The defence of usury is personal to the borrower or debtor. He may interpose it or he may waive it. His privies in blood and estate may also avail themselves of this defence, unless barred or estopped by some act of the debtor. A contract tainted with usury is void; but the grantee of land subject to the lien of a usurious *Page 640 mortgage, cannot interpose the defence, if the grantor has stipulated by his conveyance that the grantee is to pay the mortgage as part of the consideration money; nor if the conveyance is subject to the payment of the mortgage; nor if the conveyance is by deed of release or quit-claim. In such cases the grantee is a stranger to the usurious contract, and although he is a privy in estate with the debtor, cannot be heard to allege the usury.
In this case Dillaye, the debtor, stipulated with Cowles and Sedgwick, simultaneously with his conveyance to them and as a part of the transaction, to the effect, that if he failed to set aside the mortgage to Berdan, then they were to pay it out of a reserved fund, created out of a portion of the consideration money, by another mortgage executed by them on the same premises, for the same amount, placed in the hands of Judge Comstock, but if he succeeded in setting aside the mortgage to Berdan, then Judge Comstock was to deliver the new mortgage, executed by Sedgwick and Cowles, to Dillaye for his own benefit. The conveyance, however, appeared on its face to be a full covenant warrantee deed, free of encumbrance, containing no recognition of or reference to the mortgage to Berdan as an existing lien upon the land.
Dillaye, by the collateral agreement referred to, reserved to himself the right to the benefit of the defence of usury as against the mortgage to Berdan, and Sedgwick and Cowles were deprived of any interest whatever in the success or failure of the litigation to be waged by Dillaye. If Dillaye succeeded, the mortgage held by Judge Comstock was to be delivered to him, and became operative as a lien upon the land for his benefit; if he failed, Judge Comstock was to deliver it to Sedgwick and Cowles, and they were to use it to raise the money to pay the mortgage to Berdan. It is apparent that Sedgwick and Cowles were in no more favorable condition than they would have been, had the land been conveyed to them by deed expressly subject to the mortgage to Berdan, and they had also assumed to pay it as part of the consideration money for the conveyance. They became, *Page 641 thereby, strangers to the defence of usury, if any existed against the mortgage, and when they attempt to set it up in this action it is an interference in which they have no interest, and for the benefit of the original debtor and mortgagor to Berdan. It is an attempt to elect that the sum reserved by the stipulation, and secured by the new mortgage held by Judge Comstock, which they confessedly are bound to pay, shall be paid to Dillaye rather than to Berdan. There can be no doubt that Sedgwick and Cowles are excluded from alleging the usury of the mortgage to Berdan, as against Dillaye, by the stipulation between them, notwithstanding the statute declaring all contracts affected with usury to be void. They could maintain no action requiring Dillaye to litigate the question of usury with Berdan; nor could they defend an action brought by Dillaye upon their stipulation with him, upon the ground of the usurious character of his mortgage to Berdan, even if Dillaye had succeeded in establishing that defence in the action prosecuted against him by Berdan, in the Superior Court of the city of New York. They had purchased the land, and the sum in controversy was part of the consideration which they had agreed to pay. There was no usury as between them and their grantor, Dillaye. He had the right to reserve the personality and the individuality of this defence, and exclude them from the advantage of a successful issue to the defence arising from their privity in estate.
The statute of usury is in the nature of a penalty, and that is a sufficient reason for excluding all who are strangers from interposing it, and for confining its operations to parties and privies. Dillaye, the debtor and mortgagor to Berdan, is estopped from alleging in this action, that his mortgage is usurious, by the judgment of the New York Superior Court. He has failed forever to set aside the mortgage to Berdan. Had this judgment been recovered before the conveyance by Dillaye to Sedgwick and Cowles, there can be no doubt that it would operate as an estoppel. Judgments and decrees estop parties and privies from again litigating the same subject. How is the case now different? Sedgwick and Cowles are *Page 642 not purchasers who are ignorant of the mortgage to Berdan, although it is not referred to in the deed to them. On the contrary, the agreement between them and Dillaye creates a fund to be applied to the payment of that mortgage in the event that Dillaye should fail to set it aside. That event has happened. Sedgwick and Cowles cannot retain the fund for their own benefit. Shall Dillaye have it? Clearly not. The judgment in the Superior Court forbids.
The security follows the principal debt. The debt was established by the judgment of the Superior Court, and as against Dillaye, the mortgage follows the debt. The defence of Sedgwick and Cowles, being exclusively for his interest, equity will hold that it inures for the benefit of the party who is entitled to the benefit of the debt and security, as against Dillaye. The agreement neutralized the effect of the covenant against encumbrances, in the deed from Dillaye, and the defendants can maintain no action against him, arising out of the existence of the mortgage to Berdan. On the contrary, the agreement provides a fund to be applied to the satisfaction of this mortgage in the contingency which has happened, viz., the failure of Dillaye to set it aside. He is now under an equitable obligation to compel the application of that fund to the payment of the mortgage debt to Berdan; and this is an equity which Berdan, under his judgment against Dillaye, is authorized to call on a court of equity to enforce.
In my opinion, this equity in favor of Berdan estops the defence of usury, as against these defendants.
The surrender of the new mortgage to Dillaye, by Judge Comstock, strengthens these views. One of the defendants assented to that transfer. Nor does the indemnity which the defendants received from Dillaye for their assent to the transfer, nor the subsequent transfer of the mortgage by Dillaye, affect the case. The mortgage to Berdan was a matter of record, and all parties acted with notice of the fact.
The judgment of the General and Special terms, should be reversed, and judgment should be rendered for the plaintiff for foreclosure and sale, for the amount of the mortgage and *Page 643 interest, with the costs of the action, and the costs of the appeal to the General Term, and to the Court of Appeals.
For affirmance, HUNT, EARL and GRAY, CC.
For reversal, LOTT, Ch. C., and LEONARD, C.
Judgment affirmed with costs.