33 N.Y. 665, Rosa v. Butterfield

Citation:33 N.Y. 665
Party Name:MAUS V. V. ROSA, Appellant, v. JOHN BUTTERFIELD and others, Respondents: MAUS V. V. ROSA, Appellant, v. JOHN BUTTERFIELD and others, Respondents: and others.
Case Date:December 01, 1865
Court:New York Court of Appeals
 
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Page 665

33 N.Y. 665

MAUS V. V. ROSA, Appellant,

v.

JOHN BUTTERFIELD and others, Respondents: MAUS V. V. ROSA, Appellant,

v.

JOHN BUTTERFIELD and others, Respondents: and others.

New York Court of Appeal

December 1, 1865

Page 666

COUNSEL

A. C. Paige, for the appellant.

F. Kernan, for the respondents.

DAVIS, J.

The notes of the corporation had no legal inception until their delivery to plaintiff. The defendants as guarantors occupied the relation of sureties of the corporation, and no liability attached to them until the notes became operative in plaintiff's hands by the consummation of the transaction between him and the company. Their contract with plaintiff in each case was the guaranty of the payment of a loan of money on which interest at the rate of twelve per cent had been stipulated for and reserved. It is of no moment

Page 667

that their liability for the interest is limited to seven per cent, as it would be of none if it had extended to but part of the principal, or to that only with no interest.

If the notes be intrinsically usurious, and therefore violations of the statute, the guaranties are necessarily so; for they are coeval in their creation, and identical in their consideration. Though separate, they are by no means independent contracts. Unlike the guaranty of an existing contract, which may stand by itself, though the obligation guaranteed be invalid, these instruments must look for their consideration to that which upholds the notes, and when that fails through illegality, nothing remains to sustain any part of the transaction. In that view they are neither more nor less than collateral undertakings for the payment of a loan void by statute; and, as part of the securities upon which the usurious loan was based, are infected with a vice that pervades and destroys the whole. The notes and guaranties were therefore plain violations of the statute against usury, and consequently void, unless preserved from this effect and consequence by the act of 1850. In my judgment these cases turn altogether upon the construction to be given to that act, and I refrain therefore from the consideration of any other proposition. The act of 1850 is entitled "An act to prohibit corporations from interposing the defense of usury in any action." The first section, which is the only one necessary to be referred to in these cases, is in these words:

"§ 1. No corporation shall hereafter interpose the defense of usury in any action." (Sess. Laws 1850, ch. 172, p. 334). Plain as the language of this section may appear to be, it is on its face suggestive of several constructions. In a strictly narrow sense, to interpose a defense in an action is to plead it or set it up by answer. In that sense the section would be construed simply to debar a corporation from thereafter pleading usury as a defense, thus reducing it to a rule of pleading, but operating effectively to prevent proof of usury under the settled rule which excludes the evidence whenever the fact is not pleaded. In that view it would apply only to pleas or answers thereafter to be interposed, and not to issues already

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joined. But the courts have not hesitated to reject this construction, and to hold that to interpose the defense of usury within the meaning of the act was to set it up or insist upon it in any manner at any stage of the action; and so have rejected it as a defense on the hearing of appeals where it had long before been pleaded, and its effect on the case depended upon the application of the law to conceded facts. It was thus held to be retrospective; and to prohibit any step subsequently to its passage, by a corporation defendant, which amounted to an assertion of usury in defense of its obligations. (Leavitt v. Curtis, 15 N.Y. 9; Southern Life, &c., Co. v. Packer, 17 Id., 51.)

Again: the language of the section speaks only of the interposition of usury as a defense to an action. In strictness this would leave the corporation free to use any offensive remedy which the law recognizes. For instance, to file its bill in equity to cancel the usurious agreement, and regain possession of any securities it had given; or to bring suit to recover back the usurious premiums it had paid; or to sue in trover for property or securities deposited as collaterals. But such a construction would defeat all the beneficial aims of the act, and usury would only cease to be a shield, to become the more obnoxious as a sword. The corporation...

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