#### RICHARD M. NICHOLS, Appellant, *v.*HENRIETTE NUSSBAUM and others, Respondents.

*ITswy*— *mortgage*— *sale*of— *O&riifieate of mortgagors*— *when it operates as cm estoppel.*

Where a bond and mortgage, executed without any consideration moving from the mortgagee, are sold to a third person or placed in his hands for negotiation, upon a usurious agreement, and the same are subsequently sold to one who purchases the same, relying upon a certificate given by the mortgagors, which states that they were executed upon a full lawful and valid consideration, and that there was .no defense thereto, or equities, latent or apparent, in any way affecting the same, the parties signing the said certificate are estopped thereby from setting up the invalidity of the bond and mortgage in an action brought by the purchaser to foreclose the same.

Where such certificate is signed by the mortgagors, without knowledge of and by reason of misrepresentations made in regard to its contents, they are not thereby estopped from setting up the invalidity of the mortgage.

Where the purchaser, at the time of the purchase, knows that the bond and mortgage are usurious and void, and that the statements contained in the certificate are untrue, he can derive no benefit or protection therefrom.

Appeal from a judgment in favor of tbe defendants, entered upon tbe trial of this action by tbe court at Special Term.

*215*J. H. V.*Arnold, for tbe appellant.

*W. H. c& D. M. Yam, Oott,*for tbe respondents.

Daniels, J.:

Tbe object of this action was tbe foreclosure of a mortgage executed by tbe defendants, Henriette Nussbaum and Philip-Nussbaiim, her husband, to 'William Katz, upon premises owned by her on One Hundred and Sixteenth street, in tbe city of New York. It was made to secure tbe payment of $4,000, and accompanied a bond executed by tbe same persons. Tbe evidence tended very decidedly to show that tbe bond and mortgage were made in form to tbe mortgagee named, simply for tbe purpose of being used to loan money upon them, and not for any debt owing to him. He accordingly, with tbe assent of tbe other parties to them, assigned them to Gustave A. Garris, who either purchased them himself or undertook to sell them for tbe parties by whom they bad been executed. It is not important to tbe disposition of tbe appeal, to determine in what capacity be took tbe assignment of *the*bond and mortgage, because tbe plaintiff’s rights are not wholly dependent upon bis title to them. In form Garris was tbe assignee, and if be was tbe purchaser, as there is very good reason for supposing that be was, there can be no doubt that they were void for usury in bis bands, for be acquired bis title at a greater rate of interest than seven per cent, and as they were not made to secure any existing debt or obligation that rendered them usurious.

After be bad acquired tbe title to them as be did, with a full knowledge of all tbe facts concerning their inception, a negotiation was entered into for their sale to tbe plaintiff. That was principally carried on through bis attorneys. During its progress, and before tbe plaintiff bought tbe bond and mortgage, tbe mortgagors executed and in due form acknowledged a certificate stating, among other things, that they were executed and delivered for a full, lawful and valid consideration, and that there was no defense, off-set or counterclaim thereto, nor any equities, latent or apparent, whereby they could be in any manner impaired or affected. And evidence was given, tending to show that tbe plaintiff became tbe purchaser of tbe bond and mortgage, on tbe faith of tbis certificate, for tbe sum of $3,520, but as they could not lawfully have been sold at tbis rate *216of discount, the plaintiff’s right to collect the debt secured by them, depended upon the validity and effect of this . certificate. If that was given for the puxpose of inducing the purchaser to believe that they were what it described them to be, and he, acting upon the faith of it, bought them at a rate of discount which would otherwise have been unlawful, the persons executing it would be precluded by means of it, from objecting to their collection on the ground of usury. It would then estop them from asserting the, fact to be different from the representation made of it by them in the certificate, and for that reason would deprive them of the benefit they might otherwise have been entitled to derive from the statute regulating the rate of interest on the loan of money. *(L'Amoreux*v. *Visscher,*2 Comst., 278; *Real Estate Trust Co.*v. *Seagreave,*49 How., 489.)

But the answer made in the action by the defendants, who executed the bond and mortgage, was that they were void in the plaintiff’s hands for usury; and evidence was given tending to show that the certificate was executed without knowledge of its contents, and by reason of misrepresentations made concerning it. If that were the fact, then, within the cases of *Wilcox*v. *Howell*(44 N. Y., 398) and *Dinkelspiel*v. *Franklin*(1 Hun, 339), it would not be operative, by way of estoppel, on the parties who in that manner had been induced to execute it. But the evidence on the part of the plaintiff was in decided conflict with that which the defendants gave upon this subject; and if it was to be relied upon, established the fact that the certificate was fully explained when it was presented for execution, and was subscribed with a complete knowledge of its contents.

The learned judge, before whom this cause was tried at the Special Term, did not specifically determine which was the correct view of the evidence on this point. He simply found that before the assignment was made to the plaintiff he sent a notary to visit the persons who executed the certificate, but whether they executed it understandingly, or were induced to do so because they were deceived as to its nature or contents, he did not decide. But he put his decision of the case in the defendants’ favor upon another fact entirely, which was stated to have been found by him, that the plaintiff took the assignment of the bond and mortgage, “ with the knowledge of the said corrupt and usurious agreement, and when the same was subject *217to and rendered void thereby, and to cover up and conceal the same.” This, of course, was decisive of the case, .even if the certificate had been executed properly and with the most complete knowledge of its contents; for that would not afford the least protection to a purchaser of the bond and mortgage, who, at tbe time be bought them, knew that tbe statement in tbe certificate was untrue, and that tbe securities were infected witb tbe vice of usury. Such a certificate will only protect persons dealing witb tbe security mentioned in it, in good faith, believing tbe truth of tbe statement made by it, and relying upon it as tbe basis of tbe purchase. A person knowing tbe contrary can in no way be benefited by such an instrument; for that reason, if this conclusion were supported by tbe evidence, it would be wholly unimportant whether tbe certificate was intelligently executed or not. Tbe bond and mortgage were found to be usurious in tbe bands of Garris, upon evidence fairly justifying that result, and if tbe plaintiff bad purchased them, knowing that to be their character, they were equally void after tbe assignment to him.

But tbe difficulty witb tbe case is, that there was no evidence whatever given upon tbe trial in any manner tending to show that tbe plaintiff knew of tbe usurious agreement made witb Garris, or that be took tbe assignment to cover up or conceal such an agreement. Tbe evidence was all tbe other way, showing that tbe purchase was made upon tbe faith of tbe certificate, and without knowledge of any usurious agreement existing between Garris and tbe parties who executed tbe bond and mortgage. Tbe learned judge probably subscribed tbe conclusions of fact as well as law, without examination, as they were prepared and submitted to him for that purpose; but that cannot change them effect in tbe case. Tbe fact is prominently presented that tbe action has by that means been disposed of upon the effect of a circumstance entirely unproved. It was tbe pivotal point in tbe case, exerting a most material influence upon its final disposition against tbe plaintiff. For that reason tbe judgment affected by it cannot be sustained. *(Matthews*v. *Coe,*49 N. Y., 57.) It should therefore be reversed and a new trial ordered, witb costs to abide tbe event.

Davis, P. J., and Brady, J., concurred.

Judgment reversed, new trial ordered, costs to abide event.