Staley v. Kneeland

This cause comes on to be heard on bill and answer; and therefore all the facts and allegations of the answer must be taken as true.

1st. Was there usury in the first mortgage.

The fact of usury depends upon the terms of the agreement of the loan. The answer denies that there was usury in any of the transactions previous to this mortgage; and this mortgage was executed to secure the amount of those previous transactions, and a note given at the same time by the defendant to the complainant. This note was a part of the consideration of the mortgage; and there was'at that time no agreement, whatever, that the defendant should afterwards, from time to time, advance moneys or payments upon this note at an usurious rate.

This mortgage was therefore valid in its inception. The complainant was afterwards pressed for money, and applied from time to time to defendant to advance money upon his note, which sums were advanced, and endorsements upon said note made at the time of such advances of sums greater than the amount advanced, so that in the end the defendant bought his own note at a discount, by which he realized more than seven per cent, for his money. If this purchase had been made in pursuance of any previous arrangement or understanding, it would clearly have made the whole mortgage usurious. But as the note was valid in its inception, any person might have purchased it at a discount; and I can see *33no good reason why the maker himself may not do so. Indeed, this principle seems to be clearly recognised in Vroom vs. Ditmas, 4 Paige, 526. The purchase of the note by the defendant, was not a transaction of borrowing and lending, upon which alone usury can be predicated, but was a purchase of a chose in action." If the defendant had originally turned out a perfectly good note, of the same amount and character, against any other person, and had afterwards purchased it back, there could be no doubt I think about the legality of the transaction. Can it make any difference that the note was the defendant’s ? This circumstance might in either case have been good ground for suspicion that the whole was intended as a cover for usury; but the case comes up here on defendant’s answer, which rebuts any such presumption, and which must be taken as true.

2. If the first mortgage was valid in its inception, it seems to me the subsequent mortgages are clearly so. The consideration of the second mortgage is the first mortgage, and an additional sum of money. So of the third mortgage. The $500 note is not a part of the consideration of the second mortgage, except so far as it went into the- consideration of the first mortgage, and at the inception of the first mortgage we have considered that valid.

If a third person had purchased the $500 note at a discount, of the complainant, and at the maturity of the note and the mortgage, had purchased the •mortgage of the defendant, (for which he would have paid part by his, the defendant’s note,) and then upon the advance of more money, taken a new mortgage for the whole, would such new mortgage have been usurious in the hands of such third person ? It seems *34to me it would not. The only contract hé would in such case have made with the complainant,' out of which he would have realized more than seven per cen£. WOuld have been a contract of purchase. There would have been no borrowing and lending at an usurious rate. Such third person would be in no different position from the defendant.

I shall, therefore, hold the bond and mortgage valid ; neither can I make any deduction on account of the discount on the $500 note.

If the note had been the sole transaction, and the defendant had taken it up in the way stated, it is clear that the complainant could not have sued him for such discount. And to test the question of usury as connected with that note, could the complainant, under the statute, have recovered the excess as usurious ? It seems to me that in every point of view, in which the question is placed, applying the settled rules of law to the case, the bond and mortgage in the defendant’s hands must be deemed to be valid, and he be entitled to collect the whole amount thereof.

Note.—The decision in this cause was affirmed on appeal to the Chancellor.