O'Brien v. Young

By the decided weight of authority in this State, where one contracts to pay a principal sum at a certain future time with interest, the interest prior to the maturity of the contract is payable by virtue of the contract, and thereafter as damages for the breach of the contract. (Macomber v. Dunham, 8 Wend. 550 ; United States Bank v. Chapin, 9 id. 471; Hamilton v. Van Rensselaer, 43 N. Y. 244 ; Ritter v. Phillips,

But when the contract provides that the interest shall be at a specified rate until the principal shall be paid, then the contract rate governs until payment of the principal, or until the contract is merged in a judgment. And where one contracts' to pay money on demand “ with interest,” or to pay money generally “with interest,” without specifying time of payment, the statutory rate then existing becomes the contract rate and must govern until payment, or at least until demand and actual.default, as the parties must have so intended. (Paine v. Caswell, 68 Me. 80 ; 28 Am. Rep. 21 ; Eaton v. Boissonnault, 67 Me. 540 ; 24 Am. Rep. 52 .)

If, therefore, this judgment, the amount of which is by its terms payable .with interest, is to be treated as a contract — as a bond executed by the defendants at its date, then the statutory rate of interest existing at the date of the rendition of the judgment is to be treated as part of the contract and must be paid by the defendants according to the terms of the contract, and thus the plaintiff’s contention is well founded.

But is a judgment, properly speaking, for the purposes now in hand, a contract ? I think not. The most important elements of a contract are wanting. There is no aggregatio mentium. The defendant has not voluntarily assented. All the authorities assert that the existence of parties legally capable of contracting is essential to every contract, and yet they nearly all agree that judgments entered against lunatics and others incapable in law of contracting are conclusively binding until vacated or reversed. In Wyman v. Mitchell (1 Cowen, 316), Sutherland, J., said that “ a judgment is in no sense a contract or agreement between the parties.” In McCoun v. The

But in some decided cases, and in text-books, judges and jurists have frequently, and, as I think, without strict accuracy, spoken of judgments as contracts. They have been classified as contracts with reference to the remedies upon them. In the division of actions into actions ex contractu and ex delicto, actions .upon judgments have been assigned to the former class. It has been said that the law of contracts, in its widest extent, may be regarded as including nearly all the law which regulates the relations of human life; that contract is co-ordinate and commensurate with duty; that whatever it is the duty of one to do he may be deemed in law to have contracted to do, and that the law presumes that every man. undertakes to perform what reason and justice dictate he should perform. (1 Pars. on Cont. [6th ed.] 3; 2 Black. Com. 443; 3 id. 160 ; McCoun v. N. Y. C. & H. R. R. R. Co., supra.) Contracts in this wide sense are said to spring from the relations of men to each other and to the society of which they are members. Blackstone says: “ It is a part of the original contract entered into by all mankind who partake the benefits of society, to submit in all points to the municipal constitutions and local ordinances of that state of which each individual is a member.” In the wide sense thus spoken of the contracts are mere fictions in

Suppose a statute gives a penalty to an aggrieved party, with interest, what interest could he recover ? The interest allowed by law when the penalty accrued, if the statutory rate has since been altered? Clearly not. He would be entitled to the interest prescribed by law during the time of the defendant’s default in payment. There would, in such a case, be no contract to pay interest, and the statutory rate of interest at the time the penalty accrued would become part of no contract. If, therefore, a subsequent law should change the rate of interest, no vested right would be interfered with, and no contract obligation would be impaired.

The same principles apply to' all implied contracts. When one makes a valid agreement to pay interest at any stipulated rate for any time, he is bound to pay it, and no legislative enactment can release him from his obligation. But in all cases where the obligation to pay interest is one merely implied by the law or is imposed by law, and there is no contract to pay except the fictitious one which the law implies, then the rate of interest must at all times be the statutory rate.

In the case of all matured contracts which contain no provision for interest after they are past due, as I have before said, interest is allowed, not by virtue of the contract, but as damages for the breach thereof. In such cases what would be the effect of a statute declaring that no interest should be recovered? As to the interest which had accrued as damages before the date of the law, the law could have no effect because that had become a vested right of property which could not be taken away. But the law could have effect as to the subsequent interest, and in stopping that from running would impair no contract. A law could be passed providing that in all cases of unliquidated claims which now draw no interest, interest should thereafter be allowed as damages; and thus there is ample legislative power in such cases to regulate the future rate of interest without invading any constitutional right. When a man’s obligation to pay interest is simply that which the law implies, he discharges that obligation by paying what the law exacts.

This judgment, so far as pertains to the question we are now considering, can have no other or greater force than if a valid statute had been enacted requiring the defendant to pay the same sum with interest. Under such a statute, interest would be computed, not at the rate in force when the statute was enacted, but according to the rate in force during the time of default in payment. A different rule would apply if a judgment or statute should require the payment of a given sum with interest at a specified rate. Then interest at the rate specified would form part of the obligation to be discharged.

Here, then, the defendant did not in fact contract or promise to pay this judgment, or the interest thereon. The law made it his duty to pay the interest, and implied a promise that he would pay it. That duty is discharged by paying such interest

If this judgment had been rendered at the date the execution was issued, interest would have been computed upon the original demand at seven per cent to January 1, 1880, and then at the rate of six per cent. Shall the plaintiff have a better position because the judgment was rendered prior to 1880? '

As no intention can be imputed to the parties in reference to the clause in the judgment requiring payment “ with interest” we may inquire what intention the court had. It is plain that it could have had no other intention than that the judgment should draw the statutory interest until payment. It cannot be presumed that the court intended that the interest should be at the rate of • seven per cent if the statutory rate should become less.

That there is no contract obligation to pay the interest upon judgments which is beyond legislative interference is shown by legislation in this country and in England. Laws have been passed providing that all judgments should draw interest, and changing the rate of interest upon judgments, and such laws have been applied to judgments existing at their date, and yet it was never supposed that such laws impaired the obligation of contracts.

It is claimed that the provision in section 1 of the act of 1879, which reduced the rate of interest (Chap. 538), saves this judgment from the operation of that act. The provision is that “ nothing herein contained shall be so construed as to in any way affect any contract or obligation made before the passage of this act.” The answer to this claim is that here there was no contract to pay interest at any given rate. T'1plied contract, as I have shown, was to pay such ínteres law prescribed, and that contract is not affected or intev with.

The foregoing was written as my opinion in the case Prouty v. Lake Shore and Michigan, Southern Railway Company. The only difference between that case, and this

Fifth. The cases which hold that a note payable with interest, but specifying no time, draws interest until default or payment at the statutory rate existing when the note was made, proceed upon an interpretation of the contract. They do not govern the case of a judgment, as right to interest on a judgment is given by law, and not by the agreement of the parties.

I therefore concur in the conclusion reached in the opinion of Earl, J.

Judgment upon contract was entered in favor of the plaintiff, on the 10th of February, 1877, for the sum of $2,994.64. On the 19th of November, 1883, execution was issued for its enforcement with directions to collect the whole amount, with interest at seven per cent. The defendants applied by motion to the Special Term of the Supreme Court for an order restraining the sheriff from collecting interest at a greater rate than six per cent per annum after January 1, 1880. It was refused and the decision then made was affirmed by the General Term of that court.

It is not denied by the appellant that the order appealed from was properly made, if the act of 1879, relating to “ the interest of money” (Laws of 1879, chap. 538), is to regulate the computation of interest upon the judgment, and whether it 'does so or not is the only question before ns.

The statute (supra)was passed on the 20th day of June, 1879, to take effect on the 1st of January, 1880, except as to contracts or obligations made before its passage. These are declared to be exempt from its operation, and must consequently be governed by 1 R. S. 771, § 1, which continued the rate of interest at seven per cent. It is well settled that a judgment meiges or extinguishes the right of action which before existed, and itself becomes a debt or contract of record for the

In 1813 it was provided (1 R. L. 506, 556), that in all executions on judgments thereafter to be recovered upon contract, it should be lawful to direct the collection of interest from the time of recovery, until paid, and it was held in Sayre v. Austin (supra, Jan., 1830), that a judgment was a debt due “ in every possible sense of the term.” “ A debt,” say the court, “ due with interest from the time of its rendition, which since the statute, may be collected upon the execution, and before the statute could have been recovered by action

The course of English legislation and decision is not unlike our own. By 1 and 2 Vict., chap. 100, § 17, it is enacted that every judgment shall carry interest at the rate of four pounds per centum per annum until satisfied. In European Central R. Co. (supra), judgment had been obtained upon a railway debenture bearing six per cent interest, and the plaintiff claimed a right to that rate after judgment, but the court held otherwise, upon the ground that, after the recovery of judgment, it became the sole debt between the parties, saying, “ the original debt is gone transit in rem judicatura, and a fresh debt is created with different consequences,” and there is no other debt

A note, by its terms declared to bear interest until paid, but naming no day of payment, although made before the statute referred to, would, if paid after its passage, entitle the holder to the rate of interest prescribed by the statute in force when the note was made. Such would be the effect of the contract. If day of payment was named, and it fell due on and after the passage of the act, it would bear interest until that time according to the statute in force when made.,, Up to that time it was part of the debt (Keene v. Keene, 3 C. B. [N. S.] 144), and after maturity it is given as damages, and according- to the statute then in force ; for at that time, the law interferes not only to allow, but to regulate the rate of interest, on account of a detention beyond the term of the contract. In the last case, therefore, interest would run by operation of law, after maturity, and by contract up to that time. How a judgment is like the note first supposed. It bears interest lentil paid) by force of the contract which the law implied into it at the time it was recovered. It then became a contract with no time of payment specified, but beginning to bear interest, and by the implied agreement to continue to bear it until paid.

In Miller v. Burroughs ( 4 Johns. Ch. 436 ) the bond expressed six per cent per annum as the rate of interest, but the plaintiff claimed seven per cent, the statute rate, after pay-day had passed. The court decreed interest at six per cent, saying: “ The contract must control until it ceases to operate by being merged in the decree.” The condition of the bond is not set out, and it may be inferred from the remark of the court that the agreement extended until the money should be paid. If so, it would resemble the bond considered by us recently in Taylor v. Wing ( 84 N. Y. 471 ), where it was stipulated in plaintiff’s mortgage (made prior to 1879) that the principal sum should bear interest at seven per cent until paid. It was

In Paine v. Caswell ( 68 Me. 80 ; 28 Am. Rep. 21 ), a note, similar to one I have above supposed, came before the court; it read: “For value received, we promise to pay John S. Paine, or order, $500 and interest at ten per cent.” The question was for how long a period was that rate of interest to be paid. It was held first, that a note payable at a time certain, with interest exceeding six per cent (the legal rate), would draw the stipulated rate till the time specified for payment, and no longer, for the bargain for interest extended only to that time, and after that the statutory rate, allowed by way of damages; second, that it would be otherwise where the note stipulated for the extra rate, after as well as when it became due, or.until paid; third, that upon the contract in question, interest should be reckoned up to the date of judgment to be recovered upon the note. It was held that the substance of the contract was that the maker would pay the stipulated rate of interest so long as the note might run. So it is with a judgment and the statute which takes the place of the contract.

In Klock v. Robinson (supra), Judge Cowen examined the question with his accustomed care and fullness of research, and quotes with approval the saying of the court in Prince v. Lamb (Breese, 299) that “ the judgment is a debt, and may be assimilated to a contract to pay a sum certain with interest. Such interest is recoverable as a part of the contract, in the present case, by way of damages for the detention of the debt, the interest being a part of the judgment.”

It would seem to follow that the judgment in the case before us was a contract of debt — an obligation bearing interest until paid, and by necessary implication at the rate fixed by law at the time it was entered, and by the very terms of the statute (Laws of 1879, supra) to be unaffected by its provisions. Suppose the statutes permitting interest to be col

The precise question presented by this appeal has been repeatedly considered by the courts of Hew Jersey, and it is there held that whether the debt is evidenced by judgment or agreement can make no difference, and that the judgment continues to draw interest according to the law existing at the time of the recovery, although in the mean time the rate of interest is changed by statute. (Cox v. Marlatt, 36 N. J., L. R., 389; 13 Am. Rep 454 .) And somewhat analogous to this are the decisions of the late Supreme Court in this State, under section 3 of the act of 1844, supra. It was there declared lawful for any party who shall have obtained a verdict in his favor to tax interest upon such verdict from the time of obtaining the same to the time of perfecting judgment thereon, and it was held to have no application to a verdict rendered before the passage of the act, although judgment was not entered until after. (Bailey v. Mayor, etc., 7 Hill, 146 ; Ball v. Ketchum, 2 Denio, 188 .) Salter v. Utica & Black R. R. R. Co. ( 86 N. Y. 401 ) is not opposed to these views. In that case interest accrued, not under a contract, but as compensation for an injury, the statute

It has been argued by the appellant that the saving clause of the statute of 1879 {supra) relates only to contracts whereby one man binds himself to another, and not such as originate by the act and operation of law independently of their agreement. A distinction of this kind may sometimes be taken as in People, ex rel. Dusenbury, v. Speir ( 77 N. Y. 144 ), where in favor of personal liberty, and in, view of all the provisions of the act (Laws of 1831, chap. 300) to “ abolish imprisonment for debt and to punish fraudulent debtors,” then under examination, it was held that the contract referred to meant one to which the assent of both parties had been in fact given, and not one where such assent was a mere fiction of law; that the first might be the basis of proceedings then in question, and the other not. But however formed, such a contract leads to an obligation, and under a statute which speaks generally of “ contracts or obligations made before” a certain time, we are not to ask how any particular obligation was created. There is nothing in the act which calls for such an inquiry. If an obligation exists, it is because it has been made, and whether it was because two persons were of the same mind, or because the law acting upon both bound each to the other, is immaterial. The obligation, whether by contract or quasi contract, is the same, and in either case, in applying the statute now before us, we have only to ascertain the time when the obligation was produced. In the cases cited by the appellant to show that a judgment is not a contract, it is conceded to be a quasi contract, because, as is said in some of them, and implied in all, “ it establishes a legal obligation to pay the amount recovered.” Therefore these cases, as well as the ones above referred to as- showing that a judgment is to all intents and purposes a contract, agree in this, that a judgment is an obligation. Nothing more is necessary to sustain the respondent’s position.

¡ It must be conceded by all that the judgment was an obligation1 upon which, when entered up, the defendants at once became liable to pay and the plaintiff to demand interest at the

I am in favor, therefore, of affirming the order appealed from.

Bügker, Gh. J., and Finch, J., concur with Earl and Andrews, JJ.; Miller and Danforth, JJ., dissent.

Orders reversed and motion granted.