Court Opinion

ID: 6687173
Source: CourtListenerOpinion
Date Created: 2022-07-20 21:33:50.555675+00
Date Added: 2024-06-11T16:01:00.020142
License: Public Domain

WHITING, J.
(dissenting). I am unable to agree in the opinion of Judge CO-RSON. The question, which to my mind is all material in this case, is whether or not the notes and mortgage i.mpose upon the maker thereof a penalty in case ¡of failure to make payment. The respondent has in his brief attempted .to meet this question, but I am unable to find any reason or logic in his argument. The authorities cited by respondent I have carefully examined, and from such examination I contend that this question of penalty was in no manner involved in a single authority referred to. In fact the only question that seems to have been under consideration in those cases was the question of the negotiability of the papers involved in thé cases. If the notes and mortgage provided for a penalty, it certainly must be conceded that under our statute such penalty .could not be enforced.
There '-seems to be a great diversity of opinion as to whether certain provisions in notes were attempts to impose a penalty. Concerning such provisions, it would be impossible to harmonize the views of courts of last resort. Some courts hold flatly to the rule that no note can provide a greater rate of interest after than before due. • Some courts hold that, where a note provides for the payment of one rate of interest from date of note in case note is paid at maturity, and also contains a clause providing that, if the note is not paid at maturity, a higher rate of interest shall be paid, it provides for a penalty, while other courts hold that such 'a provision is not a contract for penalty. All the courts seem *349to agree that, if there is an express agreement to.- pay a- -certain rate of interest before maturity, ■ followed by a 1 condition that,-if the debt is not paid at maturity,, a certain other rate of interest should be paid after maturity, such ,a note is in every re,spect valid. But we believe it will be- impossible to find a decision where, under facts similar to those in .this case at bar, it would not be held that a penalty was provided for. We take no issue on the proposition that a note may be valid where the note is payable in installments, and provides that u-pon default in one installment, or upon default in the interest, the whole note shall become due; but yet we think that even this is crowding the line of penalty very close, and do not think that, in addition thereto, there can be a valid provision for interest from 'the time of such default, where otherwise there would have been no interest.
We will take the case at bar. If the maker wished to escape the 'penalty imposed, it would be absolutely necessary for him to pay each installment the date it was due, and therefore the provision in the notes that the installment should bear interest after due was of absolutely no effect whatever, except perhaps as relates to the last installment. Again, when these parties contracted, it was contemplated by the persons that the -consideration for the first note was worth to the maker $ioo, payable in five installments. It is also presumed that the -consideration for such note was worth the same to payee. It is also presumed from their’ contract that these parties considered ‘the-use of the'-money to be worth 12 per cent. If this contract had been paid as made, as each installment fell due, one should get and the other give, in all, $200. If, however, the maker allowed the first installment to be in default, even for one day, then the payee could insist, if payments were made thereafter on the dates mentioned in the note, that not only $200 be paid, but also interest thereon at 12 per cent, from the time since the first installment iwas due. What would be the nature of this additional, payment? It is- not -damages for the use of ‘money, as the parties had agreed that there should be no damage or interest up to a certain date. It is clearly and purely, a penalty imposed, and to our mind cannot be held anything but a penalty. To illustrate further, take the first note. If this note *350had been allowed to run without payment up to the time the last installment was due, the payee,, under .the legal provision therein, would have the right to collect $100. principal together with interest on each payment from the time such payments shoqld have been made, and this sum would represent the consideration for note and the amount agreed' up oil as the value for, the use of the money that remained unlpaid; but, under the same facts, if respondent’s contention is to be upheld, when the last installment falls due, payee can collect the $100 together with interest on $100 from the time the first installment fell due. Inasmuch as these installments were due one each year, it will readily be seen that, under the two holdings above mentioned, there would be this difference in the amount to be paid November 19, 1904: On the $100 note no difference whatever as to the first installment; 'on the second installment one year’s extra interest; on the third installment two years’ extra interest; on the fourth installment three years’ extra interest; and on the fifth installment four years’ extra interest — amounting in all to $24, absolutely unearned, and purely a penalty imposed upon the maker.
As to the second note a further question arises, namely, whether or not that note was even due at the time suit was brought. All we have .said above would apply as.to any right to claim interest on the second note, because any interest claimed thereon would be absolutely a penalty. But outside of this question of penalty it will be noticed by a careful reading of this note, Exhibit B, that there is absolutely no provision therein that such note shall fall 'due under any contingency whatever prior to November -i, 1900, and yet this suit was commenced in 1897. By provisions of this note this note was to he of no effect for any purpose, provided the principal note, together with Exhibit A, were paid according to their terms. It is claimed by the respondents that, owing to a provision in the mortgage, the note, Exhibit B, became due whenever any default iwas made in Exhibit A, or in the principal note, and that such mortgage contained a provision that upon .such default the whole note, Exhibit B, could be foreclosed together with Exhibit A, I contend that, where there is an express provision in the note as to when it shall fall due, *351and another provision in the mortgage, contrary thereto, in that case the provision in the note must c'ontrol, and. cite as authority Railway Co. v. Sprague, 103 U. S. 756.
But outside of the above proposition we think that, in so far as there was an attempt to hold the maker responsible on Exhibit B for any defaults prior to November 1, 1899, the same was an attempt to enforce a penalty. It is very evident from the facts in this case that the consideration of Exhibits A and B was the procurement of the loan of $1,000, and that it was contemplated that Exhibit A w'as the consideration for procuring this loan for the first five years, and Exhibit B for the second five years. Furthermore, if for any reason, either through voluntary payment or enforced payment, this $1,000 was refunded or repaid to the holder of the principal note prior to November 1, 1899, the consideration for Exhibit B wholly failed, and any attempt to compel payment of the same is an attempt -to collect a penalty. It is held that any contract whereby a person contracts or agrees to pay a larger sum of money on account or because of inability to pay a lesser sum is in every case a penalty, and surely no stronger illustration could be found than we have in this case above, in attempt to collect excessive interest and attempt to collect anything on Exhibit B, when principal debt had been paid in full prior to November x, 1899.
If the respondents were right in their contention, it would cause one to shudder at the result that might come from a transaction similar to this, where a loan had been procured for xoo years, with like provision, giving $100 commission note for each 5-year period, and with provisions in the mortgage securing the commission notes such as we find here. In the case at bar, if respondents were right, at the end of the first year respondents could have collected $200, orJ at end of 10 years could have collected $200, with interest from end of first year at 12 per cent., and in 100-year illustration, for procuring loan of $1,000, the respondent in case of default in the payment of $20 due at the end of first year, even if such default was for only one day, could immediately recover $2,000 for procuring such $1,000 note, or he could allow each installment to run to such date as the note provided for its payment, and could then collect with installment 12 per cent, there*352on from the end of the first year, and in case' of the last installment, the then holder of such installment note would collect not the $20, which was the real consideration agreed upon, but the $20, together with interest thereon at 12 per cent, for 99 years, which as to said installment would mean an absolute penalty, somewhere from $125 to $150. See Krutz v. Robbins, 12 Wash. 7, 40 Pac. 415, 28 L. R. A. 676.
SMITH, J., taking no part in the decision.