
    George C. Smalley, Plaintiff and Respondent, v. Samuel H. Doughty, Defendant and Appellant.
    1. Where a negotiable check, which is invalid by reason of usury between the payee and the maker, has been transferred to a bona fide holder for value, having no notice of the usury, and the makerx afterwards pays the same in part, and for the balance gives to such holder a new check, and takes up the«usurious security, such maker cannot set up such usury to an action by the bona fide holder upon the new or substituted check.
    2. The circumstance that such new or substituted check was drawn payable to the order of the payee in the original check, and was by request of such holder indorsed in blank, does not affect the question nor permit such original usury to be set up to prevent a recovery by the holder.
    3. In an action on a security given to the plaintiff as renewal of a check, it is not error to reject evidence that the check was negotiated by the payee to the plaintiff as security for a usurious loan, when such usury is not set up in the answer and at a stage in the trial at which no proof has been given that the check was not perfectly valid in the hands of the payee. Whether after proof of usury between the maker and the payee, evidence that it was also transferred to the plaintiff upon a usurious contract, may not be admissible on the question whether the plaintiff is a bona fide holder though such last named usury be not alleged ? Quaere.
    
    4. When the answer does not set up usury, it is not error to deny a motion to amend the answer on the trial, to enable the defendant to prove usury: . not even though it is in a high degree, probable that the pleader intended to set up usury and supposed that the answer had sufficiently stated facts amounting to usury.
    (Before Bosworth, Ch. J., Hoffman and Moncrief, J. J.)
    Heard, December 7th, 1859;
    decided, January 21st, 1860.
    Appeal by the defendant from a judgment for $1,182 damages and costs, entered on a verdict for the plaintiff, rendered on a trial before Mr. Justice Pierrepoht, on the 29th day of June, 1859. The action is brought upon a check for $1,000, drawn by the defendant, payable to the order of F. C. Houghton and by him indorsed in blank.
    The answer of the defendant professed or attempted to set up two defenses. Mrst, that the check was given to Houghton the payee, in renewal of a previous check given for borrowed money for the loan of which Houghton charged, and the defendant paid, him interest at the rate of twenty-five cents per day for each $100 loaned, and this defense is entirely silent as to the transaction between Houghton and the plaintiff, by which the latter became the holder of the check. Second, That the check was without consideration in the hands of Houghton the payee: That Houghton borrowed certain sums of money of the firm of Smalley, Weed & Bartlett, (of which firm the plaintiff was a member,) the amounts of which sums are unknown, and the said firm agreed to take and receive from Houghton eighteen and three-quarter cents per day for the forbearance of the sums so loaned for each day such sums should remain unpaid: and that the said Houghton transferred the check now in suit to the said firm as collateral security for the said advances to Houghton.
    On the trial and before any evidence was given of the origin of the check or of any usury between the defendant and Houghton, the defendant on cross-examination of the plaintiff offered to prove usury between Houghton and the firm of Smalley, Weed & Bartlett. This offer was overruled on the ground that usury between those parties was not set up in the answer. The defendant excepted.
    The defendant then asked leave to amend his answer so as to set up and enable himself to prove usury between Houghton and Smalley, Weed & Bartlett. This leave was refused, and the defendant excepted. The defendant then proved that the check in suit, was given in part renewal of a previous check given to Houghton by him for $1,000, which was clearly usurious as alleged in the answer, which check for $1,000 was brought or sent to him by the plaintiff, and that on such renewal he paid the plaintiff his check for $50 for the balance of such $1,000.
    The plaintiff showed that before this renewal the firm of Smalley, Weed & Bartlett received the former check of $1,000 from Houghton, for a loan made to him. That when it became due, their clerk took it to the defendant who gave to the clerk his check for $50, and delivered to him the check now in suit for $950, and took up the $1,000 check, and such clerk immediately carried the check to Houghton and obtained his indorsement thereon, after which, by transfer from Weed & Bartlett, the check became the plaintiff’s sole property.
    
      The pleadings and proofs are further detailed in the opinions of the Justices.
    The Judge, .among other things, charged the jury that if they believed the check in suit was given together with the other check of fifty dollars for another check of $1,000, it was for them to say whether the same was or was not voluntarily given by defendant to the plaintiff as an innocent party, without notice of any usury, as a new independent security, disconnected with the former check of one thousand, for which the plaintiff had given value, and if they found such to be the case, they would find for the plaintiff for the face of the check and interest, and that whatsoever agreement there was between Houghton and defendant as to the interest to be taken or paid when Houghton took the-eheck of $1,000, for which this and the fifty dollar check were given, if afterwards the defendant substituted the check in suit and the fifty dollar check in the manner alluded to, the check in suit was purged of usury.
    To which said ruling and instructions, the said defendant did then and there duly .except; which exception was then and there duly noted by his Honor the said Justice.
    The jury thereupon rendered a verdict in favor of the plaintiff for $1,083.
    Judgment was on the 1st day of July, 1859, entered against the defendant for $1,132.36, damages and costs.
    
      R. M. Harrington, for the defendant (appellant).
    I. The Court, on the trial, erred in refusing testimony as to the agreement between plaintiff and Houghton, for the reason as stated; and if it was not definite and certain, the defendant had the right to have the pleadings reformed and amended to conform to the testimony. (Catlin v. Gunter, 1 Kern., 368 ; Brown v. Mitchell, .12 How. Pr. R., 408; 2 Abbott, 481.)
    II. His Honor the Justice erred in laying down the law to the jury, that the check in suit was purged of usury. When the consideration of a chose in action is once tainted with usury, it cannot be purged. (Preston v. Jackson, 2 Stark. R., 237; Tuthill v. Davis, 20 John., 285; Kent, Receiver, v. Walton, 7 Wend., 256.)
    
      
      Charles W. Prentiss, for the plaintiff (respondent).
    I. The answer does not set up usury between the plaintiff and Houghton, nor even hint at such a defense.
    If there was even a general allegation of usury, it would not be sufficient, as under the new system of pleading introduced by the Code, as well as the old, it is necessary to set out the facts and circumstances which constitute the usury. Where these have been set up, and incorrectly, so that a variance exists between the allegations and proof in one or more particulars, the Court will allow an amendment with or without terms, unless the “ allegations are unproved in their entire scope and meaning, and not in some particular or particulars only.” This is deemed not .“a case of variance within sections 169 and 170 of the Code, but a failure of proof.” This presupposes that there are allegations enough in the answer. But, as there is here an entire defectiveness as to allegations, all the provisions of the Code as to amendments on trial of the case are inapplicable. (Catlin v. Gunter, 1 Kern., 368.)
    II. The remedy of the defendant, if he has any, is by motion under the 173d section of the Code, which is applicable to a case of defectiveness of allegations. But it would not be “in furtherance of justice” to allow the defendant to claim a forfeiture of the plaintiff’s just debt, and it would be “ changing substantially the (alleged) defense ” to allow the amendment asked for. (Morris v. Slatery, 6 Abb., 74.)
    III. As usury is not set up between plaintiff and Houghton, either generally or specially, an amendment would be without precedent, and opposed to principle. It could not, in any appropriate use of language, be called an amendment, but would be leave granted by the Court to put in an entirely new defense. Such leave is never granted to put in as a defense the statute of usury or limitations.
    IV. The most favorable view that could be taken for the defendant would be to say, that it was discretionary with the Justice who tried the case to allow it or not; but that discretion is not revisable on exceptions.
    V. But this is too favorable a view for the defendant; and it would have been error for the Court to have allowed the so-called amendment, as there was nothing to amend by.
    
      VI. The second alleged defense contains an admission of the defendant, in his pleading, that the transaction between plaintiff and Houghton was within the legal rate of seven per cent. This admission cannot be contradicted by any evidence. y
    VII. The charge was correct. (Jackson v. Henry, 10 John., 185; Tuthill v. Davis, 20 id., 285; Powell v. Waters, 8 Cow., 669; Kent v. Walton, 7 Wend., 256; Dix v. Van Wyck, 2 Hill, 522; Aldrich v. Reynolds, 1 Barb. Ch. R., 43; Smedberg v. Simpson 2 Sandf. S. C. R., 85.)
    The transaction between defendant and plaintiff was a new one, in which both parties were active; and the plaintiff’s position does not repose on the mere bona fides of his title.
   Bosworth, Ch. J.

This suit is brought on a check which, as the complaint alleges, is dated July 31st, 1857; is for the sum of $950; and was made by the defendant on or about the day of its date, and that thereupon for value received, said Doughty delivered said check to the firm of Smalley, Weed & Bartlett, of which firm this plaintiff was at that time a member; that after-wards, and on the same day, said check was duly indorsed in blank by said Houghton and delivered to said Smalley, Weed & Bartlett.”

The check is drawn on the East River Bank, and is in terms payable “ to E. E. Houghton, or order.”

The first defense in the answer is, that Doughty borrowed of Houghton $1,000, and agreed to pay twenty-five cents a day for the use of the money, and gave his check, dated March 20th, 1857, for $1,000, as security for such loan; that this check was renewed various times, that on the last renewal, the check in suit was given to Houghton, and $50 of the principal paid.

The usurious agreement between Houghton and Doughty was proved, and also that interest, on the loan from the former to the latter, was paid at the rate agreed upon. It was also proved, that the check in suit was given as a renewal of $950, in amount of a previous check for $1,000, and that the balance of $50 was paid.

It follows, therefore, that if this renewal-was a transaction between the defendant and Houghton, the check is void, in the plaintiff’s hands, otherwise it may not be.

The plaintiff testified, that “ we (Smalley, Weed & Bartlett) received this check from Houghton.”

Mr. Coombs, a clerk of that firm, testified thus: “ At their request, I took a check of $1,000, made by defendant to the order of and indorsed by Mr. Houghton to the defendant, who took it from me, and gave me his check and $50. I then took this check to Mr. Houghton, who indorsed it, and I gave it to Mr. Smalley.

The check of $50 was dated the next day after this one was.” To whose order, the check for $50 was made payable, does not appear.

There was no evidence what conversation, if any, was had between Coombs and the defendant, at the time of giving the check in question.

The defendant testifies, however, that the “plaintiff brought or sent to ” him the $1,000 check renewed in part by the one in suit, and that the defendant “ took it up by giving him this one.”

Hence, it appears, that the defendant, in giving the check in suit, knew he was dealing with Smalley, Weed & Bartlett. Whatever inferences might be drawn from the fact that the check in suit is made payable to the order of Houghton, still the fact is proved, that the check in suit was given to the plaintiff’s firm; and it is not pretended that any interest was claimed or paid at the time of this settlement, on the surrendered check.

If no evidence was improperly excluded, I am inclined to think, that on the evidence given, the case was properly submitted to the jury.

The only evidence offered (which was excluded) was offered before any evidence had been given, that the check, of which the one sued on is a renewal, was usurious—or in relation to its consideration or origin

I think that evidence must be deemed to have been offered under the second defense.

The defenses are: First, that the check in suit was given to Houghton to renew one, which the defendant had previously delivered to him, to secure a usurious loan; and which (such being the facts) would be void in the plaintiff’s hands.

Second. That the check in suit was made and delivered to Houghton without consideration, and was delivered by the latter to Smalley, Weed & Bartlett, as security for a loan, on which interest was reserved at the rate of eighteen and three-quarters cents per day.

The second defense, as it was probably intended to state it, is that the check first had a legal inception when negotiated to plaintiff’s firm, and that such negotiation of it was to secure a usurious loan, and it was, therefore, void, although there was no pretense of usury between Houghton and the defendant.

The defendant, on the cross-examination of the plaintiff’s first witness, offered “ to prove usury between the payee and Smalley, Weed & Bartlett, when they received check from payee. The offer was overruled on the ground that it was not set up in the answer. The defendant excepted, and asked to have the answer amended, so as to enable him to prove usury between the payee of the check and Smalley,'Weed & Bartlett, and to conform to the facts as claimed by defendant to exist. The motion was denied, and the defendant excepted.

It was not necessary to prove usury between the payee and the plaintiff’s firm, to establish the first defense. There is nothing in the subsequent proceedings, or in the charge which indicates that the Judge was supposed to hold that proof of that fact was an essential part of the defense first pleaded. On the contrary, the Judge subsequently admitted proof of usury between the defendant and the payee, and in effect instructed .the jury, that it was essential to the plaintiff’s right to recover,-.that he should have taken the $1,000 check (which he surrendered) bona fide and for value, and that the check in suit should have been given to him as such holder, on a settlement between, him and the defendant, of the liability of the latter as maker of the surrendered check.

I therefore think it quite clear, that the excluded evidence was offered under the second defense, and,that it was rejected, because no usury was stated in it: that defense neither alleges in general terms, that the transaction between Houghton and Smalley, Weed & Bartlett was usurious, nor does it state facts, which (if admitted to be true) show it to be usurious. The legal interest on $1,000 is over nineteen cents per day.

It seems to me, that the second pretended defense does not state facts sufficient to constitute one. It does not, unless it alleges facts, which establish that the loan by Smalley, Weed & Bartlett to Houghton was made upon a usurious agreement. The evidence was rejected, because the answer did not aver that transaction to be usurious. I think the evidence was properly rejected, if offered as a part of the second .defense, and that it must be deemed to have been so offered, as the first defense, if proved as stated, was perfect without proof of any such fact. In the first defense, there is no allegation as to any transaction between Houghton and Smalley, Weed & Bartlett in relation to the check-in question, or the one renewed by it.

The evidence was inadmissible for the purpose for which it was offered.

After the defendant had given evidence proving that the check in suit was a renewal of one void for usury, and after such evidence had been met by proof that the check in suit had been given to the plaintiff’s firm on a settlement with it of the $1,000 check, and upon a surrender of the latter, the offer was not renewed to prove that the plaintiff’s firm took the $1,000 check to secure a usurious loan, and were therefore not Iona fide holders of it, within the meaning of the rule stated to the jury.

Assuming that such evidence would have been proper had it been then offered for such a purpose, I think the exception taken to the exclusion of the evidence when offered as part of a defense consisting of the facts, that the check was without consideration in Houghton’s hands and was negotiated by him to plaintiff’s firm to secure a usurious loan, does not meet the difficulty of the case on the part of the defendant.

In Catlin v. Gunter, (1 Kern., 368,) the facts alleged constituted usury. The error committed at the trial did not consist in excluding proof of usury when none had been pleaded, but in holding that the usurious agreement offered to be proved was so variant from that alleged, that it should be excluded on that ground.

On the whole case, I think the judgment should be affirmed.

Hoffman, J.

The first question is, whether the defendant can set up as against the plaintiff', the usury which undoubtedly tainted the check, for which that in suit was given in part renewal ?

If the plaintiff, on the case as it is now before us, may be regarded as a bona fide holder of the former check, I think the defendant will be precluded from this defense.

The defendant so far dealt with the plaintiff’s firm as to receive from their clerk the old check for $1,000, to give to such clerk the check in question for $950, and another check dated the next day for $50, which it would seem went directly to the plaintiff’s firm; at least, there is no evidence that this check was drawn in favor of Houghton as the one in suit was.

Thus then the debtor in a usurious check pays to a bona fide holder part of the amount, in truth the very sum originally taken for usury and gives a new note for the balance.

Chief Justice Bronson, in Dix v. Van Wyck, (2 Hill, 522,) says: “Where a note affected by usury has been transferred to a bona fide holder, and the debtor thereupon gives such holder a new security for the debt and takes up the note, he cannot .after-wards set up the defense of usury to an action on the substituted contract. B ut if the substituted contract is made between the same parties, the original taint of usury will affect the new security.”

In Kent, Receiver, v. Walton, (7 Wend., 256, a note for $1,200 had been made by Walton to Kennedy, and indorsed to Ash, who cashed the same at a usurious discount, and had it discounted at the Franklin Bank. At maturity $550 was paid to the Bank, and the note sued upon for $650 was given in renewal. The evidence to show it was accommodation paper was rejected, and this was necessary to make out usury. But the Court expressly hold, that had it been shown that the first note was tainted with usury, and therefore void in the hands of the bank, yet as the latter had given value for it, the giving a new security constituted a new transaction, and the usury of the first note did not affect the second.

The language of Senator Colden, in Powell v. Walters, (8 Cow., 681,) is cited: “ If an original note or security be usurious, a subsequent note or security taken in the place of the original by an innocent and bona fide holder thereof, ignorant of the original usury, is not usurious, unless more than at the rate of seven per cent was taken upon the new note or security.”

See further to the general rule, Smedberg v. Simpson, (2 Sand. S. C. R., 85,) and Smedberg v. Whittelsey, (2 Sand. Ch. R., 320;) Powell v. Walters, (8 Cow., 681,) is the basis of these cases.

I do not think that the fact of the new check being drawn in Houghton’s favor, makes a difference- in the application of this rule. The transaction took place entirely between the plaintiffs and the defendant. The clerk of the former took the old check to the defendant, received the one sued upon, and that for the difference, viz.: $50. The case to which the last clause of Chief Justice Broítson’s opinion in Dix v. Van Wyck refers, is the case of a substituted contract distinctly and exclusively made between the original parties, in which there is in truth nothing but an extension of time, or modification of remedies or obligations, all based upon the original illegal transaction. A party with notice stands in the same situation in this respect, as the original party. (Tuthill v. Davis, 20 John. R., 285.)

The next question is, can the plaintiff claim the position of a Iona fide holder of the first check, ignorant of the usury?

It was sworn to, that the consideration paid to Houghton by the plaintiff’s firm was a loan of money. Yet the check had been in their hands about a month. , ,

However, the verdict of the jury, on the evidence, as in the case, is conclusive upon the facts of the plaintiff’s firm being an innocent party, ignorant of the usury, and having given value. These were matters left to the jury by the Judge.

The next is the most difficult question. If the transaction between the plaintiff’s firm and Houghton, on which the former obtained the first check, was usurious, the plaintiff was not a bona fide holder, and the defense is available.

The answer seeks to set up an unlawful taking of interest between them, but it does not make out a case of usury. The amounts and times are not set forth. Eighteen and three- quarters cents a day on a loan of a hundred dollars for a year, would be gross usury, while on one thousand dollars it would not be usury at all.

But it is stated in the answer that Houghton borrowed of the firm certain sums or amounts of money, the sums or amounts whereof, or the days when the same were loaned are unknown to the defendant. This was done a few days after the date of the check. Then follows the statement of eighteen and three-quarters cents per day being taken on said sums or amounts, for each and every day they remained unpaid, and then that Houghton delivered the check with other securities, as collateral security for such advances.

The defendant offered to prove usury between the payee, Houghton, and Smalley, Weed & Bartlett. This was overruled, on the ground that usury was not set up in the answer. An application was then made to amend the answer, so as “to enable the defendant to prove usury between the payee of the check and Smalley, Weed & Bartlett, and to establish the facts as claimed by the defendant to exist.”

The answer does not aver, even in general terms, usury in this transaction between Houghton and Smalley, Weed & Bartlett; nor does it state facts which, if admitted, would make out a case of usury.

Whether eighteen and three-quarters cents a day would amount to usury or not, depends upon the sum lent. On $1,000, a reservation of eighteen and three-quarters cents per day for interest is not usury.

I do not know of a case in which amendment has been allowed at the trial to introduce the defense of usury, when the pleading makes no such defense, if its averments were fully established. Catlin v. Gunter, (1 Kern., 868,) was not such a case. It seems to me the question stands on the same ground as if there had been no defense of usury set up. (Gould v. Horner, 12 Barb., 601, and cases.)

The judgment should be affirmed.

Judgment affirmed, with costs.  