Gower v. Carter

Stockton, J. The first question arising in this cause, is as to the correctness of the decision of the District Court, in sustaining the demurrer to defendants’ answer. The answer is certainly most inartifically drawn. It is clearly insufficient in the facts it sets forth, to show that there was anything usurious in the contract between the parties, whereby defendants agreed to pay the several sums of money when the promissory notes respectively fell due. If the contract was usurious, the plaintiffs, under section 5, Act of February, 1853 (Session Acts, p. 68), would only have been — 252 — entitled to judgment for the principal sum loaned, without interest or costs. The contract itself is not rendered void. The object of the defendants, then, should have been to have stated such facts as would have shown the contract usurious, in order to avoid the payment of the interest and costs. But there are no facts alleged, to show that there had been any substantial payment, or agreement to pay, more than the law allows, either for the use of money lent, or for the forbearance of money due and payable. The agreement to pay the penalty of two and a halfper centum per month, in default of payment of the principal sum and interest when due, formed no part of the consideration of the several promissory notes, or either of them, and consequently does not affect them with the taint of usury. The agreement was in its language and terms, a penalty to secure the faithful performance of the original contract. If this contract had been performed by the defendants, and the money j)aid according to the tenor and effect of their undertaking, at the time the promissory notes fell due, there would clearly have been no usurious interest paid or received. The defendants then had it in their power to obviate the objectionable feature of the contract of which they complain, and by their own act, free the promissory notes of the supposed taint of usury, to which they now object. Where a party agrees to pay a sum of money by a day certain, and more than legal interest afterwards, by way of penalty, if the debt be not punctually paid, such agreement is not usurious. The authorities to support this point are numerous, and we refer to the following, among others: Wright v. Shuck, Morris, 425; Shuck v. Wright, 1 G. Greene, 128; Lawrence v. Cowles, 13 Ill. 577; Wells v. Girling, 1 Broderip & Bingham, 447; Brockway v. Clark, 6 Hammond, 45; Cutler v. How, 8 Mass. 257; Gambriel v. Doe, 8 Blackford, 140; Kelly on Usury, 76 ; Parsons on Mercantile Law, 256 ; 2 Parsons on Contracts, 293. This contract, therefore, not being in our opinion usurious, the demurrer to defendants’ answer was properly sustained by the court. It appears from the record, that in the further progress of the cause, after sustaining the demurrer to so much of the — 253 — defendants’ answer as was intended to set up tbe defence of usury, the court rendered judgment for tbe plaintiff for $3,427.40, being for tbe amount of tbe notes and interest to maturity, together witb tbe penalty of two and a balf per centum per month. It is now assigned for error, by tbe defen dan ts, tbat this judgment is for too great a sum; tbat tbe plaintiff was entitled to judgment for tbe amount of tbe notes and interest only; and that tbe court should not have included in tbe judgment tbe penalty of two and a balf per centum per month. Tbe defendants’ agreement to pay tbe two and a balf per centum per month, as a penalty in default of payment of tbe promissory notes at their maturity, is not essentially different from an agreement to pay a gross sum as such penalty. Nor do we perceive tbat either of tbe notes sued on, is essentially different from a penal bond, by which tbe obligor binds himself to pay tbe obligee a certain sum, witb a condition appended, by which tbe first obligation is to be void on tbe payment of tbe lesser sum to tbe obligee, by a day certain. The real nature and essence of tbe agreement, is always disclosed by tbe condition of tbe bond or undertaking. In tbe present case, tbe condition of tbe contract was to pay tbe notes witb interest, by a certain day. If not paid punctually when due, defendants’ promise to pay as a penalty for the default, two and a half per centum per month from maturity until paid. Are the plaintiffs entitled to enforce this penalty against tbe defendants, on their failure to pay tbe notes at their maturity ? We may first remark, however, that on examination of tbe petition, we find tbat it does not set forth any breaches on tbe part of defendants, as on a penal bond. It does not aver what amount is claimed by plaintiffs, as due from defendants; nor does it pray j udgment for tbe amount of tbe penalty. We refer to this, in connection witb tbe question made by defendants in their assignment of errors, viz: whether tbe court should have rendered judgment for tbe penalty of two and a balf per centum per month, and if not, for what amount should judgment have been rendered ? — 254 — The consideration of this question, renders it advisable to inquire to some extent into the nature and history of actions for penalties, and on penal obligations. In an action of debt on a penal bond for condition broken, the amount which the plaintiff was entitled to recover, was originally the penalty. The action could not be relieved against either, by payment or tender. This severe rule of the' common law was only mitigated, by the practice of the courts of chancery, which interposed and would not allow the creditor to take more than in conscience he ought. Sedgwick on the Measure of Damages, 393. From the time that it became settled in equity, that the condition of the bond was the agreement of the parties, the obligor was relieved from the penalty. Yery soon arose the practice, enforced by legislation, requiring the plaintiff to assign breaches in his declaration, and the jury on the trial assessed such damages for the breaches assigned, as the plaintiff on the trial might prove. And it is enacted by the Code of Iowa, section 1818, that, “ in actions on penal bonds, the petition must set forth the breaches, and th'e judgment rendered thereon, must be for the actual damages only.” It may, therefore, be laid down as a settled rule, that no other sum can now be recovered under a penalty, than that which shall compensate the plaintiff for his actual loss. The penalty is in no sense the measure of compensation; and the plaintiff must show the particular injury of which he complains, and have his damages assessed by a jury. Such damages, it is further held, are not necessarily nominal, and the jury may give substantial damages, if they see fit. Sedgwick on Damages, 396, 397. In the case of a loan of money, although in point of fact, a creditor may suffer the most serious inconvenience for the want of punctual payment of his debt, as happens every day, and a subsequent payment of principal and interest may be á very inadequate compensation for the original disappointment, it may be stated as a general rule, that a promise of paying a penalty beyond the amount of legal interest, cannot be enforced. 2 Pothier on Obligations, Appendix, 87. Where the penalty has been incurred, the ends of justice may — 255 — be arrived at, by reducing tbe penalty to tbe actual debt. 2 Parsons on-Contracts, 398. The case of Groves v. Groves, 1 Washington, 1, was an agreement for the payment of a debt at a certain day, and if not paid punctually, then for the payment of a larger sum; the court held that a contract to pay a larger sum at a future - day, was not usurious, and that the increased sum should be considered as a penalty, against which equity ought to relieve, on compeirsation being made. So in Brockway v. Clark, 6 Hammond, 45, the Supreme Court of Ohio held, that where a money lender takes from a borrower, an obligation for a greater amount than the money lent, and stipulated interest, with an undertaking on his part to receive a less sum in discharge'of the obligation, if punctually paid, equity may relieve against the excess as a penalty, on the same principle upon .which parties are ordinarily relieved from penalties. The same was granted at law in Massachusetts, in the case of Cutler v. Howe, 8 Mass. 257. After a verdict by the jury for the plaintiff, assessing the damages, the court directed a certain amount of the penalty, which it deemed oppressive, to be deducted from the amount ascertained by the verdict, and judgment was entered on the verdict'as amended. In Shuck v. Wright, 1 G. Greene, 128, the note was for the sum of $300, payable two years after date, and to bear interest after maturity, if not paid, at the rate of fifty per centum per annum. Suit being brought by the holder of the note to foreclose a mortgage, given to secure its payment, the petition prayed judgment for the amount of the note, with such interest as the court should deem just and proper. Judgment was given for the plaintiff, for the amount of the note and interest sX six per centum per annum. This judgment was affirmed by the Supreme Court (1 G. Greene, 128), and we may consider that the principle was thereby settled, so far as the authority of this court could settle it, that the plaintiff was not entitled to judgment for the penalty of fifty per centum per annum, but for six per cent. only. In another class of cases, where the parties have agreed upon a sum certain as the measure of damages, in order as — 256 — far as possible to avoid all future questions as to tbe amount of damages, which may result from the violation of the contract ; and where a definite sum was named, as settled and liquidated, if the construction of the phraseology would work oppression, the use of the term, “ liquidated damages,” did not prevent the courts from inquiring into the actual injury sustained, and doing justice between the parties. No damages for the mere non-payment of money, can ever be so liquidated between the parties, as to evade the provisions of the law, which fix the rate of interest." Sedgwick on the Measure of Damages, 400. In Orr v. Churchill, 1 H. Blackstone, 282, Lord Loughborough said: “There can only be an agreement for liquidated damages, where there is an agreement for the performance of certain acts, the not doing of which would be injurious to one of the parties; or to guard against the performance of acts, which if done, would also be injurious. But in cases like the present, the law having fixed by positive rules, the rate of interest, has bounded the measure of damages.” In the case of Gray v. Crowley, 18 Johnson, 226, where a party covenanted on a certain contingency, to pay to another, a sum of money, with a proviso, that if he failed or refused, then he would pay a larger sum as liquidated damages, the Supreme Court of New York, say, “ such facts constitute no right to recover beyond the money actually due. Liquidated damages are not applicable to such a case. If they were, they might afford a secure protection for usury, and countenance oppression under the forms of law.” On a consideration of these authorities, we have no hesitation in coming to the conclusion, that the District Court erred in rendering judgment against defendants for the penalty of two and a half per centum per month, stipulated in the notes. The plaintiff was entitled to recover only the several sums agreed to be paid, with the interest at the rate of tender centum per annum, and the cause being heard on the petition and exhibits only, the judgment should have been for the money actually due, without the addition of the penalty. — 257 — Tbe judgment having been rendered, without any objection made to it in the District Court, and without any effort there to correct or reduce the amount of the damages, we have inquired whether the defendants can now ask to have the same corrected in this court, and assign for error that the judgment was for too great a sum. The questions made by defendants, however, we think, arose properly in this case, and the errors are well assigned. Even when the judgment below has been by default, this court will correct any errors apparent on the face of the proceedings, as when the judgment is for more than is claimed by plaintiff, or where, as in this case, it is for more than he is rightfully entitled to recover. Roberts v. Smith, &c., Morris, 417; Doolittle v. Shelton, 1 G. Greene, 27. The judgment of the District Court will therefore be reversed. Judgment reversed.