Miners' Trust Company Bank v. John W. Usury-Act of 28 May, 1858-Purchaser at judicial sale of real estate sold subject to a usurious judgment, not within benefit of Act. The Act of 28 May, 1858, made a radical change in the consequences flowing from the receipt of more than six per cent. interest. No one but the debtor, and creditors whom he may A have defrauded, can claim the benefit of the Act. purchaser at a judicial sale of the debtor's real estate, sold subject to a judgment, a portion of the consideration of which was usurious interest, cannot resist payment of the judgment in full. A. gave a judgment bond for $15,000, of which $2250 was for usurious interest, and subsequently became a bankrupt. A.'s assignee in bankruptcy sold his real estate, expressly subject to certain liens of which the judgment was one. The judgment creditor having issued execution to recover the full amount of the judgHeld, that the purchaser could not set up the defence of usury against any portion of the judgment. ment: Error to Common Pleas of Schuylkill County. James Wren & Co., in July, 1871, obtained a loan from the Miners' Trust Company Bank, giving therefor a judgment bond for $15,000, of which $12,750 represented the actual amount of the loan, and the balance, $2250, was for the use of the money for one year. Judgment was entered up on the bond on the day of its date for $15,000. Subsequently, in the same year, the said firm was dissolved, and in October, 1871, James Wren was adjudged a bankrupt. In March, 1872, in pursuance of an order of the U. S. District Court, his assignee in bankruptcy exposed at public sale certain real estate of said Wren, notice being given at the sale that the same would be sold subject to sundry liens of record, amounting to $40,000, including the said judgment of $15,000, when the same was purchased by John W. Roseberry for $10,000, subject as aforesaid. The Miners' Trust Company Bank subsequently issued a fi. fa. upon their judgment, whereupon the Court, on motion of Roseberry, on Oct. 6, 1873, granted a rule to show cause why the fi. fa. should not be set aside, the judgment opened, and the said Roseberry be let iuto a defence as to so much of the judgment as was for usurious interest. The depositions showed that the defendants in the judg ment, James Wren et al., claimed no deduction on the ground of usury, but, on the contrary, deemed the original agreement a fair, well considered business transaction, and wanted it carried out by the payment of the judgment in full. By agreement of counsel these facts were admitted, and, by permission of the Court, argument was had as on an issue of law whether Mr. Roseberry, or any one except the borrowers themselves, could raise the defence of usury. 66 The Court thereupon made an order that the said execution be restricted as against the property in question to the collection of the principal debt of $12,750, with lawful interest and costs, PERSHING, P. J., delivering the following opinion:— "That the defence of usury is a personal privilege of which none but the borrower can avail himself, is settled by the decisions of the courts in many of the States. Without attempting to rehas been directed, it is sufficient for our present view the numerous cases to which our attention purpose to say that they are decided on statutes which make all contracts void where usury enters into them. This is true of New York, upon the decisions of the courts of which State some stress was laid at the argument. All usurious agreements are there declared to be void, and the lender is subject to a penalty. In a late case, Berdan v. Sedgwick (44 N. Y. R. 626), decided in 1871, such agreements are said to be void, however, in a limited sense. We regard this case as applicable to the case in hand, though made under a statute much more stringent than that of our own State on the subject of usury. "In Pennsylvania, where a debtor refuses to move for the benefit of his creditors, they will be permitted to move in his name. An insolvent man is not permitted to give away his property by means of a judgment, which, though proper at first, has become a security for less than the amount of it. (Lewis v. Rogers, 4 H. 18; Clark v. Douglass, 12 P. F. Sm. 408) "It is claimed, however, that the direct question before us has never been decided in this State. In Verner v. Carson (16 P. F. Sm. 440), the question whether any one but the borrower or debtor can set up the defence of usury under the Act of May 28, 1858, is left undecided. If still an open question, there are decisions of our courts, which we think go far towards settling it. In Fisher v. Kablnan (3 Phil. Rep. 213), decided by Judge SHARSWOOD in the District Court of Philadelphia, defence was taken on the ground of usury in behalf of a terre tenant, who became purchaser of mortgaged premises at sheriff's sale, under a judgment subject to the mortgage. It is held in that case that whenever usury avoids the contract, the defence is personal to the party to whom the loan was made. But so far as it amounts to a pro tanto failure of consideration, it is very clearly settled that the plaintiff will be enjoined or precluded from the recovery of more than the just sum advanced and lawful interest thereon. (Cole v. Savage, 10 Paige, 583; Post v. Bank of Utica, 7 Hill, 391; Nisbet v. Walker, 4 Georgia, 221; Thomas v. Doub, 8 Gill, 1.) In Pennsylvania, it is said in the same case, usury does not avoid the security. It is the unlawful part only which is made null. It seems right, therefore, in this case of a purchaser, to show that the security is for more on its face than was actually advanced at the time. In Bachdell's Appeal (6 P. F. Sm. 386), on a question of distribution, the auditor decided that judgment creditors could question the validity of a prior judgment on the ground of usury, and reduced a usurious judgment accordingly. This was affirmed by the Supreme Court. (See also Lloyd v. Scott, 4 Peters, 205; Greene v Tyler & Co. 3 Wright, 361; Fitzsimmons v. Baum, 8 Wright, 32.) "It has been argued that the purchase of the property sold by the assignee was made subject to the liens upon it, and that this precludes any objection to the validity or amount of the plaintiff's judgment. . . . . Where a purchaser buys expressly subject to usurious incumbrances, he will be held to their payment. But a purchaser of lands at sheriff's sale, on judgment and execution at law, subject to all prior legal incumbrances, can take advantage of usury in a mortgage of prior date to the judgment. (Cummins v. Wire, 2 Hals. Ch. R. 73.) "Nor do we think the position that Mr. Roseberry is a mere stranger in this proceeding, well taken. It is decided in Cardow v. Kelly (59 Barb. 239), that an execution creditor, who asserts a lien upon mortgaged property, is not a stranger within the meaning of the rule that the defence of usury is a personal one, and cannot be pleaded by one having neither privity of estate nor of blood with the borrower. 66 We think that Mr. Roseberry, as the purchaser of real estate bound by the lien of the plaintiff's judgment, may object to and resist the payment of that part of the judgment which is shown to be usurious " The Bank took this writ, assigning for error the ruling that Roseberry could set up the defence of usury, and the order of the Court restricting the execution. Hughes and B. W. Cumming (with whom was John W. Bickel), for plaintiff in error. The Act of 28 May, 1858 (Purd. Dig. 803), after fixing the lawful rate of interest at six per cent., provides (§ 2) that when a higher rate shall be contracted for, "the borrower or debtor shall not be required to pay the creditor the excess over the legal rate, and it shall be lawful for the borrower or debtor, at his option to retain and deduct such excess,” etc. The question here presented is, whether, when the debtor has made his election not to retain or deduct such excess, a purchaser at assignee's sale in bankruptcy of real estate, bound by the judgment, with express notice and consent that the full amount of the judgment should remain a lien, can resist the payment and deduct the excess. The Act of 1858 embodied the reactionary ideas of the nineteenth century on the subject of usury, which formerly was treated by lawmakers as a crime. That Act prescribes no penalty, and leaves it to the option of the debtor to pay or retain the excess. If he elects to retain it, it is his property; and if he elects not to retain it, it is the property of the creditor. A purchaser of his real estate at judicial sale, having no privity with the debtor in the transaction of loan, is within neither the letter nor the spirit of the Act, and cannot make the election as against the creditor. Heath v. Page, 13 Sm. 108. The decisions cited in other States are based on statutes not in harmony with our own, and the decisions in our own State, of an adverse character, cited by the Judge below, were made prior to the Act of 1858. In Verner v. Carson (16 Sm. 446), the question is suggested, but expressly left open. John W. Ryon, for defendant in error, after reviewing the authorities in other States, to the effect that the heir or devisee of the mortgagor, or grantee of premises which are subject to the apparent lien of an usurious mortgage, may set up any defence which the mortgagee himself could have done (all of which cases are cited and discussed in Berdan v. Sedgwick, 44 N. Y. Rep. 626), argued that the same doctrine obtained in Pennsylvania both before and since the Act of 1858, citing: Fisher v. Kahlman, 3 Phila. 213 (D. C. of Phila.). Duquesne's Appeal, 24 ld. 438. The Act of 1858 detaches the excess from the debt; such excess is illegal, and cannot be recovered at law or in equity against the borrower, the debtor, or against any other person. The courts will not lend their aid to enforce a bargain founded on an illegal consideration, and the Court below, therefore, properly restricted the execution to the debt with lawful interest. May 8. THE COURT. The Act of 28th May, 1858, made a radical change in the consequences flowing from the receipt of more than six per cent. interest per annum. It repealed all former laws imposing a penalty. The first section still makes six per cent. the lawful rate of interest. The second section recognized the actual business wants, habits, and customs of the people. It assumes a greater rate may be charged and paid. It, there fore, declares, that, if it shall be reserved or contracted for, the debtor shall not be required to pay the excess. At his option he may retain and deduet it from the amount of his debt, or, if he has voluntarily paid the whole debt and an excess of interest, he may recover such excess by action instituted not more than six months after the payment. No longer can a stranger to the transaction by a qui tam action work a forfeiture of the whole debt. The statute professes to deal only with the parties to the proceeding. The debtor may elect whether he will withhold the excess or recover it back within the time limited. Failing to act in time, he has no remedy. No public informer can interfere either before or after the payment. The defendants in the judgment in question testify that they have no cause of complaint, and desire it to be paid according to its terms. which we think decisive. This is not a case of distribution. The defendant in error does not claim as a creditor. He claims as a purchaser at a sale made several months after the entry of the judgment. He bought with full notice of its existence. He knew that he bought subject to its incumbrance. Presumably he paid a sum equal to the amount of the judgment, less than he would otherwise have done. He was not defrauded. He got just what he purchased. "Where an interest is subsequently acquired by a third person with his eyes. open, he is not defrauded by what has been done before his time." (Hauer's Appeal, supra.) If any persons were injured by this judgment, it was the creditors, not the purchaser. He is in no condition to invoke their equities and claim under them for his exclusive benefit. There is no privity of contract between him and them. We think, thereIn the distribution of a fund judgment creditors fore, the learned Judge erred in restricting the may attack a judgment collaterally when it is a plaintiff to the collection of a part only of the fraud on them, but not because it is a fraud on judgment out of the real estate sold to the dethe debtor. (Dougherty's Estate, 9 W. & S. 189; fendant by the assignee, and the order must be Lewis v. Rogers, 4 Harris, 18; Thompson's Ap- reversed. This makes it unnecessary to consider peal, 7 P. F. Smith, 175.) But a subsequent the fourth assignment. So far as the other asjudgment creditor cannot set aside a prior judg-signments apply to this case they are substantially ment merely because it is erroneous. (Hauer's Ap-affirmed. peal, 5 W. & S. 473) Decree reversed and order vacated at the costs of the appellee. Opinion by MERCUR, J. WILLIAMS, J., absent. Van Auken v. Dunning. March 23. Usury-Usurious contract made in New York, secured by a judgment in Pennsylvania-Evidence-Foreign laws, proof of. In Greene v. Tyler & Co. (3 Wright, 361) it was held competent for a second mortgagee to question, on distribution, the first mortgage on the ground of usury. In this case, however, the transactions were prior to 1858, and the lien of Jan. '76, 126. the second mortgage attached before judgment was confessed on the first mortgage. In Bachdell's Appeal (6 P. F. Smith, 386), without discussing the question, it was held that a judgment creditor on distribution could question the validity of a prior usurious judgment, and reduce it accordingly. But in Verner v. Carson (16 Id. 440) it was questioned and left undecided whether any but the borrower or debtor can set up the defence of usury under the Act of 28th May, 1858. Good v. Grant (26 Id. 52), it was held that the payment of interest in excess of the legal rate is not necessarily fraudulent as to creditors. In Whenever the usurious contract is intended to defraud creditors, or when the circumstances of the debtor are known to be such that it can reasonably be presumed that this will be the natural effect, the right of creditors to postpone the excess of interest must be conceded. We are aware that the New York authorities go much further in regard to usurious contracts than any cases we have cited. But they are all predicated on their statute which makes the contract void. It is radically different from our statute of 1858. We, therefore, are unwilling to give those authorities a controlling effect in the construction of our statute. There is, however, another view of the case In a feigned issue to determine the validity of a judgment in Pennsylvania, held as security for a loan made in New York, the defendant offered to show "that said loan was usurious by the laws of New York," which offer the Court excluded. Held, that such exclusion was not error. Per PAXSON, J. The offer was to show that the contract was usurious. Had it been to show that it was void, we should have had an entirely different question. Such a contract is void here only for the excess. We have no right to presume it is otherwise in the State of New York. Error to the Common Pleas of Pike County. This was a feigned issue, in which B. D. Dunning was plaintiff and D. M. Van Auken was defendant. On June 12, 1872, the defendant made a judg ment note to one Everett for $3340, payable. January 1, 1873, upon which judgment was entered up in favor of Everett against said Van Auken. The note having matured, Everett desired $2500 of the amount paid, and Van Auken borrowed F. M. Crane (with whom were G. G. Waller and John Nyce), for defendant in error. The debt evidenced by the judgment was untainted by usury. The effort was to impeach it by showing that there was usury in another and distinct transaction. Conceding the facts contained in the offer to have been proved, they would not have defeated the recovery on the assignment of the judgment, which was a Pennsylvania contract. that amount from said B. D. Dunning to pay it | usurious by the laws of New York, and therefore to Everett, and, as security therefor, procured an void, should have been admitted. assignment from Everett to Dunning of an interest in the judgment to the extent of $2500. Dunning was a resident of the State of New York, and the loan was made there. He afterwards caused an execution to be issued, whereupon the Court, on motion of the defendant and affidavit that the consideration of said loan and assignment was usurious, made absolute a rule to open the judgment, so far as Duuning's interest was concerned, and to let the defendant into a defence. This issue was framed to try the validity of Dunning's claim, with the same effect as if the note on which judgment was entered had been for $2500, such note to stand as the declaration, The defendant pleaded payment with leave, etc. On the trial, before WALLER, P. J., the defendant made the following offer :— THE COURT. We see no error in the 2 Parsons on Contracts, 392 (3d ed.). Chapman v. Robertson, 6 Faige, 627. May 8. rejection of the defendant's offer. It was proposed to prove that in the spring of 1873 the defendant made a loan of the sum of $2500, of Braddock R. Dunning, at Middletown, in the State "Defendant offers to prove by the witness (D. of New York, at the rate of seventeen per cent. M. Van Auken) and others that in the spring of per annum; that said loan was usurious by the 1873 he made a loan of $2500 of Braddock R. laws of the State of New York; that with the Dunning, at Middletown, in the State of New money thus obtained the defendant paid Everett, York, at the rate of seventeen per cent. per annum; the plaintiff in the judgment in controversy, the that said loan was usurious by the laws of the money due thereon; and, in order to secure the State of New York; that as security for said loan said Dunning, procured from Everett an assignhe procured an assignment of $2500 of the judgment of said judgment in Dunning's favor; that ment given in evidence to be made to said Dun- the latter now holds the judgment as collateral ning, it having been paid to said Everett by money security for said usurious loan, and for no other loaned of said Dunning; and that said Dunning only holds said assignment as collateral security for said usurious loan, and the judgment was only kept alive for that purpose. Offered for the purpose of defeating plaintiff's right to recover under said assignment.' Objected to. Objection sustained. Exception. The Court instructed the jury to find for the plaintiff. Verdict and judgment accordingly. The defendant took this writ, and assigned for error the rejection of his offer. Wm. H. Jessup, for plaintiff in error. By the laws of New York (1 Rev. Stat. 772) all bonds, bills, and contracts wherein more than seven per cent. interest is reserved or contracted for are absolutely void. This note was made in New York, and there being no place of payment specified, the borrower was to pay where he borrowed. The fact that the loan is secured by securities in another place does not change the rule. De Wolf v. Johnson, 10 Wheat. 367. A bond or other security given in this State, as collateral security for a debt in New York, is controlled by the law which controls the debt, so far as relates to the rate of interest. If the debt is void the securities are void, and the holder cannot recover from the makers of the latter. Irvine v. Barrett, 2 Grant, 73. Bell v. Lent, 24 Wend. 230. purpose. Conceding all this to be true, it would The case fore us. The offer was to show that the contract Opinion by PAXSON, J. WILLIAMS, J., absent. May 19. Washington Mutual Fire Insurance Company v. Rosenberger et al. Charge of Court-Erroneous in tenor-Mutual Insurance Company-Forfeiture for nonpayment of assessments-Waiver of condition. A tendency to mislead in the general tenor of the charge, although no particular portion of it is clearly erroneous, is suficient ground for reversal. Error to the Common Pleas of Lebanon Co. Our offer to show that the original debt was ington Mutual Fire Insurance Company, upon a policy of insurance issued to plaintiff in 1868 for $5250. The Act of 2 April, 1860 (P. L. 769), under which the company defendant was incorporated, provided that all persons insured should be members, in accordance with its by-laws, while they remained insured, and no longer. The tenth bylaw contained the following provision: "All assessments must be paid within sixty days after the occurrence of a fire. In case of refusal or neglect to pay an assessment after the time specified, the person so refusing or neglecting shall forfeit his policy, and immediately cease being a member of this company." The following facts appeared on the trial before HENDERSON, A. L. J. :— An assessment known as "No. 5" was made by the company April 29, 171, of which notice was given to the plaintiff, requiring him to pay the same, to a person and at a place named, between the first and twentieth days of October, 1871, with which notice the plaintiff failed to comply. The plaintiff's property was burned January 27, 1872. A day or two afterwards the plaintiff offered to pay the assessment, which the secretary declined to receive on the ground that the policy was "forfeited or suspended," and the company subsequently refused to pay the loss. In order to prove a waiver of condition, the plaintiff showed by the minute-book of the company that, at a meeting of the directors held January 6, 1872, in reference to collecting outstanding assessments, they directed notice to be given to any who may refuse or neglect to pay that their policies will be cancelled after the 15th of February next, and the outstanding assessments collected by law." It also appeared that it had been customary to give grace by receiving assessments from members when in arrears, thereby continuing their policies; and that assessments had been accepted from other delinquents after the fire in question. The defendant presented, inter alia, the following points (2) If the jury believe that the plaintiff's failed to comply with the by-laws by the non-payment of assesment No. 5 for the period of sixty days after notice, their policy was suspended when the loss occurred, and the plaintiffs are not entitled to recover. Ans. The insured are members of the company; but we cannot say that the policy was suspended by reason of the non-payment of the assessment. No bylaw or action of the company has been brought to our notice that would justify such a conclusion, and there is no warrant for such a construction either in the custom or practice of the company. (4) That if the plaintiff's neglected and refused to pay any of their assessments after sixty days' notice, contrary to their application for insurance, they violated their contract upon which the policy VOL. III.-2 of insurance was granted by the defendant to them, and they are not entitled to recover. Ans. We answer, the plaintiffs may recover in this action notwithstanding they neglected to pay an assessment after sixty days. There is no evidence that they refused to pay and no evidence of any action of the company thereon, so that if in other respects they are entitled to recover, the non-payment of the said assessment does not of itself defeat their claim. HENDERSON, J., further charged, inter alia, as follows:— "If you find from the evidence that the 10th section of the by-laws was not enforced by the company, that it was a dead letter, and that it so appears from the minutes of the company, we say to you that it cannot be enforced at the pleasure of the company. The action of the company must be uniform and just towards all its members. We cannot say that the policy was suspended, and of no force and effect, because of the plaintiffs' non-compliance with that by-law. On the contrary, the fact of forfeiture of the policy by the company has not been established, even if it be that a cause of forfeiture existed. It requires the action of the company to [render] the forfeiture a fact. It does not become forfeited until the company takes action upon and declares it a forfeiture, and gives the party notice of it. Any other construction might do great injustice to the insured and cause great trouble to the companies. . They might have forfeited the policy, but did not. They had no right to suspend it, either under the charter or by-laws." Verdict and judgment for plaintiff for $6326 25. The defendants took this writ, and assigned for error the answers to their points and the charge as quoted above. C. P. Miller, A. R. Boughter, and Wm. 3. Derr, for plaintiffs in error, argued that the basis of mutual insurance is a mutual contract by each member to pay his share of other members' losses, as apportioned by the assessments; a failure by one to fulfil his part works a suspension or forfeiture of his right to contribution in case of loss. Payment of the assessment before loss is a condition precedent, and one which the directors cannot waive after loss. There would then be no mutuality between the insured. To renew policy after loss would be to insure a building already destroyed, which is an absurdity. Upon default in payment of premium, à fortiori when followed by loss, the contract expires by its own limitation, and no act by the company is necessary to enforce such limitation. Before loss, the suspension of protection may be a contract means of enforcing payment of premium Hummel v. Mut. Ins. Co., 1 WEEKLY NOTES, 260; but, after loss, all rights are forfeited. a There was no evidence that the notice referred |