Davis v. Tandy

• Decision Date: 30 May 1904
• Parties: DAVIS et al. v. TANDY.
• Court: Missouri Court of Appeals

81 S.W. 457

107 Mo. App. 437

DAVIS et al. v. TANDY.

Kansas City Court of Appeals. Missouri.

May 30, 1904.

USURY — PARTIES ENTITLED TO RELY ON DEFENSE — CONTRACTS — WHAT LAW GOVERNS — STIPULATION OF PARTIES — PRESUMPTION.

1. In an action by a mortgagee for the conversion of the mortgaged chattels, the defense that the note secured by the mortgage was usurious, and that hence the mortgage was void, under the express provisions of Rev. St. 1899, § 3710, was open to defendant, who claimed that he was the true owner of the chattels, and that they had been fraudulently mortgaged to the mortgagee.

2. Where, in an action by the mortgagee of chattels, the mortgage was specially set out in the petition as the basis of plaintiff's right, the defense of usury rendering the mortgage void under Rev. St. 1899, § 3710, was provable under a general denial.

3. In an action by the mortgagee of chattels for their conversion, the mortgage being the basis of plaintiff's right, the defense that the mortgage was void for usury under Rev. St. 1899, § 3710, was provable under a general denial putting in issue plaintiff's title.

4. Where usury appears on the face of the plaintiff's pleadings, advantage may be taken thereof by general denial.

5. Where a note is given in one state, payable in another, as concerns the question of the existence of usury, the law of the latter state governs, in the absence of a contrary stipulation, expressed or presumed.

6. Where a note given in one state is payable in another, and it is usurious under the laws of the latter state, it is to be presumed that the parties intended that the law of the state where the note was made should govern on any question of usury.

7. Where a written contract is made in one state, to be performed in another, and it does not specify what law is to govern, parol evidence is admissible to show that it was intended that the law of the state where it was made should govern.

8. Where a note is usurious under the laws of the state where given, and also in Missouri, where payable, and under Rev. St. Mo. 1899, § 3710, the mortgage securing the note is void for usury, but it is not void by the laws of the former state, the mortgage may be enforced in Missouri with any consequences the laws of the former state place on it.

Appeal from Circuit Court, Jackson County; E. P. Gates, Judge.

Action by William F. Davis and others against A. H. Tandy. From a judgment in favor of plaintiffs, defendant appeals. Reversed. Rehearing denied, and opinion modified as follows.

T. A. Witten and Roland Hughes, for appellant. Cowan & Burney and Botsford, Deatherage & Young, for respondents.

ELLISON, J.

Plaintiffs charge defendant with having wrongfully converted to his own use in the state of Texas 240 head of cattle, which they claim were theirs by reason of a chattel mortgage securing a promissory note for $3,803, with 10 per cent. interest, both executed to them by one Hale. The answer was a general denial. The judgment in the trial court was for the plaintiffs.

The plaintiffs are citizens of this state, while Hale and defendant, at the time of the execution of the note and mortgage, were citizens of Texas; and those instruments were dated and executed in that state in proper form, and the cattle were located there, but plaintiffs, finding defendant in this state, brought this action against him for conversion they charge that he committed in the state of Texas and consummated in Oklahoma, whence he removed them. One phase of the case is that Hale had been clothed with such indicia of ownership as to make his conveyance valid as to innocent parties. Defendant claims to be the owner of the cattle; that they had been bought for him by Hale and one Hudson; that he knew nothing of Hale having given a mortgage on them until notified by plaintiffs. And in this condition of the case defendant attacks the validity of the mortgage under which plaintiffs claim on the ground of usury, the note which it secures bearing 10 per cent. on its face, when 8 per cent. is the maximum rate allowed in this state, though 10 per cent. is a lawful rate in Texas. Defendant also claims that, while the note is not usurious on its face by the law of Texas, it nevertheless is usurious under the laws of that state, in that it has included as fictitious principal about $300, which was in fact an interest charge of near 7 per cent. more than the highest rate in Texas. Defendant's claim, therefore, is that the note is usurious under the law of both states, and that the mortgage securing it is therefore void under the terms of our statute, section 3710, Rev. St. 1899, reading as follows: "In actions for the enforcement of liens upon personal property pledged or mortgaged to secure indebtedness, or to maintain or secure possession of property so pledged or mortgaged, or in any other case when the validity of such claim is drawn in question, proof upon the trial that the party holding or claiming to hold any such lien has received or exacted usurious interest for such indebtedness shall render any mortgage or pledge of personal property, or any lien whatsoever thereon given to secure such indebtedness, invalid and illegal." Plaintiffs contend that defendant is not a proper party to take advantage of the fact that usury was included in the note. It is undoubtedly true that a mere stranger cannot avail himself of the plea of usury. It is a personal privilege of the debtor. But such rule must be accepted with certain qualifications, such as that those in privity with the debtor may show usury in defense as he himself could. American Rubber Co. v. Wilson, 55 Mo. App. 656; Coleman v. Cole, 158 Mo. 253, 59 S. W. 106; Marx v. Hart, 166 Mo. 503, 524, 66 S. W. 260, 89 Am. St. Rep. 715. In the cases just cited, it was held that an attaching creditor stood in such relation. But it is manifest that a stranger — as, for instance, a mere general creditor, who has not connected himself with the property — does not stand in privity with the debtor, so as to be enabled to set up usury. It is in no instance disputed that the plea of usury is personal to the debtor, and that those others who set it up must obtain their right through the debtor; that is, they must stand in some legal privity with him. That privity is in representation, as, for instance, the debtor's executor or administrator; or in blood, as his heir; or in estate, as his grantee. A grantee of the entire title to property incumbered by a lien securing usury is in privity with the grantor, and may enter the plea of usury as effectually as the grantor himself could, for the grantor has transferred to him that right. And so a judgment creditor, where a judgment is a lien on the property affected, and execution or attachment creditors, where the property has been seized, may interpose the plea. But the right of all such creditors comes through the original party. It comes in this way: A purchaser under a judgment is an assignee of the debtor by operation of law, and so stands in legal privity with him. Dix v. Van Wyck, 2 Hill (N. Y.) 522, 525. A judgment creditor, or an attachment creditor, has taken the initiatory steps to an ultimate conveyance of the debtor's title — that is to say, to an assignment of the property by operation of law — and thereby become possessed, by legal privity, of the debtor's right to interpose the defense of usury, just as his grantee would be. American Rubber Co. v. Wilson, 55 Mo. App. 656. But each of these rights comes through the original party charged with the usury. And any right to question the validity of a usurious contract must be based on the original debtor's right. It is personal to him, and he may waive it, except in instances where it has passed to some one in privity with him. Missouri Syndicate v. Sims (Mo. Sup.) 78 S. W. 1006; Vette v. Geist, 155 Mo. 27, 31, 55 S. W. 871; Chapuis v. Mathot, 91 Hun, 565, 36 N. Y. Supp. 835. And, as to this rule, it makes no difference that the statute declares usurious contracts void. They are void if the debtor wishes to avoid them, but they may be recognized by him as valid. He may discharge such contract by payment in full. So he may require his grantee to do so. If such debtor's property, worth $1,000, should be incumbered with a usurious mortgage for $500, and he should sell it for the former sum by receiving the latter sum from the grantee in cash and requiring him to assume and pay off the incumbrance as the remaining part of the consideration, no one would say that such grantee could interpose the plea of usury against the mortgagee. To allow such plea in such case would be a gross fraud enabling the grantee to obtain the property at half its agreed value. Trusdell v. Dowden, 47 N. J. Eq. 396, 20 Atl. 972; De Wolf v. Johnson, 10 Wheat. 393, 6 L. Ed. 343. And so it has been universally held that, though the grantee as privy in estate receives by transfer the debtor's right to set up the usury, he can never do so where he merely buys the equity of redemption, or, as just illustrated, assumes the usurious debt. Webb on Usury, § 374. Where one takes a conveyance reciting that it is subordinate to some other lien, he is not the purchaser of the entire title or property. Young v. Evans Co., 158 Mo. 395, 59 S. W. 113.

But it is said by counsel that the true owner of property which has been mortgaged by some one who was clothed with such apparent dominion as to have ordinarily passed the title can interpose the plea of usury against the mortgagee, and avoid the mortgage. That contention is based on the fact that our statute declares the mortgage void. Our statute, though new to us, is no more than has been in force in a number of the states (notably New York and Massachusetts); yet in none of these has the fact that the mortgage or other contract was declared to be void had any effect on the question as to who could claim its protection. In all of them it is held that the privilege to avoid...