Beecher v. Ackerman — 24 N.Y. Super. Ct. 30

Majority

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Luther Beecher, plaintiff and appellant, vs. George Ackerman, defendant and respondent.

Headnote

1. The purchaser of personal property pledged for a usurious loan, from the borrowéí, who agrees to pay the debt, is not a borrower within the meaning of the statute of 1837, which permits borrowers on usuryto maintain actions for relief from their contracts without paying or offering to pay principal or interest.

2. But in an action by such a purchaser, for relief from the usurious contract, it is not a ground for dismissal of the complaint at the trial that it does not contain an offer to pay what is equitably due; but he may have such relief upon condition of making such payment, with costs.

3. Where such a purchaser obtains a further usurious loan from the same lender, giving one note for the total amount, and pledging other property to secure the whole, the property last pledged can not be retained by the lender as security for the original loan. ■

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4. Although a debtor can not recover back securities delivered and accepted in payment of a usurious loan, yet he may compel the rescission and surrender of a guaranty for the payment of such securities, given by him at the same time.

(Before Boswobth, Ch. J. and Mongrief and White, JJ.)

Heard May 3,1866;

decided May 30, 1863.

This was an appeal by the plaintiff from a judgment for the defendant, entered on the decision of Mr. Justice Barbour, after a trial before him without a jury in March, 1862.

In March, 1856, a Mr. Wilkins applied to the defendant, in the city of New York, for a loan of $11,000. It was agreed between them that the money should be lent to Wilkins, by the defendant, at the rate of seven per cent per annum, and one and a half per cent per month, in addition, under the name of a commission, amounting in all to over $900, to be deducted from the $11,000 at the time of the making of the loan, and retained by the defendant, and that Wilkins should give his note to the defendant for the $11,000, payable without interest four months from date, and should secure the same collaterally by an assignment and transfer to the defendant of' certain bonds issued by the county of Iowa, in the state of Wisconsin, to the amount of $22,000, then held by Wilkins. All of which was done.

In June, of the same year, the plaintiff and Wilkins called upon the defendant together, and stated to him that the plaintiff had assumed the payment of his debt to the defendant for his loan. The plaintiff then applied to the defendant for loans to himself. An agreement was thereupon made between the plaintiff and* the defendant, that the latter should lend to the former, sums of money from time to time, as they might be wanted, upon the plaintiff’s promissory or stock notes, secured by a pledge of Iowa county bonds, or drafts of a railroad company, (Mineral Point,) and that the former should allow, and pay to the latter, two per cent per month for the use of the money so.lent, either in money or by other notes. It was also further understood between them, that the plaintiff should assume the payment of Wilkins’ note for $11,000, and

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that $22,000 of Iowa county bonds in the hands of the defendant, subject to his lien, had been purchased from Wilkins by the plaintiff.

Under and in pursuance of this agreement, the defendant, prior to November, 1857, lent to the plaintiff, at sundry times, various sums of money, receiving from him, for the use of the money lent, the per centage so agreed upon, either in money or notes, and taking- therefor the plaintiff’s notes, collaterally secured as agreed upon. When Wilkins’ first note for $11,000 became due, it was twice extended; the plaintiff, upon each occasion, paying to the defendant for the extension, in money or-in account, at the rate of two per cent a month. Upon maturity of the last substituted notes, a note of the plaintiff for $12,000, payable to the defendant four months from date, was substituted in place of the Wilkins notes, of which sum upwards of $900 was for interest upon a previous $12,000 note, the difference being paid by the defendant to the plaintiff in money or in account.

In April, 1857, the first $1-2,000 note, which had been renewed upon similar terms, for sixty days, together with another note, which had been given to the defendant by the plaintiff, for loans made to himself under the agreement, were consolidated by the- latter giving to the former one note therefor, for $28,000 at sixty days, including interest to maturity, at the rate of two per cent per month. In July following, a new note at sixty days, for $30,000, was given to the defendant by the plaintiff in renewal of that $28,000 note; with interest at the rate of two per cent per month, and a check for "the difference was "then given to the plaintiff by the defendant. For the payment of that last note the defendant held, as collateral security, bonds of the Mineral Point Railroad Company, to the amount of $16,500, and $11,000 in bonds of the county of Iowa, placed in his hands by the plaintiff, and also the Iowa county bonds for $22,000, originally pledged by Wilkins; making in' all the sum of $49,500.

Other loans were also made to the plaintiff by the defendant from time to time, under the same agreement, for which sundry

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notes, including interest upon the sums lent at the rate of two per cent per month, were, given by the plaintiff,, collaterally secured by drafts drawn by the president of the Mineral Point Railroad Company upon its treasurer, payable at future dates. In November, 1857, all the last mentioned notes, with the interest, were found to amount to $35,882. It was then agreed between the plaintiff and the defendant, that those notes should be given up . and canceled. That the plaintiff should give his promissory note at six months to the defendant for the $882. That, for the balance, the defendant should receive from the plaintiff, and hold as absolute owner, nine drafts, dated and payable at Mineral Point, in the state of Wisconsin, drawn by the president of the railroad company upon its treasurer, and accepted by him, amounting in the aggregate to $35,000. And that the plaintiff ghould, by a separate instrument in writing, guaranty the payment of such drafts. The plaintiff’s notes were thereupon given up, and canceled, the drafts were delivered to the defendant, and the guaranty executed to him. The note for $882 was subsequently paid. Several months after this settlement an agreement was made between the defendant and the railroad company, whereby the time of payment of those drafts was extended by the defendant, and, in consideration of which, the company placed in his hands further securities as collateral.

The plaintiff brought this action to procure the cancellation and surrender Of his $30,000 note, and his written guaranty, and to obtain possession of the county bonds, and the bonds and acceptan'ces of the railroad company, on the ground of usury in the loans. His complaint set up, substantially, the foregoing facts, but did not allege that he, had paid, or offered to pay, the principal sums loaned, and represented by such securities, or any part of it.

The judge before whom the cause was tried, in his decision, held, (1.) That the plaintiff was not, within the meaning of the statute, a borrower of the $11,000 loaned by the defendant to Wilkins.

(2.) That he was not entitled, either as the owner of the

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Iowa county bonds, deposited with the defendant by Wilkins, or by virtue of any substitution in place of, or subrogation to the rights of' the latter, or otherwise, to the relief prayed for, so far as concerns that $11,000, or the securities pledged to secure its payment. And that from the impossibility of determining what proportion of the securities was held for the payment of that sum, and what for the residue of $19,000, even if it were proper to make such severance, the plaintiff could not in this action have any relief touching the note of $30,000, or the collaterals 'held by the defendant as security for its payment.

(3.) That the plaintiff was not entitled to relief under such statute, because the transfer by the plaintiff to the defendant of the drafts of the railroad company to be held, by him absolutely as owner, the plaintiff’s separate written guaranty of the payment of those drafts, and the' giving up and cancelling, of the $35,000 note, in consideration of such absolute transfer and guaranty, operated as a payment and extinguishment of that note, and terminated the relation theretofore existing between the parties' as borrower and lender.

Judgment was entered in accordance with this decision, dismissing the complaint with costs, from which an appeal was taken on exceptions filed.

James C. Carter, for the plaintiff, appellant.

I. The plaintiff was at least entitled to a decree that the $30,000 note should be surrendered and canceled, and prosecution on it restrained. This point is not answered by saying that the plaintiff had a perfect defense at law to the note. This objection should have been insisted on in the answer. The defendant waived it by putting his defense upon the merits alone. (Gilbert’s Pract. in Chan. p. 220. Ludlow v. Simond, 2 Caine’s Cases in Error, 40. Grandin v. LeRoy, 2 Paige, 509. Fulton Bank v. N. Y. and Sharon Canal Co., 4 id. 132. Cumming v. The Mayor, &c. 11 id. 596. Hawley v. Cramer, 4 Cowen, 726. Underhill v. Van Cort

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landt, 2 John. Ch. 339. Truscott v. King, 2 Seld. 147. Le Roy v. Platt, 4 Paige, 77. Wiswall v. Hall, 3 id. 313.)

II. He was also entitled to a decree to the same effect in reference to the written guaranty and his own note for §882.

III. The plaintiff is certainly entitled to a decree, that the county and railroad mortgage bonds, pledged by himself to secure the payment of the moneys borrowed by himself from the defendant, should be restored to him, or that the defendant account to him for the proceeds, or the value of them, in case he has parted with them. #

IV. Without reference to the provisions of the Revised Statutes, or the act of 1837, but upon general principles of equity, a court of chancery would never impose upon the plaintiff, as a condition of granting him its relief in respect of the particular securities which he himself had pledged to secure the loans to himself, the payment of what was due on the Wilkins loans. A multo fortiori should such a condition not now be imposed.

V. But the plaintiff was entitled to a decree for the cancellation of the $30,000 note of July 30th, 1857, and the surrender of all the securities mentioned in it, for the reason that he was the “ borrower ” as to all the loans embraced in it, on the assumption that the Wilkins loans were never, in fact, paid.

The term “ borrower,” in the provisions of the Revised Statutes and in the statute of 1837, is to be construed to embrace a surety liable on the original contract. Such a construction can only proceed upon the ground that the term “borrower” is used as the correlative of “lender” to indicate the party liable on the contract. (Perrine v. Striker, 7 Paige, 598. Cole v. Savage, 10 id. 583. Post v. Bank of Utica, 7 Hill, 391 . Morse v. Hovey, 9 Paige, 197. Hungerford’s Bank v. Dodge, 30 Barb. 626 .)

VI. But, further, the plaintiff was the “borrower” as to all the loans embraced in the $30,000 note, in the strictest sense of the term.

VII. If it were necessary to maintain that the loan to Wil

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kins was in this manner actually paid, we should not hesitate to do so; Should the defendant now bring an action against Wilkins .in any form, for the amount of the $11,000, a plea of payment would be abundantly sustained by proof of the facts found by the- special term.

VIII.- We may concede that by the transaction of Nov. 2, 1857, the relation of borrower and lender between the plaintiff and defendant, as- to the loans made on the acceptances, was terminated. But this -makes the conclusion, established on other grounds, quite irresistable, namely, that the Wilkins loan was extinguished by the transaction of "October 15, ■1856.That by necessary consequence, the plaintiff was the “borrower” as to' all the loans embraced in the $30,000 note of July 3d, 1857, and-is entitled to have it canceled, the securities' pledged for its payment restored, and an account of the proceeds or value of such as the defendant has parted with.

■ IX. It follows ■ that the judgment appealed from should be reversed. As this result is reached without questioning the conclusions of ■ the court bélow on matters of fact, the plaintiff -is entítléd to such a decree as is before mentioned, without a new- trial. . (Marquat v. Marquat, 12 N. Y. Rep. 338 . Hannay v. Pell, 3 E. D. Smith, 432.)

David Dudley Field, for the defendant, respondent.

I.' Two fundamental rules of courts of equity, prevent the plaintiff from recovering in this action :

First. That when a plaintiff seeks equity, he must first do equity; 'and Second. That he can not come into equity, if his remedy is complete at law. (1 Story’s Eq. Juris. §§ 33, 49, 64. Willard’s Eq. Juris. 44-49.)

II'. -The statute of 1837 does not give a right to come into a court of equity if none existed before. It only dispenses, in favor of a borrower, with one of the conditions on which he could obtain" relief, that is to say, that one which required him to offer" to repay the money borrowed, before he could obtain a standing in "such a court. (Act of 1837, chap. 430, §§ 3, 4, 5. Minturn v. The Farmers’ Loan and Trust Co.,

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3 Comst. 498, referring to and approving, Perrine v. Striker, 7 Paige, 598. Morse v. Hovey, 9 id. 197. Post v. Bank of Utica, 7 Hill, 391 , approved, 2 Comst. 131, in which. the contrary decision in the case of Cole v. Savage, 10 Paige, 583, is overruled. Boughton v Smith, 26 Barb. 635 .)

III. As to the $11,000 borrowed by Wilkins, the plaintiff is, by his own showing, not a borrower. He is therefore not within the statute of 1837, and must do equity, if he would have equity. To the extent, therefore, of $11,000, with the interest on it, the plaintiff, can sustain no action here without offering to repay. And inasmuch as that sum is included in the $30,000 note, and he made no offer of repayment, he was properly denied relief as to that note. (Rexford v. Widger, 2 Comst. 131. Sands v. Church, 2 Seld. 347. Schermerhorn v. Talman, 14 N. Y. Rep. 93 . Curtis v. Leavitt, 15 id. 254.)

IV. If the plaintiff’s allegations were true, he had a perfect defense against any action which could be brought against him, and a right, by an action at law, to recover back any of the securities, if the pledge of them was really illegal. (Cousland v. Davis, 4 Bosw. 619 .) In which action the parties would not lose their constitutional right of trial of jury. (Schroeppel v. Corning, 2 Seld. 107.)

Y. When this action was brought, the $30,000 note and the $35,000 of acceptances had been long past due, and therefore could not be passed, so as to give a holder any new rights. This consideration, of itself, was sufficient for dismissing the complaint. (Folsom v. Blake, 3 Edwd. Ch. 442, 445. Vilas v. Jones, 1 Comst. 278.)

YI. The nine acceptances being dated and made payable in Wisconsin, are governed by the laws of that state, (Berrien v. Wright, 26 Barb. 208 ; Cutler v. Wright, 22 N. Y. Rep. 474 ; Potter v. Tallman, 35 Barb. 182 ,) .and are to be presumed to be valid by that. If that law prohibited them, it should have been proved.

YII. These acceptancés being, moreover, given in payment, can not be recovered backr

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VIII. The plaintiff’s guarantee given for these acceptances must follow the fate of the principal obligations. (Scott v. Johnson, 5 Bosw. 213 .)

IX. The same rule applies to the county and second mortgage bonds held as collateral for the note. If the note can not be obtained by the plaintiff in this action, neither can the collaterals.

The sum first lent ($11,000) was borrowed by Wilkins ; Beecher was not originally connected with the loan, as principal, agent or surety. The plaintiff, subsequently to the loan, bought of Wilkins the interest of the latter in the contract to construct the Mineral Point Railroad, and the securities originally pledged to secure the payment of the $11,000, and assumed the payment thereof, and so informed the defendant. -

The plaintiff, therefore, was not, in fact, a borrower from the defendant, of that'sum, ($11,000,) nor is he a borrower of' it within the meaning of the act of 1837. (Chap. 430. Schermerhorn v. Talman, 14 N. Y. Rep. 93 , 126, 131.)

He can not reclaim those securities without paying the sum borrowed and interest thereon ; and by assuming the payment of it, as part of his contract of purchase, he became personally liable therefor." (Hartly v. Harrison, 24 N. Y. Rep. 170 . Burr v. Beers, id. 178 . See also Murray v. Judson, 5 Seld. 73.)

The complaint should not have been dismissed, at, the trial, merely because it did not contain an offer to pay the $11,000. The plaintiff is entitled to a judgment that, on paying' that sum with interest and the costs of the action, the securities originally pledged for the payment of it, should be surrendered to him. (Schermerhorn v. Talman, supra, 129, 142, 143 .)

The securities subsequently pledged, as well to secure a usurious loan made at the time of the pledge, as the original loan, can not be retained as security for the payment of that first loan. The taint of usury destroys the whole security; makes the contract void in foto, and in every of its parts.

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The plaintiff has an unqualified right to a restoration of all such securities. (Rice v. Welling, 5 Wend. 595 . Jackson v. Packard, 6 id. 415. Hammond v. Hopping, 13 id. 505.) The cases last cited are decisive, that the note for $30,000 is void. It should he given up.

There is no consideration for the guaranty, except the usurious loans, in payment of which the acceptances to which the guaranty related, were received. The acceptances themselves being delivered' and accepted as payment,' the defendant has a right to retain them. The obligation or note of the plaintiff for the sum thus paid, if received alone, would be clearly void under the'decisions above cited. It is difficult to perceive that a guaranty of the payment of the notes, received in payment, is not as clearly void. That must be surrendered.

The judgment must be modified to conform to these views, and as thus modified affirmed. If the parties can not agree what securities were originally pledged to secure the payment of the $11,000 only,j30 as to specify them in the judgment to be entered hereon, there must be a reference to ascertain and identify them.

No costs of this appeal will be given to either party. Neither party has wholly succeeded on the appeal.

Cases cited

Hungerford's Bank v. Dodge 30 Barb. 626 N.Y. Sup. Ct. 1860-01-03 p. 35
Boughton v. Smith 26 Barb. 635 N.Y. Sup. Ct. 1853-03-01 p. 37
Cousland v. Davis 4 Bosw. 619 N.Y. Super. Ct. 1859-10-28 p. 37
Berrien v. Wright 26 Barb. 208 N.Y. Sup. Ct. 1857-12-22 p. 37
Potter v. Tallman 35 Barb. 182 N.Y. Sup. Ct. 1861-09-09 p. 37
Scott v. Johnson 5 Bosw. 213 N.Y. Super. Ct. 1859-07-28 p. 38
Rice v. Welling & Fake 5 Wend. 595 N.Y. Sup. Ct. p. 39