Freeport Bank v. Hagemeyer ( 1895 )

BROWN, P. J.

This action was brought to recover upon a promissory note for $2,500, made by the appellants to the order of W. H. Chew, and payable four months after date. The defense was usury. • It appeared by uncontradicted testimony that the note was made by the appellants and delivered to Chew in order that he might have it discounted, and the proceeds applied to the payment of notes made by the firm of Chew & Eadie, and indorsed by the appellants. Chew delivered the note to one Charles C. Cokefair upon the agreement that he was to procure its discount and pay to Chew in cash one-half of the proceeds, less 6 per cent. The other lialf Cokefair was to retain and use, and at maturity he was to repay the one-half received by him. Cokefair delivered the note to one Kendall, under an agreement with him that he was to procure it to be discounted, and retain 25 per cent, of the proceeds after taking out the discount, and at the maturity thereof to pay the one-quarter of the note received by him. Kendall paid to Cokefair 75 per cent, of the note, less the discount. Thereafter the plaintiff discounted the note for one Chellborg, and paid to him $2,434.79, which amount represented the face of the note less 6 per cent, discount and 2 per cent, charged for the cost of collection. The trial court held that the agreements testified to were not usurious, and directed a verdict for the plaintiff. I am unable to agree with this conclusion. If the agreements themselves did not conclusively establish usury, they were of such a remarkable character that the jury should have been permitted to determine whether they were made in good faith or as a mere cover to escape the effect of the usury law. But, as I understand the testimony, the agreement with Kendall was usurious. The note was not a valid obligation in the hands of Chew. He could not have maintained an action upon it against the appellants. It was accommodation paper, and its sale was merely a loan of money; the purchaser being the lender and the seller the borrower. Claflin v. Boorum, 122 N. Y. 385, 25 N. E. 360. The first one to advance money on the note was Kendall. It had no legal inception when sold to him, and the transaction, therefore, was a loan by Kendall to the defendants, through the agency of Cokefair and Chew. If that loan violated the statute, the note was rendered absolutely void, and no subsequent transaction could make it valid. Claflin v. Boorum, supra, and cases cited. Cokefair testified as follows in reference to this agreement:

“A; Mr. Kendall was to retain twenty-five per cent, of the proceeds of-the note, after taking out the discount. Q. Twenty-five per cent, in addition to the discount? A. In addition to the discount. And he was to hold himself responsible for the payment of that twenty-five per cent, when the note came due. Q. And that arrangement had been made by you with him before the delivery of this note to him? A. Simultaneously at or before the delivery of the note. Q. Do you mean that he was to have twenty-five per cent., and that he was to make the twenty-five per cent, good when the note was taken up? A. Yes, sir. He was to get the benefit of the advance of twenty-, five per cent, of the note, and I got seventy-five per cent.; and when the note became due he was to pay the twenty-five per cent.”

—That is, Kendall was to pay at maturity, not 25 per cent, of the note, but 25 per cent, of the proceeds of the discount. In other words,-he was to repay just what he received, thus leaving the interest to be paid by the makers. Thus Cokefair was to pay $50 for the loan of $1,837.50 for four months, or nearly 9 per cent. This was plainly usurious.

In the case of Bank v. Hoyt, 32 N. Y. 119, it was held that an-arrangement by which one seeking a discount at a bank is required to_ obtain a discount of paper amounting to $1,500 to secure the application to his use of $1,000 of the proceeds without the right to use the remainder thereof, except in pavment of the paper discounted when it shall become due, renders the transaction usurious and void. The facts of that case are quite similar to the case before us.

Thé judgment should be reversed, and a new trial granted, with costs to abide the event. All concur.