Opinion
09-29-1913
BLOHM v. HANNAN et ux.
McDermott & Enright, of Jersey City, for complainant. J. Emil Walschied, of Town of Union, for defendants.
Suit by Charles H. Blohm against John M. Hannan and wife to foreclose a mortgage. Decree in favor of complainant.
McDermott & Enright, of Jersey City, for complainant.
J. Emil Walschied, of Town of Union, for defendants.
LEWIS, V. C. The complainant in this ease seeks to foreclose a mortgage of $1,500 given by the defendants. The answer admits the execution of the bond and mortgage but denies that the amount of money claimed or any other sum was due to the complainant.
The transaction between the parties had its origin when Klipper agreed with Hannan that he would loan, first, $7,500, out of which he was to get 15 per cent. for making the loan and later would loan $2,500, out of which he was to get 15 per cent. for making the loan. Klipper did advance $7,500, less 15 per cent. and later the $2,500, less 15 per cent. For these two advances Klipper got first a mortgage for $7,500, dated the 17th day of February, 1908, and, second, a mortgage for $2,500, dated the 18th day of June. 1908. Interest was subsequently paid on these two mortgages up to and including the payment due on the 17th day of November, 1909, and at that time there had also been paid on account of the principal of these two mortgages the sum of $1,750; that made the principal sum due then $8,250, with interest from the 17th day of November, 1909. Default was then made in the payment of interest by Hannan, and he began negotiations to obtain a mortgage from the Provident Institution for Savings in Jersey City. When Klipper asked Hannan to settle with him, Hannan said that he was endeavoring to get a large loan from the Provident Institution and said that he had been advised that he could recover from Klipper the money Klipper had taken out of the loans when they were made to him. As an outcome of these conversations, it was agreed between these two men that, if Klipper would not demand the interest due on the $8,250 and would throw off $750 of the principal, Hannan, upon obtaining the larger mortgage from the Provident Institution, would give $6,000 in cash to Klipper and a second mortgagefor $1,500. This agreement was carried out, and Hannan made a mortgage for $1,500 to Blohm, the complainant, at Klipper's direction and also paid the $6,000. He at that time gave Klipper a release of all rights of action against Klipper. Thereafter Hannan made three payments of principal and three payments of interest on the $1,500 mortgage as follows: He paid $52.50 of principal in July, 1910, $53.30 in November, 1910, and $54.09 in February, 1911, and he paid interest up to January 25, 1911. Since that time he has not paid any interest or principal.
The defendants claim that, since this mortgage for $1,500 was for a portion, if not all, of the money retained by Klipper out of the loan to Hannan, it cannot be foreclosed; that is to say, it has no validity as against Hannan, because it either lacks consideration or because it is tainted with usury or for money which was usury. I cannot take this view of the case. Klipper had a valid first lien for $6,950; he gives this up for $6,000 cash and a second mortgage for $1,500, permitting the defendants to place a first mortgage upon their property for $18,000. This is a bona fide arrangement, bearing no evidence of fraud, and the consideration is legal. I cannot see how the law of usury applies in this case. A settlement of the usurious transaction had been accomplished and a new consideration made between the parties. Usury is taking or agreeing to receive more than the legal rate of interest for the loan of money. At the time of the giving of the $1,500 mortgage in this suit, there was no loan of money whatever. When the $1,500 mortgage was given, Klipper had the right to foreclose his mortgages. He refrained from doing so and the defendants made the new arrangement with him to pay him off in cash and give a second mortgage for the $1,500; in other words, he gives up his lien allowing a large mortgage to be placed on the property and taking in return $6,000 In cash and this second mortgage of $1,500.
Our decisions no doubt sustain the proposition that no new transfer of the usurious transaction, even accompanied by a new loan, makes the transaction free from usurious taint, but in the case in hand we have the element of new consideration. As soon as this new consideration intervened, the original taint of usury ceased to attach to the transaction.
I have not dealt with the question of the effect of the release given at the time of the making of the new contract by Hannan to Klipper or the complainant's contention that usury had never been adequately pleaded, deeming the discussion of neither of these questions necessary at this time to the determination of this case.
A decree will be advised in favor of the complainant for the amount appearing due on the mortgage under foreclosure, and costs.