Knickerbocker Life Insurance v. Hill

16 Abb. Pr. 321, 6 Thomp. & Cook 285, 10 N.Y. Sup. Ct. 577

Opinion

By the Court.

Footnotes

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Tappett, J.

This is an appeal by certain of the defendants from a judgment entered upon the report of a referee in favor of the plaintiff in an action for the foreclosure of a mortgage.

The only questions which will be considered in this opinion, are whether the defendants Tremonger had acquired an interest in the mortgaged premises which entitles them to question the validity of the mortgage, and whether the defense of usury set up in their answer is available to them as subsequent incumbrancers or purchasers of the premises.

The complaint avers a mortgage made by the defendant Charles A. Hill, a guarantee thereof in writing by the defendant Curtis L. North, and that the defendants therein including the defendants Tremonger, who defend this action, have or claim some interest or lien in the mortgaged premises which lien or interest if any accrued subsequent to the lien of the mortgage, and the usual judgment of foreclosure and sale is sought.

Among other matters set up by the defendants Tremonger in their answer, is an averment, that they furnished labor and materials towards the erection of a house on the premises, that they filed a builder’s lien on September 6, 1873, that they foreclosed the lien and had judgment on February 34, 1874, and a sale thereunder whereby they became the purchasers and owners of all the right, title and interest of the defendants Hill, North, &e. ; they further aver, that the mortgage in suit was usurious, and specify the usurious agreement, and ask judgment for the cancelation thereof. At the trial the referee ruled that the defendants had no right to interpose the defense of usury, and that no testimony to establish it would be received, and the defendants excepted.

The referee also refused to allow them to show that they went into possession under the deed made on the sale under the judgment foreclosing their builder’s lien. It appears by the testimony that the defendant Curtis L. North was at one time owner of the premises, that conveyance went from him to Hill, and that Hill mortgaged to the plaintiff.

The facts show that the defendants Tremonger had acquired by operation of law, and not strangers, an interest in or lien on the premises entitling them to question the plaintiff’s mortgage, and the defense of usury is available to them.

The case of Cavan v. Kelly (3 Alb. Law Jour., 373) holds that an execution creditor having a levy, may avoid a prior chattel mortgage for usury; and that such defense is available is also held in Dix v. Van Wyck (3 Hill, 522) ; Thompson Van Vechten (27 N. Y., 568).

In Williams v. Tilt (36 N. Y., 319, 325), quoting Post v. Dart (8 Paige, 640), it is said a mere stranger can not insist on the invalidity of an usurious security, but it may be set up by one claiming under the mortgagor.

In Mason v. Lord (40 N. Y., 476, 488), it is held, that a judgment creditor having a lien upon the property, has a right to avoid a mortgage prior to his lien by showing it usurious—numerous authorities are quoted at the foot of this case as to what parties may and what parties may not raise the defense of usury, and while the courts seem to have been occasionally in conflict on this question, yet the weight of authority and the later decisions are all in favor of the proposition that it may be set up by a subsequent lienor or a grantee who does not take the estate with an express reservation as to the mortgage security sought to be defeated.

Other cases are cited, in the Merchants Exchange Bank y. Commercial Warehouse Co. (49 N. Y, 635, 643), which case also embodies the opinion of Jokes, J., of the superior court, in which certain rules are stated and approved upon this question.

On the authority of these cases we hold, that on establishing an interest in the mortgaged premises, which was acquired without any reservation as to the mortgage, the defendants Tremonger were entitled to offer proof of usury to defeat the mortgage in question.

The judgment should, therefore, be reversed, and a new trial granted at special term, costs to abide the event.

Present, Babnakd, P. J., and Tappbn J. (Donohue, J., sat at the argument, but was not present when the opinion was handed down.)