Case v. Bennett

• Decision Date: 06 November 1895
• Citation: 33 A. 248,54 N.J.E. 97
• Parties: CASE v. BENNETT et ux.
• Court: New Jersey Court of Chancery

33 A. 248

54 N.J.E. 97

CASE

v. BENNETT et ux.

Court of Chancery of New Jersey.

Nov. 6, 1895.

Bill by John H. Case against Ernest H. Bennett and wife to foreclose a mortgage. Decree for complainant.

Frederic Adams, for complainant.

R. H. McCarter, for defendants.

EMERY, V. C. The bill in this case is filed to foreclose a mortgage given by the defendants to the complainant on lands lying in the township of East Orange, Essex county, and the defense set up at the hearing is usury. It is insisted that the usurious nature of the transaction arises out of the terms and conditions of the bond and mortgage, and the provisions therein relating to taxes. The condition of the bond, after the provision for payment of certain sums of money, and interest thereon at the rate of 6 per cent., adds: "Together with all national, state, county, and municipal taxes which may be assessed upon the money now loaned and hereby secured, or upon this obligation, or the indenture of mortgage given to secure the payment of the same, and bearing even date herewith." The mortgage is conditioned for the payment of the sums of money mentioned in the condition of the bond, with lawful interest at the rate of 6 per cent., according to the condition of the bond, "without any deduction or defalcation for taxes, assessments, or any other imposition whatever," and contains a covenant by the mortgagor that he "shall not nor will apply for or claim any deduction by reason of this mortgage from the taxable value of the lands and tenements." No evidence other than that of the securities themselves is adduced or relied on by the defendants as bearing on the question of usury, and on the hearing before the late Vice Chancellor Van Fleet the defendants objected to the introduction of evidence offered by the complainant for the purpose of showing that the clause in the bond relating to taxes was inserted therein without the complainant's knowledge or direction, and was not in accordance with the bargain between the parties to the bond and mortgage, and that the loan was in fact effected at legal interest only. The objection was based upon the insistment that the bond and mortgage themselves were the only and conclusive evidence of the terms of the loan on this hearing, and the evidence was admitted subject to the objection. The evidence of both the complainant and the defendant, taken under this objection, shows that previous to the execution of the papers the bargain between them was for a loan of $9,000 at the legal rate of interest, and that there was no reference to the taxes in the bargain for the loan. The defendant says that the exact words used by the complainant were, "You may consider, the money yours at the present time as soon as you like, at regular interest." It further appeared that on concluding the bargain for the loan the complainant directed his attorney, Mr. Adams, to make out the bond and mortgage, that he gave no direction to insert this provision as to taxes in the bond, and that his attention was not called to the fact that there was such provision, until a year and a half after the execution of the bond and mortgage. Mr. Adams states that the bond and mortgage were drawn pursuant to his directions, as Mr. Case's attorney, and that the provision as to taxes in the bond was dictated by him from a printed form of mortgage bond, which has been in very common—though not universal—use in the county of Essex since he came to the bar, and that the mortgage was on the usual blank. Upon this evidence as to the actual bargain between the parties, and their intent in making the loan, the complainant, at the hearing, which was continued before me, applied to amend the bill by adding the allegation that this clause relating to the payment of taxes was inserted in the bond by the scrivener without complainant's knowledge or direction, and was not in accordance with the bargain between the parties, and that the loan was in fact effected at legal interest only, and also to add a prayer for reformation of the bond by striking out this clause. The application to amend was opposed by the defendants, and affidavits were filed on their behalf in opposition to the motion. Decision upon the application to amend was reserved, and argument was heard upon the whole case, including the application to amend.

The preliminary question to be decided is one of pleading, and is whether usury is sufficiently set up in the answer to sustain the defense. It is settled, under our practice, that, where an answer attempting to set up usury is radically defective, that defense cannot be presented to the court, under it, at final hearing. Crane v. Insurance Co. (Err. & App.; 1875) 27 N. J. Eq. 484, and cases cited. The defect in this case was a failure to set out the particulars of the alleged usurious contract, but the principle of the case reaches to any other substantial defect. The state of the pleadings in the cause in reference to the question now at issue is as follows: The bill alleges the indebtedness of the defendant Ernest H. Bennett to the complainant in the sum of $9,000 (not stating, however, the origin or source of this indebtedness—whether a loan or pre-existing debt), and that, being so indebted, Ernest H. Bennett made, executed, and delivered his bond in the penal sum of $18,000, with the condition above set out; and the bill sets out in full the clause of the bond relating to taxes. It then alleges that the mortgage in question was given by Bennett and wife to secure this bond, with the proviso or condition above set out, which is also recited in full. No allegation is made of any default by defendants in the agreement, in the bond or mortgage, in reference to taxes, nor is any relief prayed as based thereon. The answer of the defendants admits the execution of the bond for the sum and the conditions set out in the bill, and also the execution of the mortgage upon the conditions stated in the bill. It then proceeds as follows: "And these defendants further answering say that by the terms and conditions of the said bond, for which said mortgage here sought to be foreclosed was given to secure as hereinabove set out, it is provided, and the said complainant did require this defendant, Ernest H. Bennett, to obligate and bind himself that he 'shall and will truly pay $9,000 lawful money aforesaid, to wit, $500 in one year from date,' $500 in two years from date, $500 in three years from date, $500 in four years from date, $7,000 in five years from date, with interest at six per cent. payable semiannually on the principal sum remaining unpaid, together with all national, state, county, and municipal taxes which may be assessed upon the money now loaned and hereby secured to be paid: provided, if the said Bennett shall omit to pay any installment of either principal or interest at the time herein specified for the payment thereof, and said installment shall remain unpaid thirty days, and if said Bennett shall omit to pay the annual tax due in any year, and the same shall remain unpaid and in arrear for the space of three months after it shall be legally payable, then the principal and interest remaining due, at the option of the said John Case, shall become and be immediately due and payable, anything to the contrary notwithstanding.' And these defendants are advised and allege that the said complainant in and by the said bond and obligation of this defendant, Ernest H. Bennett, did charge and exact and require this defendant Ernest H. Bennett, to agree to pay upon the loan or forbearance of one hundred dollars a higher rate than the value of six dollars; and these defendants insist and claim that the said bond and mortgage given to secure the same are usurious, and that in them a higher rate of interest is reserved than was or is allowed by the laws of the state of New Jersey, wherein the said contract was made and executed, and that the said complainant is not entitled to recover any Interest upon said mortgage, and that no interest thereon can therefore be said to have become forfeited or due and unpaid, and that the said complainant has no right, therefore, to anticipate the payment of the principal sum so borrowed and agreed to be repaid on said bond and mortgage, prior to the time when the same became and is due and payable; and these defendants deny that any part of said sum of $7,000 is now due or payable upon said bond until five years from the date of said mortgage, and being the 2d day of February, 1892."

It will be observed that the answer fails to set up either that the bond was made upon a contract for the loan of money, or that the contract for the loan of money was made between the parties with the intent to violate or evade the statute against usury, or that the bond and mortgage in question were given in pursuance of this corrupt intention. At common law, in a plea of usury to a debt on a bond, all three of these elements are considered...