Court Opinion

ID: 6583744
Source: CourtListenerOpinion
Date Created: 2022-07-20 19:40:38.274094+00
Date Added: 2024-06-11T15:57:23.338265
License: Public Domain

ROSS, Oh. J.
I concur in the disposal made of this case; and in most of the grounds and reasoning of the opinion. But I do uot see my way clear to concur in holding, that an indorser upon a promissory note, payable on time, with the interest annually, can be made chargeable for the payment of the interest, before he can be, and is, charged with the payment of the principal. By placing his name on the back of the note as an indorser, without making any limitation upon his indorsement, he guarantees its payment, upon condition that the indorsee, when the time named in the note for its payment arrives, shall present it to the maker and demand its payment, and, if the maker fails to make payment, shall seasonably notify him of such failure. When this is done, the indorser promises to pay whatever of principal and interest, is then due upon the note. This condition attaches primarily to the principal of the note. I think it attaches to the interest only as it becomes a part of the principal. It seems to me to be illogical, and pressing the indorser’s conditional undertaking beyond its proper scope and office, to hold that he can have his liability fixed to pay for the use, or legal rental of the principal, before his liability to pay the principal is fixed. Interest is legal damage, fixed usually by statute, for the detention and use of money. As soon as the money is due and payable, the law implies damage for its detention and use. It may also arise from the contract, for the detention and use of the principal before it is payable by the terms of the contract. When stipulated to be paid annually, it may be collected from the maker of the note at the end of each year, because such is his contract. It is an incident, and outgrowth from the principal. The promise to pay it, whether implied or expressed, is a *159dependent promise. It is attached to and arises from the promise to pay the principal. "When the interest is stipulated to be paid annually, and before the principal is payable, the maker when sued for the annual interest, because his promise to pay it is dependent upon his pmomise to pay the interest, may set up. any defence to the suit for recovering the annual interest, which he could if the suit were for the recovery of the principal, such as fraud in the inception of the note; or want, or failure of consideration, or duress, or that his liability for the principal is conditional, the terms of which have not been complied with. If he defeats the action, it will estop the holder from recovering the principal when due, and vice versa. In I Herman on Estoppel and Res Judieate 231, it is said, “ So in an action for interest due on a bond, a judgment for the plaintiff for the amount of interest claimed will be conclusive evidence in an action on the bond, and estop the defendant from alleging fraud, for the reason that it was a defence which was available in the former suit, and the presumption is that it was so used,” citing French v. Howard, 14 Ind. 455; Van Dolsen v. Abendroth, 43 N. Y. Super. Ct. 470; Preble v. Supervisors, 8 Bis. 358, and Edgell v. Sigerson, 26 Mo. 583; Cleveland v. Creviston, 93 Ind. 31 (47 Am. R. 367.)
The opinion recognizes this intimate, attached and dependent relation of the promise' to pay the interest annually to the-promise to pay the principal, from which the interest springs. It recognizes that the statute of limitations does not begin to run on such promise to pay interest annually until the principal falls due, in accordance with Grafton Bank v. Doe et al., 19 Vt. 463. This must be because, until severed by enforced collection or payment, interest is but an incident, and dependent of the principal. It also recognizes this relation in holding that the indorsee may allow the interest to accumulate, and may fix the indorser’s liability to pay it, by a proper demand, default and notice in regard to the principal when that falls due. That is because liabil*160ity for the principal carries its dependencies. I concur in these holdings. They are supported by the decisions cited in the opinion. But they rest, and, in my judgment, can rest only on the basis that the promise to pay the interest annually, both for its consideration and enforcement is dependent upon the promise to pay the principal. The opinion also holds that the liability incurred by the indorsement is conditional, that that condition attaches to the entire note, and that the liability of the indorser must be fixed by demand, default and notice, in regard to the interest payable from the maker yearly, as well as in regard to the principal. It then seems to conclude, that, because the inindorsee can lawfully demand and collect of the maker, whose promise to pay the principal is absolute, upon liis dependent, but yet absolute promise to pay the interest annually, he can by proper demand, default and notice, collect such annual interest of .the indorser whose promise and liability to pay the principal is conditional, and cannot as yet be made absolute, and whose promise to pay the annual interest, it has already held is dependent upon his promise to pay the principal, and therefore, in my judgment, takes the condition attached to his liability to pay the principal. It is at this point that I fail to follow the reasoning of my associates. Here they assume, — as I think — and proceed upon the basis, that, the indorser’s implied promise to pay the annual interest, is not dependent, but independent, like what it would be, if it were an instalment of the principal. The holdings in the opinion, that the indorser’s liability for the accrued annual interest may be made absolute by a proper demand, default and notice in regard to the principal when it falls due, and that it may also be made absolute by a proper demand, default and notice yearly, result in holding that the maker’s promise to pay the interest annually which he indorses, is both dependent upon, and independent of, his promise to pay the principal. I do not think that it has this double and inconsistent character, but only the former. If it be independent, must not-demand *161and default be made, and notice given yearly, or the indorser become discharged ? And if demand and. default be made, and notice given annualy, must not the statute of limitation begin to run from date of such demand ? I think so. The result of giving this double character to the promise to pay interest annually will lead, I think, to some difficult legal problems. If the note is to mature at the end of twenty years, and the payee holds it and allows the interest to accumulate for ten years, and then having indorsed it, sells it, the the indorsee must wait for the accumulated interest until the note falls due, because the maker’s promise' and the indorser’s liability in regard to that interest is dependent upon the indorser’s liability for the maker’s promise to pay the principal, which is still conditional, and for that reason the indorser’s liability to pay. the accumulated interest is conditional, and will remain so until it is made absolute for the principal; but when the eleventh year’s annual interest falls due, the indorsee may at once, by due demand, default and notice, fix the indorser’s liability to pay that year’s interest, and may enforce its payment by suit, while the indorser’s liability for the payment of the principal from which the year’s interest springs, cannot for years be made absolute and may never be. After the indorser’s liability for the payment of the year’s interest has thus become fixed by suit, on what legal principles governing res jtidicata, could the indorser defend, in a suit brought, without further demand, default and notice, at the maturity of the note, for the enforcement of the payment of the principal and the ten years accumulated interest ?
The only decision relied upon for the holding of my associates is from 6 Blatchford. I do not regard that in point. The guarantee was written instead of implied. The relation of the indorser to the obligation was exceptional, it having been given by its receivers and managers. The interest was expressed in *162separate coupons, which, for some purposes, are treated as independent obligations. The statute of limitations runs on them generally from their maturity. Amy v. Dubuque, 98 U. S. 470 (25 L. C. P. Co. 228). In this respect they are unlike the promise in the note to pay the interest annually, as held in Grafton Bank v. Doe et al., 19 Vt. 463. I do not think that the indorsee has the election to fix the indorser’s liability for, and recover of him annually such yearly interest, or to wait and fix it by proper demand, default and notice in regard to the principal. I think his liability can only become absolute for the payment of the incident or outgrowth of the debt, when it becomes absolute for the payment of the principal from which that incident or outgrowth springs. The opinion on this branch of the case is made to rest upon the ground that the indorser’s undertaking, on due demand and notice, is to make good to the indorsee any failure of the maker to perform the contract, and, in that the maker has promised to pay the interest at the end of each year, the indorser has likewise so undertaken upon proper demand and notice. But his implied contract being conditional in regard to the payment of the principal, I think is conditional also to any incident or outgrowth of the principal, so long as it is conditional in regard to the payment of the principal, and that he only becomes absolutely bound to pay the interest at the end of each year, when he becomes bound absolutely to pay the principal. When so bound for the payment of the principal, then this obligation to pay the interest at the end of each year attaches, in respect both to the interest then accrued, and the interest which may thereafter accrue. I would modify the opinion in the particular indicated.