Opinion
Decided December 7, 1931.
Mortgage — Foreclosure — Usury not defense by mortgagor's grantee — Evidence of usury inadmissible, where personal judgment not asked — Usury defense not available to junior mortgage against prior mortgages, when — Usury defense not available to mortgagor-grantor, when.
1. Mortgagor's grantee agreeing to pay mortgage debt as part of consideration cannot defend against mortgages on ground of usury.
2. On foreclosure against property owned by mortgagor's grantee who agreed to pay mortgage debt, court properly excluded evidence of usury; no personal judgment being asked against mortgagor.
3. Defense of usury as to prior mortgages held not available to holder of junior mortgage.
4. Where junior mortgagee was only mortgagee seeking personal judgment against mortgagor, mortgagor who had conveyed could not defend as to prior mortgages on ground of usury.
ERROR: Court of Appeals for Hamilton county.
Mr. H.P. Karch, for plaintiff in error.
Messrs. Strother, Greenberg Schubert, Messrs. Pogue, Hoffheimer Pogue and Mr. Fred Weiland, for defendants in error.
Sol Schaengold filed an action in the court of common pleas of Hamilton county for the foreclosure of a real estate mortgage for the sum of $10,000, with interest. Numerous parties were made defendants in the case. Four of the defendants were mortgagees holding mortgages on the property against which foreclosure was sought.
On hearing, the trial court determined the priorities of the mortgages, and the amounts due thereon, and decreed foreclosure.
The priorities of the five mortgages and the amount due on each were determined by the trial court as follows: (1) The mortgage held by Bertha E. Weber, amount found due, $29,882.40; (2) the mortgage held by Julius Frankel, amount found due, $7,611.33; (3) mortgage held by defendant Raymond G. Frankel, amount found due, $27,902.60; (4) mortgage held by Raymond G. Frankel, amount found due, $4,924; (5) mortgage held by plaintiff Sol Schaengold, amount found due, $9,752.
It appears that one Maurice Levitch, prior to January, 1930, owned the real estate covered by the mortgages herein enumerated. During his ownership, he executed as mortgagor all the mortgages named.
Subsequent to the execution of the mortgages, Levitch conveyed the real estate to the Federal Finance Company, one of the defendants named in the petition. As a part consideration, the Federal Finance Company assumed all the mortgages named. The Federal Finance Company defaulted in its payments on the mortgages, and, as a result, Schaengold filed the suit for foreclosure.
The other mortgage lienholders filed answers and cross-petitions.
The contest here concerns only the second, fourth, and fifth mortgages, against which Maurice Levitch set up the defense of usury. The defense of usury as to the fifth mortgage of Sol Schaengold is not in this error proceeding, for the reason that the trial court gave judgment for the amount of $9,000 with interest; $9,000 being the amount of cash actually paid by Schaengold to Levitch at the time of the execution of the mortgage.
At the trial, Maurice Levitch sought to introduce evidence to show usury in the second and fourth mortgages. The court excluded the evidence, and this is the error complained of.
The question here for determination is whether or not Maurice Levitch under the facts stated can avail himself of the defense of usury.
It is conceded that the fourth mortgage, which was in the sum of $4,500, was given as a bonus for procuring the loan of the third mortgage in the sum of $25,500. There is some evidence tending to show that the $4,500 note and mortgage were given for services in procuring the loan of $25,500. Whether or not the services would remove any taint of usury it is not necessary to determine in this case. No personal judgment is sought by the owners of the second, third, and fourth mortgages against Levitch. The foreclosure is against the Federal Finance Company, the grantee of the mortgagor. The Federal Finance Company, who purchased the real estate subject to the mortgage liens, and as a part of the consideration agreed to pay the mortgage debt, cannot defend against the mortgages on the ground of usury. See Cramer v. Lepper, 26 Ohio St. 59, 20 Am. Rep., 756. So that we have the situation here of foreclosure against the property owned by grantee of the mortgagor, and, since such grantee cannot defend against the mortgages on the ground of usury, there was no error in excluding the evidence as to usury, since no personal judgment was asked as against the mortgagor. Schaengold sought a personal judgment against Levitch. He took judgment against Levitch for the amount of money paid to the mortgagor at the time of the execution of his mortgage, and no exception was taken.
It is argued that Schaengold, a junior mortgagee, has the right to set up usury as against the prior mortgages, for the reason that the prior mortgages would exhaust the property if paid in full, and that, by purging the prior claims of usury, it would thereby enhance the value of his mortgage.
Schaengold did not file a petition in error, nor a cross-petition in error, to raise the question in his behalf. However, passing that point, he is not in a position to challenge the mortgages on the ground of usury. He, with full knowledge of all the prior mortgages, including the mortgages in question, took his mortgage subject thereto.
In the case of Jones v. Insurance Co., 40 Ohio St. 583, the court held under facts similar to those in the case under consideration that the defense of usury is not available to such junior mortgagee. In the course of the opinion the court said (page 588 of 40 Ohio State): "With full notice of the mortgage held by the defendant in error, and of his grantor's agreement with Wallace to pay the mortgage and interest notes, he purchased the property at an agreed price and value; and, if his grantor failed to pay off the incumbrances thereon, according to his promise, he must have recourse to him for redress. But, a failure to discharge such incumbrances does not warrant the taking of the usurious interest from the defendant in error, and placing it to the credit of one who is virtually a stranger to the usurious transaction."
Applying this pronouncement to the case under consideration, to permit Schaengold to defend on the ground of usury of a prior mortgagee would be the taking of the usurious interest of a prior mortgagee and placing it to the credit of the junior mortgagee, who is a stranger to that usurious transaction, thus enhancing the value of his own usurious mortgage.
Counsel for plaintiff in error cites in the brief some cases from Kentucky and some text-book authorities to the effect that a junior mortgagee is entitled to contest prior mortgages on the ground of usury. However, the weight of authority and the rule in Ohio is that the defense of usury is personal to the debtor, and not available to the holder of a junior mortgage, taken with full knowledge of the existing prior mortgage. See Stickney v. Moore, 108 Ala. 590, 19 So. 76; Union National Bank v. International Bank, 123 Ill. 510, 14 N.E. 859; Ready v. Huebner, 46 Wis. 692, 1 N.W. 344, 32 Am. Rep., 749; First State Bank of St. Edward v. Niklasson, 116 Neb. 713, 218 N.W. 744; J.W. Squire Co. v. Hedges, 200 Iowa 877, 205 N.W. 525; Hibernian Banking Assn. v. Davis, 295 Ill. 537, 129 N.E. 540.
It is suggested in the brief of plaintiff in error that, notwithstanding the waiver of a personal judgment against Levitch in the pending suit, he is still liable to such action, and is therefore entitled to be protected and to defend on the ground of usury. Whether or not Levitch could avail himself of the defense of usury, in case a personal judgment is sought, we do not now determine.
Plaintiff in error suggests that, since Schaengold does seek a personal judgment, he is affected in such a way as to make the defense of usury as to the other mortgages available to him. If Schaengold could not defend on the ground of usury, as to prior mortgages, neither may Levitch do so, as this would be but an indirect method of presenting the defense of usury for the benefit of the junior mortgage holder as against the prior mortgages.
We find no error in the record, and the judgment is affirmed.
Judgment affirmed.
ROSS, P.J., and CUSHING, J., concur.