Mason v. . Lord , 40 N.Y. 476 ( 1869 )

The judge before whom this case was tried without a jury, found as a fact, that Michael Dougherty, who devised the leasehold estate in controversy to his widow, Hannah Dougherty, who is one of the defendants in this action, was informed before he advanced his money or took the assignment of the lease, that Elias H. Herrick, to whom the judgment debtor, the other defendant, had assigned it, held it by way of security for the payment of a debt owed him by such debtor. This conclusion was fully warranted by the evidence given, both by the defendant Lord, who was the judgment debtor, and the testator himself, and no exception was taken to it by the defendants. After having been so informed, if the testator had received an assignment directly from Herrick's executrix, it would have transferred to him only such rights as she, in that capacity, had in the lease, which were those of a mortgagee, notwithstanding the fact that she held it under an assignment which was absolute upon its face. For it is now well settled that such an assignment may be shown by parol evidence to be defeasible as a mere security. (Hodges v. Tennessee Ins. Co., 4 Seld., 416.) And that evidence may be given not only against the mortgagee or assignee himself, but also against all persons acquiring title from him, knowing the legal nature of the transaction. The second assignee would succeed to all the rights and be subjected to all the disabilities possessed by and imposed upon the person assigning the security to him. (Williams v. Thorn, 11 Paige, 459;Bush v. Lathrop, 22 N.Y., 535.)

The judge also found, as a fact, that the lease was assigned by the judgment debtor to Herrick for the purpose of securing a usurious loan of money made by him to the judgment debtor. And no exception was taken to that conclusion. For the purpose of disposing of the present appeal that must be therefore assumed as a fact, without reference to the condition of the evidence on which it was predicated. For this court can only review questions of law in cases presented in the form of the present one, and an exception is required to raise such a question. Assuming then that the assignment was made to Herrick to secure the payment of an usurious loan of money made by him to the assignor and judgment debtor, it was by the terms of the statute and the construction placed upon them by the courts, void as to the latter, and to all persons deriving title to the leasehold estate under him. If Herrick, or his executrix, had continued to hold the assignment until the plaintiff had perfected his title to the leasehold estate under his judgment and execution, it would have found no legal obstacle to the recovery of the possession of the premises, if he, or his executrix, had, in the meantime, gone into the occupancy of the property. For being void on account of usury against the judgment debtor, and assignor, himself, it would, likewise, be so against the creditor, whose title had become perfected under the execution sale. (Dix v.Van Wyck, 2 Hill, 522; Schroeppel v. Corning, 5 Denio, 236;Thompson v. Van Vechten, 27 N.Y., 568, 585.) And as the assignment would have been void between the purchaser under the judgment and execution and the assignee, it would necessarily have been the same in the hands of Michael Dougherty, if Herrick's executrix had assigned the lease directly over to him, as it was claimed he should have done according to the terms of the agreement made between Dougherty and the judgment debtor. If full effect could be given to that agreement, Michael Dougherty would have acquired the lease directly by assignment from the executrix. And as he had notice that he held it only as a security, Dougherty would have afterwards held it precisely in the same way.

The judge found as a fact that Dougherty had notice that the assignment had been made to Herrick, as security for a usurious loan of money. And that finding was excepted to by the defendants. But it cannot be very material whether the judge was right or wrong in his view of the evidence upon this subject; for it was not necessary that Dougherty should have had notice of the usurious nature of the transaction, in order to render the security as invalid in his hands as it was in those of Herrick and his executrix. It was sufficient for that purpose, that he showed that the assignment had been made to Herrick, simply as a mortgage, for with that understanding, it would have continued to be a mortgage in his hands, if it had been assigned directly to him, and he would have then been incapable of enforcing the collection of the usurious debt by means of it. Conceding, therefore, in the defendants' favor, all that they claim should have been awarded by way of rectifying the assignments, and still they would remain unable to make a successful defence to the plaintiffs' action for the recovery of the premises in dispute.

When his judgment was recovered, it became a lien upon the debtors' interest in the leasehold estate. And after the title was perfected to it under the execution sale, the plaintiff became entitled to recover the possession, not only from him, but also from the usurious mortgagee, and such other persons as might have acquired the same interest from him by way of assignment.

No reason existed for supposing that Michael Dougherty believed that he was to acquire a complete legal title to the property by an assignment of the lease from Herrick's executrix, for in his own evidence, he stated that he understood that Lord owned it. And if that was his understanding, it was clear that he must have known that the executrix held it only as a security, and could therefore assign it in no other manner to him.

By the assignments that were made, Dougherty acquired the same rights in the property which he would have had if the business had been done precisely as he directed it. For the intention with which Lord took his assignment from Herrick's executrix, prevented the security from becoming merged in the legal estate. (James v. Morey, 2 Cowen, 246.) And the intervening lien of the plaintiffs' judgment had the same effect.

But if that had not been the case, the court had no power to relieve Dougherty, either in the action which he brought, or in the defence made in the present case, for he accepted the assignment taken from Lord, with knowledge that his directions had been departed from in the preceding portion of the transaction. It is true that this was done under the conviction produced by Lord's misrepresentation, that there were no judgments against him. And that would have been sufficient, when the truth was first discovered, to have entitled Dougherty to a rescission of the transaction, if the proper action had been instituted by him for that purpose. But an action to change the nature of the assignment, by giving them the effect of one from Herrick's executrix, directly to him, even if that could have been done, would have afforded him no benefit, as long as the security was void for usury in her hands. Changing the form of the transfer of the usurious security from the executrix to Dougherty, would have produced no change whatever in the legal nature of the security itself. The pervading vice of usury would have still rendered the security invalid in his hands, and in the hands of those acquiring title under him, as against the title secured to the property by the plaintiff under his judgment and execution, no matter in what shape the assignment of it may have been placed. It was the usury in the security, not the form in which it was transferred, that legally disabled the defendants from maintaining their defence. The judgment on that account was right, and it should therefore be affirmed.

All the judges were for affirmance, on the grounds stated in the opinion of GROVER and DANIELS, J.J.

Judgment affirmed.