Summary
In Western Transportation Coal Co. v. Kilderhouse (87 N.Y. 430, decided Jan. 1882) the action was upon renewal notes, and one of the defenses was usury, and is was held that, inasmuch as the contract for forbearance was a Michigan one and was valid under the laws of that State, it was valid and enforcible here.
Summary of this case from Manhattan Life Insurance Co. v. JohnsonOpinion
Argued December 2, 1881
Decided January 17, 1882
George B. Hibbard for appellant.
George Clinton for respondent.
As the plaintiff had judgment on the issues, and the findings of fact by the trial judge were not disturbed by the General Term, the order of reversal must stand, if at all, upon some error of law committed by him. (Code of Civil Procedure, § 1338.) The first ground of defense has been fully met by the finding that the notes were not tainted with usury, and this is clearly so, if, as is also found, they were given in execution of a contract made, not in Buffalo, but in Michigan, and with reference and subject to the laws of that State.
It is very well settled that penal laws have no extra-territorial force ( Charles v. The People, 1 N.Y. 180; Ormes v. Dauchy, 82 id. 443); and the statute of New York, regulating the rate of interest, is merely a penal law. It is not claimed that the law of Michigan invalidates the contract. It is also well to observe that the defendant was bound, not only to set up the usurious contract in his answer, specifying its terms and the particular facts relied upon to bring it within the prohibition of the statute ( Manning v. Tyler, 21 N.Y. 567; Dagal v. Simmons, 23 id. 491), but to prove them substantially as alleged. In the latter respect, there was an evident failure. The debt which was to be extended was stated as due to the plaintiff, the contract of extension to have been made with the plaintiff, and Buffalo the place where it was made. None of these things are established. Nor is it claimed by the respondent that either circumstance of a different party or place was introduced into the transaction as a cover or device to conceal usury. Whatever the transaction was, there was neither subterfuge nor concealment.
To see what the contract was, and between what parties entered into, and how the plaintiff is affected by it, we must resort to the words of the trial judge. From them, we find that the plaintiff is a corporation under the laws of Michigan, there doing business; that the $7,000 note and the mortgage were made to it as above stated; but we also learn that before the note matured, both were assigned to the People's Saving Bank of Detroit, and continued to be owned by it; that after the maturity of the note, and between August 20 and 25, Ingram went to Detroit, sought the plaintiff, and of it requested an extension. He was then informed of the fact of the transfer of the note to the People's Bank, and to it renewed his application "for a further period of time for payment." In reply, the bank stated, "that the rate of interest it charged and demanded upon loans and for the forbearance of moneys due upon notes like that in question was ten per cent per annum; that provided it could obtain the consent thereto of the indorsers of the $7,000 note, and he, Ingram, would give a new note or notes for the amount, indorsed to the satisfaction of said bank, to be held by the bank as further and additional security, and pay ten per cent per annum, the bank would upon these terms extend the time of payment so that the amount could be paid in installments, not exceeding for any part a longer period than three months." He assented to these terms, and promised the bank to make and deliver new notes for the amount of the past-due note, payable in installments within three months, and pay ten per cent interest, and stated to the bank "he would return to Buffalo to get the indorsements of the new notes so to be given."
In pursuance of this agreement, the bank procured the consent of the indorsers of the note, then past due, to the extension of the time of payment, as requested by Ingram, and afterward sent one Monaghan with the note and mortgage to Buffalo. On the 11th of September, 1875, he there saw Ingram, informed him that he had been sent by the bank and that his directions were at once to foreclose the mortgage "unless the amount of said past-due note should forthwith be paid, or the arrangement he (Ingram) had made at Detroit for the extension of his time of payment should be carried out." Ingram on the same day procured and gave to Monaghan the notes in suit and two other notes indorsed by one Clark, the four notes making the full amount of the past-due note, and interest and notary's fees thereon. He also paid to Monaghan a sum equal to the difference of interest called for by the new notes, and that charged by the bank from the time of maturity of the old note until the new notes would by their terms become due. Monaghan delivered to the bank at Detroit the money and the notes, and "they accepted the same and extended the time of payment of the amount secured by the said past-due note according to the times the said new notes were made payable." They were not paid, and after maturity the bank foreclosed the mortgage; the vessel was bid in by the plaintiff for a sum so much less than the amount secured by it, that no portion applied upon the $7,000 note, and it being paid by the plaintiff, was with the notes in suit transferred and assigned to it.
Upon these findings it seems to me, both upon principle and authority, that the construction of the trial judge must be affirmed. Interest is the creation of positive law. The capacity to reserve it is conferred by the law of the place where the creditor becomes such, that is, where he loans money, or forbears a chose in action — in this case a debt already due — and to this point the various and far-reaching arguments of the learned counsel must be reduced. The rights of the bank and Ingram became fixed at the time of making the contract for such forbearance, and the plaintiff and defendant must abide by their conditions. When then was the agreement made by which the bank promised to forbear day of payment, and by which it became entitled to compensation therefor? An answer to this question will necessarily show where the agreement was made. The only time the parties were together or in communication was August, 1875. The bank then yielded to the application of the debtor and consented to an extension upon certain precise and defined terms. They were accepted by the debtor. At that moment the minds of the parties met. This was in Michigan. That State, therefore, was not only the place of contract, but on the part of the bank was the place of performance. Ingram complied with the contract afterward, in Buffalo. He did nothing more. The agent of the bank had no authority save to accept the fruits of the contract, — he could not make a new one. The bank was a party to no other. The defendant assumes the burden of charging it as a party to an unlawful one, and to sustain it, seeks to show that the notes in suit, aided by inferences to be drawn from the payment of money in this State, upon the demand of Monaghan, make a contract by which the validity of those notes is to be determined.
But the finding is otherwise, and shows that what Ingram did was indeed in performance of an agreement, but it was one already made. He responded to the demand of Monaghan, that he should carry out the Michigan agreement. He did not discuss the terms with him.
The respondent says, however, that "the contract in Detroit was incomplete," as to the number of notes to be given, the actual time of extension, place of payment and the indorsers. It does not seem altogether so. Payment by installments at such time as would not exceed three months for any one of them was agreed upon, and that was the material term. The place of payment was immaterial, for the notes were merely collateral, and the principal debt then past due could be paid only to the creditor at its residence in Detroit, and as to the indorsers; they were to be satisfactory to the bank. Monaghan bound the bank to nothing; he did not pass upon the sufficiency of the indorsers. His acceptance of the paper did not conclude it, and so the court further finds, that Monaghan returned to Detroit, "accounted for and delivered over" the money and notes to the bank, and they "accepted the same, and extended the time of payment according to the times the notes were made payable."
We have, then, an agreement made in Michigan, performed according to the understanding of one party in Buffalo, and acceptance of that performance by the other in Michigan as a fulfillment of the agreement. If before that event the agreement of August was revocable by either party, this acceptance of the money and securities consummated the contract. After that it cannot be maintained that the bank could, until default made in payment of the new notes, have enforced the principal debt or its security. ( McIntyre v. Parks, 3 Metc. 207; Merchant v. Chapman, 4 Allen, 362.)
The case, therefore, is brought directly within the general rule of law, which makes the validity of a contract depend upon the law of the place in which it is made, and when broken furnishes a cause of action to be enforced by judicial proceedings in any State, although the contract, if made where the remedy is sought, might by the law of the forum be invalid. I think also, that the plaintiffs have brought a case here, to which, as its counsel insists, our decision in Wayne County Bank v. Low, ( 81 N.Y. 566) applies. In that case, as in this, an agreement for extension or forbearance of a debt was made in a foreign State. In both, the note, or obligation in fulfillment of it, was executed here; in one it was sent to the creditor by mail; in this it was delivered to the agent of the creditor appointed to receive and convey it — in the one, therefore, to a public, in the other to a private agent; but that fact, or the mode of transmission, can make no difference. ( Milliken v. Pratt, 125 Mass. 374.)
Many cases are cited by the learned counsel for the respondent in support of his argument. Some of them were considered by us in Wayne County Bank v. Low ( supra); the others have been examined. I do not think it necessary to discuss them, for the facts, as found for us, are so unlike those upon which his contention rests, and to which many of those cases are fairly applicable, that they cannot change our conclusion. He can succeed only by assuming a contract made in Buffalo. Our opinion upon the facts found is, that none was made there. More than this, there is no ground to support the assertion, that Monaghan had authority to make one. Indeed the trial judge was not asked to pass upon that question. The respondent also claims that the notes in suit were satisfied by reason of the execution of the power of sale in the mortgage. But the facts found by the court do not permit this conclusion. The sale produced less than enough to pay other debts secured by the mortgage, and the bank was clearly entitled to the benefit of all the collaterals belonging to it, until provision was made for the whole of the principal debt; and whether the proceeds were actually applied upon other debts is not material. But the notes in question are applicable to the $7,000 note alone. More than the amount of the collateral notes was unpaid, and until full payment, the bank could retain its security. ( First National Bank of Buffalo v. Wood, 71 N.Y. 405.) The plaintiff, by assignment, has the same right. No other findings upon this question were requested. Upon those made, no equity in favor of the defendant is perceived, or error on the part of the trial judge.
The order of the General Term should, therefore, be reversed, and the judgment rendered by the Special Term affirmed, with costs.
All concur.
Judgment affirmed.