Walter v. Lind

The Chancellor.

The bill is filed to foreclose a mortgage given by Lind and wife to Abiel W. Swift, dated June 3d, 1861, for $850, payable in two years, with interest at seven per cent., payable semi-annually. The defence is that the mortgage was given for a usurious loan. The answer alleges that on the 4th of February, 1861, about four months before the date of the mortgage, the mortgagor purchased the premises of Swift for $500. That, having applied to the complainants for a loan of that amount, they agreed to lend him $550 upon his giving them a mortgage for $850, with interest at seven per cent., to which the mortgagor agreed. That thereupon, and about the 28th of May, 1861, it was agreed between the parties, that Swift should execute a deed for the land, expressing the consideration to be $850, that Lind and wife should give him a bond and mortgage for that amount, which should be assigned by him to the complainants for $550, and of that sum fifty dollars in cash should be paid to the mortgagor. That in pursuance of- this arrangement, on the third of June, a deed was executed by Swift and wife to the wife of Lind, and thereupon the bond and mortgage for $850 were executed and delivered to Swift, and by him assigned to the complainants, and that of the $50 agreed to he paid to the mortgagor, he received but $25, the balance having been retained, as they allege, for fees and costs. That this sum of $25 was paid to the mortgagor about the 23d .of August, at which time Swift received $500, the price of the lot. The answer alleges that the making and delivery of the bond, mortgage, and assignment, were all usurious, and that the consideration moneys mentioned therein were not actually paid, but were so stated and set forth to conceal a fraudulent and usurious transaction. The answer further insists that the bond and mortgage are usurious, because they were made and dated several months before the payment of the money loaned to the mortgagor.

The undisputed facts of the case are, that on the 22nd of May, 1857, William Lind, the mortgagor, being the owner of the mortgaged premises, and being largely indebted, by mortgage and otherwise, to Abiel W. Swift, convoyed the premises in fee, by deed of bargain and sale, to Swift, his creditor, in payment, of his debt. The entire indebtedness was $1250, of which sum $850 had been secured by mortgage upon the premises. The deed was not given by way of mortgage, or as collateral security. The testimony of Mr. Swift is very express upon this point. In answer to the question whether he considered the deed made to him by Lind anything more than a security for the debt, he answered : “I considered it a bona fide sale. I don’t consider he owed me anything after he made me the deed.”

Lind, in fact, had been many years in the employ of Swift, and had become his debtor for advances made from time to time, to an amount beyond the value of his property. Swift had been an indulgent creditor, and permitted Lind, after the conveyance in payment of the debt, to remain upon the premises. Such being the relation of the parties, Lind still being in embarrassed circumstances, and the fee of the land remaining in Swift, in the year 1861, shortly before the date of this mortgage, Swift agreed to convey the land to the wife of Lind in lee, if he would pay him $500. To carry out that bargain this mortgage was made. Lind, by his answer, states that he applied to these complainants for a loan of $500, that they agreed to loan, and did loan him that amount of money, and took the mortgage in its present shape as a mere contrivance to cover up the usury. It is admitted that the complainants advanced upon the mortgage but $550, and for that sum advanced, they hold the defendant’s bond and mortgage for $850, payable in two years, with interest at seven per cent.; an operation by which they realize in two years upon $550, a bonus of $342, over and above the legal rate of interest.

But it is urged that this was not a loan of the money from the complainants to the mortgagor, but a sale of the mortgage, and that the defendants had a right to purchase at any ■ rate of discount, without being chargeable with usury. This appears to me a total misapprehension of the true character of the transaction. When the negotiation for this loan was entered upon, Lind was not the debtor of Swift. Swift was the owner of the land which had been conveyed to him by Lind in payment of the debt... He had agreed to reconvey the land to Lind, or, at Lind’s request, to Lind’s wife, for the sum of $500. For that amount Lind was desirous to effect a loan. But he had no security to offer till he could get the title. An arrangement is therefore made, by which Swift conveys the land in fee to Lind’s wife for the nominal consideration of $850, and Lind, in return,- gave Swift a bond and mortgage upon the premises for that amount, with the understanding that.if the mortgagee received $500, his claim for the land was paid in full.

These papers were placed in the hands of the counsel or agent of all the parties, to raise the money and carry the arrangement into effect. As between the mortgagee and mortgagor, there is no pretence of usury. The mortgagee testifies expressly that he agreed to convey the land for ip5U0. That was all that was due him, but the mortgage was taken above the sum of $500 for Lind’s benefit-, to enable him to raise the money upon it. All that was realized upon the mortgage above that amount belonged to Lind, not'to Swift. Swift’s interest in the mortgage was limited to $500. That was all he claimed, and all he received. If the mortgage had been sold for its nominal value, $850, three hundred1 and fifty dollars of that amount would in equity have belonged to Lind, and he might have compelled the repayment of the' money. To the extent of Swift’s interest, the sale was negotiated and made for his benefit, but beyond that amount it was in reality negotiated and made for Lind’s own benefit; The loan was, in fact, as the whole transaction shows, negotiated by him, and in reality for his benefit. That this was so' understood, is shown by the fact that when the loan for $550 was effected, $500 was sent to the mortgagee, and the other $50 appropriated for the benefit of the mortgagor. How, then, can this be denominated a sale by the mortgagee of the mortgage ? Is it not obvious that it was in reality an effort' by the mortgagor to raise a loan upon his own mortgage," given to a third party, for an amount beyond the sum really due ?

The papers themselves demonstrate that this must of necessity have been the real character of the transaction. The deed from Swift, the bond and mortgage from Lind and wife 1o Swift, and the assignment from Swift to the complainants, are all dated on the 3d, and acknowledged on the 4th of June, 1861. They are all drawn by the same scrivener, attested by the same witness, and acknowledged before the same master. They are obviously parts of one and the same transaction. Tho negotiation for the loan must have been entered upon and completed when there was no mortgage in existence, and when the fee of the land was in the mortgagee. These facts demonstrate the truth of the mortgagee's evidence, that he was to receive $500 for the land, and that tho mortgage was made to be assigned for that amount. Beyond that sum the interest was in the mortgagor. As between the complainants and the mortgagor, the transaction was simply this: they loaned him $550, and took his mortgage for $850; and of tho $50 loaned, they took $25 to pay the oxpenses of preparing the- papers and insuring the property, and’appropriated the remaining $25 to pay a debt alleged to be due from.the mortgagor to the brother of one of the mortgagees, who aided the mortgagor in negotiating the loan. The witness, indeed, testifies that the mortgagor promised him the whole $50 as a compensation for raising the money. A clearer case of usury it is.difficult to imagine. To permit such a contract, established by clear testimony, to be enforced in a court of equity, would be a reproach to the administration of justice.

There is nothing in the evidence which can alter the essential character of the transaction. It is unnecessary, therefore, to discuss the credibility, or the competency of the evidence on the part of the complainants.

The complainants’ counsel insists that the mortgagor has no ground of complaint, as he is in no wise injured by the transaction. That he gave a mortgage for $850. That he was indebted in that amount to Swift. That the mortgagee could have recovered the amount due on the face of the mortgage, and that the assignees are entitled to stand in his shoes. That the assignees are entitled to stand in the shoes of the mortgagee is true, but the whole fallacy of the argument consists in the assumption that the mortgagee was entitled to recover the face of the mortgage. Swift was entitled to $500, and it is clear that the assignees can recover no more. The apparent contradiction in the testimony of the witnesses on this point, is attributable mainly to the fact that they speak sometimes of the form, and sometimes of the substance of the transaction. In form, it was a sale and mortgage for $850. In reality, it was a sale and mortgage for $500. The apparent conflict in the testimony on this point, is rendered totally immaterial by. the admitted facts that the mortgagee claimed and received but $500 upon the mortgage-

The bill alleges that the mortgage itself is usurious. This is a mistake; but I do not think the error is fatal. The mode in which the usury was taken is intelligibly stated, and substantially in accordance with the evidence.

Tlie mortgage, however, was clearly not usurious. It was made for a legitimate purpose, though for a larger amount than was really due. There being no usury in its inception, no subsequent transaction can render it usurious. Sloan v. Sommers, 2 Green’s R. 510; Donnington v. Meeker, 3 Stockt. 362.

There was due upon it from the mortgagor $500, which was paid by the complainants to the mortgagee, and which in equity they are entitled to receive. The contract by which they claim to recover $350 beyond that amount, was usurious and cannot be enforced. Under such circumstances, the mortgage will be deemed a security for the amount actually advanced. Eagleson v. Shotwell, 1 Johns. Ch. R. 536.

A decree will be made accordingly.