Case Name: Sophia M. Sheldon, as Administratrix, etc., Respondent, v. William E. Haxtun, Appellant
Court: New York Court of Appeals
Jurisdiction: New York
Decision Date: 1883-01-23
Citations: 91 N.Y. 124
Docket Number: 
Parties: Sophia M. Sheldon, as Administratrix, etc., Respondent, v. William E. Haxtun, Appellant.
Judges: 
Reporter: New York Reports
Volume: 91
Pages: 124–137

Head Matter:
Sophia M. Sheldon, as Administratrix, etc., Respondent, v. William E. Haxtun, Appellant.
Defendant, who resided in Illinois, having collected certain moneys belonging to S., a resident of this State, by an agreement with the latter sent to him by mail, in place of the money, his (defendant’s) notes for the amounts, dated at his place of residence in Illinois, payable with ten per cent interest, which rate of interest was lawful in that State. In an action upon the notes wherein the defense of usury was pleaded, held, that their validity was to be determined by the law of Illinois, and as they were valid there they were valid here ; and this although one of the notes was made payable in this State.
Defendant was formerly a resident of this State. When here he borrowed of S. $1,500, giving his note therefor, executed here but dated at a place in Illinois, payable with ten per cent interest. After the defendant had become a resident of Illinois S. sent the note, which was then past due, to him by mail, requesting a new note for the balance of principal unpaid, this defendant sent by mail, the new note being dated in Illinois, payable one year from date, with ten per cent interest. Held (Andrews, Oh. J., and Miller, J., dissenting), that although the original note was usurious and void, yet, in the absence of any evidence of an intent to evade the usury laws of this State, the new note was to be regarded as an Illinois contract; that the surrender of the old note was a good consideration therefor ; and that it was valid.
Where a usurious contract is mutually abandoned by the parties and the securities given therefor canceled and destroyed, a subsequent promise by the borrower to pay the money actually loaned is not tainted by the original usury, is for a good consideration, and can be enforced.
(Argued October 25, 1882;
decided January 23, 1883.)
Appeal from judgment of the General Term of the Supreme Court, in the second judicial department, entered upon an order made February 15, 1881, which affirmed a judgment in favor of Jeremiah Sheldon, the original plaintiff, entered upon a verdict. After judgment was perfected on the verdict, Sheldon died, and the present plaintiff, his administratrix, was substituted. (Reported below, 24 Hun, 196.)
This action was brought upon five promissory notes, given by the defendant to said Sheldon, all dated at Kewanee, Illinois, and all made payable, with interest at the rate of ten per cent. The defense was usury. Four of the notes were given under the following circumstances: In 1870, both of the parties being then residents of this State, defendant sold to Sheldon five notes of |5t)0, payable with ten per cent interest, executed in Illinois by a resident thereof, secured by mortgage upon land near Kewanee, in that State. Defendant subsequently removed to Illinois and these notes were delivered to him for collection. He collected them as "they became due, with the interest, and under an agreement with Sheldon, sent to him by mail his own notes for the amounts collected, which were the notes in question. The fifth note was given under the following circumstances : In September, 1870, before defendant moved to" Illinois, but when he had it in contemplation, Sheldon loaned to him here $1,500, taking his note therefor, dated at Kewanee, but executed in this State, payable with interest at the rate of ten per cent per annum. The interest was paid by defendant at the rate fixed up to 1876. .On September 14, 1876, defendant, who was then residing at Kewanee, in Illinois, sent to plaintiff a draft on Hew York for $650, to pay the year’s interest, and $500 of the principal. Plaintiff acknowledged the receipt by letter and inclosed therein the note, which was long past due, requesting defendant to send a new note, dated September 25, 1876, for the $1,000 of principal unpaid, giving as a reason that there was no room upon the old note to make the proper indorsement. In compliance with the request defendant sent the note in question for the $1,000, payable one year from date, with ten per cent interest.
O. B. Herrick for appellant.
The evidence shows a complete contract between residents of this State for the loan of money made within this State upon a note made and delivered in this State and not to be repaid elsewhere, and it must, therefore, be governed by the laws of Hew York. (Story’s Conflict of Laws, §§ 278a, 282; Curtis v. Leavitt, 15 N. Y. 88; Jewell v. Wright, 30 id. 264; Cope v. Wheeler, 41 id. 303 ; 53 Barb. 350; Merchants’ B’k v. Griswold, 72 N. Y. 481; Evans v. Anderson, 78 Ill. 558; Dickinson v. Edwards, 77 N. Y. 576; Tilden v. Blair, 21 Wall. 241; Richardson v. Draper, 23 Hun, 188; Williams v. Fitzhugh, 37 N. Y. 444.) Hsuiy contaminates all subsequent securities. (Price v. Lyons B’k, 33 N. Y. 55; Cope v. Wheeler, 41 id. 303; 53 Barb. 350; De Wolf v. Johnson, 10 Wheat. 383; House v. Davis, 60 Ill. 367.) The law of the place of the actual making of the con tract must govern as to the validity or invalidity thereof. (Wayne Co. v. Low, 81 N. Y. 566; West. Trans. C. Co. v. Kilderhouse, 87 id. 430; Millikim, v. Pratt, 24 Alb. L. J. 111; 125 Mass. 374; Cook v. Litchfield, 9 N.Y. 279; Gray v. Ramsey, 89 Ill. 221.) The obligations evidenced by these notes were purely personal. (Chapman v. Robertson, 6 Paige, 627; Bryant v. Edson, 8 Vt. 347; Hyde v. Goodnow, 3 N. Y. 266; Lee v. Selleck, 33 id. 615.)
Henry M. Taylor for respondent.
Where the parties to a contract for the loan of money intend, in good faith, to make the contract subject to the laws of another State, to which it conforms, and under circumstances which justify that intention, and show that it was not intended as an evasion of the usury laws of this State, the courts of this State will sustain and enforce the contract, although it would be invalid if subject to the laws of this State. And this, although one or both of the parties reside in this State, provided it is so made payable here, “ not as an essential part of the contract or with the intent to affix a legal consequence to the instrument.” (Chapmam v, Robertson, 6 Paige, 627 ; Platt v. Adams, 7 id. 616 ; Balme v. Wamburgh, 38 Barb. 352; B'k of Georgia v. Lervin, 45 id. 340; Dickinson v. Edward, 77 N. Y. 576 ; Wayne Co. Savings B'k v. Low, 81 id. 571; Tilden v. Blair, 21 Wall. 241; Potter v. Tollman, 35 Barb. 182; Cutler v. Wright, 22 N. Y. 472.) A contract is to be governed by the laws of the place where it is made, if it is not to be performed by its terms elsewhere. (Jewell v. Wright, 30 N. Y. 264; Merchants' Bank v. Griswold, 72 id. 480; Dickinson v. Edwards, 77 id. 576.) The fact that the money for the $1,500 note, the original of the $1,000, was advanced to defendant at plaintiffs residence in this State is not material. (Potter v. Tollman, 35 Barb. 182.)

Opinion:
Andrews, Oh. J.
The defense of usury was not established as to the four notes given for money collected by the defendant on the notes and mortgage owned by the intestate. The notes so collected and the mortgage given to secure them, were transferred by the defendant to the intestate in the spring of 1875. They were Illinois contracts, and the notes were payable with interest at the rate of ten per cent, per annum. The intestate paid to the defendant as the consideration of the transfer, the full amount of principal and interest unpaid on the securities. When this transaction took place the parties were both residents of this State. But the defendant was then contemplating removing to Illinois, and did remove there prior to the maturity of the first note. By an arrangement between the parties, the defendant collected the first note when due from Hopkins and Boberts, the makers, and retained the money so collected, and in place thereof sent by mail to the intestate in this State, his own note for a similar amount, dated Kewanee, 111., his place of residence, payable with interest at ten per cent per annum, that being the lawful rate of interest in • that State. The same arrangement was made in respect to each successive note collected by the defendant. The defendant collected from the parties in Illinois, and instead of remitting the proceeds, sent his own note for the same amount, specifying the same rate of interest as was named in the note collected. The transaction was in substance a loan by the plaintiff's intestate, a resident of Hew York, to the defendant, a resident of Illinois, in the latter State, of funds there held by, and belonging to, the former, at a rate of interest lawful in Illinois. If the plaintiff's intestate had gone in person to Illinois, and collected the notes, and then lent the money to the defendant at ten per cent interest, there could we apprehend be no question as to the lawfulness of the transaction, although the notes were payable in this State. (Pratt v. Adams, 7 Paige, 616; Rapallo, J., in Wayne Co. B'k v. Low, 81 N. Y. 572; 37 Am. Rep. 533.) Hor could it we conceive alter the case if the negotiation for the loan was made in this State, and afterward consummated and the transaction completed in Illinois, the transaction being bona fide, and there being no intent thereby' to evade the laws of this State. The dealing, for the purpose of determining the question of usury, would be assigned to the place where the funds were and where the loan was consummated. What occurred between the parties was equivalent to the plaintiff's intestate going to Illinois and there making the several loans to the defendant. The funds were there in possession of the defendant as agent. He was permitted to retain them, and became a debtor for the amount. Hpon depositing the notes in the mail the transaction was complete. The money became the defendant's, and the notes the property of the intestate. The defendant became the borrower of the proceeds of the notes collected by him. The fact that one of the notes was expressly payable in this State does not distinguish it in the point of usury from the others. This was an incidental circumstance and does not overthrow the other decisive circumstances which make Illinois thé place of contract. (Tilden v. Blair, 21 Wall. 241; Wayne Co. B'k v. Low, supra.) For these reasons we are of opinion that -the defense failed, as to the four notes referred to.
The defense as to the note of September 21,1876, for $1,000, being the fifth cause of action set forth in the complaint, is founded upon a different transaction, and as to this note we think the fact of usury was established. The note of September 21, 1870, for $1,500 was made and delivered in this State upon a loan of that amount made here at the time by the plaintiff's intestate to the defendant, both parties being then resident here. This was plainly a Hew York contract, and its validity is governed by the law of this State, and as such it was plainly usurious. The delivery of the note at Kewanee, HI., did not make that the place of the contract, nor is it material that the borrower, was about to remove to that State, or intended to use the money there. (Cope v. Wheeler, 41 N. Y. 303.) The sole consideration of the note of September 21, 1876, was the balance then unpaid on the note of September 21, 1870. It was given at the request of" the plaintiff's intestate, because there was no room for more indorsements of payments on the original note. The surrender of the old note and the extension of time was ample consideration for the new note, but the substituted security was tainted with the vice of the original transaction. We need not consider how the courts of Illinois would deal with the question if the suit had been brought in that State. The fact that the original loan was at a rate of interest lawful in that State, does not make the contract lawful here, nor does the fact that the new note was made in that State and prescribed a rate of interest lawful there, take it out of the operation of the well-settled doctrine that a new security for a usurious debt is affected by the usury in the original transaction. (Tuthill v. Davis, 20 J. R. 286; Reed v. Smith, 9 Cow. 648.)
But the majority of my brethren are of opinion, for the reasons stated in the opinion of Eakl, J., that the note of September 21, 1876, is to be treated as an Illinois contract, and is not usurious.
The judgment of the General Term should therefore be affirmed, with costs.