Case Name: Horace B. Claflin et al., App'lts, v. William B. Boorum et al., Resp'ts
Court: New York Court of Appeals
Jurisdiction: New York
Decision Date: 1890-10-28
Citations: 33 N.Y. St. Rep. 640
Docket Number: 
Parties: Horace B. Claflin et al., App’lts, v. William B. Boorum et al., Resp’ts.
Judges: 
Reporter: New York State Reporter
Volume: 33
Pages: 640–642

Head Matter:
Horace B. Claflin et al., App’lts, v. William B. Boorum et al., Resp’ts.
(Court of Appeals, Second Division,
Filed October 28, 1890.)
Bills and notes—Usury—Legal inception.
Notes, made by defendants to their own order, were delivered hy them to one Follett, a note broker, for sale at a rate of interest not exceeding' six per cent, per annum. - Follett sold the notes to Seney at a discount which made the interest'reserved amount to ten per cent, per annum, and afterwards failed, owing defendants the proceeds of said notes and of several others. Held, that the notes in question had no legal inception when sold to Seney and the transaction was a loan by him at a usurious rate to defendants, through Follett, and the notes were void.
Appeal from a judgment of the general term of the supreme court in the first judicial department, affirming a judgment entered upon the verdict of a jury, and also affirming an order, denying a motion for a new trial.
This action was brought upon two promissory notes for $5,831.92 each, dated respectively August 12 and August 26, 1882, made by the defendants under their firm name of “Boorum & Pease,” and payable to their own order fourmonths after date, The defenses interposed were fraudulent diversion and usury.
Upon the trial, it appeared that said notes, although bearing the dates above mentioned, were not, in fact, made until Septem- ■ ber 5, 1882, when .they were delivered by the defendants to one Alonzo Follett, a note broker, for sale at a rate of interest not exceeding six per cent, per annum. Evidence was given tending to show that Follett discounted the notes himself by agreeing to lend to the defendants the amount thereof, less legal interest, and crediting the same in an account that he had with them upon his books. The jury found, however, upon a conflict of evidence, that he never owned the notes, and that his only connection therewith was as a note broker. Follett sold the notes to one Seney before they had had an inception, at a discount which made the interest reserved amount to ten per cent, per annum, and shortly afterward failed, owing the defendants not only the entire proceeds of the notes in question, but also the proceeds of several others, aggregating a large sum, that had been entrusted to him for sale under similar circumstances.
It also appeared that he had been employed for several years by the defendants, and many other firms in good credit, to sell their accommodation paper on the best terms that he could, but not to exceed the legal rate of interest. He opened accounts with his principals, in which he credited to them the proceeds of notes when sold less his commissions, and charged to them the checks which they drew upon him. Before he failed he had become largely indebted to those who thus employed him, and in order to keep up his credit and induce them to let him have more notes to sell, he frequently credited the proceeds of notes as if sold at or under the legal rate, when- he had been compelled to sell them at a usurious rate. He even credited paper.that he had disposed of at twenty-four per cent, as sold at from three and one-half to five per cent. He paid the difference himself as long as he could, but was soon forced to make an assignment.
Henry Thompson, for app’lts; John H. Parsons, for resp’ts.
Affirming 2 N. Y. State Rep., 72.

Opinion:
Vann, J.
The sale of accommodation paper is merely a loan of money, the purchaser being the lender and the seller the borrower. Clark v. Sisson, 22 N. Y., 312, 316; Newell v. Doty, 33 id., 83,85; Eastman v. Shaw, 65 id., 522, 530; Tiedemann v. Ackerman, 16 Hun, 307; S. C., 84 N. Y., 677; Miller v. Zeimer, 111 id., 441, 444; 19 N. Y. State Rep., 120.
The notes in question had no legal inception when sold to Seney, and the transaction, therefore, was a loan by him to the defendants, through the agency of Follett. On or about the 5th -of September, 1882, Seney, the lender, delivered $5,668.30 to Follett for the defendants, the borrowers, and received therefor their promise to pay $5,831.92 on the 15th of December following, and thus the note of August 12th was disposed of. At about the same time Seney delivered $5,645.62 to the agent of defendants for them, and received therefor the note of August 26th, which was a promise to pay $5,831.92 on the 29th of December then next. Seney thus exacted a promise to pay interest at a prohibited rate, and the promise by force of the statute was void. 4 R S., 8th ed., 2513, § 5. Upon the delivery of the notes to Seney and the payment by him of said sums, the trans action was complete. It was either innocent or guilty then, independent of what might afterward transpire. Even if Follett had subsequently paid the excess of interest' to the defendants-from his own funds it would not have rendered valid that which the statute had already condemned as void. An agreement to do-so, whether expressly made, or implied from a previous course of dealing, could have no greater effect than actual payment. The loan, when made, was a violation of the statute, and the 'notes were thus rendered absolutely void, and no subsequent transaction could make them valid. Even if, as the plaintiffs claim, they purchased the notes before maturity, for value and without notice, they cannot enforce them, because the vice of usury follows a. promissory note into the hands of a bona fide holder.
A note void in its inception for usury continues void forever, whatever its subsequent history may be. It is as void in the hands-of an innocent holder for value as it was in the hands o£ those who made the usurious contract. No vitality can be given to it by sale or exchange, because, that which the statute has declared void cannot be made valid bypassing through the channels of trade, Powell v. Waters, 8 Cow., 669 ; Wilkie v. Roosevelt, 3 Johnson's Cases, 206 ; Bennet v. Smith, 15 Johns., 355, 357; Miller v. Hull, 4 Den., 104, 107; Miller v. Zeimer, 111 N. Y., 441, 444; 19 N. Y. State Rep., 120.
Even the principle of estoppel, when applicable, does not render such a note valid, although it may prevent one who has represented it to be valid from asserting that it is void, to the injury of those who have acted in reliance upon the representation.
After examining all the exceptions contained in the record, we find none that should reverse the judgment, which must, therefore, be affirmed.
Judgment affirmed, with costs.
All concur, except Haight, J., absent.