BILLS AND NOTES.-PREFERENCES TO CREDITORS.

[Hamilton Circuit Court,

January Term, 1889.]

Swing, Cox and Smith, JJ.

#### *WM. J. COPPOCK, ADM’R, v. S. KUHN & SONS ET AL.

1. A Right to Discount is not a Right to Usury.

Where a loan is made by a partnership, engaged in the business of banking, and interest is reserved at the rate of eight .per cent, per annum; and from time to time renewal notes are given for the amount remaining unpaid, and interest thereon is paid in advance at the same rate, the original transaction and the subsequent renewals are usurious in character; and in an action founded on the last one of such renewal notes, the lender can only recover the amount originally advanced, with interest thereon at the rate of six per cent.per annum, after crediting all payments made thereon by the borrower, as of the date at which they were made.

I. Accommodation Note Pledged as Collateral Security.

Where a person for his own accommodation, and without other consideration, executed a note and a mortgage securing the samé, to another person, who indorsed and returned the same to the maker, who then deposited them with a banker as collateral security for a loan, less than the amount of such mortgage note — on payment of such loan, the mortgage and the note secured thereby are also satisfied; and an attempt by the maker before'the payment thereof, to transfer the same to one of his creditors for a pre-existing debt, subject to the rights of the person so holding it as collateral, does not give to such assignee a valid claim against the real estate under such mortgage.

. Conveyance not Operating as an Assignment.

A paper executed by a person then hopelessly insolvent, purporting to transfer to three others the rights of the assignor to certain choses in action therein described (then held as collateral by other persons), in consideration of large amounts due from him to such persons severally, and first assigning the same to one of such persons, and providing that after her debt is satisfied, another of the said assignees shall have the same, or the proceeds thereof to pay his debt, and after the first two are paid in full, he transfers to the third of such persons any and all articles or proceeds left, until her indebtedness is paid, this, under the provisions of sec. 6343, does not operate'as an assignment to trustee for the benefit of all the creditors of such assignor.

. Conveyance Void for Want of'Delivery.

K. being about to take his own life, drew up and signed an instrument purporting to convey to three persons named therein, (as security for debts by him owing to them severally,) certain notes and choses in action, or his interest therein, which were then held by another person as collateral security for a debt of his; which instrument was *348not executed in pursuance of any arrangement with such assignees, and was without their knowledge. This instrument was enclosed in an envelope addressed to one of said persons (who was a relative of his and then a member of his family), and in another envelope addressed to her was a letter of farewell, and the two envelopes were surrounded by a rubber band. K. had several opportunities for-delivering tnese papers to such person, but did not do so, or mention the same. After he had taken the poison and while he was almost unconscious, and was unable to speak, (and he so continued until his death,) his said relative when she first entered his room, found the papers mentioned by his side on the bed, and took the same into her possession while he still lived, but it was done without the knowledge or consent of K.., and he never knew of it, or consented thereto. Held,5 that such paper was never, either actually or constructively, delivered by K. 'to the assignees named therein, or to either of them, and that he did not intend to deliver it during his life — that he did not part with the dominion thereof while he was conscious, and that the assignee took no title to such choses in action by virtue of such instrument.

Appeal from the Court of Common Pleas of Hamilton county.

*

This-judgment, as regards Leonard, was affirmed by the supreme court, and, as reards Roelker, it was modified. See opinion in Leonard v. Adm’r. of Kebler, 50 O. S., 444.

The decision above as to first .paragraph of syllabus was considered in Widifield v. Ins. Co., 3 Ohio Dec., 276, 277.

Smith, J.

On the issues raised in this case as to the claim of S. Kuhn & Son's against the estate of C. A. Kebler, and the mode in which it shall be paid from the proceeds of the various securities left as collateral with them, our conclusions are as follows: Kuhn & Sons now hold a note of Kebler for $5,000, dated November 18, 1887, due four months after its date, and they claim that sum to be due, with' six per cent, interest thereon from its maturity. The administrator of Kebler alleges, that the note in question is the result of an usurious transaction, and that a much less sum is due thereon for this reason.

The facts are these. The transaction commenced September 23,1885.

On that day Kebler executed to them his note for $11,000, due in four months, and the amount of this note, less the interest for the four months at eight per cent, per annum, was paid by them to Kebler. At its maturity a renewal note was given for the balance then due, a part of the principal having been I paid in the meantime; this note also was to run for four months, and the interest thereon at eight per cent, up to the time of its maturity was paid by Kebler in advance, and other payments were made and renewal notes given, .and payment on all, of interest at the rate of eight per cent, made in advance, until the transaction terminated a few days before the death of Kebler, by the giving of the $5,000 note now held by them. Kuhn & Sons were partners engaged in the business j of banking in this city, and were not incorporated.

The question for our decision on this state of facts is, whether the original I transaction, or the subsequent renewals of the note, were usurious in character, f

It is settled by the decision in Insurance Co. v. Carpenter, 40 O. S., 260, that if the lender was a private individual, or a corporation other than for banking or discount business, that such a transaction would be usurious. That by the reservation of interest at eight per cent, per annum, the fact is, that -the borrower pays interest on the amount actually received by him, at a rate greater than is allowed by law. And as a result of this, that the lender in an action upon the note could only recover the amount actually advanced, with six per cent, interest I thereon from the time it was received, after deducting all payments made thereon. J

It is also clear from other decisions in this state, that where the original f transaction is tainted with usury, and subsequently other notes are given in renewal thereof, which on account of such usury are for .more than the amount legally due, and suit is brought upon the last of such renewals, the court on proper pleadings and proofs, will search the whole transaction, and the holder,] unless protected by .the law of negotiable paper, will be allowed to recover only | the amount of the original loan with six per cent, thereon, after crediting all payments thereon at their proper dates.

Does a partnership (not incorporated), engaged in this state in the business] *349of banking, stand in any different position in. this respect? It is claimed by the ■ counsel for Kuhn & Sons, that it does; but we are unable to find any warrant for such opinion. The case of Bank v. Baker, cited from 15 O. S., 68, was in regard to a contract made in the state of New York, by a bank chartered by that state, and it involved only the construction of that charter, and whether under it, the bank was allowed to take interest in advance, and it was held that such was the fact.

The case of Insurance Co. v. Carpenter, 40 O. S., 260, before referred to, is also relied on as authority for the position. We understand, however, that it is directly opposed to this idea. The argument of the court is, that as banks and other corporations (particularly if engaged in banking), have in some instances, by special statutes, been authorized to take interest in advance, that this furnishes the strongest implication that the right is denied to all others; this of course must be held to be the case only where the amount reserved makes it an usurious transaction, for we suppose that any person is authorized to take, interest in advance, if the case is not one where interest is thus charged or paid at a rate higher than eight per cent, per annum.

Counsel also cite us to sec. 10 of. the act of March 21, 1851, to authorize free banking (3 Williams, Rev. Stat., 367), to show that the right is there conferred on banks to discount bills of exchange, which it is claimed is a virtual authorization to take interest in advance, at the highest rate allowed- by law.

Leaving out of view the question whether this is so, after the repeal of sec. 24 of the same act, which expressly authorizes banks organized under it to take interest not exceeding six per cent, in advance, this certainly can'not be. held to authorize individuals, or partnerships engaged in banking to do this. The law only applies to corporations organized under that statute. Our conclusion then is, that partnerships engaged in the banking business, have precisely the same rights in this respect as individuals not so engaged, and must conform to our interest laws as do individuals.

We further find that whatever balance may be due to Kuhn & Sons on their claim, is to be paid and satisfied out of the Corbin mortgage or the proceeds realized from it. And that this is so, even if the bill of sale made by Kebler to Mrs. Leonard and others on the night before his death, is. or is not valid as to the other claims attempted to be transferred théreby. And. for the reason, that so far as this mortgage is concerned, no one else has any claim to it; as ¡Kebler-had no interest in it which he could asigm The facts as to this are these: ¡Kebler, while the owner of the Oak street property, executed a note for $10,000 |to Mr. Corbin, a clerk in his office, and a mortgage securing it, solely for bis own ¡accommodation, and to enable him to make the loan from Kuhn & Sons, for ¡which loan it was deposited as 'collateral security. It is still held by Kuhn & ¡Sons as collateral for the balance due on their claim, 'and for that alone. When ¡this balance is paid, the note and mortgage will have fully performed their office, ¡and will be satisfied. Any residue of the note could not have been an asset, or [chose of action which Kebler could assign or transfer, particularly for a pre-ex¡isting debt.

| Another question which arises in the case, and which involves several interesting and important questions, both of law and of fact, on which we have ¡heard a good deal of testimony, is, as to what effect, if any, is to be given to the Instrument executed by Kebler on the night of the 22d of November, 1887, and ¡whether it was operative to transfer to Mrs. Leonard and the other persons named therein, the dioses in action therein described. It is objected that it did not, for Iwo reasons: First, that it was not delivered; and second, that if it was, the legal ¡effect of it was thereby to make it an assignment under sec. 6343, Rev. Stat.,.for the benefit of all the creditors of Kebler. ' We consider the last point first.

I The substance of this instrument is this:. It declares that in consideration fcf $9,000, owed by him to Mrs. Leonard, he sells, assigns and transfers to her *350the chattel property therein described. Also certain promissory notes which he mentions, including among them the Brown note made to his order and stated to be pledged to Kuhn, the Portsmouth Railroad bonds, after the debts for which they were pledged were paid, and any other collateral owned by him, and not needed by S. Kuhn & Sons for the debt for which it was pledged to them, and it proceeds as follows: -.

> “After the above debt of $9,000 has been satisfied, I sell, assign and transfer to Adolf Hartdegen any or every thing above transferred, or the proceeds of the same, in consideration of $3,800 I owe him, and until said proceeds have paid said $3,800.

> “After said H. D. Leonard and Adolf Hartdegen have been paid in full, I sell, assign and transfer to Mary S. Russell, any and all other articles or proceeds left until my indebtedness to her is paid.”

Without going into an extended discussion of the question, we say that, in our opinion, this was not such a transfer as operated as an assignment for the benefit of the creditors of Kebler. We understand the law to be, that a failing debtor may by one ■ instrument make a conveyance of property, either abso-| lutely or by way of mortgage, to two or more persons in payment of, or as security for their several claims. Or he may do the same thing by successive! mortgages to them severally, whereby one or more of those so secured, have priority over others secured by subsequent instruments. There can be no doubt,| then, that if this paper had contained a transfer of this property to the three persons named, without attempting to give priority to one over another, but allow ing them all to stand on the same footing, that it would not have been open tol the objection now urged against it. But we see no reason why the mere fixing of priority among these persons, should make it operate differently. As before stated, it is perfectly legitimate to do this by separate successive instruments,! and the law looks to the substance rather than the form of a transaction.

It has been held “that a mortgagee is in some respects a trustee, but this| arises merely as an incident to his relation as mortgagee, and is not the kind o trustee designated in the statute.” See Atkinson v. Tomlinson, 1 O. S., 237; Dickson v. Rawson, 5 O. S., 218, 219, and Justice v. Uhl, 10 O. S., 176; and the same may be truly said, we think, as to the relation of Mrs. Leonard to Hart-[ degen and Mrs. Russell, and of Hartdegen to the latter.

As we understand the section referred to, it relates to cases in which a conveyance is made to one or more persons, to secure not only their claims, but tb claims of those not named therein as grantees; and, of course, when this is done, the relation of trustee and beneficiary at once is created.

The next inquiry is, was this paper delivered to Mrs. Leonard?

To determine this question, a brief statement of the facts, as we find thei to be, is necessary.

It is evident from all that occurred, that on the night of Nov. 22, 1887, Mr| Kebler was intending to take his life the next morning. He spent the evenin^ with Mrs. Leonard, his mother-in-law, who was a member of his family, and weir to his room about 11 o’clock.

There he wrote the instrument in question — a letter of farewell to Mrs| Leonard, and letters to his own mother and brothers, the contents of which haw not been disclosed to us. A memorandum on the back of the letter to Mrs| Leonard (“farewell, *5*a, m.”) would indicate that he did not finish his writin till that hour. He was called by Mrs. Leonard a few minutes before 8 a. m. but he asked her to call him again at J- before 9 o’clock. At half-past eight Mr| Roelker, his partner, called, and his mother-in-law again went up stairs anJ asked if he would see him. Kebler said that he would, and Mr. Roelker wen| into his room for a few minutes. After he left, Abbott Kebler, brother, cam *351and went to his door, but did not go into his room, as his brother Charles called to him that he would be down stairs in five , minutes. He did not come for twenty minutes, and hearing no noise in his room Mrs. Leonard again went to. his door, heard him breathing heavily, and ran in and found him lying on his bed. in his night clothing. She exclaimed “Oh, Charles,” and he gave a look or sign, of response or recognition, but was unable to speak, and was almost unconscious.. By his side, on the bed, lay the paper in question, enclosed in the envelope. The letter to Mrs. Leonard was in another envelope, addressed to her, and the two' were held together by a rubber band. By his side, on the bed, lay the other letters he had written, a satchel of letters, and some pictures. Mrs. Leonard at once took possession of the letter addressed to her, and the paper in question, and has had possession of them ever since.

Was there then a delivery of this paper to Mrs. Leonard, or was that done which in law was equivalent to it? This we understand to be essential. It is a general rule in all contracts of bargain and sale, deeds, notes and other instruments, and in gifts Of all kinds, that to transfer the title from one person to another, there must be either a delivery of the property itself, the subject of the contract, or of the instrument by which the title purports to be transferred, and this delivery in either case may be actual, constructive or symbolical. The only-exception, or apparent exception to this doctrine, of which we are advised, is the-case of a voluntary settlement by a parent upon a child, or the release of a-debt owing by the child, as to which the holding of some courts is (though- it is not at all uniform or well settled), that the retaining by the parent of the deed of. settlement is not to prevent its operation as such, unless it clearly appears that it was not in fact to be delivered or take effect. But these cases seem to proceed, to some extent at least, on the theory, that the settlement was by deed duly-signed and attested by witnesses, called for that purpose, and that this in substance was a delivery. See as to this question, *2*Sandford’s Chan. Rep., 400, and. cases cited.

But the case at bar is not of this character. This instrument was not executed in pursuance of any contract that it should be done, or be left for the grantee at any particular place. The presumption is, that it was the act of a person desiring to make some apiends to those whose money he had received and wasted. None of the grantees had any knowledge of it until it was found by his side, while in the agony of death. It seems to us then, that so far as the question of delivery is concerned, it would be governed by the law applicable to gifts. -that it is not essentially different from what it would have been, if Kebler being entirely solvent, had undertaken in this manner to give to these persons, the property mentioned in the instrument. If this be so, it is exceedingly difficult for us, if we are to be bound by the decisions of our own supreme court, as we must: be, to hold that there had been a valid delivery of this instrument to the persons; named therein, or to either of them. In the case of Phipps v. Hope, 16 O. S., 586, a case is reported which in some of its features strongly resembles this one, and it was there held, First, that “to constitute a valid gift *inter vivos,*or *causa mortis,*a delivery, either actual, constructive or symbolical, is essential; and Second, directions by an- owner in respect to a disposition of his property, to take effect after his death, and different from such as the law would prescribe in case of intestacy, are of no validity unless made through the medium of a last will and testament.”

In that case an uncle agreed with a nephew, that if he would work for him, he would finally make or leave him well off, which the nephew oil the faith of the promise, did. On January 13, 1862, the uncle being then the owner and payee of a note of one Porter, dated March 26, 1856, in consideration of the premises, enclosed said note in an envelope with a statement signed by him, that the contents were to be given to the nephew in payment of his wages, and authorized him to endorse and collect it. There was also endorsed on the envelope *352a direction that it be given to the nephew by the person legally authorized to examine its contents. Afterwards, the uncle received one year’s interest on the note. On his death, the envelope containing the said indorsement, assignment and note, were found in a box where they had been deposited by the uncle. But 'the court held that the attempted transfer was invalid, First, for the reason that' there was no delivery of the note itself, or of the transfer; and Second, on the ground that he evidently contemplated a delivery after his death.

■ Wilby. •.& Wald, for administrator of Kebler. Kramer & Kramer, for S. *353Kuhn & Sons. I. M. Jordan, for Mrs. Leonard. Mr. Cahill, for HarLdegen. Avery & Holmes, for Mrs. Russell.

*352It would seem that the facts relied on to show a delivery of the note and transfer, were stronger in that case, than in the one before us.

The case of Flanders v. Blandy, 45 O. S., 108, is also a strong one against the theory of a delivery in this case. The facts there relied on to show a delivery of the bonds claimed by a daughter as a gift from her father, were also much more explicit than in this case. But it was held that there was no delivery of the bonds, and the court in the opinion state the doctrine on this point clearly and forcibly. They say: “To render the gift complete, there must be an actual delivery of the chattel so far as the subject is capable of such a delivery, and without such a delivery the title does not pass. • If the subject be not capable of actual delivery, there must be some act equivalent to it. ‘The necessity of delivery,’ says Chancellor Kent, ‘has been maintained in every period of the English law.’ The donor must part not only with the possession, but with the dominion and control of the property.”

We think the evidence in this case shows nothing to indicate that Kebler lost the dominion or control over this paper. If he had chosen, the moment before he took the fatal dose of poison, to destroy the instrument, who would have had a legal right to complain, or to assert that by what had taken place, viz.: the writing and signing of it, and putting it with a letter to Mr. Leonard, that the title to it and to that which it mentioned, had passed to the grantees or assignees therein named? What court could rightfully have ordered Kebler to turn it over to them if he had recovered? It is manifest that he had not parted with the instrument or his right to it, when Mrs. Leonard took possession of it. If this be ;so, no delivery was made of it.

We are also of the opinion that it was the intention of Mr. Kebler that the paper should not come to the possession of Mrs. Leonard until after his death, and that on this ground there are serious objections to its validity. He evidently contemplated suicide that morning-. •

He had ample opportunity if he had wished to do so, to give the paper to Mrs. Leonard before taking the poison. She was at his door at two separate times -before he did so, and spoke to him, and he answered her. He could on •either occasion have ‘handed it to her, and put the matter-beyond dispute, but for some reason he did not do it. The strong presumption is, that he intended it should come into her possession when he was found dead, for he had it with the other papers on the bed with him, when he took the poison, which so speedily and surely destroys life.

• Many authorities have been cited to show that when the grantee is found in I -possession of the deed, or transfer of any kind, that a delivery will be presumed. But evidently this rule only applies where there is no proof showing the real manner in which it came into his possession. If the testimony shows just how it was, there is no room for presumption, and the court must decide according | to the evidence submitted.

For many reasons urged in argument to us, we would have been glad to I have been able to arrive at a different conclusion on this point, but with ourj views of the law and the testimony we have not been able to do so.

*353Thomas McDougall, Kittredge & Wilby, Champion & Williams, Healy &' Brannan, McClintick & Strong and Rufus B. Smith, for various creditors of Kebler, and claimants of different securities.

(Mem. — Many other controversies between the parties of this case were decided by the • court, but as they involved questions of fact principally, a report of them is not given.)