Court Opinion

ID: 5360487
Source: CourtListenerOpinion
Date Created: 2022-01-08 07:22:32.507567+00
Date Added: 2024-06-11T08:29:51.962794
License: Public Domain

Townley, J.
This action was brought to foreclose a lien on 1,700 shares of the stock of Burns Brothers deposited as security for a note for $5,000 made by defendant to the order of the plaintiff. This note bore interest at six per cent and was not paid at maturity. The making of the note is admitted and the only question litigated was the defense of usury. The claim of usury is based on the fact that at the time the original note and again when a renewal note was given, the lender exacted from the borrower releases of contingent claims which the borrower had against the lender.
The court found that in May, 1936, the defendant, who is an investment counsel by profession, made a contract with the plaintiff under which he was to receive as compensation for his services in advising the plaintiff in the purchase and sale of securities, ten per cent of any profits realized upon the sale of those securities. When the loan was made on September 9, 1937, the plaintiff owned certain stocks and bonds purchased by him under the agreement.
At the trial it was admitted that a general release dated September eighth and acknowledged on September ninth before a notary *140in plaintiffs building was delivered by defendant to plaintiff. Plaintiff was not called as a witness, and rested on defendant’s case without rebuttal. His examination before trial was read into the record. In this examination he testified that the release was delivered on September eighth. The claim is, therefore, made that the release could not have been part of the consideration for the note made on September ninth. There were no other transactions between the parties on September eighth or ninth except the loan transaction which resulted in the giving of this note. No reason whatever is given for defendant’s making a gift of the proceeds of his contract to the plaintiff. The plaintiff is a lawyer and the release was prepared by him. The fact that it was not acknowledged until September ninth, though dated September eighth, and that the acknowledgment was taken before a notary in plaintiff’s building indicates very strongly that it was given in part consideration of the loan. Defendant testified that the agreement for the loan was made on September eighth, that on the ninth he arranged with his brokers for the release of the collateral agreed on, went to plaintiff’s office and closed the transaction by signing the note and executing the release before a notary in the same building. This testimony is in accord with all the probabilities, and we are satisfied that it is true. The contrary finding of fact found by Special Term is against the weight of the evidence.
A renewal note was given on November thirtieth and another general release given at that time canceled all plaintiff’s obligations to defendant as of that date. In the examination before trial the plaintiff stated that the second release was delivered to “ straighten out ” an option held by the defendant to repurchase from the plaintiff certain shares of Chicago and Northwestern Railway. The plaintiff also stated in the examination oefore trial that this option had already expired. If it had, there was no reason for the release. The defendant testified that the second release was exacted by the plaintiff to cancel an obligation to pay a share of the profits on ten St. Louis and Southwestern general mortgage bonds purchased by the plaintiff with the advice of the appellant under the contract of May, Á936. These bonds were certainly purchased by the plaintiff on October eighth and ninth and it is evident that, to be freed of any possible claim for profits on the resale, plaintiff required another release. There were statements in the examination before trial as to other matters which should have indicated to the trier of the facts that plaintiff’s testimony was subject to serious suspicion. We find that the second release; was given as part of the consideration for the renewal note.
*141Where a borrower, in addition to the promise to pay six per cent interest, surrenders also a contingent right to profits, the transaction is usurious. In Diehl v. Becker (227 N. Y. 318) a borrower agreed to pay six per cent and in addition part of the proceeds of certain patents in the event that such patents were sold. The court said: “ Payment of principal and interest did not end all obligations under the contract. If ever thereafter the borrower sold his patents, the bonus became due. It is true he might not sell them. But in any event the plaintiff was entitled to his principal and interest and in addition thereto he acquired this contingent right.” Similarly, in the present case, plaintiff was entitled to six per cent interest absolutely and in addition was freed from the contingent duty to pay ten per cent of the profits if in the future on the resale of the securities which he held there should be a profit. In Cleveland v. Loder (7 Paige, 557) the borrower agreed to pay legal interest and permitted the lender to retain certain securities at stated prices. The court said that the possibility of making more than legal interest for the loan was enough to make the transaction usurious. “ Whenever the lender stipulates even for the chance of an advantage beyond the legal interest, the contract is usurious, if he is entitled by the contract to have the money lent with the interest thereon repaid to him at all events.” (See, also, Browne v. Vredenburgh, 43 N. Y. 195.)
The judgment should be reversed, with costs, and judgment should be entered on the counterclaim as prayed for, with costs.
Martin, P. J., and Untermyer, J.. concur; Cobn and Callahan, JJ., dissent and vote to affirm.