Majority
p. 483Anderson vs. Rapelye. April 5.
Headnote
Where a bond and mortgage for $3000 and interest, were sold and assigned at a. discount of four hundred dollars, for the purpose of raising money thereon, and it was agreed between the vendor and vendee that the former should execute an assignment reciting that he had in consideration of the $3000 paid to him, assigned the same to the vendee, and should covenant that the whole amount was actually due and owing on such bond and mortgage, and should also give to the vendee a bond with surety, conditioned that the whole amount of the bond and mortgage, with interest thereon, should be paid to him upon the day when such bond and mortgage by its terms was due and payable; Held, that the transaction was usurious, and was a mere device to obtain more than" legal interest for an advance or loan of money.Upon a bill filed to set aside a contract on the ground of usury, where the contract was made with the defendant personally, if any of the facts stated in the bill as constituting the usurious agreement are not denied in the answer, they will' upon the hearing of the cause be considered as true, under the provisions of the 17th rule of the court of chancery.
This was an appeal from a decree of the assistant vice chancellor of the first circuit. The object of the complainant’s bill was to set aside an assignment of a bond and mortgage from him to the defendant, and to have another bond, given by him and his father-in-law to the defendant, guaranteeing the payment of such bond and mortgage by the mortgagor delivered up and cancelled, on the ground of usury. The facts of the case were substantially as follows : The complainant held a bond and mortgage against John Anderson, given on the 8th of December, 1836, conditioned for the payment of $3000, in one year, with interest at the rate of seven per cent per annum, payable half yearly. Being in want of money, and understanding that Rapelye was in the habit of purchasing bonds and mortgages at a discount, for cash, the complainant applied to him to purchase the bond and mortgage in question, in June, 1837. Rapelye agreed to purchase the bond and mortgage at a discount of $400, in addition to the interest then due thereon ; provided the complainant would procure his father-in-law, A. A. Remsen, to give a bond, as
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security to Rapelye, the purchaser, that the whole amount of the bond and mortgage and the interest thereon should be paid to him on the day when, by the terms of such bond and mortgage, they were to become due and payable. The assignment, and the bond of the complainant and of his father-in-law, were given to the defendant accordingly; which assignment stated the consideration paid by the defendant to be $3000, and which sum the complainant covenanted was still due and owing on such bond and mortgage. But the real consideration of the assignment, and of the bond of the complainant and his father-in-law, was the $2600, which by the private agreement between the assignor and assignee was to be paid therefor. The assistant vice chancellor considering this case as not distinguishable from Cram v. Hendricks, ( 7 Wend. Rep. 569 ,) and Mazuzan v. Mead, (21 Idem, 285,) dismissed the bill. And from this decree the complainant appealed. The following opinion was delivered by the assistant vice chancellor. '
Hoffman, A. V. C. The evidence of Remsen- cannot be admitted. No objection was taken before the examiner to his competency, and the 85th rule entirely precludes me from regarding the deposition. The question is to be decided upon the documentary evidence.
The complainant was in the month of June, 1837, the holder of a bond and mortgage given by one John Anderson to him, dated the 8th day of December, 1836, for securing the payment of $3000, and falling due the 8th of December, 1837, payable with lawful interest. On the 26th of June, 1837, the complainant assigned this bond and mortgage to the defendant by an assignment in the usual form, with a covenant that there was due upon the securities the sum of $3000. This assignment was acknowledged on the 27th of June. On the same 26th of June, a bond or obligation was executed by the complainant with one Abraham A. Remsen of which the following is a copy. This was acknowledged also on the 27th of June^ and both
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it and the assignment were attested by Valentine, the commissioner, as the subscribing witness. “ Know all men by these presents that we, Abraham A. Remsen of the city of Brooklyn and Robert Anderson of the same place, are held and bound unto George Rapelye of the city of New-York, in the sum of six thousand dollars lawful money of the United States, for which payment well and truly to be made, we bind ourselves jointly and severally, and our joint and several heirs, executors, administrators and assigns firmly by these presents. Sealed with our seals and dated this 26th day of June, 1837. Whereas the said Robert Anderson hath, by deed of assignment, bearing even date with these presents, assigned and conveyed to the said George Rapelye a certain bond bearing date the eighth day of December, one thousand eight hundred and thirty-six, made to the said Robert Anderson by John Anderson of the city of New-York, stone cutter, to secure the payment of three thousand dollars on the eighth day of December, one thousand eight hundred and thirty seven, with interest thereon at the rate of seven per cent per annum, payable half yearly on the 8th day of June and December, which said bond is secured by a mortgage executed by the said John Anderson and Matilda his wife upon a certain lot of land situate in Henry-street in the city of New-York, and which said mortgage is recorded in the register’s office of the city and county of New-York, in liber 206 of mortgages, page 354, December 22d, 1836 ; and whereas the said George Rapelye hath accepted the assignment of the said bond and mortgage and paid the consideration therefor contemporaneously with the execution of these presents at the special instance and request of the said Robert Anderson and the said Abraham A. Remsen: JVbio therefore, the condition of this obligation is such, that if the said John Anderson, his heirs, executors and administrators, shall, well and truly pay unto the said George Rapelye, his heirs, executors, administrators and assigns, the said sum of three thousand dollars in the said bond and mortgage mentioned, on the said eighth day of December, one thousand eight
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hundred and thirty-seven, together with the interest that shall accrue thereon, at the times and in the manner therein specified without default or delay, then this obligation to be void, otherwise to remain in full force and virtue.”
It is not contested that these several instruments are to be deemed as forming one contract. The sum received by the complainant on the transaction was $2600. The period which the bond had to run before the whole $3000 was due, was short of six months, and legal interest was also payable. The agreement of Remsen and the complainant in their bond is this—that if John Anderson does not pay $3000 and interest at the time specified, their bond is to be forfeited, that is, the penalty becomes due in form. The sum to be secured would be exactly what John Anderson was bound and failed to pay, that is, the $3000 and interest. Then the whole contract is precisely and summarily this : John Anderson is bound to pay three thousand dollars to the defendant at a given time with interest j and if he fails to do so, Remsen and the complainant agree to pay that amount and interest. In order to get this claim against John, and the property mortgaged in the first place, and against the other parties in the second place, the defendant has paid $2600.
Now all this shows that the bond of Remsen and the complainant is, on its face and according to the plain meaning, a naked simple guaranty of the payment of $3000 by John Anderson ; and thus the question is merely whether the transfer of a valid security for $3000 bearing interest guaranteed by the assignor,is a usurious transaction because $2600 only was received by such assignor.
While the state of New-York, so late as the year 1837, carried the usury laws to an extent before unheard of in this country, bringing within them bona fide holders of negotiable paper, the great commercial nation of Europe, in the year 1839, abolished them entirely as far as they affected mercantile paper running for a period not. exceeding twelve months. (Statute 2 S? 3, Victoria, cap. 37.) But
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that act contains a provision that it shall not extend to any loans or advances on real estate or on any interest therein.
The case before me must be determined upon the force to be given to the decision in Cram v. Hendricks, ( 7 Wendell 572 ,) and the subsequent case of Mazuzan v. Jilead, (21 Wendell, 285.) In the former, the transfer of a business note, legal in its inception, upon a discount exceeding the legal rate of interest, was held valid and not usurious, although the party transfering it endorsed it in blank. The legal construction of such an endorsement was held to be that it guaranteed only the payment of the sum actually advanced upon the transfer of the note with interest.
In Mazuzan v. Mead, however, a note for $210 perfectly valid in its creation was transferred upon a discount, usurious if the note had then been made, and the party wrote upon it that u in consideration of $200 paid to him, he assigned the note to the plaintiff and guaranteed the payment thereof.” The language here used as plainly contains an engagement to pay the face of the note upon the default of the principal, as any thing can amount to short of express terms, such as “ the sum of $210.” It seems impossible to give a more explicit meaning to the contract in the case before me than in this case to cover the whole demand. The one is, that if the obligor does not pay $3000 at the time, he will be subject nominally to $6000, from which by law, if the contract is binding, he can only be relieved by paying $3000. The other is that he guaranteed the payment of the note of $210.
Indeed, a strict criticism would make the present case more analogous to the blank endorsement than the other, because the express contract is notoriously not to be enforced. Relief on equitable terms of payment is necessarily to be given upon a bond with a penalty. I confess I do not see how the reasoning of the chancellor in Cram v. Hendricks was avoided. And the argument of the counsel for the complainant in this cause was to my mind at the time, conclusive. But after the best consideration, I cannot find a way to distinguish this case from that of Mazu
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zan v'. Mead. It struck me at first that such a distinction might exist on the ground of the favor to commercial paper which was put prominently forward in Cram v. Hendricks; but I see no ground for such a distinction in the statute.
M. S. Bidwell <§r S. F. Clarkson, for the appellant.
The assignment of John Anderson’s bond and mortgage by the appellant, and the bond executed by him and his father-in-law, Iterasen, constitute one agreement, and are to receive the same construction as if they had been contained in one instrument. (Jackson ex dem. Trowbridge v. Dunsbach, 1 John. Ca. 91. Snow v. Tifft, 15 John. R. 463. Brown v. Dean et al., 3 Wend. R. 208. Van Horne v. Crain, 1 Paige’s Rep. 458. White v. Wright, 3 Barn. & Cress. 273 ; 5 D.& R. 110, S. C.) The substance of this agreement was, that Rapelye should advance to R. Anderson the sum of $2600, in consideration of which Rapelye was to receive, at a stipulated time, being within six months thereafter, $3000 and interest. To carry this arrangement into effect, R. Anderson assigned a mortgage, and executed with a surety a bond to Rapelye. This was a loan of money at an usurious rate of interest. It was not a mere sale of securities. It had the distinguishing features of a loan. The stipulation for the ultimate payment was an essential part of the agreement, and was made an express and indispensable condition of it by Rapelye. The whole object and intention of the parties evidently was, to secure to Rayelye the payment of $3000, with interest, in less than six months, in consideration of his advancing $2600 • and to secure this payment, absolutely and unconditionally, without any risk on his part of the money advanced by him, or even of the usurious interest. The agreement comes most plainly within both the letter and spirit of the law against usury, which courts will apply according to the substance of the transaction, without regard to its form. (Lowe et al. v. Waller, 2 Dougl. Rep. 736.) According to the condition of the bond of the respondent and Rem-
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sen, payment of $3000 and interest, and not merely of $2600, was secured to the appellant.] for, if $2600 (the amount advanced by him) had been paid to him by the mortgagor, the bond would, nevertheless, have been forfeited, unless the remainder of the amount secured by the mortgage ($3000 and interest) had also been paid to him. This case, therefore, does not come within the principle established in Cram v. Hendricks, (7 Wend. R. 569,) in which it was held, as the express ground of the decision both in the supreme court and the court of errors, that according to the true construction of the contract of endorsement, the endorsee could recover from the endorser only the amount actually advanced by the endorsee. See Mazuzan v. Mead, (21 Wend. R. 285,) which was decided upon a similar principle. The false consideration mentioned in the assignment, is evidence of a design to evade the law against usury, (Fereday v. Wightwick. 1 Russ. & Myln. Rep. 50. Williams v. Hance, 7 Paige, 582. Watkins v. Taylor, 2 Mumf. Rep. 430.) But if there had been no such fraudulent design, the case would still be within the operation of the usury laws, upon the principle that parties must be held to intend the necessary effects of their own deliberate acts. (Havre v. Wilson, 9 Barn. & Cress. 643. Mackie v. Cairns, 5 Cow. Rep. 573 .) Rapelye intended for an advance of his money to get an interest or compensation of more than seven per cent per annum, and to get this, absolutely, without any contingency of principal or interest. This was an intent to violate the law against usury ; it was an intent to do an act that was in violation of that law. (Marsh v. Martindale, 3 Bos. & Pul. Rep. 154.) The law deems usury a great public evil, and the provisions made by the legislature to put an end to this evil, ought to receive a liberal construction and to be honestly and fully supported and enforced by courts of justice with exemplary obedience, so as to effectuate the intentions of the law-makers, and to encourage and promote a spirit and a habit of subordination to the laws.
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(Dunham v. Gould, 16 John. Rep. 375 . Livingston v. Harris, 11 Wend. Rep. 336 , 337.)
J. JF. Gerard, for the respondent.
The assignment was an absolute sale of the bond and mortgage, without any right of redemption by the seller, and not a loan of money. It had no attribute of a loan. An existing bond and mortgage can be sold and transferred at any rate of discount whatever, exceeding seven per cent, and the sale and transfer cannot be rendered usurious. In every respect it is governed by the same rules as are applicable to a sale by discount of a business promissory note. (Mazuzan v. Mead, 21 Wend. 285 . Cram v, Hendricks, 7 Id. 569. Braman v. Hess, 13 John. R. 52. Munn v. Commission Co. 15 Id. 44. Oakley v. Boorman, 21 Wend. 597 . 1 Esp. N. P. R. 261.)
If the condition of Remsen’s and Robert Anderson’s bond of guaranty had been, that in case John Anderson did not pay the amount of his bond and mortgage, $3000, that they would, it would no more have been usurious than was the endorsement of Cram on the note he transferred to Hendricks, in the case of Cram v. Hendricks decided by this court in 7 Wend. 569 , where the note was sold by Cram, with his endorsement at a greater discount than seven per cent, as the endorsement was a guaranty of the amount payable by the face of the note. In fact it is the very case of Cram and Hendricks, and a casus decisis in this court. Still stronger is the case of Mazuzan v. Mead, ( 21 Wend. 285 ,) where a note of $210 was sold for $200 (a greater rate of discount than legal interest) and the seller guaranteed in express terms to pay, not merely the $200 and interest, but the amount payable by the face of the note. But the condition of this bond of guaranty is not that the guarantors would pay the $3000 if the mortgagor did not, but is, that if the mortgagor, John Anderson, did pay that sum, then the bond was to be void, otherwise to remain in full force and virtue. Upon this bond judgment would be entered for the penalty, but the execution could only go for the sum equitably due ; the sum actually paid for the
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bond and mortgage and interest. The consideration of $3000 being expressed in the assignment by the person who drew it up instead of $2600, cannot affect the legal construction of the bond. An instrument is never vitiated by a false consideration. Usury can never depend upon the ease or difficuly of proving the facts in'any given case. The facts of a transaction render it usurious or valid—not the ease or difficulty with which they can be proved. But nothing is more common than to insert in assignments of choses in action, when bought for a less sum than their face, the full amount for which they are payable. Very often the consideration expressed is one dollar. The great principle of the decisions of Cram v. Hendricks and Mazuzan v. Mead, is, that usury is not predicable of an existing valid obligation to pay money on its sale and transfer, and that the law will so regulate the damage to be recovered on any guarantee for the payment given by the seller, that he shall never be called upon to pay more than the sum he received with legal interest.
As this suit was commenced subsequently to the adoption of the 17th rule as amended in May, 1839, whatever is stated in the bill as the act or deed of the defendant, or as a fact within his personal knowledge, and which is not denied in the answer, is considered as admitted for all the purposes of this suit. And the answer of the defendant could not be excepted to for insufficiency in that respect, so as to compel a further discovery as incidental to the relief sought by the bill. (Clute & Mead v. Bool, 8 Paige’s Rep. 88.) The evidence of Rem-sen, therefore, appears to be of little consequence, except to show that the real agreement, upon which the assignment was made and his guaranty of the whole debt was executed, was not stated in his presence. For all the other facts of which he had any knowledge are either expressly admitted in the answer, or impliedly admitted under the provisions of the rule to which I have referred. The de- . fendant produced a copy of the bond executed by the com
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plainant and Remsen ; which bond upon its face shows that it was executed at the same time with the assignment to him of the other securities for the $3000, and as a part of the same transaction. The effect of that bond, unless it could be impeached for usury, was to render the complainant, and his father in law as his surety, liable for the payment of the whole amount of the $3000 bond and mortgage, and the interest thereon, if it was not paid by the mortgagor on the day it was to become due and payable. For it recites that the assignment, which it will be recollected stated the consideration to be $3000 and not the real sum advanced by the defendant, has been accepted by Rapelye and the consideration therefor paid by him at the special instance and request of the complainant and Remsen the obligors, and simultaneously with the execution of that bond j. and it then contains a condition for the absolute payment of the $3000 and interest, by the mortgagor or his assigns, on the 8th of December, 1837.
The question then arises whether this transaction was in fact an ordinany sale of a chose in action, or was in effect a loan or advance of money on these securities, and to enable the nominal purchaser of the complainant’s bond and mortgage to obtain a premium of more than $500, including back interest, for the use of $2600 a little more than five months, in addition to the legal interest which was to accrue upon the $3000 in the mean time.
This certainly is not the way in which sales of property-are usually made. For if a man sells to his neighbor a house, it is not usual to give to the purchaser a collateral agreement, with security, that if such purchaser shall not he able to sell the house at the end of five months at twenty-five or fifty per cent advance upon the amount of the purchase money, in addition to the use of the house in the mean time, the vendor or his surety will take back the property and pay such purchaser the stipulated advance upon the purchase money. Yet such was precisely the effect of the transaction in this case, except that by inserting a false consideration in the assignment, and making a
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secret bargain when no other persons were present, the defendant had put it out of the power of the complainant, without the aid of this court, to show that the whole amount specified in the assignment as the consideration thereof had not been in fact paid. And in the case of Yankey v. Lockhart & Burton, ( 4 J. J. Marsh. 276 ,) the court of appeals in Kentucky declared such a transaction as this to be usurious, although the consideration of the assignment was truly stated therein. In that case the owner of a note, of $275, sold and assigned it for the sum of $200. But the purchaser not being willing to part with his money upon the assignment alone, he required the vendor to give him security to pay the whole $275, if the maker of the note should become insolvent so that it could not be collected of him when it became due. And the vendor thereupon procured a third person to join with him in an obligation to pay the $275, to the purchaser, if the maker of the note should become insolvent. By an early statute of Kentucky, all bonds, bills and promissory notes for the payment of money or property are assignable, and may be sued in the name of the assignee. And the construction which has been put upon assignments under that statute is, that there is an implied obligation on the part of the assignor to refund the consideration if the assignee cannot by due diligence recover the debt, in consequence of the debtor’s insolvency. (See 1 Morehead & Brown’s Dig. of Kent. Stat. 153, and cases there collected.) This it will be perceived is what has been considered by the courts of this state as the effect of a general endorsement of a negotiable security which is sold at a discount. And in reference to that principle, the court of appeals, in the case of Yankey v. Lockhart & Burton, say: “If Yankey had taken his recourse against the assignor, Lockhart, the recovery would have been limited to the $200, the consideration actually paid, the interest thereon, and the amount of costs expended. Can Yankey, by a separate contract, independent of the assignment, enlarge Lockhart’s legal responsibility, and thereby secure to himself more
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than legal interest on the money advanced ? We are of opinion he cannot. To tolerate it would tend to destroy the efficacy of the statute against usury, by encouraging shifts and contrivances to evade its salutary provisions. If Lockhart and Burton had unconditionally agreed to pay Yanlcey $275, on the 10th of June, 1820, for the $200 advanced it would have been a plain case of usury. Their agreement to pay it on condition that Yankey did not cannot alter the case in principle. It is only obtaining by indirection what cannot be done directly. The law delights in doing things by a straight forward, open conduct, and sets its face against circuity and management. There is nothing immoral or improper in a contract made between assignor and assignee to secure the latter against loss in consequence of the insolvency of the assignor and obligor both ; but such contracts violate the statute against usury where they attempt to impose a burden beyond the legal liability resulting from the assignment.” The decree of the court below granting relief against the usury was therefore affirmed.
In the case now under consideration, it is impossible for any one to wink so hard as not to see that the object of Rapelye, whatever the parties might choose to call this transaction between themselves, was to get more than seven per cent for the advance of his money upon the assignment of this bond and mortgage; and without any risk, even of the loss of the extra sum, of more than five hundred dollars, which he would of course receive if the mortgagor paid the bond and mortgage and interest. Had he stipulated with the assignor simply for the refunding of the money advanced, with lawful interest thereon, in case the same could not be collected of the mortgagor, or by a foreclosure and sale of the mortgaged premises, it might have come within the principle of the decision of the court for the correction of errors in the case of Cram v. Hendricks; though not within the decision itself, as that was a case of the assignment of commercial paper. In the recent case of Mazuzan v. Mead, ( 21 Wend. Rep. 285 ,) the decision
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of the supreme court, which followed that of the court of dernier resort, was also upon a negotiable note, and was in fact an endorsement thereof. And as it appeared in the guaranty itself that it had been assigned for but $200, the court very properly said it could not be distinguished in principle from the case of Cram v. Hendricks, on the ground that it appeared upon the face of the instrument that the consideration of the endorsement alone was legally due and payable upon the guaranty.
But in the case under consideration the $3000 secured by the bond and mortgage assigned, with the interest thereon, would be the amount prima facie recoverable against the complainant and his surety upon the guaranty, if the mortgagor should not pay his bond and mortgage when they became due and payable. And even if the assignment itself was referred to for the purpose of limiting such recovery to the real sum advanced upon such assignment, the insertion of the false consideration of $3000 therein would still enable the assignee to recover the whole amount thereof with interest, unless the complainant and his surety should be able in that suit to defeat the recovery altogether, by showing the usurious nature of the transaction.
It is no answer, in a case of this kind, to say that a court of equity will not permit the party who has taken such a bond to recover any thing more than the amount actually advanced, and the legal interest thereon, when the real riature of -the transaction is established by evidence dehors the contract. For that is an answer which applied to all cases of usurious contracts, even before the statutes which allowed the party, from whom such a contract had been obtained, to come into this court for discovery or relief without paying or offering to pay the amount equitably due. And the usurer will always run the risk of the loss of his extra premium, by a bill for the disocovery of the real nature of the transaction, if he is permitted to make his contract in such a form as to secure the amount of the money advanced and the legal interest thereon at
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all events; with the chance of recovering the usurious premium also, unless the needy borrower, or the more unfortunate surety who has become responsible for such premium, shall think proper to subject himself to the expense of a suit here to get rid of the usurious premium merely.
The agreement for the assignment of the bond and mortgage, referred to in the pleadings in this case, and for the giving of the bond guaranteeing the payment thereof, being usurious, the decree of the assistant vice chancellor dismissing the complainant’s bill must be reversed. And in conformity with the directions contained in the fifth section of the act of 1837 to prevent usury, (Laws of 1837, p. 487,) a decree must be entered declaring that assignment, and the bond executed simultaneously therewith, inoperative and void, and ordering the same to be delivered up to the complainant and cancelled; and granting a perpetual injunction against any suit commenced, or hereafter to be commenced, upon such assignment or bond,[1]
(a) (a) The decision of the chancellor in this case was reversed, upon appeal to the court for the correction of errors, in December, 1842. (See 4 Hill’s Reports.)
Cases cited
- Mazuzan v. Mead 21 Wend. 285 p. 490
- Cram v. Hendricks 7 Wend. 569 p. 490