Summary
In Union Dime Savings Institution v. Wilmot (94 N.Y. 221) it was said that the law in this State authorizes a subsequent lien holder by mortgage or judgment or mechanic's lien to avail himself of the defense of usury against a prior mortgage.
Summary of this case from Halsey v. WinantOpinion
Argued November 23, 1883
Decided December 11, 1883
William H. Arnoux for appellant. A.J. Vanderpoel for Osee W. Wilmot, respondent. Joseph C. Jackson for George W. Koch, respondent.
In 1872, one Rowe conveyed certain real estate, situated in the city of New York, to Thomas L. Sanford, who executed to Rowe a mortgage thereon, to secure a portion of the purchase-money. In 1873, Rowe foreclosed that mortgage making Sanford a party to the action, and upon the foreclosure sale Francis J. Clark became the purchaser, and received a deed; and on the 24th day of April, 1874, Sanford quit-claimed to Clark all his right, title and interest in the real estate. On the 9th day of May, Clark mortgaged the real estate of Everett Clapp, to secure the sum of $22,000, and on the morning of the 13th day of May, Clapp assigned the mortgage to the plaintiff. Thereafter, on the same day Clark executed another mortgage to Clapp to secure $10,000, which was subsequently assigned to the respondent Wilmot.
After the execution of these mortgages, the defendant Koch furnished material for the construction of a house upon the real estate, and filed a mechanic's lien thereon, to secure the amount due him. In 1878, the plaintiff commenced an action to foreclose its mortgage and Wilmot and Koch, having been made parties defendant, interposed answers in which they allege their respective liens, and set up the defense of usury against plaintiff's mortgage.
The following facts appear from the undisputed evidence. The mortgage was assigned to the plaintiff at a discount from its face of seven per cent. An application was made to it for a loan, and it refused to loan money, but offered to purchase a purchase-money mortgage if one could be made and brought to it. Subsequently this mortgage reciting that it was given for purchase-money was presented to it, and it was represented at the time, orally, to be a purchase-money mortgage. At the time of the assignment Clapp represented that it was a purchase-money mortgage, and in the instrument of assignment covenanted and agreed that it was a valid subsisting lien upon the premises described, that there was unpaid the full sum of $22,000 and interest, and that there was no defense, offset or, counter-claim thereto. At the same time Clark, the mortgagor, executed an instrument under seal, whereby he covenanted and agreed with the plaintiff that the mortgage was a valid and subsisting lien, that there was unpaid the full sum of $22,000, and that there was no defense, offset or counter-claim thereto, and that the certificate was procured from him without any fraud or misrepresentation whatever. After the execution of the two mortgages, Clark conveyed the real estate to the defendant Sanford, subject, nevertheless, to the mortgages; and Sanford is made a defendant to this action, as the owner of the real estate, and he also has interposed the defense of usury to plaintiff's mortgage.
The court below held that Sanford could not maintain the defense of usury interposed by him, because the premises had been deeded to him subject to the mortgage. Clark and Clapp, who were also made parties defendant interposed no defense. But the court held that Wilmot and Koch, holding subsequent liens upon the real estate, could maintain the defense of usury; and that the complaint as to them should be dismissed.
We think the learned court erred in dismissing the complaint as to the two defendants.
The plaintiff had the right to refuse to loan the money in this case at seven per cent, then the legal rate, and to require that a valid purchase-money mortgage should be made which it could purchase at any rate of discount which could be agreed on. If this mortgage had actually been a purchase-money mortgage then there would not be a particle of evidence that it was tainted with usury. The evidence would simply show that the bank refused to loan money upon a mortgage to be made to it; that it required that a purchase-money mortgage should be made so that it could purchase the same at a discount, and thus secure a larger rate of interest than seven per cent. That such a transaction would have been valid is settled by the cases of Smith v. Cross ( 90 N.Y. 549) and Dunham v. Cudlipp (recently decided in this court).
Ante, p. 129.
But here all the parties engaged in effecting the negotiation with the plaintiff, to-wit, Clark, the mortgagor, and Clapp, the mortgagee, with the knowledge and consent of Sanford, represented that this was a purchase-money mortgage; that it was a valid mortgage, and that there was no defense thereto. And there is not a particle of evidence that the plaintiff did not believe these representations, and rely upon them. All the evidence shows that its agents intended to take a purchase-money mortgage; that they did not mean to take any other, and that they supposed they were getting a valid purchase-money mortgage. There is no evidence whatever that the transaction took the form it did as a cover for usury. In one sense it took this form for the purpose of escaping usury. But the parties had a perfect right to deal with each other with the usury laws before their eyes, and to so shape the transaction as to avoid the condemnation of those laws. It is always the right of one having money to loan or to invest to require, in order that he may obtain more than six per cent, that securities, having a valid inception and free from the taint of usury, shall be presented to him before he will advance money; and it was so settled in the two cases referred to.
It is clear, therefore, that both Clark and Clapp are estopped from denying that the plaintiff's mortgage is valid, and thus are precluded from alleging the defense of usury against the same. And inasmuch as they were estopped, Wilmot, who also holds under them, is bound by the same estoppel. Estoppels bind parties and their privies in estate and blood (Coke Litt. 352 a; Campbell v. Hall, 16 N.Y. 575; Wood v. Seely, 32 id. 105, 116); and it was so held in the case of Smith v. Cross, above referred to.
There was some evidence tending to show that this mortgage was given to Clapp for value. But whether it was or not is a matter of no consequence if the plaintiff believed, upon representations made by Clark and Clapp, that it was so given, and was induced by such belief to take the mortgage, because in that case, as we have seen, they were both estopped.
Koch is also estopped from assailing plaintiff's mortgage on the ground of usury. His lien was for material furnished to Sanford, and Sanford could not avail himself of the defense of usury. Having taken the conveyance subject to the mortgage, he was in no condition to allege usury against it; and thus all the parties under whom Koch claimed, Clark, Clapp and Sanford, were precluded, at the time he acquired his lien, from alleging usury against the plaintiff; and there is no rule of law that gives him a better right than they could have.
I am inclined to think that the law in this State authorizes a subsequent lien-holder, by mortgage, or judgment, or mechanic's lien, to avail himself of the defense of usury against a prior mortgage. ( Berdan v. Sedgwick, 40 Barb. 359; affirmed in 44 N.Y. 626; Dix v. Van Wyck, 2 Hill, 522; Morris v. Floyd, 5 Barb. 134; Post v. Dart, 8 Paige, 639; Shufelt v. Shufelt, 9 id. 137; Cole v. Savage, 10 id. 583; Thompson v. Van Vechten, 27 N.Y. 585; Mason v. Lord, 40 id. 476.) But a subsequent lien-holder can have no better right to interpose the defense of usury than the owner or borrower had at the time the lien was created. An owner or borrower may be estopped from setting up the usury, or he may in some legal way waive the defense, or, by agreement, purge the transaction of usury; and whoever thereafter purchases from him the real estate upon which the usurious security is a mortgage, or obtains a lien thereon from or under him, takes his position, and can have no better right to allege the usury than he had.
Our conclusion, therefore, is that in any aspect of this case, as the facts plainly appear, the defendants Wilmot and Koch must fail in their defense.
The judgment should, therefore, be reversed as to these two defendants, and a new trial granted, costs to abide event.
All concur.
Judgment, so far as appealed from, reversed.