Court Opinion

ID: 7965285
Source: CourtListenerOpinion
Date Created: 2022-09-09 00:50:02.847467+00
Date Added: 2024-06-11T16:34:37.491193
License: Public Domain

The following is the opinion on the original hearing of the cause:
Dickinson, J.
The plaintiff Alonzo C. Scott, for a usurious consideration, made to one Hayes his negotiable promissory notes, and secured the same by a mortgage upon his real estate. The defend.ant purchased the notes and mortgage before maturity, in good faith, and without notice of the usury. The defendant afterwards, And after he had received notice of the usury, having sold the mort*461gaged premises under the power of sale contained in the mortgage, the defendant himself being the purchaser, this action was brought to avoid the mortgage sale and the mortgage, as well as the notes,, and to secure their surrender and cancellation.
The question arises whether, under our statute, the enforcement,, by a bona fide purchaser, of a mortgage securing usurious negotiable paper can be opposed by the fact of usury; or, in other words, whether the mortgage is protected against that defence, as the notes-are. The statute declares that all usurious notes, conveyances, contracts, and securities “shall be void, except as to bona fide purchasers-of negotiable paper, as hereinafter provided, in good faith, for a valuable consideration, before maturity.” Laws 1879, c. 66, § 3. Istias exception applicable only to negotiable paper, or does it also include mortgages securing such paper? This law avoiding all usurious instruments and securities was first enacted in 1877. At the-time of this enactment it was the law of this state, and long had been, as determined by the decisions of this court, that mortgages-securing negotiable paper were not invested with the peculiar privileges belonging to the negotiable instruments. Johnson v. Carpenterr 7 Minn. 120, (176,) decided in 1862; Hostetter v. Alexander, 22 Minn. 559, decided in April, 1876. And the same principle has been since-recognized and affirmed in Blumenthal v. Jassoy, 29 Minn. 177, (12 N. W. Rep. 517,) and in Oster v. Mickley, 35 Minn. 245, (28 N. W. Rep. 710.) This having been established as the law of the state before-this enactment, it seems to us impossible to construe the excepting clause under consideration as having been intended to change the law as to such securities, so that, as respects the defence of usury, they should be invested with the same protection in favor of bona fide purchasers as was declared in favor of the “purchasers of negotiable paper.” The express exception preserving the protection ordinarily given to negotiable paper cannot by implication be construed to create the same exemption in respect to mortgage securities.
But the plaintiffs make no offer to pay the real amount of the debt, with legal interest, for which the notes and mortgage were given; and, upon this ground, their right, as plaintiffs, to the equitable interference of the court, is opposed. It is so well settled that it may *462be accepted without discussion, unless a different rule has been established by our statute, that when one comes as a suitor to a court •of equity, invoking the exercise of its peculiar powers to declare a forfeiture of a usurious debt for which he has received a valuable ■consideration, relief will be granted, in general, only upon condition that he repay what he has received, with lawful interest; and that the absence of an offer thus to. do what is equitable is a sufficient reason for dismissing the suit. Rogers v. Rathbum, 1 John. Ch. 367; Fanning v. Dunham, 5 John. Ch. 122, 142, (9 Am. Dec. 283;) Ballinger v. Edwards, 4 Ired. Eq. 449; Ware v. Thompson, 13 N. J. Eq. 66; Ruddell v. Ambler, 18 Ark. 369; Noble v. Walker, 32 Ala. 456; Purnell v. Vaughan, 82 N. C. 134; Campbell v. Murray, 62 Ga. 86; Jordan v. Trumbo, 6 Gill & J. 103; Mason v. Gardiner, 4 Brown, Ch. 436; Pom. Eq. Jur. §§ 391, 397.
This is not opposed in principle to the decision in Coolbaugh v. Roemer, 32 Minn. 445, (21 N. W. Rep. 472.) The distinction between that case and this is well shown in the opinion of Lord Chancellor Selborne in Jervis v. Berridge, L. R. 8 Ch. App. 351, in the course of which he says (p. 358): “There are, indeed, certain cases, * * * where the controversy relates to usurious or other unlawful transactions, in which the whole locus standi in curia of the plaintiff is dependent on an election, which must be declared by the bill, to forego legal rights for the sake of equitable remedies.”
Section 6 of the act above referred to is as follows: “Whenever it ■satisfactorily appears to a court that any bond, bill, note, assurance, pledge, conveyance, contract, security, or evidence of debt, has been taken or received in violation of the provisions of this act, the court shall declare the same to be void, and enjoin any proceeding thereon, and shall order the same to be cancelled and given up.” This is almost the exact language of a section of the New York statute which was in force when this law was enacted, and it is probable that this provision of our law was taken from that of New York. If this be so, it is a fact of some significance that our legislature omitted to enact the immediately preceding section of the statute of New York, which expressly provided that in such an action it should not be necessary for the plaintiff to pay or offer to pay any principal or interest, nor should *463the court require that to be done as a- condition of granting relief. But, without regard to this circumstance, we are of the opinion that ■our statute was not intended to abrogate the principles by which ■courts of equity have always been guided in the exercise of their jurisdiction. If such an effect is to be given to the statute, it is only because its provisions, being unqualified in terms, must be deemed to be absolutely unqualified in effect by any opposing principle of ■equity jurisprudence. The results of such a construction would be such as to render it most improbable that such an effect was intended io be given to the law. Suppose, for instance, that in a case like this the mortgaged premises should be sold, upon foreclosure, to a person having no notice of the usury; the mortgagor knowing of the foreclosure proceedings, but taking no steps to prevent the same. And we may further suppose that the mortgagor afterwards stands by in silence, and sees the purchaser make valuable and lasting improvements upon the property. Years after the foreclosure sale, he brings an action like this to annul the sale and the usurious security. The mortgage being void, he would be entitled to recover, if the statute is to have an ■unqualified effect according to its terms, and without regard to the established equitable principles by which such a case would ordinarily be controlled. It cannot be supposed that this statute was intended to have so broad a scope. Yet, in the absence of any language indicating that one principle of equity jurisprudence should be disregarded in such actions, but that all others should remain unaffected, we are unable to make any distinction. ,The only alternative is to read the statute in harmony with, and not as subversive of, universally recognized principles of equity. We therefore think that plaintiffs are not entitled to relief, and the judgment is affirmed.
Mitchell, J.
I am unable to assent to the last proposition laid ■down in the foregoing opinion. I think that the provisions of section 6 of the statute above cited were intended to apply as well to •actions brought by borrowers for relief against usurious notes or other securities as to those brought against them in which the usury is set up by way of defence; and that, in the former equally with the lat"ter, the note or other security, whenever its usurious character is *464made to appear, should be declared void, and ordered cancelled and delivered up unconditionally, and without requiring the borrower to> repay the lender the amount advanced, with legal interest. If this, section does not mean this, I am unable to conceive what purpose it was intended to subserve. Its language is very broad and general, and not suggestive of any distinction between actions in which the borrower, as plaintiff, pleads the usury as a cause of action, and those in which, as defendant, he sets it up by way of defence. Of course, it must be understood as limited to actions between the borrower and a party against whom the illegality of the contract may be asserted; for bona fide purchasers of negotiable paper before maturity are excepted by the express terms of the statute, and where property mortgaged or pledged to secure a usurious debt has been sold to a bona fide purchaser for valuable consideration, of course his title to the-property is protected by other well-recognized rules of law.
Berry, J. I agree with my Brother Mitchell.