Connecticut Mutual Life Insurance v. Westerhoff

Harrison, C. J. On April 2, 1894, -the appellee John Westerhoff and his wife executed and delivered to the appellant a prom [380] issory note in the sum of $1,800, payable five years after date, to bear interest at the rate of six per cent per annum, payable semiannually. The note had attached to it ten coupons, each of which evidenced the indebtedness of the makers of the principal note for an installment of the interest which was to become due thereon. In the principal note appeared this sentence: “This note to draw nine per cent interest per annum after default in payment of principal or interest,” and in each coupon there was the statement that “This note bears interest at nine per cent after due.” To secure the payment of the nóte and interest there was made and delivered a mortgage on a piece of real estate, and in the mortgage was embodied the following provision: “And it is agreed that if default shall be made in the payment of the said notes, or any part of the interest thereon, promptly as they mature, * * * then all of the said notes, and the whole of the indebtedness secured by this mortgage, * * shall become due and collectible at once, by foreclosure or otherwise, and without notice of broken conditions. * * * And it is hereby agreed that after any default in the payment„of the principal-or interest, the whole indebtedness secured by this mortgage shall draw interest at the rate of nine per cent per annum.” It appears that the note was executed for the amount of a loan made by the appellant to John Westerhoff, one of the appellees, that the agreed rate of interest of the loan was seven per cent per annum, of which one per cent per annum for the time of the loan, or $90, was collected at the time of the inception of the loan. The appellant commenced this action in the district court of Seward county on April 17,1895, and alleged for cause that there had been default in payment of each of the two first installments of interest due on the note, whereby the, whole indebtedness had become due and the conditions of the mortgage had been broken. A foreclosure was asked and the allowance of interest at the rate of nine per cent per annum on the whole sum from the date of the first default. In the [381] answer of tlie appellees, the Wester hoffs, the execution and delivery of the notes and mortgage were admitted, and it Avas pleaded that at a date subsequent to the maturity of the first interest coupon the amount thereof, with nine per cent per annum from its maturity, also the amount of tlie second coupon to become due, _ was tendered to the appellant; that of such tender there ivas a refusal; that like tender was made at a later date, but was refused, as was a third and still later one. These tenders were to different parties and at different places. The district court, on trial, dismissed the action and the mortgagee has appealed. There are but two main questions presented in the appeal, viz.: Was the appellant entitled to enforce the note and mortgagé as past due because of the default in the payment of the interest; and in this connection was there evidence of the default or a lack thereof? Second — If entitled to foreclosure, should the decree be for nine per cent per annum from the date of the default in payment of the interest coupon? Of the latter branch of the first question it must be said that in the answer there were statements which in effect constituted an admission of the failure to pay the amount of the first coupon at its maturity, and as to the first and main point of that question, that it is well established that for any default in the payment of the installments of principal or interest provided in a note and mortgage, or either, the further provision of the accelerated maturity of the debt or portions thereof is not a forfeiture and may and will be enforced as the allowable contract of the parties. (Pope v. Hooper, 6 Neb. 178; Lowenstein v. Phelan, 17 Neb. 430; Morling v. Bronson, 37 Neb. 608; Eastern Banking Co. v. Seeley, 55 Neb. 660; Pomeroy, Equity Jurisprudence sec. 439; Wheeler v. Howard, 28 Fed. Rep. 741; Whitcher v. Webb, 44 Cal. 127.) And the tender of the overdue interest after the default did not deprive the mortgagee of his right of foreclosure. (Swearingen v. Lahner, 61 N. W. Rep. [Ia.] 431.) [382] In regard to the second question it must be said that the portions of both note and mortgage (in them there was coincidence) in which it was provided that on default in payment of either principal or interest the whole sum due should bear interest at nine per cent per annum, which was coupled with a further provision in the mortgage that in the event of such default the whole debt should become due and collectible, attached something additional to the amount which was to be paid for the use of the principal sum, not because of any default directly in its payment, but for default in payment of a sum or the sums to be given for its use. The amounts to be paid for the use of the principal sum had been definitely fixed and set forth in terms in both note and mortgage, and the additional amount to be borne because of default in payment of interest was within the principle approved by this court in Upton v. O’Donahue, 32 Neb. 565, and Hallam v. Telleren, 55 Neb. 255, of the nature of a penalty, and will not be enforced. It follows from what has been said-that the judgment of the district court will be reversed and the cause remanded to that court with instructions to enter a decree of foreclosure for the amount of the note and mortgage and interest at six per cent per annum from the commencement of the action, — this portion of the decree to bear interest at seven per cent per annum; also for the amount due on interest coupons with interest at nine per cent per annum from the defaults in payments, and interest at the same rate on this branch of the decree. Reversed and remanded.