#### JOHN A. GRAY, Respondent, *v.*SAMUEL W. GREEN, HENRY A. BURR and GILBERT W. THOMAS, Appellants.

*Absolute assignment of securities, given to be used as collateral to a loom*— *rights of pa/i'ty talcing such assignment with knowledge of the facts.*

The plaintiff recovered a judgment upon a contract against the defendant Green for $71,979.23, from which judgment on appeal was taken and security given. Plaintiff, desiring to raise money, agreed with one Thomas that the latter should raise $15,000 for him, for three years, at ten per cent per annum, and gave to him his note for $19,500, due in three years, indorsing upon the back of it that the assignment of the contract and judgment were received, but held only as security for the payment of the note. The assignments of the contract and judgment were to be in the same form, but Thomas, by whose order they were made, procured them to be assigned directly and absolutely to him, he representing that he could effect a loan with a person named by him for the *599required amount. This representation was false, and he never used the note or assignments to procure a loan from any person. Instead of so doing he entered into an agreement with Green, and one of the sureties to the undertaking given on the appeal, by which he sold the judgment to them for $21,000, and satisfied it of record. Green and the surety had notice of the fact that Thomas was only authorized to pledge the contract and judgment for a loan of $15,000. This action was brought by the plaintiff to have the transaction declared usurious and void, and to have the assignment and satisfaction of the judgment set aside.

*Held,*that as no loan had, in fact, been made, the transaction could not be usurious.

That as plaintiff had failed to return the $15,000 he could not demand that the assignment and satisfaction be set aside on the ground of fraud; but that as Green and the surety knew that Thomas had no other authority than to make a loan of $15,000, and assign the contract and judgment as collateral thereto, they could only hold the contract and judgment as a security for a loan of that amount, and that plaintiff was entitled to redeem them on repaying to them that amount.

Appeal from judgment in favor of tbe plaintiff, entered on tbe trial of this action at tbe Special Term.

*E. JST. Dickerson,*for tbe appellants.

*Clarkson PT.*Potter, for tbe respondent.

Daniels, J.;

On tbe 9tb of April, 1874, tbe plaintiff recovered a judgment upon a contract against the defendant Green, for $71,979.23. Being in straitened circumstances be desired to obtain a loan of money on tbe security of tbe judgment and contract. For that purpose be employed tbe defendant Thomas, to act as bis agent, and an understanding was -formed between them, that Thomas should effect a loan of $15,000 for three years at ten per cent interest. For that purpose tbe plaintiff made and delivered to Thomas bis note for tbe sum of $19,500, due in three years, and indorsed upon tbe back of it, a statement declaring that tbe assignment of the contract and judgment were received and held only as security for tbe payment of tbe note. Tbe assignments themselves were intended to express tbe same thing, but as Thomas, to whose order tbe note was made payable, procured them to be drawn, they were made directly to him, and absolute in form. *600He represented to the plaintiff that he conld effect the loan from r-person residing in Jersey City, at the rate of interest and for the périod of time included, in their understanding. But as the facts were found upon evidence justifying the conclusion of the learned justice presiding at the 'trial, that representation was entirely unfounded. The defendant Thomas, had no arrangement with the person- mentioned by him for the loan of the money, and no expectation or design of obtaining the money from him. And neither the note nor the assignment were in any form used in procuring a loan of money from the person referred to, or any other person. For that reason the conclusion that the transaction was a usurious one ought not to be sustained. There can be no usury where there is no loan.

The facts found by, and stated in the decision of, the learned justice, show that the defendant Thomas, entered into a negotiation with the other defendant’s counsel for a sale of the judgment recovered by the plaintiff, to the defendant Burr, who was a surety for the defendant Green, upon an appeal taken from it to the General Term. And under the authority of the defendants Green and Burr, an agreement was made to pay the defendant .Thomas, $21,000 for an absolute assignment of the contract and judgment, and a discharge of the judgment of record. And it was to carry out that agreement, that Thomas induced the plaintiff to make the note and execute the assignments delivered by him. The note was not required, and was not used for any other purpose than to afford a pretext for the acquisition of the assignments of the judgment and the contract. And the latter were made and delivered'upon the supposition on the part of the plaintiff, created by the fraudulent representations of Thomas, that they were necessary and were only to be used by him in obtaining the contemplated loan of money. They were not so used, and no intention existed on the part of Thomas to use them in any form for the purpose of effecting a loan. But they were taken by him, and to himself to enable him to consummate the arrangement he had made to assign the contract and the judgment, and discharge the latter of record for the sum he was to receive from the defendant Burr, being $21,000. It was the plaintiff alone who expected a loan would be made upon the papers; neither Thomas, 7ior the other defendants. *601nor their counsel intended any thing of that kind. Their design on the other hand was to obtain the absolute title to the judgment and contract, and the discharge of the judgment from the records. And it was to carry that into execution that the $21,000 was furnished and paid by the defendant Burr, to the defendant Thomas. For that consideration the latter assigned the contract and judgment and satisfied the judgment of record. And it was a portion of the money so received that Thomas paid over to the plaintiff.

That payment, it is true, was made as the loan the plaintiff proposed to make on the security of the assignment of the contract and judgment, at a usurious rate of interest, when in fact no such loan had been made or interest reserved. As to the nature and character of the transaction the plaintiff was fraudulently deceived throughout by the misrepresentations of Thomas, whom he had employed as his agent. The agreement between the plaintiff and his agent, it is true, was for a loan to be affected at an unlawful rate of interest; but the agent wholly failed to procure it at that or any other rate of interest. What he did was to take an absolute assignment of the contract and judgment to himself, and. then make a sale of them in his own name to Burr, for $21,000, fifteen of which he formally delivered to the plaintiff.

Even if it be assumed, as the learned justice presiding at the trial has found, the fact that the counsel acting for Burr, or that himself and Green, had reason to believe that Thomas was perpetrating a fraud upon the plaintiff in making the absolute assignments which he did, and discharging the judgment, that would not transform the transaction' into the one the plaintiff intended it should be. But if it was characterized by bad faith on the part of the defendants Burr and Green, as it was found from the evidence to have been, they thereby became participants in and parties to the fraud committed by the defendant Thomas. And for that the plaintiff would be entitled to such redress as the law was able to afford him.

To avail himself of its remedies, he prosecuted his action in the form required for a rescission of the transaction, and for that purpose it was speedily instituted after the discovery of the imposition. But an insuperable obstacle in the way of maintaining it for that *602relief arises out of tbe omission of tbe plaintiff, either to restore or to offer to restore tbe fruits of tbe fraudulent transaction. He could not bold and enjoy tbem, as it appears be did, and at tbe same time rescind wbat bad been done to obtain tbe money. To tbe extent of tbe sum paid to bim be bad certainly been benefited by wliat bad been done. And -bis own agent appropriated tbe residue of tlie money advanced. For that reason before be could rescind tbe transfer, and repossess bimself of tbe contract and judgment, tbe law required him either to return, or offer to return wbat bad been received by bim from tbe other party to tbe transfer. He could not retain that, and in that manner benefit bimself by tbe result of tbe fraud, and still repudiate tbe process through which it bad been obtained.

This principle has become exceedingly well settled. *(Curtiss*v. Howell, 39 N. Y., 211, 215 ; *Cobb*v. Hatfield, 46 id., 533.) And as tbe plaintiff wholly failed to comply with wbat it required from bim, be did not place bimself in a condition to secure relief in that form, while tbe judgment awarded it to bim. In that respect as well as tbe other, relating to tbe claim of usury, it was erroneous and cannot be sustained.

But it was found by tbe learned justice as a fact, that both tbe defendants Burr and Green, and tbe counsel acting for tbem, bad knowledge that tbe defendant Thomas bad been employed by tbe plaintiff only to procure a loan of $15,000 for bim upon tbe judgment and contract. And tbe evidence was sufficient to warrant tbe belief that their counsel at least was aware of tbe existence of that fact. He represented these two 'defendants in tbe transaction, and notice of it to bim was legally speaking notice to *them.*And with sucb knowledge they could not deal with tlie defendant Thomas, and still bind tbe plaintiff in any different manner than that in which they knew bim to be empowered to act. To tbem, that was the utmost limit of tbe authority which Thomas bad received for tbe disposition of tbe judgment, and tbe contract. And while it is true no loan was in fact made, yet, as tbe plaintiff received the sum of $15,000 from bis agent Thomas, supposing it to be tbe loan be was to make, tbe transfer of tbe judgment and contract may equitably be sustained as a security in favor of Burr to that extent. Thomas was authorized to hypothecate tbem subject *603to tbat restraint, but no farther. And so far as he endeavored tD exceed this, in the formal disposition which was made, he acted without authority. And as the purchaser was chargeable with knowledge of that want of authority he can only be equitably protected tc the extent to which the power of disposition had been given. And that can properly be done because of the advance made as the consideration of the assignment.

The amount paid was entirely inadequate as the price of the securities received. And that circumstance also will warrant the court upon the other facts found in converting the transfer into a redeemable security. *(Boyd*v. *Dunlap,*1 Johns. Ch., 478; *Dunn*v. *Chambers,*4 Barb., 376.)

The excess paid to the plaintiff’s agent was beyond his authority to receive, and as the plaintiff had no benefit from it, but its payment was a fraud upon him, he should not be prejudiced by that portion of the transaction. As he intended only to effect a loan of $15,000 through the intervention of the defendant Thomas, and tbe other defendants were found to have had notice of that, and the plaintiff received no more than that, the transaction, though in forn an absolute sale, can only be maintained as security for that amouni of money. And to that extent it is just and equitable, that it should be sustained. For that reason the judgment should be so modified as to allow the plaintiff to redeem by the payment, within a reasonable time, to be for that purpose designated, of the $15,000 received by Thomas under his authority, and afterwards delivered to him, with interest from that time. And as no offer to redeem has been made by the plaintiff he should also be required to pay the costs of the defendants Burr and Green in this action.

Davis, P. J., concurred.

Beady, J.:

I think if any money is to be restored the whole sum paid should be refunded, and not a part only; otherwise I concur.

Judgment modified as directed in opinion.