Case Name: Smith Kellogg, Respondent, v. John M. Adams et al., Appellants
Court: New York Court of Appeals
Jurisdiction: New York
Decision Date: 1868-03
Citations: 39 N.Y. 28
Docket Number: 
Parties: Smith Kellogg, Respondent, v. John M. Adams et al., Appellants.
Judges: 
Reporter: New York Reports
Volume: 39
Pages: 28–33

Head Matter:
Smith Kellogg, Respondent, v. John M. Adams et al., Appellants.
Where the plaintiff purchased an outstanding mortgage against the defendant, and paid for the same, a usurious contract to make further advances on said mortgage, does not extend to vitiating the mortgage for any part of the money due thereon at the time of the assignment thereof to the plaintiff, but only to so much as might have been advanced under the usurious agreement. The plaintiff’s title to the mortgage is perfect under the assignment.
A usurious contract with the mortgagor by the assignee, which induced him to purchase the mortgage of the mortgagee, forms no part of the consideration for which the mortgagee assigned the mortgage; and consequently does not affect the assignee’s title to the same.
This was an action to foreclose a mortgage given by tbe defendant Adams to one Sampson, June 1, 1857, for $4,000, payable in six months. The mortgage was in fact given only to secure future advances to be made and liabilities to be incurred by Sampson, which, never exceeded $3,000. They amounted to that sum on the 29th day of June, 1858, at which time Sampson declined to make any further advances, and was about to enforce his mortgage for those already made. In this emergency, Adams, who wanted further accommodation, applied to the plaintiff for aid, and it was arranged between them that the plaintiff should obtain an assignment of the mortgage from Sampson for the nominal consideration of $4,000, paying him the $3,000 due him, and should advance the remaining $1,000 to Adams, and should forbear payment of the whole $4,000 for five years, interest to be paid semi-annually; and this was to be done on the condition, then imposed by the plaintiff and agreed to by Adams, that Adams should purchase from the plaintiff a piece of real estate in the village of Le ¡Roy, known as the Howe property, worth $1,000, for the price of $2,000, which1' sum, with the addition of $50 bonus for procuring the money paid to Sampson, was to be secured by Adams’ bond, with' surety, and mortgage on the Howe property. All this was done as agreed. The plaintiff paid Sampson $3,000, and took an assignment of the mortgage in suit, in the name of one Prouty, whose relation to the transaction was merely nominal, and advanced $1,000 to Adams, while Adams took the deed of the Howe property, and gave the plaintiff his bond and mortgage, with surety, for $2,050.
The j edge at the Special Term found that the agreement between the plaintiff and Adams was usurious, but that, the mortgage in suit being a valid security in the hands of Sampson for $3,000, the plaintiff, by his purchase thereof from Sampson, acquired a valid title thereto, and the plaintiff had the usual judgment of foreclosure and sale for the $3,000 and interest. The judgment was affirmed at the General Term, and the defendant Adams, the mortgagor, and other defendants, judgment creditors, appeal to this court.
Geo. F. Comstock, for the appellants.
J. H. Martindale, for the respondent.

Opinion:
Dwight, J.
The agreement and transaction between the p aintiff and Adams being usurious, the question is, did it invalidate the title of the plaintiff to the mortgage assigned to him by Sampson? I answer no. That mortgage was valid at its inception for such sums as Sampson should advance to Adams upon it. On the 14th day of August, 1858, it was valid in Sampson's hands for $3,000, actually advanced, and on that day it was assigned by Sampson to the plaintiff for the amount then actually due. What circumstance has intervened to invalidate this security in the plaintiff's hands? On the part of the defendants, it is assumed, that the usurious loan of the additional $1,000 to Adams is part of an entire transaction with the assignment by Sampson to the jilaintiff, and that its vice vitiates the whole; and counsel truly say, " Usury, like fraud, taints every portion of the contract into which it enters, and the law makes no distinction between parts of an entire contract." But these familiar rules fail of application to the case in hand, because here the usury did not enter into the contract of assignment; nor were the usurious loan and the assignment of the mortgage parts of an entire contract. They were not separate merely, they were absolutely separate and distinct. They were between different parties, — the contract for the usurious loan, between the plaintiff and Adams; that for the assignment of the mortgage, between Sampson and the plaintiff, — and the answer to the question propounded by counsel for the defendants as the true inquiry in the case, viz., whether Sampson assigned the mortgage to the plaintiff upon an unlawful agreement between the plaintiff and Adams, must be fatal to their position. For, certainly, he dido not assign his mortgage upon any agreement between other parties, but upon an agreement of his own-making with the plaintiff. He was asking for his money on the mortgage, and, we may suppose, was ready to assign it to any body who would pay him what was due. The usurious contract with Adams was, doubtless, the inducement for the plaintiff to take the assignment; but it did not induce the assignment by Sampson, who, so far as appears, was not only uninfluenced by it, but was ignorant that such contract existed. I am wholly unable, on principle, to see how the plaintiff's title to the mortgage can be affected by the unlawful contract with Adams, and the authorities cited on the part of the defendants do not sustain this position. Two cases especially relied upon are Schroeppel v. Corning (5 Denio, 236), and Johnson v. Bush (3 Barb. Ch. 207). In the former of these, it was held that the assignment and delivery of certain bonds and mortgages, from the borrower to the lender, as part of the consideration of a usurious loan, conveyed no title to the assignee, and that his possession of the property was tortious from the beginning. So, in Johnson v. Bush, the assignment of the bond and mortgage was from a corporation to one of its own stockholders, in consideration of a surrender by the stockholder to the corporation of a portion of the capital stock for cancellation, — an act, expressly prohibited by statute. In both of these cases the contract of assignment was between the same parties as the usurious or illegal contract, and was distinctly a part of that contract, and by this essential characteristic both are distinguished from the case now under consideration.
In the cases of Dewitt v. Brisbane (16 N. Y. 508), and Tallmadge v. Bell (3 Seld. 328), also relied upon, the assignments were merely collateral to an illegal contract, and were void for that reason. In this case, had the plaintiff taken the assignment of Sampson's mortgage as collateral to the usurious contract, or had the plaintiff loaned the whole $4,000 to Adams, and the latter had paid Sampson his $3,000 and procured him to assign his mortgage to the plaintiff as collateral to Adams' undertaking to repay the usurious loan, it is clear that the assignment would have been void within the principle of the two cases last noticed. But such was not the contract here. The assignment to the plaintiff was absolute, and for a consideration unconnected with the usurious loan. I am, therefore, clearly of opinion that the assignment from Sampson to the plaintiff was not affected by the vice of the usurious contract, and that the plaintiff's title to the mortgage is valid for the amount for which it was valid in Sampson's hands, viz., the $3,000 and interest. The attempt to make it cover the additional $1,000, fails for two reasons: first, because it was in fraud of the holders of subsequent liens; and, second, because the loan of the $1,000 was usurious.
The judgment of the General and Special Term should be affirmed
Hunt, Ch. J.
But a single question is presented in the case. Sampson was the owner of a valid bond and mortgage, on which was due the sum of $3,000. He presented for payment, and Adams, the maker, was embarrassed to meet the demand. To enable him to accomplish his purpose, an agreement was made between Kellogg and Adams, to the effect that Adams would buy from Sampson the bond and mortgage in question, and would extend its payment for five years. At the same time it was made a condition of said purchase, that Adams would buy of Kellogg a certain other property, called the Howe property, for the price of $2,000, giving his bond and mortgage to secure the same, and would also pay fifty dollars, being a portion of the discount that Kellogg had been obliged to pay, to raise the money needed. The Howe property was of the value of $1,000 only. The plaintiff now seeks to enforce the Sampson mortgage, and Adams sets up the defense of usury upon the facts thus stated.
In an action to enforce the Howe mortgage, the defense would be available. In an attempt to enforce any agreement collateral to that mortgage, dependent upon it or forming a part of it, the same rule would apply. Such are the cases cited by the appellant's counsel, and which are De Witt v. Brisbane (16 N. Y. 508); Palmer v. Pell (3 Seld. 328); Schroepel v. Corning (5 Denio, 236). In De Witt v. Brisbane, an illegal agreement had been entered into, in violation of the restraining laws of this State, in regard to the circulation of small notes, and a mortgage, valid between the parties, had been assigned to secure its performance. In an attempt to foreclose this mortgage, it was held that no title passed to the transferee, and that this was a defense to his action of foreclosure. In that case, the illegal transaction was the basis of the plaintiff's claim. Before he was entitled to recover, he was compelled to show his illegal contract with the other party, and to establish the balance due by virtue of it. This he did, and the court held that it would not fiend its aid to enforce an illegal transaction; that the assignment was collateral simply to such illegal contract, and that the attempt to enforce that must fail also.
If the plaintiff here was obliged to claim through the usurious contract, and his right to enforce the mortgage depended upon his bargain with Adams, the principle would be the same, and his action would fail. He does not so claim, nor is he bound to establish or in any manner to refer to that contract, to maintain his cause of action. His contract with Adams was distinct and separate from his contract with Sampson. Sampson was not bound to have assigned the mortgage, although Adams may have devised or bargained for it. It could only be assigned by an arrangement which should be satisfactory to and accepted by him, Sampson, Adams having nothing to do with that part of the transaction. Such,-in law, was the state of the case, and such, in fact, was the result. The plaintiff made his own arrangement with Sampson, by transferring to him other securities satisfactory to him, and with which Adams had no concern. Sampson then executes a formal assignment of the mortgage, by which its title was transferred. This created a contract between the parties to it, of whom Adams was not one. It is upon this contract with Sampson, separate and distinct in its nature and substance, and its parties, from the bargain between Kellogg and Adams, that this action is brought.
Considering it as the enforcement of a contract originally and legally made between Adams and Sampson, and legally transferred thereafter to Kellogg, and not dependent upon or seeking aid through the transactions between Kellogg and Adams, the question presents no difficulty.
The judgment should be affirmed, with costs.
Affirmed.