Wilson v. Davis

1 Mont. 183 | Mont. | 1870

Knowles, J.

Although exceptions were taken to the findings of the reports of the referees in this case, the testimony upon which they based their findings is not made a part of the record in this court. Hence we cannot review them; and they must stand as true. No exceptions appear in the record to the findings of fact by the court below. These also then must stand as true. There are no specifications in the record of errors committed in rendering the decree by the court below. This, however, was not objected to by counsel for respondent; and waiving this objection the only points we can consider are those which appellants have presented in their brief, and which appear on the face of the records.

It appears from the findings of the court below, and the referees in this cause, that Davis contracted to sell Fredericks an undivided one-half of the Madison mills, together with the land upon which the same was situated, and all the appurtenances thereto attached, together with some personal property. That to secure the contract price for said property Fredericks executed and delivered to Davis his two promissory notes, one for flour and the other for gold dust, and to secure the payment of these executed and delivered to Perkins his deed of trust for the benefit of Davis on the said mill property.

Subsequent to this Fredericks contracted to sell, and did sell to Wilson an undivided one-half of said property; and in pursuance with said contract Wilson and Fredericks entered into the joint possession of said property.

Fredericks after this sale to Wilson confessed two judgments on the aforesaid promissory notes, in Meagher county, in favor of Davis. The court below set these two judgments aside as a fraud upon the rights of Wilson.

All title that Davis may have acquired to said property by virtue of a sale thereof under these judgments failed in consequence of the annulling the said judgments. The deed from Fredericks and wife to Davis the court also declared fraudulent' and void. Appellants make no point upon these rulings in their brief. And if they did, there cannot be any doubt from the report of the referee, Blake, that sufficient does appear to have fully warranted the court in so setting the smaller of said judgments aside for that cause, and that defendant, Davis, was not in the least damaged by the setting aside of the other, as this court has held that judgments bear only ten per cent interest; and as any rights Navis acquired to said property by a sale thereunder was in subordination to Wilson’s rights. Navis knew of Fredericks’ sale to Wilson; and hence as to his rights, the sale by Fredericks to him (Navis) was a fraud. It was an attempt by Fredericks to convey what he had parted with. All that is left for this court to consider then, is the rights of the several parties to this action under the contract of sale from Navis to Fredericks, the deed of trust to Perkins, and the contract of sale by Fredericks to Wilson. Considerable is said in the brief of appellants in regard to the right of Wilson to be subrogated to the rights of Navis.

The decree entered by the court below does not purport to do this. It allows Wilson to pay off the incumbrance against the joint property of Fredericks and Wilson. This is no novel right, but one which the law clearly guarantees. It also decrees that the amount paid by Wilson in excess of that paid by Fredericks shall be a lien upon their joint property. It would appear from the contract between Fredericks and Wilson, which is a part of this record, that these parties hadbeen clearly partners, and that this property was partnership property. The law gives to each partner a lien upon the joint effects of the partnership for any excess over his partner which he has contributed to their joint business, and to preserve them joint property. It decreed that upon the payment to Navis of the amount for which he contracted to sell said property to Fredericks, together with five per cent interest per month thereon, without any interest upon interest, Navis should make a conveyance to Fredericks. Wilson having by law a lien upon whatever interest Fredericks had in said property, could properly demand of Navis a conveyance to Fredericks of an undivided one-half of said property, upon his receiving what he was legally entitled to under the contract to sell the same.

This brings us to the consideration of the question of how much Navis was entitled to receive of Fredericks, or his grantee, before he could be compelled to make a deed to said property. The note given by Fredericks, payable in gold dust or its equivalent in United States treasury notes, to secure the payment of part of the purchase-money for said property, stipulated that the principal should bear five per cent interest per month, payable monthly ; and that, if this interest should not be paid when it fell due, then this interest should bear the same rate of interest as the principal. The court below refused to allow this interest upon interest. This is assigned as error in appellant’s brief.

■ It seems to be a well-settled principle, in courts of equity, not to allow interest upon interest where the contract to pay the same was made at the time of the original contract, and before any interest had become due, where the payee seeks to enforce such a contract, although a stipulation to that effect would not vitiate the original contract. Selleck v. French, Am. Lead. Cases, 534.

If Davis, then, would not be entitled to demand of Fredericks interest apon interest, if he sought to collect the same and to enforce his lien upon said property, there is no reason for requiring Fredericks or Wilson to pay him more than he could recover, before they could demand of Davis a cancellation of the deed of trust at least.

It is claimed, however, that it would be inequitable to compel Davis to convey his property for less than he had agreed to. That a coart of equity might think it inequitable to compel Fredericks to pay compound interest, if Davis sought to collect the same, and, upon application, might relieve Fredericks of this contract as oppressive and unconscionable, but that they cannot say to Fredericks you need not pay what you agreed to, and, to Davis, you must convey your property for less than you agreed.

In law, what did Fredericks agree to pay Davis for this property, and what did Davis agree to convey it for %

Interest upon interest was not allowed at common law, although awarded by a special contract to that effect. Pars. on Bills & Notes, vol. 2, p. 391; Rensselaer Glass Factory v. Reid et al., 5 Cow. 609.

It was considered a violation of the laws of God, and contrary to good conscience; although an English statute was enacted, prohibiting all interest above a certain amount. This left it to parties to agree to any interest less than that amount.

It was thought better, perhaps, that a small interest should be collected legally, than that a large interest should be collected illegally and by evasive means. This statute, however, was" never construed by the English courts as allowing compound interest in any amount. The current of English authorities are adverse to allowing compound interest. The only modification which this English statute of Henry the VIII, before referred to, made then in the common law, was to allow simple interest, when agreed to by the parties, for any amount, not to exceed ten per centum per annum. Thus stood the common law, I think, when this government became independent. The legislative assembly of this Territory have enacted, “That the common law of England, so far as the same is applicable and of a general nature, and not in conflict with special enactments of this Territory, shall be the law and the rule of decision, and shall be considered as of full force, until repealed by legislative authority.” See Laws of Montana Territory for 1864, p. 356.

This rule of the common law is certainly applicable, and of a general nature. If we turn to the American rule, in relation to this question, I think we must arrive at the same conclusion. In this country the right to collect interest has been made legal by usage and the decisions of the courts. Pars, on Bills & Notes, vol. 2, p. 392. And I may add, in some States by statute. Only such interest should be allowed, then, as is warranted by usage and legal adjudications, or by statute. I think I am safe in saying, that no universal custom exists throughout the United States to allow compound interest. Many of the States have enacted special statutes, prohibiting it. Hare and Wallace, in their notes to the case of Selleck v. French, Am. Lead. Cases, 533, say, that the better opinion is, that at law compound interest should be allowed.

Parsons on Bills & Notes, vol. 2, p. 424, says, that, in the present state of the authorities, it can hardly be supposed that a bargain for compound interest would be enforced.

In the case of Cox v. Smith et al., 1 Nev. 169, the court says that it could find but two cases where courts of law had allowed compound interest, and one of these was afterward overruled. That in New York and Massachusetts the current of authorities are all against it.

It will be seen by these authorities that there is a conflict of opinion upon this subject in the United States. Whichever way the preponderance of authority may be, the means afforded me for the investigation of the subject will not warrant me in saying. I am sure, however, that the current of American authorities have not been so general as to warrant any one in saying that the old common-law rule has been set aside, and an American common law established upon this subject. It is conceded, everywhere, that the rule in equity courts is adverse to the allowing of such interest.

This is an antion in equity. Whatever may have been the reasons that induced equity courts to refase to allow compound interest, they have declared that such interest is illegal; or, in other words, courts of equity have held fast to the common-law rule upon this subject, and in nowise have changed it; and we must hold that such is the law, unless it has been changed by the statutes of this Territory.

The third section of the act upon interest, in this Territory, reads as follows: “The parties to any bond, bill, promissory note or other instrument of writing, may stipulate therein for a greater or higher rate of interest than ten per cent per annum, and any such stipulation contained in any such instrument of writing may be enforced in any court of law or equity of competent jurisdiction in this Territory.”

This evidently contemplates simple interest. If the statute had said, parties to written instruments should not stipulate for any higher or greater rate of interest than ten per cent per annum, the same question as to compound interest would be left open. Compound interest is interest upon interest. The rate of interest which the law may allow does not affect this question. In the case of The Rensselaer Glass Factory v. Reid, 5 Cow. 609, Senator Spencer says : “That in New York the statute on interest is negative, prohibitory of interest being taken above a certain rate.” * It does not, in terms, prohibit compound interest; yet, both the courts of law and equity have held, in that State, that, though this statute authorized parties to agree to any rate less than that prohibited, it did not authorize agreements on compound interest.

The case of Cox v. Smith et al., 1 Nev. 169, holds that a statute of Nevada, similar to this one, does not warrant compound interest.

And, as before remarked, the statutes of England are only prohibitory of certain interest above a certain rate, and left it to parties to agree to a less rate of interest, and, in terms, did not prohibit compound interest; yet, the current Of English authorities is adverse to allowing any thing but simple interest, when, as in this case, the contract was made at the time of the original contract. The term, rate per cent, whether used at common law or in statutes, so far as I have been able to learn, signifies so much per cent on the principal. That term, used in this statute, must be so construed.

It is then determined that compound interest is not warranted by law. Parties who make contracts are presumed to know the law, and that they make their contracts in direct reference to it. Davis and Fredericks it must be considered, then, knew the law did not allow compound interest, and that the agreement made therefor was not warranted by law, and would not be enforced.

Davis, then, in contemplation of law, did not contract to sell his one-half of said property for any more than the amount specified in said notes, together with simple interest on the gold dust note. There was nothing then inequitable in compelling him to convey this property for the full amount of said notes, together with simple interest on the gold dust note, as per agreement therefor. I do not think it was necessary for Wilson to set forth that this transaction was tainted with compound interest, and ask relief therefrom iu this action. The same principle is not involved as in usury. For the taking of usury, the statute generally appends some penalty. The statute which creates this penalty must be set up before the penalty can be exacted. Here, however, the question was presented to the court: How much was Davis legally entitled to recover ?

It appeared upon the face of the note that it contained a contract for compound interest.

It certainly could not have been necessary for plaintiff to point out this fact to the court. It certainly could not be presumed that a court could not observe this fact without it was specifically pointed out to it by an allegation in the pleadings. It is a well-known rule in pleadings that a party may allege, facts which show that he is not entitled to recover. Had Davis been paid all that he was entitled to, and had he brought a suit for the compound interest agreed to be paid, and the complaint expressed this, it would not have been necessary for Fredericks to have filed an answer, setting up that it was compound interest.

A general demurrer to the complaint would have raised the issue, whether he was legally entitled to recover it, setting forth that the complaint did not state facts sufficient to ■constitute a cause of action. The defect would be one of such a nature, that even a failure to demur would not waive it. It could be raised at any time, for it would show upon its face that there was no legal consideration to support the agreement to pay it.

In this case, the part of the contract which stipulates for compound interest is capable of being separated from the rest of the contract, and as to this the court was warranted in saying there was no legal consideration to support it. There is one thing to be noticed in this action. Davis does not ask to be relieved from the contract to convey, if he cannot receive compound interest, but stands upon his contract, and asks for the complete fulfillment of it before he conveys. The case might present a different phase, if Davis should have asked to be relieved of the contract, and had tendered what he had received thereon. There is nothing in the point that Davis did not receive proper notice of Wilson’s intention to pay off said notes. Long before the pleadings were filed, upon which the case was finally tried, the record shows that these notes had become due. The notice required by the contract, between Davis and Fredericks, was to be given before the notes became due. Appellants complain because Perkins was not allowed.to retain possession of the property. This might have been a joint cause of complaint, on the part of both Davis and Perkins, before the final adjudication in this matter, and the decree of the court, giving Davis all his legal rights. When the court had provided for the payment of the debt to Davis, and the cancellation of the deed of trust, it could not provide any thing in relation to the restoration of the possession of said property by Perkins, in accordance with the terms of said deed of trust.

The decree of the court, ordering the sale of the property in controversy, before Davis was paid the full amount the court found due against him, was perhaps a little irregular as to Davis, yet, the irregularity is not one that should occasion a reversal of the decree.

The decree in no instance orders Davis to convey the interest held in his name until he received the full amount due him, and the sale of the property could in no manner affect his rights.

It made no difference with Davis from what legal source he was paid the amount due him. The court might have reasonably inferred that the small amount it had found due Davis would surely be paid out of the sale of this property, upon which he had the deed of trust, and that it was not necessary that the cause should remain longer in litigation. As it treated the answer of Davis as a cross bill, the sale of the undivided one-half of said property for that purpose was certainly proper. As between Fredericks and Wilson it was proper that this property should be sold. The appellants complain that by the articles of partnership between Fredericks and Wilson, the excess of funds either contributed to the firm was to be paid by the company out of the net earnings of the mill. From the findings of the court it would appear that, in pursuance of the articles of copartnership, Fredericks and Wilson conducted, for some time at least, the business for which the partnership was formed. There was no issue presented in the pleadings that required the court to find whether or when this partnership had been terminated, if at all. It would seem that the plaintifF in his pleadings regards the partnership terminated, and Fredericks alleges in his answer that it was never formed.

Taking the findings of the referee, Hedges, and those of the court, in connection with the articles of copartnership, which are a part of the record made so by Fredericks, there cannot be much doubt but that for a time the partnership did exist. The court may, however, have properly considered that the partnership had been terminated before the commencement of this action.

There was no time specified for the duration of the partnership. Either party could terminate it by giving proper notice, or the termination might be inferred from the conduct of the parties. Story on Part. 272.

There was enough in the conduct of Fredericks to justify the court in taking the view that the partnership had been dissolved. When the partnership was dissolved the stipulation above referred to was annulled. Fredericks, while refusing longer to continue the partnership, cannot demand of Wilson to carry out the stipulations of the articles which made the copartnership. When the partnership was dissolved no company, in accordance -with this stipulation, was left to pay Wilson for his advances out of the net earnings of the said mill. As far as Fredericks and Wilson are concerned, the court undoubtedly treated this as an action to wind up the affairs of the partnership which had already been dissolved, and to give each his due rights in the partnership assets. This could be done only by a sale of the property belonging to the firm, which is the usual practice of courts of equity in such cases.

Appellants also claim that Davis should have been allowed a reasonable attorney’s fee in collecting what the court found due him. The only allegation in defendant Davis’ answer, or cross-bill, which would warrant the court in awarding the same, is the one after he had alleged the amount due him on the notes for the sale of said property, which is as follows: “Besides the sum of six thousand five hundred dollars damages, and expenses incurred in attending to and protecting the rights, remedies and equities of said Davis in and about the premises which said Fredericks stipulated and agreed to pay and refund to said Davis, before said Davis was required to make a deed to said property.”

In the first place this allegation is not specific enough to warrant the court in awarding any damages or any remuneration for expenses. It would be necessary for the answer to show wherein Davis had been damaged, and also what expenses and costs he had incurred in protecting his rights. It is not enough for a man to say he has incurred costs and expenses in protecting rights. What the law requires of a party is to show for what he had incurred these expenses and costs. The terms “rights,” “remedies” and “equities” have no such determined meaning in a pleading as goods, wares, merchandise and chattels.

In the next place the replication to this answer does purport to put in issue this allegation, and although the denial maybe said to be defective, perhaps, no objection was taken to it, however. Hence, if the court failed to find upon this issue, it will be supposed that Davis failed to establish it.

This court cannot now consider whether or not the order of sale of the court was stayed by the bond filed. What this court is required here to determine is, whether or not the decree of the court below should be affirmed.

Decree of the court below is affirmed.

Exceptions overruled.