Court Opinion

ID: 5460653
Source: CourtListenerOpinion
Date Created: 2022-01-09 19:35:17.444592+00
Date Added: 2024-06-11T08:32:52.099008
License: Public Domain

Allen, J. (dissenting.)
No exception was taken by the defendants to the ruling in respect to the debts due the banking association, and that as to these debts, the plaintiff’s *438mortgage was valid; and it was not claimed upon the argument of this appeal that these associations were affected by the provisions of § 7, art. 1, tit. 2, ch. 18 of part 1st of the revised statutes. (2 R, S. 5th ed. 519, § 7.) That section declares that no conveyance, assignment or transfer of any effects for the use, benefit or security of any such corporation (moneyed corporation) shall be valid in law, unless it be made .to the corporation directly and by name. The same clause which exempts certain assignments - for the benefit of creditors from the operation of the section, need not be quoted, as the plaintiff’s mortgage is not within the class of exempted conveyances. The Herkimer County Bank was a moneyed corporation, and directly within the prohibition of the statute; and the mortgage, so far as it was intended as a security for its debt, was not valid in law. The debt remains, but the security is void, and cannot be enforced. The statute not only prohibits the security for the benefit of a moneyed corporation in this form, but in terms declares, all such securities to be void. But the court, at special term, sustained the mortgage and gave the Herkimer County Bank the benefit of it as a security for its debt, or rather gave effect to it as a security for the debt upon the strength of the clause in the junior mortgage to Hyde & Everitt, .declaring that the lands were subject to the mortgage in suit, the judge holding that Hyde & Everitt, the junior mortgagees, were not in a condition to question its validity. That mortgagees as well as grantees are in privity with their mortgagor, and may avail themselves of any defect in an adverse claim or title which would have been open to their mortgagor, I do not understand to be questioned. A mortgagee is a grantee upon condition, and grantees as well as heirs, devisees and personal representatives, may set up any defense, as for example that of usury, against a mortgage or other lien upon lands, given or created by their grantor or ancestor. Claiming under the mortgagor, Pitt, and in privity with .him, the defendants, Hyde & Everitt, may avail themselves of any defect in the *439plaintiff’s mortgage which goes to and affects its validity, unless precluded by some technical estoppel or. special circumstance which takes their case out of the ordinary rule, and deprives them of the rights ordinarily incident to their condition as grantees. (Ord on Usury, 131. Blydenburgh on Usury, 106. Post v. Dart, 8 Paige, 639. Shufelt v. Shufelt, 9 id. 137. Dix v. Van Wyck, 2 Hill, 522. Morris v. Floyd, 5 Barb. 130.) Questions analogous to that made here have frequently arisen in respect to mortgages alleged to be usurious, and so far as there is an analogy between defenses for usury and the defense here Interposed, the cases referred to may be regarded as authority, and it was upon the authority of that class of cases that the decision at the special term rested. It is well settled that the debtor or borrower may waive the defense of usury, and so charge his property, or even a third person, with the payment of a usurious debt, that his grantee or such third person will be precluded from alleging the usury. A grantee who takes by grant the mere equity of redemption, that is, that part of the estate or interest not covered by. the mortgage, will not be permitted to defend against the mortgage upon that ground. So too, the grantee of mortgaged premises who assumes the payment of the mortgage debt, or who takes the premises expressly charged with its payment, is estopped from alleging usury "as a defense. The debtor has a right to set apart his property to the payment of a debt, although it be usurious, and the trustee or one who upon a good consideration moving from the debtor to him, has undertaken to pay it, is estopped from alleging that the debt is usurious. (Shufelt v. Shufelt, supra. Post v. Dart, supra. Cole v. Savage, 10 Paige, 583. Murray v. Barney, 34 Barb. 337. Sands v. Church, 2 Seld. 347. Hartley v. Harrison, 24 N. Y. Rep. 174, per Mason and Comstock, Judges. Berdan v. Sedgwick, MS. opinion of the court, April, 1863.) (a) These decisions rest upon the principle that contracts and securities usurious in their character, *440although declared by statute to be void, are in effect only voidable at. the option of the debtor, and that the defense of usury is personal and for the benefit of the debtor, and may be waived by him. Hot so, however, as to the defense under the statute relied upon here. The statute was enacted from motives of public policy, and to guard the public against the abuse of a corporate franchise by moneyed corporations, and not to protect debtors from oppression or wrong; that is, the statute has respect to public not individual interests,. The prohibition is a restriction upon the corporate powers of banks, confining them to a particular form of securities in their transactions with their customers, and its operation is that of a disabling statute. Hot being personal to the debtor, he cannot waive it so as to affect a person who is in a situation, by reason of his interest in property affected by a security taken in contravention of the statute, to take the objection. The security remains invalid so long as it is unchanged in form. Doubtless the debt being valid, a mere security upon the same property, directly to the bank, in any form, would be good; but in this case the security still retains its objectionable and illegal character. It is to the mortgagee in trust for the bank, and the legal character is the same whether made by Pitt and assumed by Hyde & Everitt, or made by the joint act of all. Pitt, so far as he could do so, waived all personal right to object to the form of the security by giving the mortgage. He did no more when, as it is claimed, he ratified and confirmed the act and assumed the validity of the security, by the terms of the mortgage to Hyde & Everitt. It did not by that act become a security directly to the bank. The agreement which is sought to be implied on the part of Hyde & Everitt, to take subject to that mortgage, did not alter the form of the security. It was still a security prohibited by law, being to a trustee for the benefit of a moneyed corporation. An express agreement to take and hold the mortgaged premises in trust for the payment to the mortgagee trustee of the debt due the bank, would still be a *441security for the benefit of the bank, not taken directly to it, but would be one remove further from it than the first mortgage. If one trust is illegal and invalid, a trust upon and for the benefit of the illegal trust cannot be good, and if an express trust is not good, an implied trust will not be upheld. The security, whether proceeding from Pitt or Hyde & Everitt, or all combined, so long as it is not to the bank, is void, and there is no estoppel in the case. Pitt could not have created a trust in Hyde & Everitt as a security for the payment of the debt to the bank or for its benefit. Whether the statement in Hyde & Everitt’s mortgage, in respect to the plaintiff’s mortgage, operates as a ratification and affirmance of its validity, if it were capable of being thus ratified and affirmed, need not be considered. The consideration of the plaintiff’s mortgage was legal; its form was illegal as to one of the debts provided for, and the trust for its payment was void. But the trusts were not only separable but actually separated, and a distinct trust created for each debt, and the mortgage can therefore be enforced as a security for the debts not within the prohibition. (Curtis v. Leavitt, 10 N. Y, Rep. 96, 97, 124. Leavitt v. Palmer, 3 Comst. 19.) The judgment should therefore be modified by striking out of the recovery the amount of the debt to the Herkimer County Bank, to wit, $2730, with interest from December 17th, 1861, to the 22d day of July, 1863, to which day interest was computed and allowed in the judgment, $305.19, in the aggregate $3035.19; and thus modified it should be affirmed without costs to either party upon this appeal.
[Onondaga General Term,
December 22, 1863.
Judgment affirmed.
Mullin, Bacon and Allen, Justices.]

 Ante, p. 359.