulars, but not in its entire scope and meaning, and the plaintiff is not misled thereby, the variance will be deemed immaterial.

Appeal from a judgment in favor of the defendants, entered upon the report of a referee.

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Vary & Stone, for the appellant.

The legality of the transaction should be tested by the laws of the place where the contract was made. (Bowen v. Bradley, 9 Abb. [N. S.], 395; Cope v. Wheeler, 41 N. Y., 303 ; Story on Conflict of Laws, §§ 364, 367, 372, 424, 427; Hosford v. Nichols, 1 Paige, 220; Abul v. Douglas, 4 Denio, 305 ; Young v. Brush, 28 N. Y., 674 ; Nichols v. Levett, 4 Sandf., 253 , 276; Balme v. Wombough, 38 Barb., 352 ; Backman v. Jenks, 55 id., 468 , opinion by Bockes.) The answer must set out the usury correctly. (Manning v. Tyler, 21 N. Y., 567 ; Cutler v. Wright, 22 id., 472.) The case of Jewell v. Wright ( 30 N. Y., 259 ), only decides that, when the rate of interest is illegal both at the place of discount and the place of payment, on an attempt to enforce payment in this .State, the laws of New York applicable to forfeiture for usury will control. Beyond this it has not been followed. (First National Bank, N. Y. v. Morris, 8 Sup. Ct. [1 Hun], 680; City Savings Bank v. Bidwell, 29 Barb., 325 ; Bowen v. Bradley, 9 Abb. [N. S.], 395; Bank Georgia v. Lewin, 45 Barb., 340 .) In the administration of the bankrupt act, notes made and signed in Philadelphia, but delivered and discounted in New York, are governed, as to the question whether they are void for usury, by the laws of New York. The place where a note is first negotiated is the place of the contract. 1871, Matter of Conrad (8 Phila. [Pa.], 147.) “ Phila. [Pa.],” means Federal and State Courts Decisions, published in the Legal Intelligencer during 1870 and 1871, by Henry E. Wallace; Vol. 8.

Myers & Morris, for the respondents.

The note being made and also indorsed in this State, and payable in this State, the laws of this State are to govern, so far as the defense of usury is concerned. (Cutler v. Wright, 22 N. Y., 472 ; Jewell v. Wright, 30 id., 259; Hacketstown v. Rea, 6 Lans., 455 ; Williams v. Fitzhugh, 37 N. Y., 451 , 452; Cope v. Wheeler, 41 id., 303, 309.) The note having been discounted before inception, at a greater rate than seven per cent per annum, is usurious and void. (Catlin v. Gunter, 11 N. Y., 368 ; Newell v. Doty, 33 id., 83.) The rules provided by the Code in relation to a variance between the pleading and the proof, apply as well to the defense of usury as to other defenses; and the strict rule which formerly prevailed as to this defense, has

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been changed by the Code. (Catlin v. Gunter, 11 N. Y., 373 , 374, 375; Dagal v. Simmons, 23 id., 491-493 ; Griggs v. Howe, 3 Keyes, 169.) A statement of the usurious agreement, in substance, is all that is required. ( 23 N. Y., 493 ; 11 id., 375, 376.) Where the transaction is alleged to be that of the principal, and it turns out on the trial to be that of the agent (which is this case), the variance is not fatal, but is the subject of an amendment, and may be disregarded on appeal. (Bennet v. Judson, 21 N. Y., 238 .) The case, as printed, does not show the answer to have been amended; but that cannot be taken advantage of on appeal so long as the amendment was allowed. The court has the right to allow an amendment even on appeal. (Bate v. Graham, 11 N. Y., 237 ; Foote v. Roberts, 7 Rob., 17 ; Bowdoin v. Coleman, 3 Abb., 431 ; Harrower v. Heath, 19 Barb., 331 , 338; Cady v. Allen, 22 id., 338 .)

This case comes here by appeal upon a case and exceptions. The facts found by the referee are not excepted to; the only exceptions noted are to the conclusions of law found by the referee. The action was to recover on a promissory note of $1,000, made and dated at Morristown, Yew York, October 11,1872, and payable at the First Yational Bank of Syracuse, Yew York. The makers of the note were the firm of Burrows, Bro. & Co.; it was indorsed by Ford, one of said firm, and by the defendants as accommodation indorsers. All the parties but Ford were at the time residents of Morristown, aforesaid. The defense was usury. It appeared that after the note was made and indorsed, Burrows, one of the firm of makers, took this note and other notes to Brockville, Canada, and applied to one Harding to raise money; asked Harding to discount said notes. Harding said he was short, but would buy the notes if he could raise the money. Burrows inquired if he could not raise the money from the banks or from Clayes (who is the plaintiff), or from other persons; Harding said he would see. Harding did apply to plaintiff to buy said notes, and plaintiff thought he would. Afterward, Burrows sold to Harding the note in suit; another note made and indorsed by the same parties for $500, at four months; five business notes, amounting to $791.97 (amounting in all to $2,291.97), and

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delivered as security for the business notes, another note, dated October 11, 1872, at four months, made by Burrows, Bro. & Co., and indorsed by Ford. That said notes were sold by Burrows to Harding, at a discount of over twelve per cent per annum for the time they had to run before maturity. After this agreement between Burrows and Harding, and the delivery of the notes, Harding sold the note in suit of $1,000, the other $1,000 note delivered as security for the business notes, and the $500 note (they all then having less than four months to run), to the plaintiff for $2,405, a discount of over ten per cent; and after such sale to plaintiff, Harding paid to Burrows the purchase-price of said notes. Such sale or sales were lawful in Canada. The note in suit was, at maturity, duly presented and protested. The referee held that the validity of said note must be determined by the laws of this State; that by such laws the sale to Harding was usurious; that never having had a valid inception before its transfer to the plaintiff, it was in his hands usurious and void;'and that defendants were entitled to have their answer amended so as to conform to the facts proved.

As a general rule, the law of the place where contracts, purely personal, are made, must govern as to their construction and validity. In this case, the note was made and dated in the State of Hew York, and payable in this State, and therefore, by the laws of this State, so far as the question of usury is concerned, it is to be treated as a Hew York contract, and its validity construed by the laws of- this State, although negotiated in a foreign country, at a rate lawful there but usurious here.^[3]

Hnder the laws of this State, the negotiation of the note in suit was usurious and void. I am aware that these cases in the Court of Appeals have been reviewed by the Superior Court of Buffalo, in Bowen v. Bradley,^[4] and pronounced unsound. Still I feel bound to follow the appellate court. The rate deducted from these notes at the time of sale, is stated in the finding at twelve and a half per cent per annum, and I think that finding was warranted by the evidence.

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In pleading usury, the transaction should be correctly set out in substance.^[3] I think the answer does substantially state the transaction as proved and as found by the referee. It is claimed that the answer sets up usury in the purchase by the plaintiff, and that there was no usury in such purchase. That, however, depends upon Harding’s true position in the transaction. Was he, in reality, the purchaser from, or the agent of Burrows ? If Harding was a purchaser, the transaction with him was usurious; if an agent, the transaction with plaintiff was usurious. As it affected the defendants, the transaction was usurious whichever way is the truth. And it is even now quite difficult to determine Harding’s position. He made the contract of purchase, but did not pay therefor until after the sale to plaintiff. But as this was only a question of pleading, the usury being established, it was proper to allow the answer to be (onformed to the facts proved. It is one of the cases contemplated by section 113 of the Code. While the Code has not relaxed the rule requiring facts to be stated in a pleading essential to make out usury, as to variances, its provisions are as applicable to usury as to other cases.

It was held in Catlin v. Gunter,^[4] that when, on the trial, the evidence tended to prove an usurious agreement, differing from the one alleged in the answer in several particulars, but not in its entire scope and meaning, the plaintiff giving no proof that he was misled thereby, to his prejudice, the variance should be deemed immaterial.

The case was properly disposed of, and the judgment should be affirmed.

Present — Learned, P. J., Boardman and James, JJ.

Judgment affirmed.

* 25 N. Y., 49 , 143.

† † 11 N. Y., 368

Footnotes

* Curtis v. Leavitt, 15 N. Y., 9 , 227; Jewell v. Wright, 30 id., 259; Cope v. Wheeler, 41 id., 303.
† † 9 Abb. (N. S.), 395.