Fisher v. Otis

Hubbell, J.

This suit is founded on a note and mortgage,, executed by Roswell C. Otis and wife to James S. Wiggin, payable in Boston. Both instruments were executed and delivered at Southport in Racine county. Wiggin afterwards, and before the maturity of the note, assigned and conveyed to the appellants all his right, title and interest in the note and mor-gage, and in the lands conveyed by the mortgage, for the consideration of $15,000, as expressed in the assignment. The appellants filed their bill of foreclosure, claiming to be bona fide purchasers of the note for a valuable consideration without-notice, and alleging that the whole amount of the principal and interest secured by the note and mortgage remained due and unpaid.

The bona fides of the assignment is denied by the answer of Otis.

The first question for consideration is, whether the appellants, as assignees-and holders of the note, are protected from any defense which may exist between Otis and Wiggin, the original parties to the transaction ?

The rule is well settled that the mortgage is a mere incident to the note, and may be extinguished by its payment, or passed *88 by its transfer. 4 Johns., 43 ; 5 Cow., 200 ; 1 J. J. Marsh, 257. And I ana not prepared to deny that a negotiable promissory note, secured by a mortgage, may be passed before maturity, in the course of business, like other negotiable paper; and that the transferee may take and hold it, free from all equities between the maker and payee. The mortgage in such case would pass as an incident to the note, and might be enforced by the holder in spite of any existing equities between the mortgagor and mortagee. This doctrine is sustained by respectable authorities, and by the reason and sound policy which have long ruled in relation to commercial paper. Powell on Morts., 908 and note.

But the respondents contend, and I think, rightly, that the assignment of Wiggin to the appellants reserves to Otis all the rights he had against the assignor. On this point the assignment must speak for itself. It is an aptly drawn instrument under the hand and seal of the mortgagee, and purports to “transfer, assign, set over and-convey,” to the appellants all “ his right, title, interest and estate, in and unto certain premises ” (setting forth the lands described in the mortgage), “ with all (his) right, title, interest and estate therein, and the debt and note which is secured by said conveyance“ with all the privileges, rights and appurtenances and benefits and advantage accruing therefrom, subject, however, to all the rights of the said Boswell G. Otis and his said wife, in and unto the same

It is difficult to understand what the parties intended by the last clause of this instrument, unless it was to preserve to Otis all the equities which existed between him and Wiggin. Courts are bound to give language its ordinary and current meaning, unless words are used in a special and technical sense (which is not the case here), or unless such construction would be in conflict with the evident purport and intention of the instrument. The construction contended for here is not only clearly consistent with the apparent design of the instrument, but is consonant with a sound rule of equity and mor *89 ality. It would have been unjust and unconscionable in Wig-gin, although it might have been technically legal, to cut off any defense which Otis might have to a part of his demand, by a transfer of the note to bona, fide holders for a valuable consideration, without notice. It is sufficient on his part that he has employed language which precludes any such imputation upon his motives. And as to the appellants, they sit in his seat, and must be content to enforce their note and mortgage, as he might have enforced them. 5 Johns. Ch., 341 .

I proceed to enquire whether Otis had any defense to the mortgage.

The appellants allege in their bill that “ the said Roswell C. Otis, by his certain note or obligation in writing under hi3 hand, duly made and executed at Southport, aforesaid, became justly indebted to James S. Wiggin, of Boston, aforesaid, in the sum of fifteen thousand dollars, payable one year after date, with interest after one year, at the rate of twelve per cent.” And they expressly “ charge the fad to be, that nothing has been paid on the said note and mortgage; and that the money mentioned in said promissory note, and secured by said indenture of mortgage, was due on the 4th day of November, 1846, agreeable to the said note or obligation in writing, and that no part of the same has been paid, etc.”

The bill calls for an answer on oath from Otis, and he was bound and might have been compelled to answer all its material allegations. What allegations then were material? .Surely it was material to determine whether a debt of fifteen thousand dollars was in fact justly due and owing. Whether the mortgage was given to secure just that sum; and if not, what sum ? And what sum was actually due and owing ? On these points, Otis properly responded to the bill. And having answered, his statements are conclusive against the appellants, unless contradicted by two witnesses, or by one witness, with strong corroborative circumstances. These are well settled principles in general practice.

*90 There is a mass of confused and irrelevant matter dragged into the answer, which is equally discreditable to counsel and oppressive to the court. * But one thing is stated clearly and positively, to wit: That no debt of fifteen thousand dollars was owing by Otis to Wiggin, at the execution of the mortgage ; and, on the contrary, that the note and mortgage were given to secure a balance of account and future advances. On this point the answer is contradicted solely by the evidence of Wiggin, who was a witness on the part of the appellants. And I have been unable to discover any circumstances satisfactorily proved, which sustain his evidence. Strong objections were urged to the competency of Wiggin as a witness.

As the mortgagee and assignor, he was not necessarily objectionable. But the assignment states, and he swears, that the transfer was made on the full payment to him of fifteen thousand dollars, the entire sum purporting to be secured by the note and mortgage. And it is open to question, whether, if the recovery in this case is reduced by proof that ho debt of fifteen thousand dollars ever existed in his favor, he may not be liable to the assignees for the deficiency on the ground of fraud. I prefer, however, to regard him as a competent witness. What, then, is the result ? In the absense of other proof, one witness does not overcome the answer. 5 Peters, 99 ; 6 Vesey, 183 ; 18 id., 12; 1 Johns. Ch, 459; 11 Wend., 358 . But the answer does not stand alone. It is strongly supported by the evidence of O’Connor and Willis, respondent’s witnesses, who were present at the negotiation at Southport, which resulted in the execution of these securities. Taking the answer in connection with this evidence, I am unable to resist the conclusion at which the circuit court arrived; that the mortgage and note were intended as a general security, partly to cover a balance due and partly to cover advances thereafter to be made by *91 "Wiggin. If such were the fact, it is contended by the respondent’s counsel, that the appellants have the burthen of showing how much was in fact advanced, and what sum is actually due. I find no decision precisely meeting this point. The note and mortgage were prima facie evidence of a debt of $15,000. The respondents have met this proof, by showing that no such debt existed, and that the amount secured depended on the acts of the mortgagee. I think, on general principles, the appellants have the onus of showing what advances were made. 1 Hill, 150 ; 1 Denio, 522 ; 5 id., 290; Cowen & H., notes, 476; 7 Cranch, 84 .

Another objection is made to the appellant’s recovery, which opens a wide range of inquiry.

The respondents contended that the note and mortgage, being made to draw interest at twelve per cent., were usurious under the laws of Massachusets, which allow of only six per cent. A sufficient answer to this objection might be found in the fact that no interest was payable until the money became due. The note was payable at “ one year from date,” and was to draw interest after one year, at the rate of twelve per cent, per annum.” If the money had been paid at the maturity of the note, no interest would have been demandable. The legal obligation was to pay at the end of a year, and the maker might have discharged his obligations without paying any interest. If he neglected to pay, or, in other words, violated his agreement, the interest which follows might properly be regarded as a penalty to recover damages. 4 Peters, 225 . At all events, it seems to me to be a solecism in law to hold an instrument usurious which may be legally discharged by the obligor agreeably to its terms without paying any interest at all.

But waiving this consideration, how far is the objection tenable ? The note and mortgage were executed and delivered in Wisconsin, where twelve per cent, interest was lawful; but the money was payable in Boston.

*92 By the statute of Massachusetts, in case the note had been, sued in that'state, the defendant might have set up usury, in a special flea, and by so doing, reduced plaintiff’s recovery, by a sum equal to three times the excess above six per cent. Rev. Stat. Mass., ch. 35.

But this statute expressly declares that no contract whereby usurious interest is secured shall be thereby rendered void. Id., ch. 35, sec. 2. The provision only extends to a reduction of the recovery, upon a plea filed for that express purpose.

In the language of their own courts, it professes only to regulate the remedy upon a usurious contract.” And that remedy must be applied in an action in the courts of Massachusetts. The courts of this state are not bound by tb eir remedial laws. The remedies we enforce are those provided by our own laws.

This is a general principle, so universally acknowledged as scarcely to need the support of authority. But there happens to be a case precisely in point:

In Gale v. Eastman, 7 Met., 14 , the supreme court of Massachusetts refused to enforce the usury law of New Hampshire, which is almost identical with her own, upon a note made in New Hampshire, and which clearly would have been held usurious in that state. Had the statute vitiated or affected the contract itself, the rule would have been different.

It is said, however, that this note being, made payable in Boston, is to be governed in its construction and legal effect, by the laws of the state where it is to be performed. The general rule unquestionably is, that “the lex loci contractus controls the nature, construction and validity of the contract." 2 Kent, 454. And a contract, valid where it is made, is valid everywhere. From this rule, however, contracts made in one country, but to he performed in another, have very generally been excepted. And the reason of the exception is, that the parties are supposed to intend to be governed by the laws of the country where their contract is to be performed, or to take effect.

*93 For this'reason, a note made in Canada, but payable in England, wherein the rate of interest was not specified, has been held to draw interest according to the laws of England. And so a bond made in England and payable "in Ireland, in which the rate of interest was not fixed, was held to bear Irish interest. Ch ampart v. Lord Ranelagh, approved by Wilmot, J., in Rolinson v. Bland, 2 Burr., 1084. And the same principle has been asserted in a great variety of cases on both sides of the Atlantic. But I think the doctrine of construing all contracts by the law of the place of performance has sometimes been carried too far; and when applied rigidly, it defeats the very reason on which the rule is founded. This doctrine is derived from a dictum of Huberus, in his celebrated work De Conflidu Legum — a work which had the great merit of bringing order out of the immense confusion prevailing in continental Europe on the subject of the lex loci; and which remains to this day a high authority, both with the civilians and common law judges. 2 Kent’s Com., 454. But it may be well worth our while to go back and examine the language of Huberus himself.

After laying down the general and acknowledged principle, that contracts are to be governed by the law of the place where they are made — the lex loci contractus — the learned author states an exception to the general rule in these words:

“Verum tamen non ita praecisa respiciendus est locus in quo contractus est iniius, ut si paries alium in contrahendo locum re- spixerint, ille non poiius sit considerandus. Nam contraxisse unus quisque in eo loco intellegitur, in quo ut solveret, se oiligavit,”

The first portion of this extract contains the principle and the reason of it; the latter part is a mere dictum, or rule of construction. As I understand the doctrine, it is that the place of making the contract is not to be so exclusively regarded, but that, when the contracting parties themselves had reference to another place, that may be regarded. ' That is, the intention of the parties shall govern when it is made manifest. And *94 hence, the author adds, every person is deemed to have contracted in the place where he binds himself that his contract shall be performed. Now, this is generally, but not universally true. And the1 same reason which requires a contract to be governed by the law of the place of performance, when it is intended so to be, shall require it to be governed by the place where it is made, when such was the design of the parties. When the court’ can see clearly, either from the contract itself or from evidence aliunde, that the parties intended to have it governed by the law of the place of its actual execution; as, when, for instance, the contract would be lawful at that place, and not lawful at the place of performance, then clearly the intention of the parties ought to prevail.

To adopt a different rule of construction would defeat a contract made in good faith, in the usual course of trade and business. Courts are'bound so to construe all contracts, if possible, as to give them effect rather than to defeat them. Lord Hale quaintly says, “ the judges ought to be curious and subtle to invent reasons and means to make acts effectual, according to the just intent of the parties.” 2 Lev., 9. And if the doctrine of HüBERUS required, a different mode of construction (which surely it does not), it would have to give way to the older and better rule of Coke : “ TJt res magis vahat guam pereat.”

In this country, composed of widespread and independent states, differing in governments and laws, where multitudes of contracts daily spring up, diversified in their form and purpose, and having reference to subject matters as remote as the persons contracting, it is of vast importance that a .rule of construction should be adopted which will give efficacy to the intentions of the parties, wherever they may make their engagements or undertake to fulfill them. And if a too rigid rule has prevailed, or if a mistaken application has sometimes been made, of a rule founded in reason, it is well to restore our decisions *95 from the patb of mere authority, to that of common sense and justice.

Though the citizens of almost all the states are connected more or less in business transactions, the laws regulating the interest of money and the remedies under them are exceedingly diversified.

Occasions often arise in which it is desirable to have the rate of interest prevailing in one state secured by a contract which is to be performed in another. Is there any good reason, either in law or public policy, why the intentions of the parties to such a contract should not prevail ? Why such a contract should not be enforced according to its terms, clearly and definitely expressed, whether the suit be brought in the place of its execution, or in the nominal place of its performance?

Laws relating to interest or usury cannot surely at this day be regarded as involving a question of morality. And where there is no pretense of any attempt to evade the law of the place where the contract is to be performed, I see no ground for refusing to enforce it in the state where it was made ; and if there, everywhere.

This principle has already been enforced to this extent, by the learned court of a sister state, if I understand rightly the case of Depeau v. Humphreys, decided in the supreme court, Louisiana. 20 Martin, 1 .

I have not been able to examine the reported case; but Chancellor WALWORTH, of New York, himself an authority of high consideration, thus speaks of the decision : “ That court came to the conclusion, in which decision I fully concur, that in a note given at New Orleans, upon a loan of money made there, the creditor might stipulate for the highest legal rate of conventional interest allowed by the laws of Louisiana, although the rate of interest thus agreed to he paid was higher than that which could he taken upon a loan hy the latos of the state where such note was made payable.” In other words, the note was sued in the *96 state where it was made, and the law of the state where it was to be performed was not allowed to prevail.

But that decision goes further than the case now under consideration requires. It is one thing to enforce a contract entirely personal in its character, and which may be. prosecuted wherever the person or property of the obligor is found, and quite a different thing to enforce a security upon land, which must necessarily be prosecuted in the place where the land is situated. The appellants are seeking to recover upon a mortgage executed in Wisconsin, upon lands in Wisconsin, and made in conformity to the laws of Wisconsin.

It may be well supposed that the parties intended to contract under the laws of Wisconsin, and to seek their redress under those laws, although the money secured was made payable in another state. On the continent of Europe the distinction has long prevailed, between what is termed personal and real statutes. “ The laws which regulate the condition, capacity or incapacity of persons are personal statutes; and those which regulate the quality, transmission and disposition of property are real statutes.” 2 Kent’s Com., 456.

This distinction was asserted as a rule of judicial action, by Chancellor Walworth, in the case of Chapman v. Robinson, 6 Paige, 627 . That was a loan of money made in England, upon the security of a bond and mortgage executed in New York, upon lands in that state, but delivered in England and payable there,'where the money was in fact placed to the credit of the borrower. The rate of interest was seven per cent, per annum, a rate legal in New York, but usurious in England.

Upon a bill filed to foreclose the mortgage, and the defense of usury set up, the Chancellor held the mortgage valid, and decreed its payment, with seven per cent, interest. In the course of a learned and able discussion of the subject, he remarks :

“It is an established principle, that the construction and validity of contracts, which are purely personal, depend upon *97 the laws of the place where the contract is made, unless it was made in reference to the laws of some other place or country, where such contract, in the contemplation of the parties thereto, was to be carried into effect or performed.” 2 Kent’s Com., 457; Story’s Conf. of Laws, 227, sec. 272.

On the other hand, it appears to be equally well settled by the laws of every state or country, that the transfer of lands or other heritable property, or the creation of any interest in, or lien or incumbrance thereon, must be made according to the lex situs, or the local law of the place where the property is situated.” And after discussing at length the effect of making the money payable in England, and the views of Mr. Justice Story and Chancellor Kent upon kindred cases, he says: “ But neither he nor Chancellor Kent appear to have expressed any opinion upon the precise question presented in the present case, in which the rate of interest reserved is allowed by the law of the place where the mortgaged premises áre situated, and where the bond and mortgage were actually executed, but is more than could be legally reserved by the law of the place where the money was received, and where, by the legal construction of the contract, it must be deemed to be payable. Upon a full examination of all the cases to be found upon the subject, in this country or in England, none of which, however, appear to have decided the precise question which arises in this cause, I have arrived at the conclusion that this mortgage executed here, and upon property in this state, being valid by the lex situs, and which is also the law of the domicil of the mortgagor, it is the duty of this court to give full effect to the security, without reference to the usury laws of England, which neither party intended to evade or violate by the execution of a mortgage here.”

And again, he says : “ And being actually made in reference to our laws, and to the rate of interest allowed here, it must be governed by them, in the construction and effect of the contract, as to its validity. See also 7 Paige, 682 . I am aware that these views have received reproof in a high quarter (Story on *98 Conf. of Laws, sec. 293 a and note), but I think, more in deference to authority than reason.

Bat the case of Chapman v. Robinson, both in fact and in reason, runs parallel with that under consideration; and the decision in the one must be held conclusive in the other. It seems to me that the learned court of New York has rescued a sound principle from the conflict of authorities, and made an application of it, which, however novel or unprecedented, must stand the test of time and scrutiny. To have decided differently would have defeated the intention of the parties and rendered nugatory a contract, entered into in good faith and agreeably to the laws of the great and commercial state where it was executed. And upon this ground, if there were no other defense to the mortgage of Otis, this court' would be bound to decree its full payment, with 12 per cent, interest, according to its terms and in conformity to the laws of Wisconsin, without reference to the usury laws of Massachusetts, which there was no intention to evade or violate.

The note and mortgage, however, as I have before stated, were given not for an actual debt of fifteen thousand dollars, but to secure a less sum, partly advanced prior to their execution, and partly to be advanced afterwards. What interest was to be paid, if any, upon the sum actually secured, is a matter of inference or conjecture. Though the members of this court agree in the opinion that interest, at some rate, ought to be allowed, they do not concur in the rule to be applied. As no rate was specified, and as the money was to be paid in Boston, it is urged that six per cent., the legal rate of interest in Massachusetts, should govern. Again, as the action is brought in this state, and this is the situs of the property to be made available as a security; as this is the domicile of the mortgagor, and as the court holds the parties to have had reference to the laws of this state in making their contract, it is urged that seven per cent., the legal rate of interest in Wisconsin, should prevail. So the ,eo.ur.t below determined. Again, it is urged that the *99 parties themselves having agreed upon twelve per cent., as the rate of interest, in case the entire fifteen thousand dollars had been advanced, they must be deemed to have intended that rate of interest to be charged upon any less sum advanced.

It becomes unnecessary, however, for the court to make any decision upon this mooted question. By a stipulation entered into between the parties on the ninth of May, 1849, the respondent has paid the sum of eleven thousand and two hundred dollars; and the decree of the circuit court, from which the present appeal is brought, directs the payment to the appellants of a further sum of $135.77 — making in all $11,335.77.

After a full and careful examination of the pleadings and testimony, we are none of us able to discover that James S. Wiggin, the mortgagee, had paid or advanced to or for the mortgagor, any sum or sums which, with interest at twelve per cent, from the date of payment, would amount to $11,200 on the ninth of May, 1849. And if the case were now open for an original decree on the merits, this court would be compelled to find a less sum due than was found by the court below. It is not necessary, therefore, to decide what rate of interest ought to govern, nor need we enter into a detail of the facts from which we draw our conclusion, as to the actual amount due from Otis to Wiggin.

It is sufficient that it has been already paid or decreed to be paid; and the appellants have no further rights in the premises.

Decree of the court below affirmed, with costs.

It is due to the counsel who argued the cause to say, that the answer was put in before they were employed.