
    London Realty Company, Respondent, v. Elizabeth Riordan, Appellant.
    First Department,
    February 2, 1912.
    Debtor and creditor—loan, on chattel mortgage — amount less than $200—device to evade article 10 of Banking Law—usury — payment of lender’s attorney—pleading.
    The purpose of article 10 of the Banking Law, as amended, is to protect poor persons who are compelled to borrow small sums of money on chattel mortgage from exorbitant demands, and it should be liberally construed.
    Where the officer of a corporation, not incorporated under article 10 of the Banking Law, to which defendant had applied for a loan of sixty-five dollars, to be secured by a chattel mortgage oh her furniture, told her that she would have to have a certain law firm make a search and draw the necessary papers, which would cost ten dollars, to which defendant acceded, and it appears that such firm were the regular attorneys for the corporation loaning the money; that this was part of their regular custom, and that they were.acting solely in the interests of the corporation in examining the security and in drawing the papers, and the result is that the borrower was compelled to .pay the lender’s lawyer in order to secure the loan, so that she paid more than the legal rate of . interest thereon, such payment to the attorneys was a “ device or pretense of charging for * * * services ” within the meaning of section 814 of the Banking Law, and rendered the loan and the security given therefor void.
    The payment to the attorneys was .not an independent transaction and infected the loan. '
    WTiere in an action brought in the Municipal Court of. New York city to foreclose the chattel mortgage given to secure the loan the pleadings were oral, defendant sufficiently pleaded the statute (Banking Law, art. 10), which confined the lender to the legal rate of interest by alleging usury.
    
      Appeal by the defendant, Elizabeth Riordan, from an order .of the Appellate Term of the Supreme Court, entered in the office of the clerk of the county of New York on the 30th day of June, 1911, affirming a judgment of the Municipal Court of the City of New York in favor of the plaintiff, rendered on the 17th day of February, 1911.
    
      Huber B. Lewis of counsel [Leonard McGee, attorney], for the appellant.
    
      Edward W. S. Johnston of counsel [Morrison & Schiff, attorneys], for the respondent.
   Clarke, J.:

This is an action to foreclose a chattel mortgage on household furniture and effects given to secure a loan of sixty-five dollars. The case was brought in the Ninth District Municipal Court, borough of Manhattan, on oral pleadings, the defendant pléading general denial, usury and payment. Judgment was rendered in favor of the plaintiff for twenty-six dollars and seventy-eight cents, and a “ Special form judgment ” was entered which awarded possession of the property to the plaintiff. On appeal the Appellate Term affirmed this judgment.

This was the second transaction between the parties, defendant having formerly borrowed upon the same security fifty dollars which was repaid." The chattel mortgage was expressed to be for sixty-five dollars, which was to be repaid in sixteen weekly payments of four dollars and thirteen cents a week, the first being due on May 5, 1910, and the last on August 18, 1910. In addition to the mortgage she signed the application for the loan. ' The defendant claimed that this application was the one she put in on the former occasion when she borrowed fifty dollars, and that the sum of sixty-five dollars which now appears in it was written in without her knowledge or consent. She also at plaintiff’s request signed the following paper;

“ Law Office of Morrison & Schiff.
“New York, April 28th, 1910.
“I hereby retain Messrs. Morrison & Schiff to search the records for encumbrances, and liens against my property, real or personal, situated at 132.9' Webster Ave. in the Borough of Manhattan, City of Hew York, and for judgments against the owners, thereof, to draw the necessary papers in connection with the- proposed loan to be made to» me by the London Eealty Company, and also canse to» be made an inventory and appraisal of my said property; and for such legal services and disburse- . ments I hereby agree to pay to said Morrison & Schiff the sum of Ten 00/100 dollars at' the time of the closing of the loan between the undersigned and the London Eealty Company.”.

Mr. Blauner, the secretary and manager of the plaintiff, testified: “She asked for a loan of $65. I asked her if she had the same chattels in 1907. She said she has and some more. I asked her what time we can send down the appraiser.. She» says any time.. I asked her further if she had. any other loan since the time- she hacL from us. She said- no-, I told» her we; would, have to give-this over to our attorney to; make a. search to find out if there is no mortgage against the chattels- át that time. She- said, of course, there is not, but you. can give it over to your- attorney.. I told her, it. will cost you $1® to- have that search made- and draw up the papers; that is what the lawyers charged. She said she would be perfectly willing to. pay that.” He testified that Morrison &. Schiff were their1 regular attorneys and acted for- them in all these transactions, and. that the appraiser is paid by Morrison & Schiff. He said that he carried a check for sixty-five dollars to» the- office of Morrison & Schiff and handed it to Max G-reenberger., a clerk in that office.

The defendant testified that she asked for a loan of fifty dollars,. and Mr; Blauner- said: “ Charges on $5® would be $15, but being, did- not have to- make a new search of the property, wouldn’t- be anything;, being all .paid up, he said, wouldn’t charge- anything;; wouldn’t require any search because the furniture- was just the same, that is- the reason.; going to send up the: youn-g. man to. see what I was telling was true.; ”• that Mr. Blauner gave her a card and told her to present it at Morrison & Schiffi’s office; that they would give her the money; that when she went down to the office of Morrison & Schiff Mr. Blauner was not there-; that she indorsed the check and the young man handed her fifty dollars in cash; that when she first went to ask for the fifty dollars Blauner said, it wouldn’t cost anything -because he wouldn’t have to make no search; ” that she would just have to pay the interest.

Blauner was recalled and testified that he saw Mrs. Eiordan indorse this check for sixty-five dollars. “ Q. That check was cashed right there at Morrison & Schiff’s office ? A. The young man asked her for the payment of their services $10. She said she has not got any cash and he offered to cash the check, and so she should pay him the $10. * * * Q. She got $55 and paid $10 for services rendered in this case ? A. Which she agreed to pay. Q. That is the custom of your business, charge $10 for the services in examining the title to this furniture before you make the loan ? A. Yes, sir; whatever the lawyers charge. * * * Q. The $10 went to the attorneys ? A. Of course. Q. You received no part of it? A. We received not one dollar, not one cent; just said this is what the lawyer charges.”

At the close of the case defendant’s counsel moved for judgment dismissing the complaint on the merits “ on the-ground it appears that this is a loan transaction; that $50, or at the most $55, was actually given to the borrower; that a note for $65, or mortgage for $65, was given; that at least $10, and possibly $15, was paid either as usury or as services for the attorney for the realty company, and on those grounds the note, the mortgage and all the securities are void and forfeited, and the debt is discharged; on that ground I move that the complaint be dismissed on the merits.”

The Banking Law (Oonsol. Laws, chap. 2 [Laws of 1909, chap. 10], as amd. by Laws of 1910, chap. 127), which took effect seven days before this transaction (section 314 was not amended), provides (Art. 10) for the incorporation of companies to loan moneys not exceeding $200 to any one person, upon pledge or mortgage of personal property. Section 312 thereof provides that It shall be entitled to charge and receive upon each loan made by it without the actual delivery to it of the property mortgaged, interest at a rate not exceeding two per centum per month, which interest, however, shall not be charged or collected in advance. It may also charge for the first examination of the property mortgaged, and for drawing and filing the necessary papers, and for all other expenses, a sum not exceeding two dollars if a loan of more than fifty dollars shall actually be made, and a sum not exceeding one dollar if a loan of fifty dollars, or less, shall actually be made; but no further charge for examination of the property, or for drawing or filing papers, or for any services or expenses, or upon any pretext whatsoever, except upon the foreclosure of the security, beyond the said charge for interest or discount, shall be made upon any renewal or extension of the loan, or any transfer or change of the loan, within one year from the date of the original loan, nor oftener than once in each period of twelve months thereafter, * * * nor shall any charge be made by any such corporation, its attorneys or agents in connection with the. collection of debts due it, except upon the foreclosure of the security or upon the entry of judgment. No loan greater • than two hundred dollars shall be made under the authority of this section, * * *. No such corporation shall charge any borrower any interest or commission in excess of the rate of six per-centum per annum, except as hereinbefore authorized. ” Of course those provisions did not directly apply because it . was not shown that the plaintiff was incorporated under said law or that it received or asked two per cent a month for this loan. But section 314 provides as follows: “Prohibitions. * * * No person or corporation, other than corporations organized pursuant to this article, shall, directly or indirectly, charge or receive any interest, discount or consideration greater than the legal rate of interest upon the loan, use or forbearance of money, goods or things in action less than two hundred dollars in amount or value, or upon the loan, use or sale of personal credit in any wise where there is taken for such loan, use or sale of personal credit any security upon any household furniture, apparatus or appliances, sewing machine, plate or silver-ware in actual use, tools or implements of trade, wearing apparel or jewelry. • The foregoing prohibition shall apply to any- person who, as security for any such loan, úse or forbearance of money * * '* makes a pretended purchase of property from any person and permits the owner or pledgor to retain the possession thereof, or who, by any device or pretense of charging for his services or otherwise, seeks to obtain a larger compensation in any case herein-before provided for. Any person, and the several officers of any corporation, who shall violate the foregoing prohibition,, shall be guilty of a misdemeanor, and upon proof of such fact the debt shall be discharged and the security shall be void.”

Appellant claims that the device used is an obvious attempt to evade the provisions of the statute. The statute says “no person or corporation ” “ shall, directly or indirectly, charge or receive” “in any wise” or “by any device or pretense of charging for his services or otherwise.” The respondent urges that the evidence is positive and without contradiction that Morrison & Schiff received the $10 and that the plaintiff received no part thereof. But, says the appellant, Morrison & Schiff were the regular attorneys of the plaintiff; this was part of their regular custom; they were acting solely for the interests of the plaintiff in examining the security and in drawing the papers for its benefit; that the result is that the defendant was compelled to pay the plaintiff’s lawyers in order to secure ■ the loan asked for which causes her, upon security of household effects for a loan less than $200, to pay more than the legal rate of interest. It is clear the security came within the language of the statute. Th'e mortgage and its schedule show the articles were household furniture, and the evidence shows they were at the home of the defendant.

I think it plain this was a trick, device and pretense of “chargingfor * •* * services,• or otherwise” to evade the statute, and that the payment to the lawyers was not an independent transaction and did infect the loan. It is claimed that the statute was not pleaded. The case was in the Municipal Court where pleadings are oral and informal. The answer pleaded usury and this statute confines the loaner to the legal rate of interest. The motion to dismiss, while not mentioning the statute, evidently calls attention to it in the language quoted and in the body of the case plaintiff’s witness was asked whether they were incorporated -under the act, and had given the bond.

The evident purpose of this legislation was to protect the poor and needy who were compelled by their necessities to borrow small amounts upon the specified kind of security from exorbitant demands. The statute being remedial should he liberally interpreted to accomplish the good intended. Here . the defendant received ¡at most fifty-five .dollars — has paid to the lender forty-one dollars and thirty-cents and to its attorneys ten dollars — and the lender has a judgment in replevin for all the defendant’s household goods upon .security of which the loan was made. We think the transaction comes within the plain reading of the statute ;as well as its intent and that the device or pretense of charging for services or -otherwise cannot succeed.

The determination of the Appellate Term and the judgment . of the Municipal Court are reversed .and judgment directed dismissing the complaint on the merits, with costs in all courts to appellant.

Ingraham, P. J., McLaughlin, Laughltn and Scott, JJ., concurred.

Determination and judgment reversed and judgment ordered dismissing complaint on the merits, with costs in all courts to appellant.  