Court Opinion

ID: 6563425
Source: CourtListenerOpinion
Date Created: 2022-07-20 19:17:37.493218+00
Date Added: 2024-06-11T15:56:36.618843
License: Public Domain

Mr. Justice Steele
dissenting.
I am willing to accept the conclusion of the court that the principles announced in the case of Lake *462County v. Standley, 24 Colo. 1, must control in the decision of this case, and that the defendant having failed to establish, in accordance with that decision; the invalidity of the bonds in question, the judgment in that respect must be affirmed; but I cannot agree with the portion of the decision which allows interest upon the coupons sued upon.
These coupons have not been separately .negotiated, nor do they contain any stipulation for the payment of interest if not paid when due. At this time, if the judgment is permitted to stand, there is due upon it something over $23,000, more than half of which is interest upon interest.
It is stated in the opinion that while this court has declared that interest upon interest is not recoverable, the same ruling has been made in Illinois; and that in Illinois “it has been held that interest may be recovered upon unpaid coupons belonging to, or cut from, a municipal bond, such as the coupons upon which this action is founded.” I have been unable to find any such decision in Illinois. In the case of City of Pekin v. Reynolds, 31 Ill. 529, a suit upon bonds issued by the city of Pekin, the supreme court of Illinois held expressly that the city was not liable to pay interest upon its coupons, not only because no proper demand had been made, but also because cities and towns, not being mentioned in the statute regulating interest, are not within its provisions so as to .be required to pay interest on their indebtedness in the absence of an express agreement to pay such interest. In Town of Mt. Morris v. Williams,38 Ill. App. 401, a suit .upon bonds with interest coupons attached, the court says: “But the court erred in allowing interest on the coupons after due. This precise question was considered and determined in The City ■ *463of Pekin v. Reynolds, 31 Ill. 529. It was held in this case that municipal corporations were not liable for interest except upon an express provision to pay it, and that our statute relating to interest does not apply to municipal corporations, so as to make their debts draw interest, except upon an express promise to pay it. It will thus be seen that the liability which attaches to private individuals to pay six per cent upon matured debts and obligations does not apply to municipal corporations. For the error in computing interest on the matured coupons the judgment is reversed and cause remanded.”
So far as I can find, The City of Pekin v. Reynolds has never been doubted or modified, but, as to the second ground of the decision, has been frequently cited and followed in analogous cases; as the following quotation from City of Danville v. Danville Water Company, 180 Ill. 235, will perhaps sufficiently show:
“It was error to include an award of interest in the judgment. ‘A municipal corporation, under the uniform ruling of this court, is not chargable with interest on claims against it, in the absence of express agreement therefor, the only exception 'being where money is wrongfully obtained and illegally withheld by it.'—See Vider v. City of Chicago, 164 Ill. 354, citing City of Pekin v. Reynolds, 31 Ill. 529, and City of Chicago v. People, 56 Ill. 327.’ (City of Peoria v Construction Co. 169 Ill. 36.) ”
As to interest coupons not issued by a municipal corporation, the rule in Illinois is, as stated in the opinion, that interest is recoverable upon them. The rule is clearly stated in Drury v. Wolfe, 134 Ill. 294, a case which, in its facts, resembles Hochmark v. Richler, 16 Colo. 263. In Drury v. Wolfe, the court says:.“The general rule recognized *464by this court is, parties cannot be bound by any contract made before interest is due, for the payment of compound interest. (Leonard v. Villars, Admr. 23 Ill. 377; First National Bank of Galesburg v. Davis, 108 Ill. 633; Harris v. Bressler, 119 Ill. 467; Peddicord v. Connard, 85 Ill., 102; Leonard v. Patton, 106 Ill. 99.) But after interest is due, it may, by agreement then made, be added to the principal, and made to thereafter bear interest. Thayer v. Willmington Star Mining Co. et al. 105 Ill. 540; Gilmore et al. v. Bissell, 124 Ill. 488; McGovern v. Union Mutual Life Ins. Co. 109 Ill. 151; Van Benschooten v. Lawson, 6 Johns, Ch. 314.
“There is, perhaps, an exception to the rule as first above stated, in the case of interest coupons annexed to commercial paper. Such coupons bear interest. (Benneson et. al. v. Savage et al. 130 Ill. 353, and cases there cited.) But in such case, interest is not compounded indefinitely. Interest is simply payable upon the amount of the face of the coupon, and that the coupon bears interest is solely because of the character given it by commercial usage. Aurora v. West. 7 Wall. 105; Mercer v. Hackett, 1 Wall. 83; Meyer v. Muscatine, 1 Wall. 384.
“There is, therefore, no authority in this for holding that interest may be compounded indefinitely, or at all, in cases where the payment of interest is not secured by some negotiable instrument independent of the instrument whereby the original indebtedness is promised to be paid.”
I quite agree with the reasoning of the court in one of the cases cited in the opinion (Bowman v. Neely, 32 Ill. App. 356): “We are inclined to think there is no substantial difference in principle, between a note like the one in this case, where the contract to pay a certain sum as interest annually is contained in *465the same \ aper with the contract to pay the principal sum, and one where the interest is secured by a separate instrument or coupon. In either case it is all one contract, executed at one time, and we think should be construed the same whether upon one piece of paper or many. The fact that a coupon may be severed from the principal note and pass into other hands and thus give different persons rights, should not make any difference in construing the contract when executed, or so long as it remains entire in the hands of the original parties.” And for that reason I should dissent in this case, even though it were a decision that interest is collectible upon interest coupons other than those of municipal corporations. The supreme court, however, reversed that case upon appeal (137 Ill. 443), not upon principle» but because the matter was stare decisis; and I dissent here because the matter is stare decisis in this state. We have four cases, decided long after the adoption of the contrary rule by the supreme court of Illinois and by the supreme court of the United States, which hold in positive and emphatic language that, upon grounds of public policy, compound interest is not collectible in the courts of this state. These cases are mentioned in the opinion, and, in my judgment, are abrogated and overruled, without any discussion at all of the principles upon which they are based.
In the case of Hochmark v. Richler, 16 Colo. 263, a promissory note had been given for $177, providing for the payment of interest after maturity at the rate" of three per cent per month. The court found that the $177, the principal of the note, consisted of two items—$150, the actual loan, and $24, interest; and the court held that interest upon interest could not *466be collected, even though included as principal in a promissory note. The court says: “A disposition undoubtedly appears in some of the modern decisions and text-books to reject the doctrine that compound interest contracted for in advance is per se unlawful. But, the question being stare decisis in this state, and there being much to commend the doctrine, it will not now be disturbed. We do not intimate that the arrangement would have been illegal had the promise of appellant to pay compound interest been made after instead of before the interest to be compounded had accrued. The fact that compound interest was thus provided for, did not, however, as counsel contends, render the entire contract usurious and void; courts, upon grounds of public policy, simply decline to enforce payment of interest upon interest.”
In the case of Denver Brick & Manufacturing Co. v. McAllister, 6 Colo. 261, this court construed the statute relating to interest, which is now § 2252, Mills Annotated Statutes, and said: “It may be true that interest, when it has become payable, is ‘money become due,’ but we think that a ' fair construction of this statute will allow the language to cover only interest upon the principal, within the legislative intent, especially in view of the provision allowing any rate to be agreed upon.” So, according to the previous decisions of this court, this statute does not authorize the awarding of interest on overdue interest.
I will concede that if one executes several promissory notes for the interest or installments of interest due upon a principal note, and the installment notes are transferred before maturity to a bona fide purchaser, the defense that they provide for compound interest will not be available; but unless such *467notes have passed into the hands of a bona fide purchaser, before maturity and without notice that they are for interest, it seems to me that the rule announced in Hochmark v. Richler, cited above, should control, and that it cannot be evaded by so simple an expedient as that of attaching interest coupons.
The language of the court of appeals in the case of W. S. Bank v. Town of Solon, 136 N. Y. 481, commends itself to me as being reasonable, and as sustaining the rule hitherto enforced in this state against the allowance of compound interest. In that case the court says: “In Bailey v. County of Buchanan (115 N. Y. 297) Earl, J., said that while it was true that past due coupons payable to bearer when detached from the bonds are for many purposes separate and independant instruments which may be negotiated and sued upon without the production of the bonds, yet such coupons always have some relation to the bonds; that until negotiated or used in some way they serve no independant purpose; that while they are in the hands of the holder they remain mere incidents of the bonds and have no greater force or effect than the stipulation for the payment of interest contained in the bonds; and that while they continue in such ownership and possession it can make no difference whether they are attached or detached, as they are mere evidences of the indebtedness for the interest stipulated in the bonds. I think that adjudi cation concludes us, and a re-examination of the question in the light of the very full and able discussion in the present case only strengthens the conclusion then reached in which we all concurred. Interest, as a rule, follows the principal without becoming principal, and cannot be compounded by force merely of the contract; but that general rule has been modi*468fied somewhat by an exception growing out of the character and purpose of interest coupons. They may become separate and independent instruments. When they do, the exception is for the first time needed and for the first time applies. Until they do the promise is merely to pay interest and is governed by the usual rule. They do not become separate and independent instruments until they are utilized as such. Before that occurs and while they remain in the hands of the holder of the bonds the occasion for the exception does not apply.- That is plaintiff’s situation. * * * It follows therefore that the judgment for the plaintiff was erroneous to the extent of its award of interest upon the coupons $ * * ”
The judgment of the district court having included interest upon interest, and this court having held in the cases of Reithman v. Filmore, 6 Colo. 121; D. B. & M. Co. v. McAllister, 6 Colo. 261; Beckwith v. Beckwith, 11 Colo. 568; and Hochmark v. Richler, 16 Colo. 263, that upon grounds of public policy interest upon interest is not recoverable in this state, and that there is no moral or legal obligation to pay such interest, I think the judgment of the district court should be reversed.