Opinion
May 17, 1918.
I.R. Oeland [ Edward J.A. Rook and Roscoe C. Peck with him on the brief], for the appellant.
Samuel H. Sternberg, for the respondent.
On account of Loeffler's exactions, plaintiff failed in all courts in the foreclosure suit. ( St. John v. Collins, 146 App. Div. 924; affd., 207 N.Y. 712.) Defendant's client, Collins, had applied to Kemble, a broker, who prepared an application for this loan. Loeffler accepted the loan proposal on usurious terms, saying he would make the loan after a mortgage had been put on record.
When Collins learned of this acceptance, Collins offered to make the mortgage to Fowler, as the one person in the transaction known to him. Accordingly, as successive steps in this affair, Collins and wife mortgaged their property to Fowler by instruments dated December 16, 1908. On January 2, 1909, Fowler assigned them to plaintiff with the broad covenant quoted. Loeffler was the agent of plaintiff, Miss St. John, who left everything to him.
Mr. Fowler participated in this usurious transaction in which he figured as a principal, being part and parcel of the original usurious arrangement. Without such assignment and covenant there would have been no loan. The covenant in suit, therefore, has to be supported by the original consideration. Hence it shares in the taint of illegality. The law regards all elements of the transactions as the result of constraint and violence on the part of the usurer. ( Schroeppel v. Corning, 5 Den. 236, 241.) The acts cannot be severed so as to raise a distinct and valid consideration for this covenant. ( National Bank v. Lewis, 75 N.Y. 516, 523; Bissell v. Kellogg, 65 id. 432; Tiedemann v. Ackerman, 16 Hun, 307; affd., 84 N.Y. 677; Verity v. Sternberger, 62 App. Div. 112; affd., 172 N.Y. 633.)
Both sides argue about estoppel; that we lack the ingredient of a reliance on defendant's covenant. Plaintiff never knew defendant. She becomes chargeable with the knowledge of her own agent, who designed this guise of a valid security, and was the beneficiary of the transaction. Certainly she cannot stand as a stranger. There can be no estoppel as to the original scheme of usury and those in its privity. A good estoppel must go with, or follow, an absolute sale. The buyer must have confided in, and in good faith acted on the representation. (Tyler Usury, 418.)
The argument that plaintiff should not be liable for Loeffler's misdeed is beside the point. Through Loeffler's contrivance, plaintiff obtained an unenforcible paper. Whatever its form, it was an ingredient of the original scheme to evade the usury law.
Hence, because the covenant sued upon was taken as an inseparable part of the usurious transaction, and, therefore, unenforcible, I advise that the judgment be reversed and the complaint dismissed, with costs in both courts.
Finding of fact numbered eleventh modified, and conclusion of law reversed.
JENKS, P.J., THOMAS, RICH and KELLY, JJ., concurred.
Judgment reversed and complaint dismissed, with costs in both courts. Finding of fact numbered eleventh modified, and conclusion of law reversed. Order to be settled on notice.