O'Brien v. . Young

95 N.Y. 428, 1884 N.Y. LEXIS 667

• Court: New York Court of Appeals
• Decided: April 15, 1884
• Status: Published

Opinions

Earl, J.

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, 53 id. 586; Southern Central R. R. Co. v. Town of Moravia, 61 Barb. 180.) And such is the rule as laid down by the ■ Federal Supreme Court. (Brewster v. Wakefield, 22 How. [U. S.] 118 ; Burnhisel v. Firman, 22 Wall. 170 ; Holden v. Trust Co., 100 U. S. 72.) The same authorities show that after the maturity of such a contract, the interest is to be computed as damages according to the rate prescribed by the law, and not according to that prescribed in the contract if that be more or less.

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 New York Central and Hudson River Railroad Company (50 N. Y. 176), Allen, J., said that “ a statute liability wants all the elements of a contract, consideration and mutuality as well as the assent of the party. Even a judgment founded upon contract is no contract.” In Bidleson v. Whytel (3 Burrows, 1545-1548), it was held after great deliberation and after consultation with all the judges, Lord Mansfield speaking for the court, “that a judgment is no conti’act, nor can be considered in the light of a contract, for judicium redditur in invitum.” To the same effect are the following authorities: (Rae v. Hulbert, 17 Ill. 572; Todd v. Crumb, 5 McLean, 172; Smith v. Harrison, 33 Ala. 706 ; Masterson v. Gibson, 56 id. 56; Keith v. Estill, 9 Port. 669; Larrabee v. Baldwin, 35 Cal. 156; In re Kennedy, 2 S. C. [N. S.] 226; State of Louisiana v. City of New Orleans, 109 U. S. Sup. Ct. 285.)

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 vented mainly for the purpose of giving and regulating remedies. A man ought to pay for services which he accepts, and hence the law implies a promise that he will pay for them. A man ought to support his helpless children, and hence the law implies a promise that he will do so. So one ought to pay a judgment rendered against him, or a penalty which he has by his misconduct incurred, and hence the law implies a promise that he will pay. There is no more contract to pay the judgment than there is to pay the penalty. He has neither promised to pay the one nor the other, The promise is a mere fiction, and is implied merely for the purpose of the remedy. Judgments and penalties are, in the books, in some respects, placed upon the same footing. At common law both could be sued for in an action eos contractu for debt, the action being based upon the implied promise to pay. But no one will contend that a penalty is a contract, or that one is really under a, contract liability to pay it. (McCoun v. N. Y. C. & H. R. R. R. Co., supra.)

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. The rate existing at the time the obligation accrued did not become part of any contract, and hence the law which created the obligation could change or alter it for the future without taking away a vested right or impairing a contract.

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 as the law, during the time of default in paying the principal sum, prescribed as the legal rate.

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 is that there the judgment Was by its terms payable “ with interest.” Here the judgment contains no direction as to interest. The reasoning of the opinion is applicable to this case and is, therefore, read to justify my vote in this. Since writing the opinion, we have decided in the case of Sanders v. Lake Shore and Michigan Southern Railway Co., * the law to be as laid down in the first paragraph of the opinion.

The orders of the General and Special Terms should be reversed and the motion granted, without costs in either court, the parties having so stipulated. f

Andrews, J.

First. The exception in the act of 1879, “ nothing herein contained shall be so construed as to in any way affect any contract or obligation made before the passage of this act,” applies only to contracts or obligations resting upon the mutual agreement of parties. A judgment is not a contract or obligation made between the parties, and only such contracts or obligations are within the exception. (Salter’s Case, 86 N. Y. 401.)

Second. Interest jx>szi diem on a contract for the payment of money is given, not on the principle of implied contract, but as damages for breach of contract. Interest on a judgment, which is an obligation of record to pay the sum adjudged, is given as damages for delay in performing the obligation.

Third. In both cases the measure of damages is the statutory rate. This rule does not rest on the basis of contract, but upon the ground that the creditor has lost by the detention of the debt or obligation the use of the money represented thereby, and the law measures the loss by the statutory interest, upon the assumption that the value of the use of the money to the creditor, if the money had been paid when due, would equal the interest.

Fourth. It would seem to follow in applying the principle upon which interest post diem is given, that if the rate of interest is changed "during the default, the damages increase or diminish" pari passu in the absence of any exception in the statute. The rule of damages does not change, but simply the computation.

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.

* 94 N. Y. 641.