Court Opinion

ID: 6641995
Source: CourtListenerOpinion
Date Created: 2022-07-20 20:46:28.012238+00
Date Added: 2024-06-11T15:59:16.682920
License: Public Domain

Gantt, J.
It is contended that the indorsement of the agreement on the notes by Eichards, the plaintiff in error, affected the original contract of debt with the vice of usury; and therefore, it is insisted that the decree was rendered for too large an amount, and is contrary to law and ought to be reversed. The question thus presented for consideration is, does the promise indorsed on the notes taint the original contract with the vice of usury? In the determination of this question, I think it is sufficient to observe that the rules of law in respect to usury seem to be well settled, and that they may be stated in the following propositions, deduced from the authorities, without reproducing the reasons upon which they are founded.
1. It is a cardinal principle in the doctrine of usury, which must be regarded as the common place to which all reasoning and adjudication upon the subject should be referred, that to constitute usury, there must be a loan or a good consideration for the forbearance of a loan in contemplation by the parties. It must be an original contract. Nicholas v. Fearson, 7 Peters, 413. McGill v. Ware, 4 Scam., 24.
2. Where by the terms of the contract between the lender and the borrower, the lender receives or reserves a greater rate of interest than the maximum allowed by law, such contract is affected with the vice of usury; and it makes no difference whether the usurious interest *206is expressed in terms in the instrument given for the payment of the debt created by the loan, or whether it is taken as a bonus, or, is secured by any other corrupt agreement, device, or shift, at the time of the contract. The whole transaction constitutes only one contract. Gillman v. Woolcock, 13 Wis., 589. Lear v. Yarnell, 3 A. K. Marsh., 419. Merrils v. Law, 9 Cow., 65. Bank of the United States v. Waggoner, 9 Peters., 399.
3. If the original contract is bona fide, and wholly free from the taint of usury, then no subsequent agreement to pay usury, or an usurious premium upon the debt, will invalidate the instrument given for the payment of the debt, or affect the original contract with the vice of usury, or prevent the collection of the debt with its legal interest. And this proposition, I think, is well founded in principle and just in equity, for, if there was once a valid subsisting debt, bearing interest, the contract creating such debt cannot be impaired or destroyed by a subsequent void agreement. Such agreement would be a mere nullity, and could not impair or destroy rights acquired under a valid subsisting contract. Stewart v. Petree, 55 New York, 623. Rice v. Welling, 5 Wend., 597. Rogers v. Rathbun, 1 Johns. Ch., 367. Early v. Mahon, 19 Johns., 150.
4. If money should be paid as a premium upon a loan, or as usurious interest on a debt, the money so paid would in equity be considered as a payment fro tanto upon the original debt; and under the statutory provisions of our state, if such usurious interest has been directly or indirectly contracted for, taken or reserved in the original contract for the loan, the lender shall only receive the principal without any interest or costs, and if such interest be paid, it shall be deducted from the principal. Crane v. Hubbel, 7 Paige, 417. Merrills v. Law, supra, and see generally: 1 H. Black., 462. 7 Mod., 119. *207Murray v. Hardwicke, 2 W. Black., 859. Floyd v. Edwards, Cowp., 112. 3 Campbell, 119.
In the case under consideration there was a valid subsisting debt, bearing the legal rate of interest. The contract by which this debt was created was unaffected by usury, and therefore as is said in Nicholas v. Fearson, it “can never-be invalidated by any subsequent usurious contract.” Hence, it follows as a legal sequence that the promise indorsed on the notes, by the plaintiff in error, is utterly void and cannot modify or impair the original contract. This subsequent promise could pass nothing by the transfer of the notes and mortgage securities to the defendant in error. Whatever rights he acquired by the assignment to him of the notes and mortgage securities, he acquired them under the original contract creating the debt. Therefore this case clearly comes within the rule enunciated in the third proposition.
Again as a defense, it is contended that when the notes passed into the hands of the bank, the mortgage securities became extinguished, on the ground, as alleged, that-under the act of Congress in relation to National Banking Associations, the bank could not hold and convey real estate under the purchase of the mortgage securities in this case; hence, the mortgage securities became separated from the debt.
Many authorities were cited to show that the mortgage security is an accessory or incident to the debt, or the instrument given as the evidence of the debt; and that the mortgage security .cannot be separated from the debt; or as is said in the case of Jackson v. Blodgett, 5 Cow., 296, the mortgage “ cannot exist as an independent security in the hands of one person while the bond belongs to another.” This proposition is true, and a simple transr fer of the mortgage without the debt, or note which is the evidence of the debt, is a nullity, for distinct from the debt, the mortgage has no determinate value; and *208also the transfer of the debt only, reserving the pledge as an independent security, renders the mortgage a nullity. In legal parlance, the pledge being an incident to the debt, so far as regards its determinate value, it cannot be detached from the debt. It seems, therefore, that in order to work an extinguishment of the mortgage security, the transfer must be with intent to separate the one from the other; that is to detach the debt so as to leave the mortgage a separate and independent security.
The mere fact, however, that after the assignment of the debt, the mortgage remains in the hands of the mortgagee, or in the hands of any person other than the assignee of the debt, will not of itself work an extinguishment of the mortgage security. To do so, the mortgage must be held to operate as a separate independent security. It is said by a very able jurist that “ if a mortgage is made to one person to secure several notes or bonds made to him, and the mortgagee assign the notes or bonds to different persons, but continues to hold the mortgage security in his own name, he will hold it in trust for the several persons to whom he has assigned the mortgage notes, bonds, or other evidences of the debt due him.” Perry on Trusts, Sec. 593. This is upon the principle that the mortgage security is an incident to the debt, and follows or passes with the assignment of the debt, unless by the intent- of parties it is detached from the debt.
In the case at bar, the evidence will not at all justify the conclusion that it was the intention of any one of the parties concerned, to separate or detach the mortgage securities from the debt, and therefore the point so strongly urged by the counsel for plaintiff in error, will not, as an abstract principle of law, apply to this case.
But did the assignment to the bank of itself extinguish the mortgage securities? Under the act of Congress, the bank is permitted' to hold and convey such real *209estate as shall be mortgaged to it in good faith by way of security for debts previously contracted, or such as shall be conveyed to it in satisfaction of debts previously contracted in the course of its dealings. Now whether the sale and assignment of the notes to the bank were not made in satisfaction of or security for a debt previously contracted is not at all clear from the evidence reported in this case. It is not shown by the evidence for what purpose the sale and assignment were made to the bank; and to say that the notes and mortgages were assigned to the bank for a debt created in presentí would be the assumption of a fact not proved in the case. And it will hardly be urged that the court shall presume a person or a corporation to have been guilty of the violation of law; and hence, it will not be presumed that the bank received the notes and mortgages for a debt created in presentí. It has an undoubted right to take and hold such securities for a debt previously contracted. "Was it not the intention of Congress to prohibit banking associations, organized under the law, from dealing in real property as a business independent of their legitimate banking operations? This would seem tobe the purpose of the limitations in the act; and from all that appears in the record, there is nothing to justify the conclusion that these limitations have been transgressed in this case.
But the notes and mortgages passed into the hands of a person in no way incapacitated to take and receive them. Herman Kountze, the plaintiff in the court below, and defendant in error here, became the owner of them in good faith for value, and in Willmouth v. Crawford, 10 Wend., 343, it was contended that the note was given to a corporation for a purpose or consideration for which the law forbid the corporation to receive “ any note or other evidence of debt in payment.” The court held that “conceding the note to be taken without *210authority, it is valid iu the hands of a bona -fide holder.”
It, however, appears that while the notes remained in the hands of the bank, Richards the plaintiff in error paid to it, in excess of the interest stipulated in the original contract, the amount of $8.96. This sum according to the rule stated in the fourth proposition, should have been deducted from the debt as of the time when it was paid, and the finding and decree should have been for $949.28. Therefore the finding must be made, and decree now rendered in this court, in favor of Herman Kountze and against T. "W. T. Richards in accordance with the views expressed in this opinion.
Decree accordingly.
Maxwell, J, concurred. Lake, Ch. J, did not sit, having tried the cause in the court below.