Title: Oil Investment, Inc. v. Dallea Petroleum Corp.
Citation: 152 N.W.2d 415
Docket Number: 8367
State: north-dakota
Issuer: north-dakota Supreme Court
Date: May 26, 1967

152 N.W.2d 415 (1967) OIL INVESTMENT, INC., a North Dakota corporation, Plaintiff and Respondent, v. DALLEA PETROLEUM CORPORATION, a North Dakota corporation, Dois D. Dallas, and Currie Conrad, Defendants, Third-Party Plaintiffs, and Appellants, v. Leonell W. FRAASE, Arnold Blikre, and A. H. Ness, Third-Party Defendants and Respondents. Civ. No. 8367. Supreme Court of North Dakota. May 26, 1967. *416 Rolfstad, Winkjer, Suess &amp; Herreid, Williston, for plaintiff and respondent, Oil Investment, Inc. Bjella, Jestrab, Neff &amp; Pippin, Williston, for defendant, third-party plaintiff and appellant Dallea Petroleum Corp. Pearce, Engebretson, Anderson &amp; Schmidt, Bismarck, for defendants, third-party plaintiffs and appellants Dois D. Dallas and Currie Conrad. Fred A. McKennett, Williston, for third-party defendants and respondents, Leonell W. Fraase, Arnold Blikre, and A. H. Ness. ADAM GEFREH, District Judge. On August 31, 1962, Dallea Petroleum Corporation, a North Dakota corporation, with its principal office in Tioga, North Dakota, executed and delivered to Republic Supply Company, whose principal place of business was Oklahoma City, Oklahoma, and who also maintained a place of business in Tioga, North Dakota, a promissory note in the sum of $25,920.98 (Plaintiff's Exhibit No. 1). On February 2, 1965, at a time when the note was in default by its terms, the note was assigned by Republic Supply Company to Oil Investment, Inc., the plaintiff in this action. The note contained the following clause: Oil Investment, Inc., brought an action in the district court of Williams County, North *417 Dakota, on this note against Dallea Petroleum Corporation and against Dois D. Dallas and Currie Conrad, two of the five co-signers of the note. The case was tried to the court, and judgment was entered for the plaintiff in the sum of $21,639.38 as principal and interest due on the note, the trial court holding that the provision in the note for interest after maturity provided for greater interest after maturity than before and was void, and that thereafter the note drew interest at the rate of four per cent from maturity. The defendants appealed from the judgment, specifying as error the trial court's failure to apply the penalty for usury by forfeiting all of the interest and one-fourth of the principal of the note as provided by Section 47-14-10, N.D.C.C. The defendants contend that the clause in the note in question which provided for a possible higher interest rate after maturity than the lawful rate in North Dakota makes the note usurious, and therefore the court erred in failing to apply the penalty for usury. Is a note providing for a higher-than-lawful rate of interest after maturity usurious? Whether a note that stipulates a higher-than-lawful rate of interest after maturity becomes usurious depends upon the interpretation that is placed upon the consequences that occur upon default of the note. The general rules of law recognize a distinction between what is known as conventional interest, which is that charged or contracted for as rental or compensation for the use or hire of money, and interest allowed by way of damages for wrongful detention of money. The relevant North Dakota statutes on this issue are: The principles of law concerning interest rates for the use of money before maturity and the wrongful detention after maturity are expressed in 30 Am.Jur., Interest, Sec. 32, p. 28, as follows: The matter of interest after maturity was considered by this court in Allen v. Miller (N.D.), 84 N.W.2d 571. The court, at page 573, stated: And at page 574 the court continued: As indicated by the court in Allen v. Miller, supra, our State Legislature declared as a matter of public policy, by enacting Section 47-14-05, N.D.C.C., that damages for the wrongful detention shall be computed at a rate no higher than the rate contracted for before maturity, and any attempt to exact a higher measure of damages shall be void. Our statutes, as interpreted by this court in Allen v. Miller, supra, and in Lutz v. Coffey, 61 N.D. 113, 238 N.W. 31, clearly provide that interest before maturity is compensation for the use of money and is regulated by Section 47-14-09, N.D.C.C., and that interest allowed after maturity is considered compensation for damages for the wrongful detention of money and is regulated by Section 47-14-05, N.D.C.C. The usury statutes generally have application to compensation for the use of money during the period of the contract. The general law on usury in respect to interest *419 after maturity is stated in 55 Am.Jur., Usury, Sec. 45, page 356: The rule is similarly stated in 91 C.J.S. Usury § 31, on page 610: The jurisdictions that appear to hold contrary to the general rule appear to be South Dakota, Texas and Tennessee. However, the statutes in these States differ materially from our North Dakota statute defining usury. The South Dakota statute, which the court interpreted in Ulvilden v. Sorken, 58 S.D. 466, 237 N.W. 565, read as follows: The South Dakota court rejected the general rule of law that differentiates between interest before maturity and interest after maturity and based its decision on the South Dakota statutory definition of the word "interest" and concluded that interest before maturity was the same as interest after maturity and that their statute on usury was directed to the word "interest" and, consequently, their statute had application to interest after maturity as well as before maturity. The same reasoning was followed by the Texas and Tennessee courts. Although our statute defining interest is the same as that of South Dakota, our section on usury, Section 47-14-09, does not refer to interest, but rather to Section 47-14-09 is not dependent on the definition of the word "interest", as is the South Dakota statute. The public policy of our State on this matter is clearly expressed in separate statutes, Section 47-14-09 governing the lawful rate of interest before maturity, and Section 47-14-05 governing the measure of damages after maturity for the wrongful detention of money. These statutes must be construed so as to give each its intended meaning. If the Legislature had intended to apply the usury statute to interest rates after maturity, it would have been a simple matter to so state, in which event Section 47-14-05 would not have been needed. We conclude that interest allowed after maturity is in the nature of damages for the wrongful detention of money after *420 maturity and is governed by Section 47-14-05, and any provision in any contract providing for a higher rate after maturity than before maturity, regardless of the rate, is void as to such increase and will have no other effect on the contract. Section 47-14-09, N.D.C.C., applies only to the maximum compensation that is permissible for the use of money that parties may agree to by contract before maturity. Since the trial court construction of the clause in the note providing for interest after maturity was not specified as error, the issue of whether the note, as a matter of law, provides for a higher rate of interest after maturity is not before us. The judgment appealed from is affirmed. TEIGEN, C. J., and STRUTZ, KNUDSON and PAULSON, JJ., concur. ERICKSTAD, J., deeming himself disqualified, did not participate; Honorable ADAM GEFREH, District Judge of the Third Judicial District, sitting in his stead.