Case ID: scl_11/html/0391-01.html
Source: Caselaw Access Project
Author: {"author": "Mr. Justice Bay Nott, J., Johnson, J.,", "license": "Public Domain", "url": "https://static.case.law/"}
Date Created: 2024-08-24T03:29:51.129683

*William H. Gibbes, Master in Equity, v. Geo. Chisolm.
    A bond with a condition, “ that the lawful interest on the whole principal sum shall be paid annually, together with one-third part of the said principal sum, at the end of each year, until the whole be paid off,” is not usurious. And the obligee is entitled to interest on the aggregate amount of principal and interest of each instalment, as it becomes due.
    This was a rule on the sheriff of Charleston district, to show cause why he had not levied money and paid it into Court, conformably to the exigency of the execution issued in this case.
    This was understood to have been an amicable mode of obtaining a decision upon a point of law, relative to the payment of interest money, agreeably to the contract of the parties; and it was brought up before this Court by way of an appeal from the decision of Mr. Justice Johnson, in the Circuit Court.
    The facts of the case, as stated in the brief, appeared to be the following, to wit: That the master in equity had sold an estate to Mr. Chisolm, for the sum of $24,750, on condition that the lawful interest on the lohole principal sum should be paid annually, together with one third part of the said principal sum, at the end of each year, until the vihole was paid off. That in pursuance of these terms of the sale, the defendant, Mr. Chisolm, gave his bond, conditioned for the payment of the said principal sum ($24,750,) in three equal annual instalments, vie., one third of the principal on or before lsi November, 1812 ; another third onor before 1st November, 1813; and the remaining third part on or before ls¿ 
      November, 1814 ; with interest, on the whole principal sum, to be paid annually at the end of each year. That.these payments were not regularly made, agreeably to the terms of the condition of the bond ; whereupon the bond was put in suit, and judgment obtained for the penalty, on the 12th February, 1816. After which an execution was issued to the sheriff of Charleston district, and the amount of the condition, with simple interest thereon, was collected by *oq-i the ^'sheriff, without adding or receiving legal interest on that part of the 1 interest which became due and payable at the end of each year, successively, which it was contended, by the plaintiff, formed a new and distinct debt, at the end of each year it became due.
    
    The presiding judge, however, overruled the plaintiff’s claim, and decided that the payment of the principal sum mentioned in the condition, and the common interest thereon, (without any regard to the annual reservation of interest,) on the whole of the principal due, as the instalments became payable, and that the rule upon the sheriff, which was issued, was prematurely discharged before the whole of the interest due was satisfied.
    H. A. De ^aussuee, in support of the plaintiff’s motion, contended that the defendant was bound by his contract, and that there was no principle of law against it. That the contract was not usurious, nor could it be considered as compouud interest, in any wise contravening the law against usury. He argued that the interest of the whole, formed a new, distinct, and substautive debt, at the end of each year, as the different instalments became payable, by the terms of the original contract; and, for this purpose, he relied upon the following authorities, as in point: Le Grange v. Hamilton, 4 T. R. 613; where it was held, that an indorsement on a bond, that interest on the principal (if not paid) should be added to the principal, and the whole to bear interest at five per cent, was not deemed usurious. He next quoted Ord. on Usury, 36, where, on an action of debt on a judgment, it is laid down that interest is allowable on the aggregate sum of debt, interest, and costs, due to the time of payment. Also Greenleaf v. Kellogg, 2 Mass. Rep. 568, where a note was given, payable in eight years, with interest, payable annually, it was held that an action would lie for the interest before the principal became due, at the expiration of each year.
    Mr. Peioleau, against the motion, urged that the decision, on this occasion, *401 was a Íl,st one’ an^ *t° be supported by the Court of Appeals ; as ■* it went to guard against usury and compound interest. He admitted that it might be the law in Massachusetts, but it was not law in this State. He relied on Ossulton v. Yarmouth, 1 Salk. 449, where it is said, an agreement to make interest principal is void; although, if the money be paid, it may be turned into principal. Likewise, on 1 Binney’s Rep. 165, Sparke v. Garrigues, where it was determined, that interest was not allowed on a bond to make principal and interest carry interest. Also, Connecticut v. Jackson, 1 Johnson’s Chan. Oa. 14, where the same doctrine is laid down.
    These were the principal grounds and authorities quoted and relied on by the counsel on both sides of this question.
   Mr. Justice Bay

delivered his opinion as follows:

I have endeavored to give the authorities and grounds in this ease the best consideration my time would allow me, on the present occasion; and from the best view I have been able to take of the case, I am clearly of opinion, that there was nothing illegal in this contract, originally ; and if not illegal in its origin, then I think it is binding on the parties.

Every man is free to contract, or let it alone ; but if he thinks proper to enter into one, then the terms and conditions of it, unless immoral or illegal, become a law to him, and forms, what civilians call the law of the contract. On the present occasion, Mr. Chisolm had an undoubted right to enter into any contract he thought proper, with the master in equity, for the purchase of the estate in question ; and on the other hand, the master in equity had an equal right to prescribe such terms and conditions as he thought proper, for the payment of the consideration money ; therefore, the parties stood in the most perfect reciprocity towards each other.

The next inquiry, then, is, whether there is anything illegal or immoral in the terms agreed upon by the parties ?

*The latter is not even insinuated, and as to the former, there ,, was certainly no existing law against it. The law, to be sure, L says, that if more than seven per cent, interest is reserved, for the use of money, it is usurious, and every such contract shall be void. But the law nowhere says, that a man may not make the legal interest payable in such manner, and at such times, as he may think fit and reasonable. This may be often necessary and proper for the support of families, and the convenience of women and children, where the principal sum is not immediately wanted. And is it for this Court to set bounds and limits, or to fix other terms and conditions, to contracts than those agreed upon by the parties themselves ? It would be a most dangerous assumption of power, if they did, utterly unknown to the laws of the country.

Let us examine a little further, and see what the nature of the contract, under consideration, was.

It was to pay the principal sum, mentioned in the condition of this bond, in three years, by three equal, annual instalments. There was surely nothing illegal in that part of the agreement. ISText, an agreement to pay the whole of the interest, due on the principal sum, at the end of each year as the instalments came round, and became payable. What interest ? Not usurious interest, but the legal interest of the country. Can any man pretend to say, that it was usurious to receive the legal interest at the rate of seven per cent., on the whole of the principal sum at the end of the year, when the first instalment became due ? No one will be hardy enough to assert that it was, even if the contract had been silent on the subject. But there was an express agreement that the interest should be paid at the end of every year. It is evident, then, that the whole of the interest became due, at the end of each year, and raised in law, an undertaking to pay the amount, as substantially, as if he had given a note or a bond, for a specific sum equal to thé interest. And I think I am fully confirmed and warranted in this opinion, from the *case from 2 ^, „ Mass. Rep. 568, quoted by plaintiff’s counsel, in the argument, L where a note was given payable in eight years, with interest annually ; in which it was held, that an action lay for the interest before the principal became due, at the expiration of each year. Now, I confess, I cannot see the difference between the Massachusetts case and the one under consideration, unless it be, that the one was upon a simple note of hand, and required an action to recover the interest, whereas, in this case, the whole was covered by the penalty of the bond, and the execution warranted the levy of the interest by the sheriff, without further suit.

The case quoted from Judge Taylor’s Reports, 231, Kennon v. Dickens, is equally as strong as the Massachusetts case. That, like the present, was a contract for the purchase of land, at, and for, the price of 1000Z. Virginia currency, on a credit of fifteen years, for the principal sum; but the interest was to be paid annually, at the rate of six per cent. per annum, for which the defendant gave his bond, with security, in 2000Z. In that case it was decided by the Court, that there could be no doubt but that the instalments bore interest from the times they respectively became due; for, being the principal debts, and secured by specialty, such a consequence follows of course, upon the failure of the payment of interest according to the agreement of the parties. The Court then goes on and says, that as a general rule, interest upon interest is not allowable. But when the sum is ascertained, and the annual interest on it forms a part of the contract, and when it is so specific, that an action of debt may be maintained upon it, then it ought, in justice, to be allowed, to supply the place of prompt payment, and indemnity to the creditor for his forbearance.

It would seem that the foregoing authorities, and the reason and justice of the thing itself, would not require any further illustration of the principle, contended for by the plaintiff. But as there is some diversity of opinion on the subject, entertained by the bench, I have to observe, that in -I- my opinion the English* authorities confirm the above legal prin-- ciples of our sister States, as well as the decisions in our own State.

In the case quoted from Ord on Usury, 36, it is laid down, as decided law, that where a judgment is obtained on a debt due by record, interest is allowable on the original debt, interest and costs. In this case, it is evident, interest is allowable on interest, where such interest has become due, and has been fixed and ascertained. Eor which I add, that in 1 Black. Rep. 261, it is also laid down as a rule, that judgments at law bear interest on the accumulated sum of debt, interest and costs. So in Brown v. Barkham, 1 P. Wms. 653, Lord Parker says, a master’s report, computing interest, makes that interest principal to carry interest; for a report is as a judgment of the Court, and the party’s disobedience, in not complying with the time of payment, ought to subject him to payment of interest. So that both the Courts of law and equity concur upon the point of interest carrying interest in all cases where judgments are entered up, or where a sum is reported due by a master in chancery.

In the ease of Gladman v. Henchman, 2 Vern. 135, a mortgage was made for 450Z., principal, payable at the end of five years, and in the mean time, interest to be paid half yearly. No interest being paid, about two months before the five years were expired, the mortgagee assigned to defendant in consideration of 560Z., being then so much due for principal and interest. The question then before the Court, was whether the interest then due, should carry interest. It was objected, that “the mortgagee ought not to have assigned until the five years were quite expired; Sed non allocatur ; for the mortgage was forfeited long before, by nonpayment of the interest. And the Court decreed the 560L, to be paid, with interest from the time of assignment.” This was only carrying into effect the original agreemeut of the parties, and as the interest had not been paid up half yearly, as stipulated, the Court allowed interest upon *,,-¶ the interest, *which should have been paid as an indemnification J for the delay; and this is, in my opinion, exactly such a case as the one now under consideration.

In 1 Eq. Ca. Ab. 281, Chesterfield v. Cromwell, Lord Chancellor Wright lays it down as a rule, that though, regularly, interest shall not carry interest, yet in some cases it would be singularly unjust, not to allow it; particularly when made for the benefit of infants, who, without this agreement, might be destitute of subsistence. In this latter case the party was held to his agreement to pay the interest as stipulated; and in default, was compelled to pay interest upon the interest, as it became due.

The cases in our own Courts, where interest has been allowed upon interest on judgments, are the case of Lamkin v. Nance, determined at Columbia, in April, 1806, and that of the Assignees of Miller a bankrupt, against the Executors of John Faber, determined at Charleston, in 1801. These were both actions on judgments, and the Court held, in both cases, that the plaintiffs were entitled to interest on the accumulated sum of the original debt, interest and costs, and I may add that a great variety of other cases have been determined, upon similar principles, since.

As to the case quoted for the defendant, by his counsel, Mr. Peioheatt, from Salk. 449, where it is said, “that a proviso in a mortgage, to make interest principal, if it was behind and unpaid for six months, was vain and of no use ; and that to make such an agreement valid, it is necessary that the interest should grow due for it; and then an agreement concerning it may make it principal.” With great respect to the memory of the learned sergeant, who reports that case, I cannot bring myself to assent to the reason, and the conclusion he draws from it, especially after the numerous and pointed authorities I have already quoted, in support of the present motion, most of which are later authorities than the one reported by Sergeant Salkeld, and consequently go to overrule the decision made in the above case. But the principal objection I have to *it, ,-* .- is, that it goes to abridge and destroy one of the original rights L of mankind, in the formation of contracts, and that free agency to which every man has a natural right, in making his own agreements.

In all those cases where the policy of the law forbids certain contracts, I admit, that every man is circumscribed; but in all other cases he is unrestrained. It is not alleged in the case in Salkeld, that there was any thing illegal in it, or that it was prohibited by law; only that it was vain and of no use, because the interest had not become due ; or, in other words, that a man had not a right to contract or stipulate upon a contingency, which was to happen after the contract was made, and which was to spring out of the contract itself, as one of its certain and eventual consequences. I confess, I cannot see the force of this kind of reasoning, upon such a subject, and therefore cannot yield my assent to it. I am constrained to give the same answer to the cases quoted by the defendant’s counsel, from 1 Binney, 115, and Johnson’s Chan. Ca. 14. But even to give all those cases, their utmost latitude, as contended for, they are not analogous to the case under consideration; for they were all cases to convert interest into principal, as it became due ; whereas, in this case, it is an agreement to pay the legal interest to the plaintiff, on the principal sum, at the end of every year, for his convenience or subsistence, as he thought proper to appropriate it. There is, therefore, nothing illegal or unjust in the whole transaction, on the part of the plaintiff, and he appears to me to be as justly entitled to interest on the sum, which should have been paid him at the end of every year, for interest, as he was to any part of the principal sum mentioned in the condition of the bond, agreeably to the original intent and design of the parties when the contract was made and entered into.

I am, therefore, of opinion, that the rule should be made absolute, against the sheriff, unless he will go on and levy the interest on the different payments, which were to have been made for interest money, at *^e end of each year, agreeably to the condition of the bond. But -* if he will raise and collect the same, and pay the amount over to the plaintiff or his attorney, that then, and in that case, the rule to be forthwith discharged.

Nott, J.,

delivered his opinion as follows :

I concur in the opinion which has been delivered by my brother Bay in this case; but, as it appears susceptible of so many different views, I beg leave to express my own opinion in my own way.

If there be nothing unlawful in such a contract the Court must enforce it; and it is not unlawful unless it be usurious. If it be usurious, the whole bond is void, and the plaintiff can recover nothing. In England, with all the strictness which has prevailed in their Courts on the subject, such a bond has been held not to come within the statutes against usury. 4 Term Rep. 613. 2 H. Blackstone, 144. In Massachusetts and North Carolina, it has been decided, that such a contract is lawful, and that the payee is entitled to interest on the interest, so agreed to be paid. 2 Mass. Rep. 568. Taylor’s Rep. 231. To constitute usury, more than seven per cent., must be reserved for the annual use of money. In this case, nothing is required except simple interest on the money due, from the time it was to have been paid. A part of the money so due, to be sure, was interest, which became converted into principal; but there is nothing unlawful in that.

Let us only state the case in another form, and the whole mystery will disappear.

Suppose a person were to sell an estate worth $10,000, on a credit of ten years, and instead of reserving interest to be paid annually, on the face of the bond given for the purchase money, he should have it secured by ten several notes, payable one, two, and three years, and so on, up to ten years after date. Would not each note carry interest from the time it became due; and would it not be the same thing if it *were J expressly stipulated in the condition of a bond ? The annual interest of $10,000, is $100; and whether a person promise to pay $100, or the annual interest of $10,000, is only using different words to express the same idea; for that is certain which can be rendered certain.

It is said there is no express promise in this case, that the interest shall be converted into principal, and that interest shall be paid upon it. But when a person promises to pay a specific sum, on a given day, the law implies a promise to pay interest from that day, if the principal is not paid. And he adds nothing, by an express promise, to an obligation which the law requires him to perform. There is nothing oppressive or unjust in such a contract.

Suppose a person, for the purpose of making convenient provision for a family, should sell all his estate on a long credit, with interest payable annually for their support. Would they not be entitled, even in equity, to interest on each instalment, if the payment should be withheld ?

The case from 1 Johnson’s Chan Ca. 14, is a case of compound interest. Not so here. All that the party demands is simple interest, on the amount stipulated to be paid. The eases, read from the equity books, are either cases of compound interest, or of peculiar hardship, in which that court felt authorized to grant relief; but this court must proceed according to settled and uniform rules of law, and cannot accommodate their decisions to the circumstances of every particular case. If there be any thing in the case which will authorize the interposition of a Court of Equity, to that court let the party apply.

Colcock, J., concurred.

Johnson, J.,

dissented, as follows:

Distrustful as I am of my own judgment when it leads me to differ from the opinion of a majority of my brethren; and willing, as I always am, to yield to that high authority on doubtful questions, I cannot *persuade myself to give even a reluctant assent to the doctrine established in this case. I think it subversive of' the morals and the interests of the community, and calculated to open a high road to the most abominable usury, and to break down the guards which the law has placed over the hard-hearted usurer.

The policy and propriety of regulating interest on money by law, have been called in question, I am aware ; but I am inclined to think it may be vindicated. It is not, however, my intention, nor is it necessary, to discuss that question. It belongs to another department of the government ; and it is sufficient for my purpose, that I find on our statute book a law forbidding the reservation of more than seven per cent, per an-num, and in that proportion, for a greater or less period, for the loan of money, &c.

In considering this question, I shall, in the first instance, lay aside the consideration, that in this case there is no express stipulation, that the annual interest should become principal, and carry interest; and consider it on the broad ground, that in whatever shape it may be put, it is subversive of the laws against usury.

Upon a rough calculation, which I have made, a sum put to interest on the principle that the annual interest shall carry interest, will, in the short period of twenty years, produce an average amount, or annual interest, of about twenty-six per cent But, if the contract should provide for the quarterly or monthly payments of the interest, an inconsiderable sum would, in a- short time, beggar arithmetical calculation. It were better to repeal the laws against usury, and to suffer the unfortunate borrower to rush into ruin at once, than to steal upon him by those almost imperceptible means ; for although it may be said that he enters into it ■with his eyes open, yet we know that those who are pinioned with the hard hand of necessity, seldom make the necessary calculations as to consequences. It has been said, that our statute provides* for the annual interest only, and that any contract making the accruing •- interest payable at shorter periods, would have the effect of giving a greater annual interest, and therefore be void. But from the best consideration I am enabled to give it, I am at a loss to see the distinction. It is true, that a year is given to fix the rate and proportion of interest; but it is equally true, that the statute itself fixes that rate as the standard by which it is to be calculated, for a shorter or longer period; and if the doctrine contended for on the part of the motion, be established, I see no reason why the lender may not, by his contract, make the interest payable, and become principal de die in diem ; and where this would end, I leave to those whose interest may require it, to make the calculation. With regard to the particular case under consideration, I can see no difference between this contract and every other out of which interest would arise, except that it gave the plaintiff a right to sue on the non payment of the interest.

In all cases, where interest is reserved, and the payment of the principal and interest is postponed until a given day, the interest as well as the principal will then carry interest. So, that although the sum borrowed carry only legal interest, up to the time to which the payment is postponed, yet, after that period, a greater interest is allowed. It is said, however, that where the contract is to pay the interest at stated periods, it is the right of the lender to demand it, and the duty of the borrower to pay it; and having it in his possession, he may again put it to interest. This is true. But I think the statute gives the answer to this argument. The lender is not permitted to demand more than seven per cent, per annum, and at that rate, for the principal sum borrowed. In questions of construction, some indulgence is due to th'e habits of the world, and to the indolence of mankind ; for they are so deeply rooted, that we had as well attempt to reverse the laws of nature, as to alter them.

.,.-01 It has been further insisted, that the question is resolved into •J the inquiry, whether the contract is, or is not, void, as being usurious ? that, if it is not, we are bound to carry it into effect.' That question might arise where the contract provides that the interest should become principal, and carry interest; but in this case it is not doubted that the contract itself is legal; but I think the doctrine contended for would give to the contract an usurious, and consequently an illegal effect. When the contract itself provides that the interest shall carry interest, I am not prepared to say that the whole contract is void. On the contrary, I am inclined to think that it is good, as to the principal sum, and the legal interest, but void as to the provision, on account of its tendency to usury, and on account of its being predicated on a consideration which had no existence at the time; and which I think I have shown never could have had an existence. To which I will only add, that if it had for its basis, a view to an increased rate of interest, it is usury, and if it had not, there was no consideration.

On the ground of authority, I might, I think, content myself with the able and masterly review which Chancellor Kent has taken of them, in the case of the State of Connecticut v. Jackson, 1 Johnson’s Chan. Rep. 18, in which he comes to the conclusion, that interest upon interest ought not to be allowed, except in a few cases, which furnish exceptions to the general rule ; within which it is not pretended, that this case falls. His reasoning, as well as his conclusion, is so satisfactory to my mind, that I cannot clo better than adopt them as my own. I cannot, however, forbear to add the authority of Lord Chancellor Cowper, in the case of Lord Ossulston v. Lord Yarmouth, 1 Salk. 449. He says, an agreement at the time of the mortgage will not be sufficient to make future interest principal; but to make interest principal it must become due, and then an agreement concerning it may make it principal.- Vide, also, Ex’rs. Lewis v. Ex’rs. Bacon, 3 Hen. & Mun. 89, 116. Sparks v. Garrigues, 1 Bin. 165. It is said, however high this authority may be, it is the *deeision of a Court of Chancery, in which the rule may r be different from that which governs a court of law. It is true, 01 that, in the case referred to, Chancellor Kent has left that question unsettled ; and he says, that perhaps a court of law would not carry such a contract into effect. But on this subject my mind is equally satisfied. The jurisdiction of the Court of Chancery differs little from that of the court of law, except in the mode of obtaining evidence and administering relief. It is equally bound by the rules of law in the construction of contracts, and has no more power to carry into effect a contract, illegal in itself, and void of consideration, than this court. The case of Le Grange v. Hamilton, 4 D. and E. 613, cited on the part of the motion, establishes a position that has not been denied. It is, that where payments have been made on a contract carrying interest, the interest shall be first deducted out of the payment, and the balance passed to the payment of the principal sum ; and that a contract providing for it is not usurious. It is not usurious, because it is the legal consequence of a contract to pay interest on money ; but I'would say, that it was an useless and unmeaning surplusage. All the direct authorities which have been adduced on the part of the motion, are Greenleaf v. Kellogg, 2 Mass. Rep. 568, and Taylor, N. C. Reports, 231. To these are opposed the cases above cited, and the current of English decisions. Perhaps, too, these may have arisen out of the peculiar wording of their statutes against usury ; or, perhaps, they may be found in the rage which has run the rounds of the United States, within the last few years, to loose entirely the shackles, which the laws against usury impose. As highly, therefore, as I respect these authorities, when thus supported, I cannot surrender my own opinion. This opinion has grown up with me from my infancy, and is taught as a lesson in schools; and I venture to say, that there is not a school boy, or a counting house clerk, who has learned to calculate interest, that will not tell you that compound interest is not lawful; and *this is surely one species, at least, of compound interest. Upon inquiry, also, among merchants, and money brokers, it will be L found, that such a principle of calculating interest, has never been recognized as lawful.

H. A. He Saussure, for the motion. Prioleau, contra.

Gantt, J., concurred with Johnson, J.

Rule made absolute, 
      
       2 Brev. 99.
     
      
       MSS.
     
      
       See 1 vol. 244, note.
     
      
      ) See Howard v. Harris, 1 Vern. 194. R.
      See case in Eq., Eaves, Kennedy and others, in Errors, 10 Rich. Eq. ; O’Neall v. Bookman, 9 Rich. L. 80 ; Id. v. Sims, 1 Strob. 115; Be Bruhl v. Neaffer, 1 Strob. 426; Singleton v. Lewis, 2 Hill, 408.