Philadelphia & Reading Railroad v. Smith

Chief Justice Mercttb delivered the opinion of the court, October 6, 1884. This contention is whether the holder of certain coupons and interest warrants, can recover interest thereon from the time they became due and payable. Each was given to furnish security for the prompt payment of the interest on bonds issued by the plaintiff in error. The one class of coupons was expressly made payable to bearer at the several times therein specified. They provided for the payment of the interest before the principal debt became due. They were designed to be severed from the bonds. They were intended to pass from hand to hand by delivery. They were payable in money, and. at certain times designated. Their form and nature stamped them as the representatives of money. Each successive holder might well conclude that they were thrown on the market as negotiable paper to draw interest from maturity. It must be conceded as a general rule that interest upon interest cannot be enforced. As, however, interest is but hire for the use of money, there is nothing inequitable in a debtor agreeing to pay interest on it when wrongfully withheld. Rent is hire for the use of land, and interest on rent may be recovered. Obermyer v. Nichols, 6 [199] Binn., 160; McQuesney v. Hiestor, 9 Casey, 435 ; Newman v. Keffer, Id., 442 in note. Whenever equity requires the payment of interest on interest, an agreement to so pay it may be enforced. Pawling v. Pawling, 4 Yeates, 220. While it has been held that compound interest as a compensation merely for the detention of money cannot be allowed in Pennsylvania, yet if there be a special agreement to so pay, and in such form as to be valid, it may be recovered. Stokely v. Thompson, 10 Casey, 210 ; Robert’s Appeal, 11 Norris, 420. The affidavit of defence in the present case does not aver any readiness or willingness to pay the coupons or warrants when they became due. The case is one of persistent and continuous refusal to pay them. The manifest purpose in making them was to increase the market value of the bonds by giving assurance of the prompt payment of the interest. The intention was to give currency to them as a separate contract, which would carry with them the usual incident of interest in case of a failure to pay at maturity. The purchasers and holders acquired them with that character reasonably stamped on their face. Why then shall they not draw interest after maturity ? Why shall not the maker of this collateral agreement fulfill it, or suffer the usual penalty for its violation ? The maker’s act fairly intended to produce such effect. Whether they were afterwards actually detached from the original bonds is unimportant. They possessed the- same independent agreement to pay the sums stated, at the times specified. The company unjustly refused to pay the coupons according to the agreement. It is therefore equitable that they should draw interest. That they would do so is clearly implied by the terms of the contract. Bainbridge v. Wilcocks, 1 Baldw., 536. Interest is therefore equitably deman dable. Fries v. Watson, 5 S. & R., 222. The justice in holding that such coupons do draw interest, was distinctly recognized, and the liability therefor affirmed in County of Beaver v. Armstrong, 8 Wright, 63. The other obligations called interest warrants are also coupons. They are for the payment of money at certain times therein specified. The language thereof differs some from the former; but the purpose and the intention are the same. Although they lack express words of negotiability, yet they were executed to secure the payment of the sums therein stated before the maturity of the bonds to which they were attached. They were so prepared as to be detached therefrom, and give a separate cause of action. They were untrammeled by the name of any payee thereon to restrict the rights of the holder. The undoubted purpose and intention of these coupons being so clear, it follows that they draw interest after [200] maturity. Although the consideration on which they were based is the interest' on bonds, yet that does not change the effect to be givén to them. In a suit on a similar coupon, it was so held in North Pennsylvania R. R. Co. v. Adams, 4 P. F. Smith, 94. The learned judge committed no error in ordering judgment for want of a sufficient affidavit of defence for the amount of the claim. Judgment affirmed.