Case ID: ny-super-ct_17/html/0573-01.html
Source: Caselaw Access Project
Author: {"author": "Hoffman, J.", "license": "Public Domain", "url": "https://static.case.law/"}
Date Created: 2024-08-24T03:29:51.129683

Fish, Plaintiff and Respondent, v. De Wolf et al., Defendants and Appellants.
    Where a note, though valid in its inception and collectible by the payee, is transferred by the latter as security for a usurious loan, such transfer is illegal and void, and in a suit by the transferee against the maker, such usury, on being alleged and proved, is a defense.
    (Before Bosworth, Ch. J., and Hoffman and Moncrief, J. J.)
    Heard, April 12;
    decided, May 14th, 1859.
    The questions of law arising on the trial of this action were there ordered to be first heard at the General Term. It was tried before Mr. Justice Woodruff and a jury, on the 9th of February, 1857. It is brought by James D. Fish, as first indorsee of a note for $1,500, made by the defendants,- Thomas L. De Wolf and Daniel Starr, composing the firm of De Wolf, Starr & Co., dated February 1, 1855, payable, as the complaint states, to “the Atlas Insurance Company or order,” twelve months after its date. The complaint also avers that “ the said payee indorsed and delivered the said note to the plaintiff ” before its maturity, and that the plaintiff is the lawful owner and holder of it, and that it is due and unpaid.
    The answer (1st) denies that the Atias - Insurance Company indorsed or delivered the note to the plaintiff, or that he is the lawful owner or holder of it.
    2d. It avers that it was given to the Atlas Company in advance for premiums.1 upon- policies of insurance, to be thereafter issued under an agreement to that effect between the defendants and said Company; -that- policies were afterwards demanded and refused; that the note was without consideration in the possession of the Atlas Company, and was paid to the plaintiff without consideration ; and that -the Company was- insolvent when the note was given, and now is.
    Sd. That it was without consideration in the -possession of the Company, and was passed to the plaintiff at a usurious rate of interest and is void for usury, and that he took it with knowledge of the facts in relation to its origin.
    George H. Tracy, a witness for the plaintiff, testified that he was Secretary of the Atlas Insurance Company, from in February, 1855, until its failure on the 5th of March, 1857. That an injunction was served on the Company on that day, and a receiver of the Company was appointed. That N. H. Osgood was President of the Company “ when this note was transferred;” and that the indorsement upon it, “N. H. Osgood, Prest.-,” is his handwriting. It was then read in evidence, and was payable to “ the Atlas Mutual Insurance Company or order.”
    On cross-examination he said: “ The makers who tnade that note, I suppose, never received anything for it; they did not to my knowledge* * “ I think the Company was solvent at the time the note in,suit was signed; before this was due, the Company was in difficulty for want of immediate means in consequence of a large portion of its assets being locked up as a margin for loans, and it was known in the street;” * * “ Mr. Fish had given the Company subscription notes to the amount of about $3,000; he took out a good many policies of insurance from the Company; the Company were in the habit of borrowing money from him; they did so a number of times; they gave him their notes with subscription notes and premium notes as collateral security; the note in suit was a subscription note; I gave this note to Mr. Fish; the note was given to him as collateral for a loan made by him; the old loans were taken up and new loans made* * “the Atlas Insurance Company agreed to pay Mr. Fish, for the loans which he made to them, more than simple interest; they agreed to pay him for the loan for which he held this note more than simple interest; they paid him as high as 1J per cent a month.”
    When the plaintiff rested, the defendants moved to dismiss the complaint, on the ground, among others, “ that the evidence shows that the note was given as collateral to a usurious loan, and therefore the plaintiff cannot recover. The motion was denied, and the defendants excepted.
    Evidence was given by the defendants that they subscribed, in all, $5,000 upon a subscription of $200,000, taken up in February, 1855, and that the note in suit was given under said sub-' scription; and they also gave evidence tending to show that after the making of the note in suit “it was agreed between the defendants and the Company (payees), while the Company held the note, that the amount of premiums paid by the defendants (on policies obtained from the Company after this note was made), though secured by new notes, should be applied on the subscription notes for $5,000, and those notes retired as premiums to the amount thereof respectively accrued; and that they subsequently paid such premiums to the amount of $1,390, and the jury specially found that such were the facts, and also found a general verdict for the plaintiff of $1,606.17, the amount of the note and interest.
    The Judge was requested to charge the jury (inter alia) that if they “believed that the plaintiff held the note as collateral security to a usurious loan, the plaintiff was not entitled to recover.” He refused to so charge and the defendants excepted.
    Ho evidence was given upon the point whether the Atlas Insurance Company, or the Atlas Mutual Insurance Company, was or was not incorporated; or what was its true name; nor was any given as to the business transacted by it, except such as is above detailed, and some other evidence of the same general nature.
    When the jury had rendered their verdict, the Judge ordered the questions of law arising at the trial to be heard in the first instance at the General Term; that judgment be there first applied for, and that the entry of judgment in the meantime be suspended.
    
      William Stanley, for appellants,
    Contended that the transfer of the note in suit to the plaintiff, it having been made to secure a usurious loan, was illegal and void, (1 R. S., 772, § 5,) and gave to the plaintiff no title.
    That the transfer was void, because not authorized by a previous resolution of the Board of Directors. (Howland v. Myer, 3 Comst., 290, and Brouwer v. Harbeck, 1 Duer, 114.)
    
      C. C. Egan, for respondent,
    Insisted that, as the note formed part of the capital of the Company, it had a consideration, under the statute, (1 S. C. R., 158; 1 Comst., 371; 4 id., 51;) and that, being free from usury in its inception, no subsequent transfer of it under a usurious contract could invalidate it in the hands of the indorsee; and that usury is a personal defense, and cannot be set up by a stranger. (Mechanics' Bank v. Edwards, 1 Barb., 278;. Post v. Bank of Utica, 7 Hill, 391; Livingston v. Harris, 11 Wend., 329; Warner v. Gouverneur's Ex., 1 Barb., 39; Hammond v. Hopping, 13 Wend., 505.)
   Hoffman, J.

The first question is, What is the legal character and position of the Atlas Mutual Insurance Company ? Have we, at General Term, on this case, a right to treat it as a corporation? If so, what is its charter? where are we to look for it?

There is not a word of allegation in the pleadings, nor of suggestion in the testimony, of its being an incorporated Company. The complaint and answer do not speak of the Atlas Mutual Insurance Company, but of the Atlas Insurance Company. The former name appears nowhere in the Case, except in the promissory note given in evidence.

If it was of importance to the plaintiffs, or to the defendant, that the fact of an incorporation should appear, it should have been pleaded, or proven; and if proven, perhaps an amendment might be required and allowed. But if no pleading was necessary—if it was simply matter of evidence, which either party might adduce, to sustain his case, we are left without proof; without anything to show the charter or any of its provisions.

As the case is now presented, how is the General Term to know what powers the alleged corporation possessed; what was the authority of its officers; to what provisions of any general statute it was subject?

It is said that the point, that this was not proven to be an incorporated Company, was not raised at the trial; that the action was tried upon the theory that it was one; that it may have been admitted, not only that this was an incorporation, but that its charter was that which is now proffered to us at General Term.

No doubt there are many cases in which a party who does not suggest an objection at the trial, which, if then suggested, could have been met, will be precluded from raising it in the Court above.

Thus, where, upon a bill of .exceptions, two questions were raised at the trial upon powers contained in a will, viz., that the executors had not a power of sale, and that it was badly executed if they had; another point, that the consideration in the deed given under the power was merely nominal, could not be taken on appeal. (Meakings v. Cromwell, 1 Seld., 136.)

So in The Farmers' Loan and Trust Company v. Curtis, (3 Seld., 466,) a deed was executed by one Redfield for himself and as attorney of Jacob Le Roy. The deed was a piece of the evidence in the cause. For the first time, it was objected on the appeal that there was no proof of Redfield being in fact the attorney of Le Roy. The Court would not allow the objection to be considered. It might have been obviated by evidence, if taken at the trial.

In Ingraham v. Baldwin, (12 Barb., 9,) the question as to the validity of a mortgage arising, a point was, that the mortgagor ought to have been shown to have been twenty-five years of age at its date. (2 R. S., 545, § 1.) The point was first raised on the argument of the appeal, and the Court refused to consider it. It could have been obviated at the trial,

In Laimbeer v. The Corporation of New York, (4 Sandf. S. C. R., 109,) upon a question of the validity of an assessment, an objection was taken on the appeal that the law required that the lots should be described by street numbers. It was answered, that the objection had not been taken at the trial, when it might have been shown that there were no street numbers.'

See, also, Sharp v. Whipple, (1 Bosw. R., 557,) in which the general rule is stated.

Now, in these cases, there is not an entire want of proof of a particular fact. A presumption of the existence of the fact, as if it was legally proven, may be made from what does exist. The omission to object at the trial justifies this presumption. The fact of an actual consideration; the fact of a sufficient power of attorney; the fact of-the mortgagor being twenty-five years of age; and the fact of there being no street numbers, were reasonable and fair assumptions'from what was proven in each case. But how is it possible to say, that this Company was incorporated? How can we say, that such and such are the provisions of its charter ?

The theory of the trial may as certainly have been that of a partnership, or association, under this title, as of a corporation. There is no word in pleading, testimony, rulings, or charge, which is irreconcilable with this view.

1 shall, then, consider the case on the ground of this being a mutual association for the purpose of insuring, without any corporate privilege, and of whose internal regulations we are left almost wholly ignorant. We are informed that it had a President and Secretary, and a capital partly, at least, composed of premium notes given in advance.

1. The note was a subscription note to the capital of the Company, to be held as such. The defendants had given notes to the amount of $5,000, including the one in suit. The jury have found an agreement that premiums, even if paid by new notes, only, should be applied on the subscription notes for $5,000, and such notes be retired for the amount so paid. . They find, also, that the amount of premiums paid under this agreement was $1,390.

It is not shown where the other notes, part of the $5,000 subscription notes, were, at the time of the trial. It was not shown that they were not outstanding. There is nothing to indicate, upon the facts or the law, that the plaintiff or the Company itself has not as full a right to have the premiums appropriated to some of the other notes, as the defendants have to insist upon their application to the note in suit. I think this point must be disposed of in favor of the plaintiff, on the verdict.

2. The next question is, whether the note was available in the hands of the Company, and was held by it on a sufficient consideration, so that the association, or one representing it, could have sued.

The instrument is a perfect negotiable note, importing a consideration on its face, given to a Company, or Association, not shown to be unauthorized to take it; and defendants have not shown that there was not a valid or adequate consideration for it. This they were bound fully to have proven against a holder before maturity. On the theory now proceeded upon, the point that the note was given to a corporation, and that a holder, must see to the title of that corporation, cannot arise. We have a Company, holding a-negotiable note, with every presumption that it had a right to take and a right to transfer, with the legal presumption of a consideration, and that presumption not overthrown.

3. The next question of importance is as to the title of the plaintiff to sustain this action. The Judge was requested to charge that the plaintiff had not shown a legal title to the note, or right to sue thereon. This he refused to do, and an exception was taken.

We have, in the view now taken, the case of an association or partnership, with a President and Secretary, of a promissory note given to the association, in its assumed joint style or name, and indorsed over to the plaintiff by the signature of its President, with delivery.

The general right of one partner to accept or indorse cannot be disputed. (Collyer on Part., 401; Chitty on Bills, 42; see Davison v. Robertson, 3 Dow P. C., 229; and the case of Fleming v. McWair, House of Lords, July 16th, 1812, there mentioned.)

Mr. Collyer says, (§ 1137,) “As between the Company, (speaking of a joint stock company,) it seems clear that a bill negotiated in the name of the Company by any one of the members will, in the hands of a bona fide indorsee for value, be available against the whole body of proprietors, provided there is nothing on the face of the bill to show that it was drawn or accepted in an unauthorized manner.”

There is a separate class of cases in which, members have been sought to be charged personally through the acceptance of one named as an officer or director. (Bramah v. Roberts, 1 Bingh. N. Cases, 469; Dickinson v. Valpy, 10 Barn. & Cres., 128.) Authority expressly given must generally be shown. But I apprehend that when a note is indorsed over for value, when the money goes to the use of the association, when the President indorsing has the note in possession and delivers it, a presumption of membership and power is sufficiently raised.

4. The next question we shall consider is of considerable moment. The Judge was requested to charge that if the jury believed the plaintiff held the note as collateral security to a usurious loan, the plaintiff was not entitled to recover. A refusal so to charge was excepted to.

The answer set up the defense that the note was negotiated and transferred by the Company at a usurious rate of interestthat it was discounted and purchased by the plaintiff at or about the rate of eighteen per cent per annum, and was void for usury.

The proof tends to establish loans, in general, by the plaintiff to the Company at usurious rates; and that the loan for which he took this note as collateral, was upon usurious interest.

I think that under the rule in Catlin v. Gunter, (1 Kern., 368,) the evidence of the usury, in the transaction between the plaintiff and the Company, was properly in the case, and could have been submitted to the-jury.

' But it is insisted that these defendants cannot set up as a defense to their note, which was good in its inception, usury in' a loan made to the payees of the note, for which it was transferred as security merely.

The old case of Bush v. Livingston decided that a lender of money upon usury, who took an assigiiment of a mortgage as security which was perfectly valid between the parties, was not barred from sustaining a bill of foreclosure. (2 Caine’s Cases in Error, 66.)

This doctrine was distinctly affirmed in Pearsall V. Kingsland. (3 Ed. Ch. R., 195.)

But in these cases, being both in Chancery, the Court allowed only the recovery of the amount actually advanced by the lender, with legal interest.

In Wells v. Chapman, (4 Sandf. Ch. R., 312,) this point was much pressed. The Vice-Chancellor so far recognized it as to hold that the good mortgage was not so affected by usury and illegality in its transfer to the Life and Eire Insurance Company, as to prevent its being restored to full force, when the original pledgors discharged the debt, and took it back.

When the case was before the Supreme Court on appeal, (13 Barb., 562,) the Court recognized the rule of Bush v. Livingston and Pearsall v. Kingsland, to the fullest extent. (See also Warner v Gouverneur's Executors, 1 Barb., 39.)

There is also a class of cases in which it is held that if a security for money is originally free from usury, no subsequent agreement between the parties, by which usury is taken upon it, will render it void, and defeat an action. (Ferrall v. Shaen, 1 Saund., 295, and notes; Nichols v. Lee, 3 Anst., 940; ex parte, Jennings, 1 Mad. R., 331.)

Yet in Bell v. Lent, (24 Wend., 230,) the language of the Court is: “ There was no sale of the notes, which distinguishes the case from Cram v. Hendriclcs. The money was advanced by way of loan, upon usurious interest, and the notes were transferred simply as collateral securities. ' The collateral paper must abide the fate of the principal debt for which it was given; that being affected with usury, the whole is void as against these defendants.”

The notes were made by one Eaullmer, not a party to the suit. They were indorsed by Lent, by the firm of Eddy & Chubb, and by McIntyre. These parties were sued, except Chubb, who was dead. The notes were sent to Hew York to procure them to be discounted on account of Eddy & Chubb, and of McIntyre, and were so discounted at a usurious rate. Thus, as to Eddy and McIntyre at any rate, the usury was between the lender and the party sued upon the notes. Lent, however, was not affected by this consideration.

In Dean v. M. and F. Howell, (Lalor’s Supp. to Hill & Denio, 39,) the defendants made a note for $3,000, in favor of D. R. Minor, who indorsed it. Minor borrowed $2,000 on his own check, and gave the note as security, through a broker. The note was a lent note, and the broker informed the lender of this. The Court says that the lender took the note, knowing it was void in its inception.

The case of Gaither v. The Farmers and Mechanics' Bank, (1 Peters’ U. S. R., 87,) must be admitted to be a direct authority to the point, that the lender on usury,- who has received a valid promissory noté as collateral to his loan, cannot sustain an action upon such note. The maker is not relieved from paying the note entirely. He is only relieved from paying it to that holder. The case was governed by the law of Maryland, and the statute of that State is not different from our own.

The case of Harrison v. Hannel, (5 Taunt., 780,) is referred to by the Supreme Court, and is strong upon the same point. • The good security may not be recovered upon by the usurious holder, because it is given for enforcing a usurious contract.

Dewitt v. Brisbane, (16 N. Y. R., 512,) applies the same principle, with great force, to' the case of a transfer of a good security upon a contract which was in violation of the restraining act. The party to the violation of the' law cannot acquire a legal or equitable right to enforce payment of the valid security, transferred upon the illegal transaction.

The line of cases referred to, such as The Mechanics' Bank v. Edwards, (1 Barb. R., 272,) is whére usury existed in the instrument proceeded upon, and particular persons were not allowed to set it up.

The authorities I have first cited were all in a court of equity, and may well be placed upon its peculiar doctrine as to usury. I consider the rule to be, that the usurer cannot sue at law jipon a valid note given to him as collateral merely, when he could not sustain an action against the principal for the debt.

From the statement of the learned Judge who tried the cause, after referring to his minutes, it appears that the case, as the parties have made it, presents the evidence as to usury far stronger, than he had noted it. In his view there was not enough to go to the jury upon the point. The case, as agreed upon, must control our action, and we think the evidence entitled the party to have the question submitted.

On this ground, I think, there must be a new trial.

It cannot escape observation, that when the.'fact of incorporation is established on the new trial, some questions not now discussed will arise, especially the important one as to the operation of the statute of 1850, upon the question of usury.

Bosworth, Oh. J., and Moncrief, J., without considering the other questions discussed, concurred in granting a new trial on the ground that the transfer to the plaintiff was made to secure a usurious loan.

Judgment reversed and new trial granted, with costs to abide -the event.