Summary
In Dunham v. Cudlipp, 94 N.Y. 129, the mortgage was given for a bona fide debt. it was enforcible in the mortgagee's hands; it represented a real transaction and thereby had an inception and was properly held a subject of sale, and the fact that it was, at the time of its inception, intended plaintiff should buy it did not make it any less so. There the mortgage was created out of something — a valid existing debt; in the case at bar it was attempted to be created out of nothing.
Summary of this case from Schanz v. SotscheckOpinion
Argued October 24, 1883
Decided November 20, 1883
C. Bainbridge Smith for appellant. Richard M. Bruno for respondent.
We are of opinion that the plaintiff should succeed upon this appeal.
First. The finding of the learned judge at Special Term that the bond and mortgage in suit were never delivered to the mortgagees cannot be sustained. The complaint expressly avers the delivery of the bond and mortgage to the mortgagees named therein, and the answer admits it. It was a fact in the case, therefore, and for all the purposes of the action to be taken as true. (Code of Civ. Proc., § 522; Fleischmann v. Stern, 90 N.Y. 111; White v. Smith, 46 id. 418.) If the case had been tried upon the merits, without reference to the pleadings, the objection would not avail the plaintiff ( Cowing v. Altman, 79 N.Y. 167), but it was not. There was no waiver of the advantage afforded by the pleadings; on the contrary, the case was tried upon the assumption that the plaintiff's side was established by the pleadings. He was not called upon for proof, and the defendant at once took the affirmative. In view of the pleadings and the provision of the Code ( supra), the finding as to the delivery of the mortgage should have been the other way. This error alone would require a reversal of the judgment.
Second. With this fact in the case no usury is established. No doubt the plaintiff wanted to get more for his money than simple interest. But he knew the statute of usury, and did not intend to come within it. This was understood by the defendant. No doubt, also, there was then suggested a plan whereby he might keep outside of the statute and still obtain a return from the investment greater than the rate allowed by it. There is no law against that. The defendant suggested the plan. He says, "I immediately told him that I owed money to Messrs. Mackey and Herbert for the building of" certain "houses, and the mortgage could be arranged in that way," that is, he says, "by making a mortgage for $7,000, that he afterward might have in two, one for $4,000 and the other for $3,000, and he receive $1,000 out of it." This evidence is not very coherent, but he adds, "He," the plaintiff, "to cash them and receive $1,000," and from this and other evidence not contradicted, it appears that the defendant did then in fact owe these persons and wished to pay them; that the plaintiff was so informed, and also that the debt was $7,000, and that the creditors would take security by mortgage for that sum, and receipt to the defendant for it, and he, the plaintiff, could purchase the mortgages from them for $6,000.
After that the defendant employed an attorney to draw the mortgages, stated to him the amounts to be inserted, and the names of the mortgagees to whom, as he also told him, he owed the money. He afterward signed the mortgages, and, as the pleadings admit, they were delivered to the mortgagees, to secure the money due them. From that moment the mortgage in suit had a valid inception, and might be enforced by the mortgagee or sold at any price without imputation of usury. It was purchased by the plaintiff, and $6,000, the stipulated price for both went to the mortgagees. In the case in hand it was paid directly to them by the plaintiff. This was the transaction substantially stated in the pleadings, and the proof upon the trial did not differ from it.
The respondent argues that there was no delivery of the mortgage, but that, as we have seen, is overcome by the admission in the pleadings, and whether the mortgagees took the instruments away from the place where the business was transacted, or immediately handed them over to the plaintiff, is of no moment. There is also in evidence the assignments of the several mortgages to the plaintiff. Each, besides the necessary words of transfer, contains a covenant on the assignor's part that the sum named — in this case $4,000, in the other $3,000 — "is secured, owing and unpaid on account of said mortgage," and the case shows that there was also a written statement from the mortgagor, signed by him, and witnessed, to the effect that the mortgage was given to secure the payment of the money named therein; that it was due, and that no defense existed to the same.
It is apparent, then, not only from the admissions in the pleadings, but from uncontradicted evidence that the bond and mortgage in question were valid securities in the hands of the Messrs. Herbert, the mortgagees, for the amount due to them from Cudlipp. That, according to his evidence upon the trial, was $3,625; according to Herbert, who was also defendant's witness, it was about $4,000. That the mortgage was executed to them after a previous understanding with the plaintiff that he would purchase it, although at a sum less than its face, cannot make the purchase usurious or convert the contract of purchase into a loan of money. ( Smith v. Cross, 90 N.Y. 549; Brooks v. Avery, 4 id. 225; Sickles v. Flanagan, 79 id. 224.)
It would be different if the mortgage had been executed without consideration, for then it would have no vitality until a sale.
In this case the plaintiff had no reason to suppose that the amount due from Cudlipp to his two creditors was less tham $7,000, and the assurance contained in the assignment from the Messrs. Herbert agreed with the sum certified to by the defendant as due to them; but if, in truth, the real debt was less, they could not enforce it for more than its true amount, and the plaintiff can have no better right. ( Trustees of Union College v. Wheeler, 61 N.Y. 88.) As the case is now presented it would be just to limit the recovery to the amount actually due the Messrs. Herbert at the time of the execution of the bond and mortgage, with interest.
The judgment of the General and Special Terms should, therefore, be reversed, and, although upon the pleadings and admitted facts in the case the defense cannot prevail, a new trial must be had to ascertain that amount, unless the plaintiff will stipulate that it be adjusted at the sum of $3,625, and interest from December 16, 1877, in which case he should have judgment of foreclosure and sale in the usual form, according to the prayer of the complaint, with costs in all courts.
All concur, except ANDREWS, J., not voting.
Judgment accordingly.