Case ID: nys_6/html/0144-01.html
Source: Caselaw Access Project
Author: {"author": "Bartlett, J.", "license": "Public Domain", "url": "https://static.case.law/"}
Date Created: 2024-08-24T03:29:51.129683

Frank v. Davis.
    
      (Supreme Court, General Term, First Department.
    
    July 9, 1889.)
    Usury—What Constitutes.
    H. made a contract to purchase land of C., the title to pass March 1, 1887. H. defaulted, and C. became entitled to §6,000 paid by H., as liquidated damages. They subsequently, in July, 1887, agreed by paroi to settle their disputes by a sale at an advanced price, payment of the advance to be secured by bond and mortgage for §4,500; but C. having paid out §1,000 at H.’s request to enable him to make some arrangements for the purchase, it was then agreed that the mortgage should be for §5,500 at 6 per cent., and should bear date March 1,1887. H. subsequently executed an instrument releasing C. from all obligation under the contract, and directing him to convey to defendant (a stranger to the prior transactions) on such terms as he deemed proper. C. accordingly conveyed to defendant, taking from him a mortgage dated March 1, 1887, at 6 per cent, from date, for §5,500, which included the §1,000 advanced to H. Held, that the mortgage was not usurious.
    Appeal from special term, New York county.
    Action by Julius J. Frank against Edward A. Davis, to foreclose a mortgage. Judgment for plaintiff, and defendant appeals.
    Argued before Van Brunt, P. J., and Macomber and Bartlett, JJ.
    
      Donohue, Newcomhe & Cordozo, for appellant. Samuel W. Weiss, for respondent.
   Bartlett, J.

This appeal is based solely on the allegation that there was usury in the making of the mortgage sought to be foreclosed. On January 28, 1887, a contract was entered into between Isidor Cohnfeld and Elias T. Hatch, whereby Gohnfeld agreed to sell, and Hatch agreed to buy, certain real property in the city of Hew York for $40,000. The title was to pass on March 1, 1887. Hatch failed to fulfill his part of the contract, and it was adjudged in the superior court of the city of Hew York that Gohnfeld was entitled to retain as liquidated damages $6,000, which Hatch had paid to him on account of the purchase price. Pending the appeal from this decision, Gohnfeld and Hatch entered into negotiations for a settlement of their differences by a sale and purchase of the premises at an advanced price. Payment of the advance was to be made by giving a bond and mortgage. The amount of this mortgage, as first proposed, was to be $4,500. Then Hatch asked Gohnfeld to make some payments on his account to attorneys and others, to enable him to effect the contemplated adjustment; and Gohnfeld made these payments, which aggregated $1,000. It was then agreed that the mortgage should be given for $5,500, with interest at 6 per cent. These negotiations were had about the middle of July, 1887, but, as the title was to have been closed under the original contract of sale on March 1, 1887, it was agreed that the mortgage should bear date on that day.. On July 13, 1887, Hatch executed an instrument in writing and under seal, by which he released Gohnfeld from all obligations to him under the original contract between them, and requested Gohnfeld to convey the premises to Edward A. Davis, the defendant herein, upon such terms as he deemed proper. This instrument empowered Gohnfeld to retain the proceeds without any claim to the same or any part thereof in behalf of Hatch, who expressly surrendered to Gohnfeld all his right, title, and interest in and to the property. Gohnfeld thereupon conveyed to the defendant, Davis, taking from him in part payment the purchase-money mortgage for $5,500, now in suit. It is dated March 1, 1887, and bears interest at the rate of 6 per cent, from that date. It was in fact executed, acknowledged, and recorded on July 14, 1887.

The plaintiff, Julius J. Prank, sues as the assignee of Gohnfeld, the mortgagee. The appellant insists that the mortgage is usurious, because it was given in part to secure the $1,000 advanced in July, while the interest thereon, bv the terms of the mortgage, is payable from March. Ho usury can be predicated on an agreement to sell real estate and receive in payment therefor a purchase-money mortgage bearing the legal rate of interest, to be calculated from a date prior to the agreement. In such á contract the provision for computing interest from some past date is simply a means of increasing the" purchase price. The transaction involves neither any loan of money nor any forbearance in respect to a pre-existing debt. Ho serious question, therefore, would arise in the present case if the mortgage which was dated back had been for $4,500 only, or if it had been given for $5,500, irrespective of the-$1,000 advanced or loaned by Gohnfeld to Hatch. But, inasmuch as it represents and secures that advance or loan to the extent of $1,000, the defendant argues that it is usurious because 6 per cent, interest is charged on that amount, not from the date in July, on which it was actually advanced or loaned, but from March 1, 1887. notwithstanding the fact, however, that the amount of the mortgage does appear to have been augumented by $1,000 in consequence of this advance or loan, we do not think the transaction should be pronounced void for usury. The main design which both parties had in view was a sale and purchase of the property at a price higher than that provided for in their agreement. It was to enable Hatch or his assignee, the defendant, Davis, to become a purchaser at an increased price, that Gohnfeld consented to advance the $1,000. Having done this, he was unwilling to sell unless the amount to be secured by thepurchase-monev mortgage should be increased to $5,500, and unless this sum of $5,500 should bear interest at the legal rate, to be computed from the time which had been fixed for passing title under the original contract. These were conditions which he might lawfully insist upon, and in so doing he merely raised the price for the property. It was as though he said, after Hatch had executed the instrument requesting him to convey to the defendant on such terms as he deemed best: “I will "not sell unless I am paid by means of a purchase-money mortgage the $4,500 originally contemplated; the$l,000 which I advanced to Hatch, and interest on this $1,000 for the time which has elapsed since March 1,1887.” If the reservation of this interest is deemed to be merely an augmentation of the purchase price, it was not usurious. We think it should be so regarded. A transfer of the real property was the main object which both parties were seeking to accomplish. There is no evidence of any intent to use that transaction as a cloak for any usurious agreement, and, under such circumstances, “refined theories should not be resorted to for the purpose of making out usury by construction.” Clarke v. Sheehan, 47 N. Y. 188, 195. Viewed as a whole, ,and fairly, the transaction seems to have been nothing more than a method of agreeing upon a higher purchase price for the land to be sold than that provided for in the first contract.

It may be added that there is no proof of any knowledge on the part of the defendant, Davis, of the negotiations between Hatch and Gohnfeld, or of the advance or loan by Gohnfeld to Hatch, except that Hatch, in testifying to what occurred, speaks of himself as “representing Mr. Davis.” The transactions between Gohnfeld and Hatch looking towards a settlement between them were wholly oral, and no enforceable agreement relating to the land was ever entered into by them subsequent to their first contract until the execution of the instrument of July 13, 1887, whereby Hatch released Gohnfeld, and directed him to convey to Davis on such terms as he deemed proper. It is not proved, though it may be surmised, that he undertook to convey to the defendant, Davis, on the terms discussed with Hatch; but he certainly was under no legal obligation to do so. Gohnfeld did convey to Davis on terms which included taking this $5,500 mortgage bearing 6 per cent, interest from March 1, 1887, in part payment. No money had been loaned to Davis, and, so far as he is concerned, there is little or nothing to show that the mortgage was to any extent based on the advance of a thousand dollars to Hatch. Indeed the recital in the mortgage that it is given for purchase money implies that if there was any loan from Gohnfeld for which Davis was to be made responsible, it had been secured in some way, for certainly a loan would not ordinarily be spoken of as purchase money. The court below properly held that the defense of usury was not made out, and the judgment directing the foreclosure and sale of the property should be affirmed, with costs. All concur.