Case Name: Jones v. Insurance Company
Court: Supreme Court of Ohio
Jurisdiction: Ohio
Decision Date: 1884-01
Citations: 40 Ohio St. 583
Docket Number: 
Parties: Jones v. Insurance Company.
Judges: 
Reporter: Ohio State Reports, New Service
Volume: 40
Pages: 583–588

Head Matter:
Jones v. Insurance Company.
An insurance company made a loan of money to W., and took from him his promissory note for the amount thereof, with interest at eight per cent, per annum, secured by mortgage on real estate, and took Ills sundry other notes for usurious interest on the loan. W. afterwards sold and conveyed the property to B., who, as part of the consideration, agreed to pay the notes and mortgage given by W., and to secure the performance of his agreement, executed to W. a mortgage on the same property. B. sold and conveyed the property in fee to J., and made to him a warranty deed thereof, and agreed with him to pay off the incumbrances thereon.
Held: That in an action of foreclosure by the insurance company, the defense of usury is not available to J. against the mortgage given by W. to the company.
Ekrob. to the District Court of Licking County.
Charles H. Killer, for plaintiff in error.
Jones bad in no way, verbally or by written covenant, agreed to pay this mortgage. He paid full consideration for the property, and besides, Birkey agreed to pay off and cancel all incumbrances upon the property, and did pay one of them. Jones was not, therefore, personally liable for the debt, as he would have been if he had received the ■conveyance with an assumption in it to pay this mortgage ■as part of the purchase money. Brewer v.' Maurer, 38 ■Ohio St., 543.
It is said that the defense of usury is personal to the mortgagor, and cannot be set up by his grantee, and the case of Cramer v. Lepper, 26 Ohio St., 59, is quoted as authority. But that doctrine is not in the syllabus, and though so stated in the decision, was evidently a mistake, and was intended to apply only to the case there made, which was a case where the grantee had assumed, in consideration of the •grant, to pay the claim of the mortgagee. The case of Union Bank v. Bell, 14 Ohio St., 200, cited in Cramer v. Lepper, holds the very opposite doctrine, except where the grantee is the grantee of the equity of redemption, eo nomine.
The doctrine that usury cannot be set up by the grantee is against the weight of authority. 1 Jones on Mortgages, Sects. 644, 746, 747, and authorities cited. 2 Jones on Mortgages, Sect. 1494; Silienthal v. Champion, 56 Georgia, 188.
A person who has paid full price for the land can set up usury. Mahler v. Lanfrom, 86 111., 513.
J. Buckingham, for defendant in error.
It is well settled in Ohio that Birkey by agreeing to pay "Wallace’s notes to the Insurance Company, cannot question their validity on any ground, and that the Insurance Company may have the benefit of the promise and maintain suit upon it. Cramer v. Lepper, 26 Ohio St., 59; Brewer v. Maurer, 38 Id., 543; Union Bank v. Bell, 14 Id., 201.
Can Jones set up the usury? We say no.
1. The promise by Birkey to pay the notes and mortgage as part of the purchase money for the property, made Birkey the principal debtor as between him and Wallace, and what is more important, made the property the primary fund out of which the debt should be paid; it was in equity set apart for this purpose. 1 Jones Mortg., 2d ed., sec. 737, 740.
2. Jones had notice of that equity: first, constructive notice by reason of the clause of assumption contained in the deed of Wallace to Birkey under which directly Jones holds his title; second, actual notice because he says that when he bought, Birkey agreed with him to pay that lien.
The equity arising in favor of Wallace is an equity in the land and affects the title in the hands of Birkey and of his assigns with notice, and what appears plainly in the deeds under which a man holds title is notice, to him. Wade on Notice, sec. 307-309; McChesney v. Wainivright, 5 Ohio, 452; Scott v. Douglass, 7 Ohio, pt. 1, 227.
Wallace devoted the property to the payment of this debt just in the manner he had himself agreed to pay it; he left a fund in the hands of Birkey and he had a right to say what should be done with the fund. By accepting the fund as he did upon the trust fixed upon it by Wallace, and the trust being one not prohibited by law, Birkey was bound to perform it. Jones having obtained possession of the fund with notice of the trust, must also perform it.
The fund left by Wallace in the hands of Birkey was purchase money unpaid, and was not due when Birkey sold to Jones, of which Jones had notice, and the lien could therefore be enforced as a vendor’s lien against both Birkey and Jones. Freeman v. Auld, 44 N. Y., 56; see Sweetzer v. Jones, 85 Vt., 317; Hartley v. Harrison, 24 N. Y., 170.

Opinion:
Dickman, J.
On the 1st of July, 1871, George Wallace, at Newark, Ohio, made to the Franklin Insurance Company —defendant in error — a mortgage of land situated in Licking county, to secure the payment of a note given by him to that company for $10,000, payable five years after date, with interest at eight per cent, per annum payable quarterly, and nineteen other notes of fifty dollars each. The largest note was given for money loaned to Wallace, for which he agreed to pay ten per cent, interest. Fifty dollars — being two per cent, interest for the first quarter — were retained as advance interest, at the time of the loan, and the sum of $9,950, only, was paid to Wallace. The nineteen separate potes, of fifty dollars each, were taken for each quarter's two per cent, extra interest thereafter during the five years, over and above the stipulated eight per cent.
On the 3d of September, 1873, Wallace sold and conveyed the property in fee to James L. Birkey, who, in consideration thereof, and as a part of the purchase money, assumed and agreed with Wallace to pay the mortgage, and the note for $10,000, with interest thereon according to the tenor thereof, and thirteen of the interest notes for fifty dollars each, then unpaid, which Wallace had made to the insurance company. Birkey, to secure the performance of his agreement with Wallace, executed to him on the same day a mortgage, duly recorded, on the same property. In September, 1874, Birkey sold and conveyed the property by deed of warranty to the plaintiff in error, John B. Jones, and upon delivery of the deed, agreed with Jones to pay off and cancel all the incumbrances upon the premises.
The insurance company brought its action of foreclosure, making Wallace, Birkey, Jones and others parties defendant, asking for no personal judgment, but asking judgment that the property might be sold free from all liens and claims of the parties to the action, for the satisfaction of the money due the company.
In the court of common pleas, Jones set up the defense of usury against the mortgage held by the company, and claimed, that the company could recover only $9,950, the amount actually loaned, with six per cent, interest thereon, less the payments admitted to have been made, with interest on the same. Upon issue joined, the court rendered judgment for the plaintiff, and Jones took an appeal to the district court.
The district court, in determining the amount due the company, adopted $10,000, instead of $9,950, as the principal sum, and computed interest thereon at the rate of eight per cent, per annum; and allowed in the estimate the thirteen interest notes which had been paid by Birkey pursuant to his agreement with Wallace; and held, that the property in the hands of Jones, conveyed to him by Birkey, was bound for the payment of the amount found due the company. Judgment was rendered for the company; Jones excepted; moved for a new trial; and the motion being overruled, took a bill of exceptions; and the present petition in error is prosecuted to reverse the judgment of the district court.
The only question arising out of the record, which we deem it material to consider, is, whether the defense of usury is available to the plaintiff in error, against the mortgage made by Wallace to the defendant in error. It is obvious, that after the agreement between Wallace and his grantee, the latter could not defend against the mortgage on the ground of usury. Such defense was, in this case, personal to Wallace, the mortgagor and borrower. If he did not choose to avail himself of it, he was privileged to waive it. He elected to affirm the usurious mortgage, by making provision, when he sold the property, for paying out of the purchase money fund the mortgage debt and the several notes for usurious interest. His grantee, as part of the purchase money, assumed and promised to pay the mortgage debt and interest notes, and to secure tbe performance of his promise, executed to him — Wallace—a mortgage on the same property. Birkey, the grantee, was not thus in a position to defend on the ground of usury, against the mortgage held by the company. Cramer v. Lepper, 26 Ohio St., 59, and cases there cited. Loomis v. Eaton, 82 Conn., 550; Austin v. Chittenden, 33 Vt., 553; Studabaker v. Marquardt, 55 Ind., 341; Cook v. Dyer, 3 Ala., 643; Baskins v. Calhoun, 45 Id., 582.
And, if Birkey was barred from taking advantage of the defense of usury, at the time of his selling and conveying the property, such defense should not be more available to the plaintiff in error than to his grantor. The plaintiff in error was not a party to the usurious transaction ; nor, does he stand in such a relation to the borrower as would authorize him to make such defense, notwithstanding the borrower's waiver of it. With full notice of the mortgage held by the defendant in error, and of his grantor's agreement with Wallace to pay the mortgage and interest notes, he purchased the property at an agreed price and value ; and, if his grantor failed to pay off the incumbrances thereon, according to his promise, he must have recourse to him for redress. But, a failure to discharge such incumbrances does not warrant the taking of the usurious interest from the defendant in error, and placing it to the credit of one who is virtually a stranger to the usurious transaction.
No error in the proceedings and judgment of the district court being apparent on the record, the judgment of that court must be affirmed.
Judgment accordingly.