Manhattan Life Ins. Co. v. Johnson

• Decision Date: 12 March 1907
• Citation: 188 N.Y. 108,80 N.E. 658
• Parties: MANHATTAN LIFE INS. CO. v. JOHNSON et al.
• Court: New York Court of Appeals Court of Appeals

188 N.Y. 108

80 N.E. 658

MANHATTAN LIFE INS. CO.

v.JOHNSON et al.

Court of Appeals of New York.

March 12, 1907.

Appeal from Supreme Court, Appellate Division, First Department.

Action by the Manhattan Life Insurance Company against George T. Johnson and others. From the judgment (101 N. Y. Supp. 65), defendant William C. Dewey appeals. Affirmed.

USURY-MORTGAGES-VALIDITY-AGREEMENT FOR LOAN MADE IN ANOTHER STATE.

Usury Law, 1 Rev. St. p. 772, pt. 2, c. 4, tit. 3, s 5, as amended by Laws 1837, p. 486, c. 430, providing that all bonds, bills, notes, and other contracts or securities, whereby there shall be reserved any greater sum or greater value for the loan or forbearance of any money, etc., than is prescribed in the act, shall be void, does not render invalid a deed of property in the state given to secure the payment of valid notes executed and payable in another state, although the agreement for the loan was usurious under the laws of the state.

Wilbur F. Earp, for appellant.

Arthur S. Luria, for respondent.

GRAY, J.

This is a proceeding for the disposition of certain surplus moneys arising upon the sale of lands in the city of New York, made pursuant to a decree in foreclosure of the plaintiff's mortgage. The property had been deeded to Kellogg, this respondent, by Dewey, this appellant, as collateral security for the payment of the latter's notes. The parties were residents of Springfield, Mass., and the loans of moneys to Dewey were made upon his notes, which were dated and delivered there and made payable at a bank in that city. One of the notes thus given represented a bonus to Kellogg, but all claim upon it was expressly waived. When Dewey deeded to Kellogg the New York real estate to secure the payment of his notes, a stipulation was made between them, reciting the fact of the deed being security for the loans, and providing that the property should be reconveyed to Dewey upon the payment of the notes. Creditors of Dewey brought an action and procured it to be adjudged that, as between him and Kellogg, the deed was a mortgage, and that Dewey was the legal owner of the property. Upon the sale had in foreclosure of the plaintiff's mortgage, subject to which the property had been conveyed to Kellogg, the portion of the surplus proceeds applicable upon Kellogg's interest as grantee, or mortgagee, was claimed by him in satisfaction of Dewey's unpaid notes; while Dewey or his creditors claimed them upon the ground that Kellogg's mortgage was tained with usury and was void. The courts below have sustained Kellogg's claim; holding, in effect, that, as it was not shown that the agreement for the loan was usurious under the laws of Massachusetts, the validity of the deed to secure the loan could not be affected, because under the laws of New York the principal transaction would have been avoided for usury. No evidence was given as to the law of Massachusetts concerning usury, and it was not attempted to prove the contract to be illegal in that state. The validity of the agreement between the parties, as determinable by the law of the place where made, is conceded; but the appellant insists that, while the notes for the moneys actually loaned may be, legally, indisputable, the deed by way of collateral security is, nevertheless, avoided under our usury law. His argument is founded upon the declaration of our statute of usury and upon the authority of the early case of Chapman v. Robertson, 6 Paige (N. Y.) 627. The provision of the usury law is that: ‘All bonds, bills, notes, assurances, conveyances, all other contracts or securities whatsoever * * * whereupon or whereby there shall be reserved or taken, or secured, * * * any greater sum, or greater value, for the loan or forbearance of any money, goods or other things in action, than is above prescribed, shall be void.’ 1 Rev. St. p. 772, pt. 2, c. 4, tit. 3, § 5, as amended by Laws 1837, p. 486, c. 430.

I do not think that this statute has any bearing upon the case of a transaction, or agreement, between the parties, valid in the foreign jurisdiction where made. Under our law the deed by Dewey was perfectly valid on its face and conveyed a perfect title to Kellogg. To establish its invalidity, whether as a deed, or as a mortgage, it was necessary for the former, in order to defend against its operation, to set up and to prove that the instrument was given in pursuance of an agreement, which was usurious, and therefore vitiated the conveyance. What we are asked to hold is that the law of the place, where the property happens to be, shall govern, rather than the law of the place where the loan was made, of which the conveyance was but an incident. In my opinion, the meaning or intent of our usury statute is that the validity of the conveyance or mortgage is determined by the validity of the agreement of the parties, and I think the law of the place of its making governs as to that. As the defense of usury is a personal one, the conveyance was unassailable, until the defense was set up by the borrower, and then the settlement of the issue was referable to the law of the place where the principal transaction was had. The giving of security was but an incident of the agreement of the parties, for it was but a means of securing what was agreed to be done. It did not affect the fulfillment of the agreement, and, if that is unassailable, how can the defense of usury in the agreement for the loan, or forbearance, of money be made out? Manifestly, it cannot be. The borrower could not show that the loan to him was so affected by usury that the repayment of the principal sum was unenforceable. The case of Chapman v. Robertson, supra, if we assume that it lays down the rule that the lex situs governs, as the appellant contends, is not controlling upon us as an authority. A resident of the state of New York had applied to a resident of Great Britian for a loan upon his bond, secured by mortgage upon New York real estate. In proceedings to foreclose the mortgage, the defense was interposed that by the English law the loan was usurious. Chancellor Walworth held that the mortgage ‘being valid by the lex situs, which is,...