183 A.D. 421 | N.Y. App. Div. | 1918
The question presented is whether the plaintiff, who purchased an accommodation note from the accommodated party at a discount of about twelve per cent, can recover thereon against the maker, whose contention is that the note is void for usury.
There is no question whatever but that the note was
The plaintiff relies upon a number of cases, such as Oeser & Co. v. Behrend (151 N. Y. Supp. 873); Emanuel v. Misicki (149 id. 905) and Klar v. Kostiuk (65 Misc. Rep. 199), holding that in an action on a promissory note brought by a bona fide holder in due course for value before maturity, under section 96 of the Negotiable Instruments Law (Gen. Laws, chap. 50; Laws of 1897, chap. 612; Consol. Laws, chap. 38; Laws of 1909, chap. 43), the defense of usury is not available. None of these cases is in point. These cases .deal with usury exacted of the maker by his immediate transferee, where the note has thereafter come into the hands of a bona fide holder in due course. The question here is whether a party whose receipt of a note constituted its inception can recover thereon if it be tainted with usury exacted by him at such inception.
A sale of accommodation paper is treated as a loan of money, the purchaser being the lender and the seller the borrower. This has been frequently held, the last words of the Court of Appeals on the subject being in Strickland v. Henry (supra) where the court said: “This action was brought on a promissory note for $175 made by William
As between the maker and the accommodated party, off course the note represented no obligation whatever. It haql no inception until it was delivered for value. As was recently! said in Sabine v. Paine (166 App. Div. 9): “ The note had no valid inception until its purchase and discount by plaintiff’s agent.” In that case M. S. Paine executed a note for the face amount of $2,100 to one Vacheron, who sold it to the plaintiff, for $1,850. Under such circumstances the court held that the transaction was usurious and that the paper was void.
It may be said that this is a harsh rule, but we are dealing with one who knowingly exacted usury. As a matter of law and fact the plaintiff was lending a borrower $181.50 for which he was to receive $203, or a profit of $21.50, which is at the rate of eleven and eight-tenths per cent. It is not the case of ordinary discount at a legal rate but is a plain loan at a usurious rate. The lender in such case is put upon inquiry. He knows that if the note had a valid inception and was originally delivered by the maker for value there can be no defense of usury or of any other infirmity in the transaction. But he also knows, or must be held to know, that if the inception of the note consists in its negotiation to him, the transaction is nothing but an ordinary loan, and if usurious the transaction is void. As Mr. Justice Laxjghlin said in his frequently cited opinion in Schlesinger v. Kelly (114 App. Div. 546), quoting Strickland v. Henry (66 id. 23): “ ‘ The holder is bound to know the character of the paper
Clarke, P. J., Laughlin, Dowling and Page, JJ., concurred.
Determination reversed, with costs, and judgment of Municipal Court affirmed, with costs.