Talcott v. Marston

By the Cowt. — Atwater, J. Appeal from the District Court of the Second Judicial District. Marston sued Talcott upon two promissory notes, which read as follows, viz : “$110 00. St. Paul, June 10th, 1858. “Six months after date I promise to pay Lewis P. Marston, or order, one hundred and ten dollars, with interest at the rate of six per cent, per annum from date until due, and five per cent, per month after due until paid, value received. (Signed.) “H. J. Talcott.” “$48 00. St, Paul, Oct. 19th, 1858. “Thirty days after date I promise to pay to Lewis P. Mars-ton, or order, forty-eight dollars, with interest after due at the rate of five per cent, per month until paid, value received. (Signed.) “H. J. Talcott.” — 343 — In Ms demand for judgment, the Plaintiff claimed interest as damages upon both notes after they became due, at the rate of seven per cent per annum. But there was no allegation of damages. The answer admits the Plaintiff’s complaint, but sets up by way of set-off, or counter claim, a note of which he alleges he is the owner and holder, in the words and figures following, viz: “$78 00. . Winona, Aug. 14th, 1858. “Three months from date I promise to pay George B. Peters, or bearer, seventy-eight dollars, with interest from date until due at the rate of two and one half per cent, per month, and interest after due until paid, at the rate of three per cent, per-month, value received. (Signed.) “Lewis P. Marston.” The Defendant claims interest from the date of the note at the rate of two and a half per cent, per month. Both parties demanded an assessment of damages, and upon such assessment, the Plaintiff was allowed six per cent, per nTinnm upon the first mentioned note, after the same became due, and seven per cent, per annum upon the second note after it became due. Upon the note described in the answer, damages were assessed at the rate of two and a half per cent, per month, from date to entry. of judgment. Both parties excepted to the assessment of damages, and appeal to this Court. The legal principles involved in the case at bar, were to some extent considered in the case of Mason, Craig et al. vs. Callendar, Flint & Co., argued and decided at the last December term of this Court. But the great importance of a correct settlement of the questions raised by the exceptions, in view of the fact that almost every citizen of the State is more or less affected by them, together with the further consideration, that the Court was not unanimous in the construction given to the statute regulating interest, has induced the Court to hear a further argument on the subject. And upon a careful review of the statute, the Court is now of the imani — 344 — mous opinion that the rule established as the measure of damages in the case above referred to, is erroneous. The other points'raised in that case were fully discussed in the majority opinion of the Court, and it is believed were correctly decided and it is unnecessary further to examine them. The result of the investigation of the Court on the question of interest in the case of Mason, Craig et al. vs. Callendar, Flint & Co., 2 Min. 350, was that interest being the creature of contract, is recoverable st/r'ictJ/y as interest, only during the continuance of the contract, and as provided by its terms, before breach, and not after. Whatever is recovered after breach must be recovered as damages, and not as interest. It was also held that the contract terminated at the expiration of the time limited in the note for the payment of the money. It was further held that the measure of damages for breach of contract of this kind, must be the legal rate of interest. And the error committed by the Court in that case was in determining that the legal rate of interest, constituting the measure of damages, was that specified in the note, before breach of the contract. The first section of chapter thirty-five of the Revised Statutes, provides, that “ any rate of interest agreed upon by the parties in contract, specifying the same in writing, shall be legal and valid.” This section makes the interest expressly the creature of contract. In order to recover more than seven per cent., before the note was due, the parties must have agreed upon the rate, and must have expressed that agreement in writing. The first mentioned note in the complaint, is a contract in writing, to pay a certaim sum, at a certain time, with an agreed rate of interest for the use of the money up to that time. That is as far as the contract extends. The payee promises the maker of the note, the use of the money for the period of six months, in .consideration of receiving interest therefor at the rate of six per cent per annum. Thus far the instrument is in the usual form, and has all the requisites of a simple contract. But there is another provision in the note, which is of a different nature. The promissor agrees to pay five per cent, per month after due till paid.” If this can be — 345 — construed as a contract, it is certainly not the same in kind as that embraced in the first part of the note. There is in fact no consideration for it. There is no time limited for the expiration of the contract. It is claimed that the maker has agreed to pay the five per cent, for such length of time as the payee may choose to forbear. But the fact, that the parties have agreed in writing that the money should be paid at a day certain, excludes the idea that there could have been another understanding different from that expressed. This five per cent, cannot be claimed as interest, for interest is the sum paid for the use, or as it is sometimes expressed, for the forbearance of money. In this case, there is ho agreement that the maker shall have the use of the money, or that the payee will forbear in collecting the money after the six months. The last clause of the notéis, not in terms, but in substance and effect, an attempt of the parties to liquidate the damages for a breach of-the contract. This the law does not permit them to do. The reasoning upon which this rule of law has been established, is entirely unsatisfactory to my own mind, and I think an agreement of parties, deliberately entered into, and fully understood, to liquidate the damages, on breach of contract to pay money, ought to be enforced as much as any other contract. But the rule has long since been settled otherwise, both in England and this country, and the question is not open for discussion. And whether the five per cent, clause be regarded as a penalty, or liquidated damages, the result is the same. If therefore the contract between the parties terminated at the expiration of the time limited in the note for thfe payment of the money, the first section of chapter thirty-five cannot apply to regulate the measure of damages in this case. Eor that section in terms, only applies to “ interest,” as such, and to interest, upon a “ contract.” The section may be construed and have practical effect in carrying out the intent of the legislature, without violating any of the settled rules of law, when applied to contracts before breach, but if attempted to be applied to contracts after breach, leads at once to confusion and disturbance of well settled rules of law. — 346 — The second section of chapter thirty-five, provides what shall be the legal rate of interest in all cases other than those embraced in the first section. If the view taken of the operation of the first section be correct, this section furnishes the true rule for the measure of damages in a case of breach of a money contract. Seven per cent is the legal rate of interest, and the legal rate of interest, as held by all the authorities and by this Court in 2 Min. R. 350, must be the measure of damages in such cases. The rule for the measure of damages in these cases is an arbitrary one, not based either upon the actual value of money, or the loss sustained by the complainant. And although its application to contracts in this State at the present time, may result in many cases in hardship to the money lender, it is better that it should be adhered to, and will probably result in less evil, than for the Court to establish a new rule to meet the particular emergency, even had it the power to do so. The reasons for the view now entertained by the Court on this question, have been further elaborated by the Chief Justice in his dissenting opinion, in the case above cited, and it is deemed unnecessary to dwell upon them at greater length in this connection. The conclusion of the Court is, that upon each of the three notes above described, no greater rate of interest, or rather damages, can be assessed after due, than seven per cent, per annum. The counsel for' the Appellant claims that the Plaintiff below is not entitled to recover any damages, as he has made no allegation in his complaint, that he has suffered damage. But where the action is brought on breach of a money contract, the law implies damages to the extent of legal interest on the sum due. To plead them, therefore, would only be to plead a legal conclusion, which is not only unnecessary, but inadmissible under the Code. The breach being admitted or proved, the damages follow as a necessary consequence, and may be estimated by a jury without proof, though the computation is frequently made by a witness as a matter of convenience. In cases where special damages are claimed, more than the rate allowed by law, they must of course be alleged and proved. As the damages were improperly assessed upon one of the — 347 — notes mentioned in the complaint, and upon the note described in the answer, the judgment below is reversed and the cause remanded for a re-assessment of damages.