EDGELL v. HAM et al., 93 F. 759

SHELBY, Circuit Judge, after stating the facts, delivered’the opinion, of the court. Both parties to the suit deraign title from J. T. Jefferson. The title of the plaintiff in error is deraigned from a deed of trust executed prior to the dates of the deeds of trust from which the defendants in error derive their title. The title of the former therefore must prevail, unless it is shown to be defective and inoperative.

The argument of the case was devoted in part to the question as to what law, on the subject of usury, governed the contracts between Jefferson, the mortgagor and maker of the notes, and the trustee and the payee of the notes; that is, by what law were the notes and mortgage to be construed? The Mississippi law authorized the charge of interest at the rate of 10. per cent, per annum; the Tennessee law, only 6 per cent.; the New York statutes, only 6 per cent.; and the statutes of the latter state made void, for usury, any securities bearing a higher rate of interest.

The view we take of the case presented by the record makes it unnecessary, in our opinion, to decide that question. If it be conceded that the deed of trust executed by Jefferson to Wheeler in 1886 was subject to the defense of usury, either under the laws of 'Hew York or Tennessee, does it follow that the infirmity in the mortgage will be fatal to the deed made on foreclosure? An injunction suit had been brought by Jefferson, or in Jefferson’s name, against F. W. Dunton and B. J. Martin, the substituted trustee, to avoid the mortgage, for usury.

The chancery court of Coahoma county, Miss., in which the bill was filed, had decided that $4,909.06 was due on the mortgage, after reducing the interest to conform to the laws of Tennessee. The court dissolved the injunction, so as to permit a foreclosure for the sum found to be due. An appeal was taken to the supreme court of Mississippi, which affirmed the decree of the chancery court. The trustee then sold the real estate, in conformity to the power contained in the deed of trust. His action had the judicial sanction of the court of last resort in the state where the land to be sold was situated.

At the sale the plaintiff in error, George S. Edgell, became the purchaser, at $5.,000, paid the purchase money, and received a conveyance from the trustee. The mortgage has performed its function. By the sale the sum adjudged due on the notes is paid. The original contract has been executed. This is not a suit to collect the mortgage or notes. Both are paid. This case is ejectment, and involves only the right of possession, which is here dependent on the legal title to the land. A party who was a stranger to the original transaction has intervened.

The purchaser at the. sale, who has paid the purchase money, thereby discharging the mortgage, is before the court, and his rights are to be considered. We are coni rented with this question: After the adjudication in the Mississippi courts, under the circumstances shown 'in the record, and the foreclosure of the mortgage, the purchase of the property, and payment of the purchase money, and the conveyance by the trustee,, can the question of usury in the mortgage be raised in the action of ejectment to defeat the legal title of the purchaser?

Foreclosure under the power of sale given in a mortgage or deed of trust cuts oil the equity of redemption as fully as foreclosure by decree of court. Mortgage Co. v. Sewell, 92 Ala. 168, 9 South. 143. The case of Jackson v. Henry, 10 Johns. 185, was an action of ejectment. The defendant claimed as purchaser at a mortgage sale made under a power given in the mortgage to the mortgagee. The plaintiff- proved that the mortgage was given for a loan on which usurious interest had been reserved. After citing several English cases, Kent, C.

J., who delivered the opinion of the court, said: “The principles oí public policy, and the security of titles, are deeply concerned in tlie projection of such a purchaser. If the purchase was to be defeated by Hie usury in the original contract, it would be difficult to set bounds to the mischief of the precedent, or to say in what sequel of transactions, or through what course of successive alienations, and for wlial, time short of that in the statute of limitations, the antecedent defect was to be decreed cured or overlooked, so as to give quiet to the title of the bona fide purchaser.

The inconvenience to title would be alarming and enormous. The law has always had a regard to derivative title, when fairly procured; and though it may be true, as an abstract principle, that a derivative title cannot be better than that from which it was derived, yet there are many necessary exceptions to the operation of this principle.” When this decision was rendered the Kew York statute against usury declared the usurious security “utterly void,” but the court refused to apply the statute to defeat the purchaser at the mortgage sale, who was sued in ejectment. In Mumford v. Trust Co., 4 N.

Y. 463, an effort was made, in chancery, to invalidate a mortgage, for usury, which had been foreclosed. The court said: “The mortgage is satisfied. It has performed its office. There is the end of it. New rights have been acquired by these proceedings, and a new relation created between these parties, which neither is at liberty to depart from without the consent of the other.” The court held that the parties, after foreclosure, were estopped from setting up usury. In Elliott v. Wood, 53 Barb. 306, Jackson v.

Henry, supra, is quoted approvingly, and the principle applied to mortgaged “property situated out of the state” of Kew York. The court held that: “If the mortgagor allows the property to be sold under a foreclosure, without taking the necessary steps to avoid the mortgage, an innocent purchaser cannot be affected by ihe alleged usury.” In Tyler v.

Insurance Co., 108 Ill. 58, the court said: “If the maker of a deed of trust, and his subsequent incumbrancer, permit a sale of the premises to be made by the trustee for the principal, and usury included. they will be estopped from afterwards insisting on usury to defeat the sale. By permitting the sale they will be regarded as assenting to it, and the payment of the usury.” In the case of De Wolf v. Johnson, 10 Wheat. 368, the question of usury was considered. “It was not contended that in the immediate contract on which the bill was founded there was any usurious taint belonging to that transaction itself.

The ground taken was usury in a transaction, anterior by two years, out of which the mortgage in .question drew its origin, and from which the usurious taint was supposed to be transplanted. * * *” In considering this question, and in holding that usury could not be set up, the court said: “Again, it is perfectly established that the plea of usury, at least so far as landed security is concerned, is personal and peculiar; and however a third person, having interest in land, may be affected incidentally by a usurious contract, he cannot take advantage of the usury.” The following cases, in principle, sustain the same view, — that the foreclosure cuts off the consideration of the question of usury: Perkins v.

Conant, 29 Ill. 184; Carter v. Moses, 39 Ill. 539; Bell v. Fergus (Ark.) 18 S. W. 931. Mr. Jones, in his work on Mortgages, quotes Chief Justice Kent’s opinion in Jackson v. Henry, supra, approvingly. “Under usury laws which make void securities affected with usury, the question arises, what limit is there to the effect of the statute?

Does a foreclosure of the mortgage, and a sale of the mortgaged property to a third person, terminate the right of the mortgagor to avail himself of the usury, or do the consequences still attend the property, so that the purchaser’s title may be rendered void?” Having asked these questions, the learned author adopts Lord Kenyon’s and Chief Justice Kent’s answers to them, — that the infirmity of usury cannot be raised against the purchaser after foreclosure. 1 Jones, Mortg. (5th Ed.) § 646, citing Cuthbert v. Haley, 8 Term R. 390; Jackson v. Henry, 10 Johns. 185.

If a mortgage may be attacked for usury after foreclosure, when would the right to make such attack be barred? It would produce too •much uncertainty of title to say that the attack could be made at any time within the statute of limitations applicable to real actions. If the attack be permitted at all after foreclosure, it would logically have no other limit. Such a rule would encourage unjust litigation, promote perjury, and lessen the salable value of real estate where a mortgage foreclosure was noted on its abstract of title.

To avoid these consequences, it must be held, on principle and authority, that when a mortgage on real estate, not usurious on its face by the lex loci rei sitie, is foreclosed by decree of court or by a power of sale, the conveyance to the purchaser cannot be subject to attack for usury in the mortgage. It is immaterial whether the deed of trust, and the notes secured by it, are to be treated as Mississippi, New York, or Tennessee contracts. In any event, on the record before us, usury, if it existed in the original transaction, would not affect the title of the plaintiff in error.

The circuit court erred in instructing the jury to find for the defendants. On the case made in the record, the* peremptory instruction might well have been given in favor of the plaintiff. The judgment is reversed, and the cause remanded for a new trial.