President, Directors of Oriental Bank v. Tremont Insurance

Hubbard, J. The only question for the consideration of the court is, whether the defendants are bound to pay interest on the amount of the loss on the policy underwritten by them, from the time the same was payable by the terms of the policy, to wit, the 18th of February 1839, to the 15th day of May 1840, when they were discharged from the trustee process which had been pending against them, from the 19th of December 1838, to that time. The plaintiffs assume several positions, upon which they rely to charge the defendants with interest; and among others, that this was a contract to pay — 6 — interest in sixty days after proof of loss of the subject of insur anee ; that, as stakeholders, they should have set apart a special sum to cover this loss, and not have mingled it with their funds ; that the plaintiffs lost the use of the money, and the defendants had the use of it, and consequently the plaintiffs have tiie better equity. The question submitted is not free from difficulty arising out of the great number of decisions in relation to the payment of interest. Nor is it practicable to reconcile all the opinions that have been pronounced in different courts, both in this country and in England. Many of the opinions, however, which appear to be contradictory, may be reconciled by considering the different facts which led to the decisions. So that while the cases appear, on a cursory inspection, to be alike, they will be found, on a more careful examination, to differ in important particulars. The authorities relating to interest have been so often cited and reviewed, that it appears to me to be unnecessary to subject them to a new examination ; although the elaborate arguments of the counsel on both sides might seem to demand it. Those only, therefore, will be referred to, which seem to require remark, as bearing on the opinion we have formed. By the Rev. Sts. c. 109, § 34, it is enacted, that “ any money or other thing, due to the principal defendant, may be attached before it has become payable, provided it be due absolutely and without any contingency, as before mentioned ; but the trustee shall not be compelled to pay or deliver it, before the time appointed therefor by the contract.” Two days after notice and proof of the loss, and before the same was payable, the defendants were sumar md as the trustees of Clapp, the person with whom the c<Titr:.ct was made , and this was before they had notice of the plaintiffs’ claim. It was then rightfully attached at the time, as the property of Clapp ; and when the plaintiffs exhibited their order from Clapp for the payment of the money to them at the termination of the sixty days after notice of the loss, the. defendants were under no legal obligation to pay them the amount due on the policy ; but their duty was, to give notice of the fact, in their answer, that — 7 — the claimants might appear, if they saw cause, and maintain their right to the money. This was done ; and on their examination, the claimants exhibited such proof of their interest in the property insured, and in the policy, that the defendants were discharged from the trustee process, and released from their liability as the trustees of Clapp, and could pay over the money to the plaintiffs with safety to themselves. In their conduct in this respect, they appear faithfully to have discharged the duty imposed upon them, with due diligence and a just regard to the rights of the contending parties ; and as the fund was locked up before it became payable, they were in no default in not paying over the money at the call of the plaintiffs Not being in default then, are they accountable for interest during such detention ? The cases, which have been cited directly to this point, are so far contradictory as to leave the question, to some extent, unsettled. The cases especially relied upon by the plaintiffs are Hunter v. Spotswood, 1 Wash. 145; Tazewell v. Barrett, 4 Hen. & Munf. 259 ; and Templeman v. Fauntleroy, 3 Rand. 434. And on the other side, the case of Fitzgerald v. Caldwell, 2 Dall. 215, & 1 Yeates, 274, is believed to be directly in point. In the three Virginia cases, there is the charge of negligence and neglect of duty resting upon the garnishee, which probably led to the decisions in those cases ; while in the case decided in Pennsylvania, those elements are excluded ; although if they had existed in that case, the court would have charged the garnishee with interest. Two cases were cited from our own reports ; Prescott v. Parker, 4 Mass. 170, and Adams v. Cordis, 8 Pick. 266. In the first of these, a judgment debtor was summoned as the trustee of the judgment creditor:; and the court, in delivering their opinion, say, “ it is admitted that the judgment has been satisfied, unless Parker is liable by law to pay interest on the judgment until it was satisfied. Interest is allowed in an action of debt on judgment, as the measure of damages for unjustly detaining the debt. In this case, he was obliged by law to detain the debt from Gilson ; and therefore he cannot be answer — 8 — able to the attaching creditor for damages for the detention.” In the case of Mams v. Cordis, the defendant had been sum moned as the trustee of the principal debtor, and on his disclosure it appeared that the demand against him was one which bore an accruing interest at the time ; and the court decreed that the trustee should pay the interest as well as the principal during the detention of the fund, on the ground that the attach merit of the debt carries with it the interest. And this distinc tion is taken between cases in which interest is given by way of damages, and those in which it constitutes a part of the debt; as it does in contracts in which there is a promise to pay interest. In the former class, it is obvious that when one is summoned as trustee, he is in no fault for not paying, and as he made no express agreement to pay interest, he ought not to be charged with it. In the latter, the interest is the debt as much as the principal, and he ought to pay it. This distinction we believe to be a just one; and the question now is, under which class the present action ranges. The plaintiffs’ counsel have argued that the contract of the defendants contains within itself a promise to pay interest, and that it might be declared upon as a contract in which the party stipulates to pay interest after the same becomes due ; on the ground that this is the legal effect of the contract. But we do not sustain this view. We think that such a declaration would not describe the contract. Interest is not an integral part of such contract, but is given by way of damages for the non-performance of the contract. For in matters of property, the usual rate of interest has long been established as a just rule for the measure of damages in cases where the plaintiff has sustained an injury by the non-performance of a contract by the defendant. The policy-before us has been likened, in argument, to a note payable at a given time, with interest after. But on this policy, the money is not payable at any given time. The amount to ne paid, and the time when, are both uncertain. The amount of die loss is payable after proof of loss, and a consequent not ce and demand of the defendants. In the case of bank bids, which are but the promissory notes of a corporation, payable on — 9 — demand, the court say, in Suffolk Bank v. Worcester Bank, 5 Pick. 109, “ the bank bills or notes sued were promises to pay money on demand, without any engagement to pay interest. Interest was no part of the contract; but after demand and non-payment, interest would be recovered in the form of damages for detention.” And so in the present action. Till within a few years, interest has not been allowed on policies of insurance. It was a matter within the discretion of a jury. And the rule now followed in England, as stated by Lord Tenterden, in Bain v. Case, 3 Car. & P. 498, is this : “ The assured cannot recover interest, unless he has made application to the insurer to pay the amount of the loss, and has notified him of the ground of such his application.” This is similar to the rule adopted here ; yet the contract itself, in this particular, has undergone no change since courts decided that interest was not recoverable. The contract of insurance is, as has often been observed, a contract of indemnity. It is no engagement to pay a given sum, but an amount not exceeding a given sum, on the happening of certain perils ; and certain duties must be performed by the plaintiff, before he can maintain his suit. We therefore think there was no express promise to pay interest. It has been contended that the defendants mingled the funds of the plaintiffs with their own, and that they are therefore chargeable with interest. But while cases of that description furnish an argument bearing on the present, they are in themselves different; and the reasons why interest is allowed rest upon other grounds. Executors, guardians, and trustees, are intrusted with the property of others; and when they mingle the funds thus intrusted to them with their own, they are chargeable with interest, in equity, not because they have contracted to pay it in such an event, but as a penalty for violation of duty, and as a suitable remedy for those whose property is thus made liable to loss. But it is also alleged as a reason why these defendants should pay interest, that they are stakeholders, and should have deposited the plaintiffs’ money, and not have exposed it to the hazard of their own trade • and that it was not sufficient to have — 10 — a balance in the bank, usually large enough to meet the plaintiffs’ demand. A stakeholder is one who has received the funds of another, or others, in special deposit for a given purpose, to be paid to one party, or divided between both or among all the parties, on the happening or not happening of some anticipated event, of which the stakeholder is often the judge ; and such property he is bound to hold separately from his other funds. But the present is not the case of a stakehold er, and it merely assumes the likeness in consequence of the contention of creditors for the fund ; a fact having no connexion with the original contract. In regard to malting a deposit of the money, in cases like the present, we know of no law or usage which requires it, nor. any practice for bringing the same into court. Besides ; would a deposit of this money in one of the banks of the city have protected the defendants, in case of loss on the part of the bank ? If the money were specially deposited for safe keeping, the bank in which the same is deposited would not be responsible, except for gross negligence. And it has been held, that it would not even be responsible for the frauds of its own officers. Foster v. Essex Bank, 17 Mass. 479. And if not specially deposited, then the party would have only the credit of the bank, which the party had in this case, by the promise of the Dank to answer the defendants’ check, at any time, to an amount equal to (he plaintiff's’ demand. If the funds in the one case had been stolen, or the bank had failed in the other, the defendants would still be liable, and they and not the plaintiff's would have a claim upon the bank. Under these circumstances, we think the defendants are not chargeable with interest. They were always ready to pay the demand, and did pay as soon as the plaintiffs had acquired a legal right to receive it, as ascertained by the competent tribunal. We are aware that in the case of Adams v. Cordis, the fact that the defendant used the money, for which he was chargeable as trustee, in common with his other funds, during the pendency of the process, was mentioned as a reason why die plaintiff — 11 — should recover interest. But without deciding, in this case, how far the use of the money may be a ground for charging trustees with interest; we think the main reason, upon which the decision in that case rests, is, that the debt was one drawing interest, and that the payment of accruing interest was as much a part of the contract, as the payment of the principal. But it is said that the refusal to allow interest on money m the hands of persons summoned as trustees will lead to collusion, and to unreasonable delay and negligence in making theii answers, for the purpose of obtaining a longer use of the money. In answer to this suggestion, it may be stated, that the court incline to the opinion that should such a case arise, it would form an exception to the rule adopted in the decision of this case, and that on proof of such facts, the party would be chargeable with interest on the funds in his hands. As to the principle contended for, that the plaintiffs lost the use of their money and the defendants enjoyed it, and that they should therefore be charged with interest, because the plaintiffs have the better equity, it may be said that the plaintiffs did not give the defendants notice as soon as they acquired an interest in the policy; and that if they had done so, the trustee process might not have been prosecuted. But waiving such a consideration, both parties were subjected to inconvenience; the one from the detention of their demand, and the other from being compelled to employ counsel, attend court, and make answers under oath to various interrogatories, with a liability to be removed from court to court. If the contract had carried interest on the face of it, the plaintiffs would have the advantage of it ; but as it did not, the defendants may, under the circumstances of this case, avail themselves of the fact that they have not violated their contract by wrongfully or unreasonably detaining tbs plaintiffs’ money, and so are not chargeable with interest. Plaintiffs nonsuit.