Case ID: ohio-st_15/html/0370-01.html
Source: Caselaw Access Project
Author: {"author": "White, .T.", "license": "Public Domain", "url": "https://static.case.law/"}
Date Created: 2024-08-24T03:29:51.129683

Joseph Longworth and Larz Anderson, Executors of Nicholas Longworth, deceased v. William Askren, James B. Ricords, et al.
    /Aunóte payable in a series of installments, provided that a less sum would be •accepted in full payment, if each installment were paid punctually. Held : That the larger sum was in the nature of a pena-lty, and that the payment of the less discharged the obligation, though defaults had occurred in paying the installments.
    Error to the superior court of Cincinnati.
    'This was an action originally brought in the superior court of-Cincinnati for a balance claimed to be due upon a certain promissory note executed by James B. Ricords to the order of Nicholas Longworth, being for the purchase money of a certain lot of ground in the city of Cincinnati, sold and conveyed by Longworth to Ricords; and to' foreclose a mortgage given upon the same premises to secure the payment of the ¡note. The note was-as follows:
    
      “Cincinnati, July 24,1840.
    “Eor value received, I promise to pay N. Longworth, or order, one thousand dollars, with interest yearly till paid, and payable as follows: in two, three, four, five, six, seven, eight, nine, and ten years, equal installments, with interest yearly, as aforesaid: being the contract price of a lot. But if each and every payment is made punctually as due, or before due, or within ten days after each is due, as an inducement to punctuality, two hundred dollars of the amount will be released, and eight hundred dollars and its yearly interest accepted in full payment, but not otherwise.
    “ James B. Ricords.”
    The defeasance in the mortgage was conditioned also upon the payment of certain other notes therein designated, but nothing was alleged in the petition to be then unpaid, except the balance due upon the foregoing note, and which was claimed to be three hundred and ninety dollars, with interest from November 24, 1851.
    On September 8, 1841, Ricords sold and conveyed the lot, with the mortgage incumbrance upon it, to William Askren, who assumed the payment of the note given to Mr. Longworth for the purchase money, at which time nothing had been paid on account either of principal or interest.
    On January 24,1842, Askren commenced making payments on account of the note, and at that date, made a payment, and received from plaintiffs’ testator a receipt, of which the following is a copy:
    “Rec’d forty-nine dollars forty-four cents of Wm. Askren, the year’s interest due on Jas. B. Ricords’ mortgage the 24th July last, and int. on same to this date as follows:
    “Year’s interest,................................... $48 00
    “In. on same,....................................... 144
    $49 44
    “N. Longworth.”
    After this date, Askren made sundry payments; but by none of them did he bring himself within the terms of the contract as to time and amount. Before the ten years from the date of the note had expired, however, he'had paid in the aggregate the full amount of eight hundred dollars with annual interest. He accordingly pleaded payment, and claimed that by the terms of the note, or contract, any excess over eight hundred dollars and interest, was in the nature of a penalty, and prayed the court so to decree, and that the note and mortgage might be surrendered up to him and canceled.
    Upon the hearing at special term, the court rendered a decree in favor of the defendant, finding “ that the equity of the case is with the defendants; that the note described in the plaintiffs petition secured by the mortgage therein described, has been paid in full by the defendant, William Askren, on the 12th day of October, A. D., 1849, and that said mortgage ought to be canceled by the plaintiff.”
    A motion for a new trial was thereupon made by the plaintiff, and afterward reserved for the decision of all the judges in general term, and the cause coming on upon the reservation, the motion was overruled and the judgment and finding at special term affirmed, and thereupon a final judgment and entry was made in general term, to reverse which this petition in error is prosecuted.
    
      Worthington &; Matthews, for plaintiffs in error:
    The note is a conditional contract, and as such clearly contradistinguished from a penal contract. As a general rule, conditional contracts secure benefits and advantages to the obligor — penal contracts enure alone to the benefit of the obligee or creditor, and are in their nature oppressive, and for that reason ter be relieved against. A casual examination of the note will leave the impression that it is entirely destitute of anything in the nature of a penalty, and a careful examination will confirm it. The contract between the parties is absolute — the consideration clearly and unmistakably expressed — the times and terms of payment, or performance, plainly fixed; and even the origin of the note set forth. There is no contemplation of a breach — no provision made for or against one, nothing to show that the parties apprehended a breach or any damage to ensue therefrom — and, consequently, not the slightest reason to suppose an intention upon their part to provide therefor, by fixing a sum beyond the real consideration as stipulated damages, or even as security against a breach. If there be anything in the contract impeaching its entire validity in law or equity, it must be found to be a penalty. The absolute contract is an ordinary promissory note, the most usual, common, and familiar contract for the payment of money, and nothing else. It discloses, which is the only characteristic it has not common to ordinary notes, the consideration from which it sprung. It was given to secure the payment of the purchase money of a lot of ground — the value of the lot being determined between the parties to be one thousand dollars.
    Had that value been eight hundred dollars, and such the real consideration of the note, with a stipulation that in case of failure of promptness or punctuality in making any of the several payments provided for, then that the payer should pay at the rate of one thousand dollars with interest yearly, there would have been some foundation for the claim of the defendant, and he might have evoked the assistance of equity with some little grace, in an attempt to shirk the obligation of a solemn contract, and one, too, in which all the benefits and advantages were in his favor.
    Had such been the character and terms of the note, we should have had the case of “ a sum stipulated to be paid on the non-payment of a less sum made payable by the same instrument,” and we should have had the case which the defendant imagines, or at least asserts, this to be. Butin reality its fair construction and true effect is exactly the reverse.
    There being nothing, then, in the note itself indicating the slightest presumption of a penal stipulation, we are pointed to an addendum thereto, enuring clearly to the advantage of the maker, and effective solely and entirely at his option, and triumphantly told that therein lies hidden the matter which so much shocks the conscience and oppresses the defendant. This addendum to the note proper, is simply a contingent qualification of the terms of the. note itself, providing for an abatement from the original consideration — which abatement, and consequently benefit, it was entirely optional with the payer to secure to himself or not. It bound the payee, in a specified contingency, to release two hundred dollars and its yearly interest, of the original consideration, which is á very different thing from requiring the payer to pay two hundred dollars more than the’original consideration.
    . We utterly fail to discover anything in the addendum in the nature of a penalty, or bearing the slightest resemblance to it, but understand it as a condition annexed to the original contract which if carried into effect would have been mutually beneficial to the parties — a benefit to the payee by receiving his money without delay, or possible expense of collection as it became due, and a benefit to the payer by discharging his debt by the payment of a lesser sum. If this be so, it is impossible to construe it into a penalty. Most certainly it is not increasing the amount originally stipulated to be paid, upon the failure to pay any of the several installments, and if it be not this, we assert that it is not a penalty.
    Adams’ Eq. 108-9; Jordan v. Lewis, 2 Stewart, 426; Strode v. Parker, 2 Vernon, 316 (case 303); Nichols v. Maynard, 3 Atk. 519; Leigh v. Barry, 3 Atk. 585; Sewell v. Musson, 1 Vernon, 210 (case 289); Halifax v. Higgins, 2 Vernon, 134 (case 132); Bonafus v. Rybol, 3 Burr, 1370; Gowlett, Ex’r v. Hanforth, 2 Wm. Bla. 958; Mayo v. Judah, 5 Mumford, 493, 505; Rose v. Rose, 1 Ambler, 332; McKenzie v. McKenzie, 16 Ves. 373; Van Ness v. Hyatt, 13 Pet. 300-1.
    
      Stephen Clark, for defendants m error:
    Chancery will relieve from penalties and forfeitures. Peachy v. The Duke of Somerset, 2 White & Tudor’s Lead. Cas. in Eq. 450.
    The thousand dollars mentioned in the note must be regarded as a penalty. Brockway v. Clark, 6 Ohio Rep. 45, Brown v. Barkhum, 1 P. Wms. 652; Sexton v. Slade, 7 Ves. 273.
   White, .T.

This case presents the single legal question: whether, upon the true construction of the mortgage note sued on, the one thousand dollars, therein mentioned, is to be regarded as a penalty. If that be its character, the judgment of the superior court should be affirmed; otherwise, it should be reversed.

This is not the case of an agreement for the composition of a subsisting, independent indebtedness. The instrument in question creates the only debt on which the plaintiff relies for a recovery. Nor can the claim, made by plaintiff’s counsel be supported, that the stipulation, for the discharge of the obligation by the punctual payment of eight hundred dollars in installments, is a privilege given to the payer, and inserted for his exclusive benefit. This claim is based on the assumption that the thousand dollars was the sole consideration for the lot, and, consequently, is the amount of the actual debt. But it is .as fair to presume, that the omission of the stipulation in regard to the eight hundred dollars would have defeated the sale, as that the insertion of the thousand dollars secured it.

The transaction was the sale of the lot; and the instrument in question contains the terms upon which it was made. All the stipulations on the part of Ricords, are supported by the same identical consideration. It is not to be presumed that the sale would have been concluded, had any of the terms actually agreed to, been omitted; and, as the terms of the sale were satisfactory to the parties, the presumption is that they were acquiesced in, not as a special favor to either, but for the mutual benefit of both.

Nor, in our view, does the order in which the sums are stated change their character, or the legal effect of the instrument; for, whether the amount to be paid is to be reduced upon compliance with the terms of payment, or to be increased on a default, is only a different mode of expressing the same thing.

All that the plaintiff, at the time of making the contract, had a right to expect, was the payment of eight hundred dollars with the interest, in the installments and at the times stipulated. These payments Ricords had promised to make punctually. A default occurred; and, in such a contract, ip our opinion, interest is to be regarded as a compensation for the injury caused by the delay. All beyond must be regarded either as penalty or liquidated damages; but under neither form, can the plaintiff be allowed to recover more than what the law deems adequate compensation for the breach.

It is to be noted, that the only evidence of the terms of sale, is what appears from the instrument itself. There is nothing to show that the contract for the purchase of the lot was originally made, in fact, at a thousand dollars ; and that the remission of the contract price, to eight hundred dollars,was the gratuitous act of the vendor. If the abatement stood on this footing, it would devolve on the party seeking its benefit, to show that he had complied with the conditions upon which it was offered.

The payment of the. first annual installment of interest, and the receipt given therefor, by the plaintiffs’ testator, show that, at that time, the parties gave the foregoing construction to the note, and regarded the eight hundred dollars as the principal debt. In this receipt, the year’s interest, due July 24,4841, is stated to be $48.00 — being the interest on $800.00, for one year, at six per cent.

The numerous installments provided for, differed materially in importance. The first was a year’s interest on the principal ; the next was a like sum with one ninth of the principal; and, from that time forward, the payments would diminish — the last one consisting of one ninth of the principal, and the interest thereon for the last preceding year. Upon the terms of the instrument, the consequence of a default in either, would be to increase the liability of the debtor, in a sum equal to two hundred dollars and the interest thereon, for the ten years the note was to run. This would be so manifestly unreasonable, that we can regard the thousand dollars only in the light of a penalty, inserted and meant to be held in terrorem, for the purpose of stimulating the debtor to promptitude in payment.

The judgment will be affirmed.

Brinkerhoff, C J., and Scott, Day and Welch, JJ., concurred.