Minn Billiard Co. v. Schwab

179 Wis. 129 | Wis. | 1922

Vinje, C. J.

The substance of the argument of the plaintiff is to the effect that parties have a right to make their own contracts and to enforce the stipulations therein provided for a breach thereof; that in this case the promise to extend the payment of the note due April 1st was made without consideration and was therefore void, and could not be relied upon by the defendants, citing Fanning v. Murphy, 126 Wis. 538, 105 N. W. 1056; Radford v. Smith, 149 Wis. 163, 135 N. W. 472; and Haase v. Blank, 177 Wis. 17, 187 N. W. 669. It is true that a promise without a new consideration for the extension of the time of payment of a debt due is not binding upon the promisor so far as enforcing the payment when due is concerned. But it does not follow from this rule of law that one may make a promise to extend and-then when that promise is relied upon claim and enforce a penalty incurred by reliance upon the promise. If that were so one could by his own false promise .enrich himself. This case furnishes an apt illustration of the inequitable result that would follow from such a" rule. The defendants seasonably asked the plaintiff to give them further time for the payment of an instalment to become due, because at that time they must meet the semiannual payment of interest on a mortgage which is an incumbrance upon the plaintiff’s security. The plaintiff in writing grants the extension; the defendants rely upon it, pay the interest upon the mortgage, thereby keeping the plaintiff’s security good only to find that by relying upon the written promise they have incurred a penalty of over $6,000. The mere statement of the proposition is the severest condemnation thereof that a court of equity can give. It shocks the conscience of the court. It puts a premium upon falsehood and makes a travesty of honest dealings between man and man. The rule that a new consideration must be given for an extension of the time of payment of a debt is harsh enough, and it may be subject to the doubt of its being founded upon conceptions of what modern law should be. But it is established in the jurisprudence of our state and it is not now sought to disturb it. But in a court of equity it cannot be invoked to work the result sought to be reached by the plaintiff.

But the defendants were more than thirty days in default in the payment of the real-estate taxes. Should a court of equity grant relief, or rather refuse to enforce the penalty? Generally speaking it is true that parties have a right to make such lawful contracts as they choose, and that courts will enforce them as made. But there is a well recognized exception to this rule, and that is where a penalty is provided for. In such cases courts of equity will generally relieve against it, and especially where it is grossly out of proportion to the actual damage sustained.

That the trial court correctly construed the contract in case of a default, to provide for a penalty and not for liquidated damages, is clear. The law is well settled that where the contract provides that a larger sum shall be paid upon default to pay a lesser sum in the manner prescribed; or where the agreement is as to a matter certain in Value, ancl the sum fixed upon in case of a default is greater than the defaulted sum or the whole amount of the total debt paid according to the tenor of the instrument, it is a penalty and not liquidated damages. Seeman v. Biemann, 108 Wis. 365, 84 N. W. 490; J. G. Wagner Co. v. Cawker, 112 Wis. 532, 88 N. W. 599; Madison v. American S. E. Co. 118 Wis. 480, 95 N. W. 1097; Bagley v. Peddie, 5 Sandf. (N. Y.) 192; Beale v. Hayes, 5 Sandf. (N.Y.) 640; Peine v. Weber, 47 Ill. 41; Haldeman v. Jennings & Co. 14 Ark. 329; Krutz v. Robbins, 12 Wash. 7, 40 Pac. 415, and cases cited; Tiernan v. Hinman, 16 Ill. 400. The rule is the same in England. Astley v. Weldon, 2 Bos. & Pul. 346. In Kemble v. Farren, 6 Bing. 141, 148, Tindal, C. J., said:

“That a very large sum should become immediately pajrable in consequence of the nonpayment of a very small sum, and that the former should not be considered as a penalty, appears to be a contradiction in terms; the case being precisely that in which courts of equity have always relieved, and against which courts of law have, in modern times, endeavored to relieve by directing juries to assess the real damages sustained by the breach of the agreement.”

Here, because the indebtedness bore no interest until after maturity, the defendants, by reason of the failure to pay taxes in the sum of $1,713.54 when due, were called upon to pay the sum of $6,064.80 more than the present worth of the whole indebtedness. This is a penalty with a vengeance.

A large number of cases are cited by appellant where options to declare the whole amount due in case of default have been enforced where instalments are to be paid with interest. Such cases are not in point. If I pay my present créditor interest I can just as well pay another creditor interest. But if I do not pay my present creditor interest and have to pay the whole debt presently by reason of a default, I lose the value of the use of my money for the remainder of the credit period. Here such value was found by the trial court to be $6,064.80. Counsel for respondents states that he has found only three reported cases of a like kind where the debt has been without interest until maturity. These are Krutz v. Robbins, 12 Wash. 7, 40 Pac. 415; Tiernan v. Hinman, 16 Ill. 400; and Russell v. Wright, 23 S. Dak. 338, 121 N. W. 842. In the first two cases the court found the default created a penalty and relieved against it. In the latter case, by a divided court, no relief was granted the party in 'default. In Krutz v. Robbins notes bore interest at the rate of seven per cent., and it was provided that if a default in payment occurred they should bear twelve per cent, interest from their date. Held, that the added five per cent, was a penalty and could not be enforced in equity. In Tiernan v. Hinman the debt was payable in instalments without interest, and it was held that to enforce a default by declaring the whole amount presently due constituted a penalty not enforceable in equity. In Russell v. Wright two notes of $100 each, payable in five equal annual instalments without interest till due, and thereafter, or in case of default as to any payment, the whole amount could be declared due with twelve per cent, interest, were involved. The majority of the court were of the opinion that an enforcement of the default constituted no penalty. We decline to indorse such result. The sum there exacted was far in excess of the actual damage, which could easily be ascertained. It was clearly a case of penalty though in a small amount.

In the present case the default as to payment of taxes was promptly made good before suit was brought, so we have not set out the evidence of the defendant showing quite satisfactorily that it was incurred through a misunderstanding. Even if knowingly made, equity would relieve against the penalty in the present case under the circumstances as they exist, and it is quite probable that under several other well recognized equitable principles defendants would be entitled to relief; but we préfer to place it upon the single ground that an unconscionable penalty is sought to be enforced, to which enforcement a court ■ of equity will not lend its aid. He who seeks equity must do equity.

By the Court. — Judgment affirmed.