Court Opinion

ID: 5457492
Source: CourtListenerOpinion
Date Created: 2022-01-09 19:25:37.903564+00
Date Added: 2024-06-11T08:32:43.104983
License: Public Domain

By the Court, Gridley, J.
Further reflection has confirmed me in the views expressed in the opinion delivered by me when this cause was before me as vice chancellor of the fifth circuit. In addition to what was said in that opinion, I will only add a few brief remarks.
It should be borne in mind that the ground upon which the defendants refuse to appropriate any portion of the assigned funds to the payment of the complainant’s demand, in defiance of a special direction in the assignment, is not that they have been requested or authorized to do so by the assignor, nor by any creditor under the assignment, nor on their own behalf as creditors of the assignor; but solely because they have been advised that the demand is usurious ; and that it is their duty to apply the funds to the payment of the other demands mentioned in the assignment, which are unaffected by usury.
Upon this state of facts, the question is whether the defendants stand in a situation to raise the defence of usury against a demand which they have been directed to pay, by the positive provision of the deed of trust which they have accepted, and agreed to execute. They are mere naked trustees, bound to execute the trust according to its prescribed conditions, with no *341power to substitute their own discretion in the place of the will of the assignor. No principle is better settled than that a mere stranger cannot set up this defence. No person can do this but a party to the usurious contract, or one who represents him, as a privy in blood or estate. It is quite obvious, therefore, that the defendants cannot raise this question unless they can do it as representatives, either of the assignor, or of the other creditors under the assignment who themselves stand in a situation to question the validity of the complainant’s claim.
I. The assignor, who owes the debt in question, does not set up this defence, and no one has a right to do it for him, without authority. This may be tested by supposing the case of an assignment for the payment of a single creditor only; and that the assignee had accepted the trust and converted the funds assigned, into money. No one will be hardy enough to contend that the assignee in such a case could be allowed to pocket the funds, and meet the creditor, whom, by the acceptance of the trust, he had undertaken to pay, with the defence of usury. For the plain reason, that he is a mere stranger to the usurious contract, and therefore cannot raise the question on his own account. Much less can he do it on account of the assign- or ; because that, in attempting to do so, he not only acts without authority, but in defiance of the assignor’s positive direction, and in violation of the trust under which he received the funds. It would indeed be a new exercise of the jurisdiction of this court, to uphold the defence of a party against the execution of a trust he had assumed, which defence was based upon an act of the foulest treachery against the debtor by whom, and the creditor for whom, the assignment was made.
II. I think it equally clear that the defendants cannot successfully urge this defence as the representatives of the other creditors for whom the assignment provides. (1.) They have received no authority from such creditors to take this course; and none is to be found in the deed of trust. The extent of their authority to act for such creditors is, to faithfully execute the plain conditions of the assignment, and to pay over to them, upon their debts, precisely what the assignor directed in the *342deed of trust, which confers upon them the only powers-they possess. (2.) In acting for the creditors, in setting up the defence of usury in their behalf, the defendants are not only acting without authority from the creditors, but in plain violation of the mandate of the assignor, and of their duty to perform the conditions of the trust. They have acted under the deed of trust; and have received the assignor’s property upon the condition of appropriating it in such manner as he directed. And in refusing to pay a demand which, in the assignment, he directed them to pay, they are guilty of infidelity and treachery towards him. Having received the property of the assignor, under the assignment, and upon the faith that they would faithfully perform the trusts contained in it, it would be a gross breach of trust, by setting up a defence of this character, to effect a disposition of the property assigned, entirely different from that contemplated by the assignor, and expressed in the instrument. They are the mere servants of the assignor, to obey his instructions, and are estopped from making a defence which would substantially defeat the assignment, and create a new one, of which the assignor was not the author. A wide difference exists, between a case where the assignor, as here, directs a specific debt to be paid, and where he assigns generally for the benefit of creditors. In the latter case, the assignees are not bound to pay usurious debts, while in the former they are. See Pratt v. Adams, (7 Paige, 642,) which case is entirely consistent with the doctrine contained in 3 Edw. Ch. Rep. 195, so strenuously urged by the counsel. (3.) Suppose, however, the difficulty of regarding the defendants as the lawful representatives of the other creditors under the assignment, is surmounted ; it is still impossible for them to set up this defence, consistently with well established principles. The defendants are acting under the assignment, and as agents and trustees for those creditors, are seeking the shares provided for them, by it. In other words, they have elected to enforce it ; instead of assailing it by a hostile proceeding. And are therefore estopped from questioning its provisions in favor of others while they are claiming the benefit of them for themselves. *343This is so declared in Pratt v. Adams, (7 Paige, 639, 641.) The case might have been different if a creditor had proceeded to judgment and execution against the assignor, and thus seized the assigned property, or filed a creditor’s bill against the assignor and assignees, to set aside the assignment as fraudulent against bona fide creditors, for the reason that it provided for the payment of usurious and void debts. A creditor, standing in such an attitude, would not be estopped from assailing the provisions of the assignment made in favor of debts affected with usury, as a creditor coming in under the assignment, clearly is. (See 7 Paige, 641, 642, 644.) It needs no argument to prove that the creditors themselves are estopped. So are the defendants who claim to represent them. (4.) But the creditors are in no condition to raise the question of usury. They are mere open creditors at large, who have acquired no lien on the property by judgment and execution; nor upon the choses in action, by a creditor’s bill. They, therefore, are not privies, in any sense which will entitle them to question any disposition the assignor may choose to make of his property in the payment of a usurious debt. Suppose a debtor chooses to deliver over either money or property to pay an usurious debt ; can other creditors at large prevent it ? Can they seize the property in transitu, or stay the threatened payment by injunction ? Clearly not. A creditor who has no lien derived under an execution, or a creditor’s bill, has no means of interfering to prevent the consummation of such assignment, even if it should exhaust every dollar of the debtor’s property. In the case we are considering, the debtor has chosen to pay a usurious debt to the complainant, and the funds devoted to this object are in the hands of the defendants, (as agents of the debtor,) to deliver over to the complainant. It is very clear, therefore, that the creditors without judgment, execution, or creditor’s bill, have no power to arrest the funds on their way to the favored creditor. And if we were to suppose the defendants at liberty to drop for the moment their characters of agents of the assignor, and to assume that of representatives of the creditors, still they *344would have no greater power to divert the funds from their destination than their principals, the creditors themselves.
(5.) The creditors under the assignment have no right to set up the defence of usury, and thus divert the funds appropriated to the payment of the complainant’s debt, on the ground that they are in equity the assignees of those funds for their own benefit. The defendants are, indeed, the assignees of the entire fund. But in equity they are assignees for their own benefit,1 of just so much as the assignor transferred for their benefit, and no more. When real estate is conveyed subject to the payment of an usurious mortgage, the grantee gets only the residue of the interest in the premises after the mortgage has been satisfied out of it. And he is bound to pay the mortgage, and is not allowed to set up usury to defeat the foreclosure and sale In Shufelt v. Shufelt, (9 Paige 140,) the chancellor, after declaring that the owner of land who should convey it to a purchaser, would convey to his grantee the same right to question a usurious lien upon the premises which he himself possessed before the conveyance, proceeds as follows: “ He may however, if he thinks proper to do so, elect to affirm the usurious mortgage by selling his property subject to the payment or the liens of such mortgage. And the purchaser, in that case, takes only the equity of redemption, and cannot question the validity of the previous mortgage on the ground of usury. (13 Mass. Rep. 515, 15 id. 103.”) (See also 10 Paige 591; 11 Id. 635, and 1 Barbour's Sup. Court Rep. 272.) This doctrine is decisive of the question we are now discussing. The two cases are precisely similar in principle. The assignor conveyed, by the assignment to the defendants as trustees for the complainant, so much of the assigned fund, as was necessary to pay the debt which she represents, or to pay a pro rata proportion of that debt, with the other claims in the same class of preferred demands. And all that was assigned to the other creditors, was merely the overplus, or residue of the assigned fund, after applying the prescribed amount to the payment of the complainant’s debt. Or, in other words, the whole fund was assigned to the defendants, to *345pay over to the other creditors, subject to a deduction of so much as would be necessary to pay first what had been directed to be paid towards the satisfaction of the debt in question. Of course the other creditors can claim no part of the fund appropriated to pay the debt subject to the payment of which the assignment under which they claim was made. This, however, is a more favorable view for the creditors than the facts in the case will warrant. In truth, the funds appropriated to pay the complainant’s debt, were in equity conveyed to the father of the complainant, the original payee of the note. And the other creditors never had the semblance of a claim to, or lien upon them. They in equity belong to the complainant. They were conveyed to the defendants for the complainant, and they, by accepting the trust, agreed to execute it and pay over the fund in pursuance of it. And it is a maxim in equity that wThat has been agreed to be done shall be regarded in equity as done. (1 Story, Eq. Jur. § 64.)
On the former argument no question was made concerning the usurious excess; and nothing was said of it in the opinion. I perceive, however, that the decree is drawn so as to embrace this excess as well as the amount actually loaned, with the lawful interest. And I confess that I do not see why that is not right, upon the principle that the defendants are estopped from setting up the defence of usury, they not standing in a situation to raise that question. ' But in the case of Pratt v. Adams, the chancellor held that the court of chancery would not order the assignees to pay such excess. And perhaps this distinction may be supported on the ground that the bill is quasi a bill for a specific performance, and that the court will not, in its discretion, direct an unconscionable agreement or trust to be executed. In this case, notwithstanding our doubts, we will follow the decision of the chancellor. The decree will therefore be modified, by striking out the usurious excess; but in all other parts it must be affirmed.