Hackett v. Kripke
| Decision Date | 12 March 1939 |
| Citation | 62 Ohio App. 89,23 N.E.2d 438 |
| Parties | HACKETT v. KRIPKE et al. |
| Court | Ohio Court of Appeals |
Syllabus by the Court.
1. In Ohio, money paid by the borrower to the lender for the use of money after it is past due is regarded as liquidated damages for the detention of the money, and the parties to the lending contract may provide in it for a rate after maturity higher than the rate Before, except it must not exceed the limit fixed by the usury statute.
2. When the payee of a note which provides for a rate of interest payable semiannually after the note is due, which rate is higher than the before -due rate, demands such interest quarterly at the same rate as before due, and the maker pays the demand, the contract of the note is modified thereby as to each such demand and the payee cannot later recover the difference between the interest received and that provided for in the note.
3. If the ultra vires character of the contract sued upon appears upon the face of the petition, a defense based thereon is raised by a general denial of liability, and it is not necessary that the answer expressly plead it.
4. Prior to the 1927 amendment of Section 5136, U.S.Revised Statutes, 44 Stats. at L., 1226, Section 2, 12 U.S.C.A. § 24 a contract by a national bank to repurchase securities at the sale price on demand of the purchaser was ultra vires and could not be enforced.
5. In such case the bank may be required, under an implied obligation to return the money on demand, to account to the purchaser for the money it received under such ultra vires contract.
6. Such implied obligation does not arise until the demand for the return of the money is made, and the statute of limitations against an action thereon does not begin in run until the demand is made.
John B. McMahon and Franklin F. Hayward, both of Toledo, for appellant.
Geer Lane & Downing, of Toledo, for appellees.
This is an appeal on questions of law. The record shows that there were two separate issues before the trial court. One, which arose upon the petition, was the rate of interest chargeable on a promissory note; the other, as to set-off presented by the cross-petition, was based upon a claimed contract of a national bank, the payee of the note sued upon, to repurchase for the purchase price certain bonds sold by it to one of the makers of the note.
Trial by jury was waived and the court found for the defendants on both issues, and the plaintiff appealed. The facts and discussion of these matters will be taken up separately.
I. May 26, 1931, the defendants Jacob M. and Nettie Kripke executed and delivered to the First National Bank of Toledo, Ohio, a national banking association (hereinafter called the bank), a promissory note for $7,000 due in one year with interest at 6 per cent 'to be computed and paid quarterly' with this further provision:
'The said note, after its maturity, shall continue to draw interest at the rate of eight per cent per annum, to be computed and paid semi-annually, until the principal and accrued interest thereon is fully paid.'
Some time prior to November 27, 1933, a conservator was placed in charge of the bank. The exact date this was done does not appear in the record. By endorsement on the note under that date the first interest received by him was for the quarter ending November 26, 1933. On April 3, 1934, the plaintiff, John W. Hackett, was appointed receiver for the bank, which he then took over for liquidation. (He will be referred to herein as the receiver.)
There is no dispute about the time or amounts of payments of interest or principal. Prior to the maturity of the note, May 26, 1932, the bank each quarter sent to the makers statements of the quarterly interest due, which were promptly paid. After maturity, the bank and its conservator continued to send such quarterly statements at the rate of 6 per cent. November 30, 1934, the receiver received and receipted for the interest at 6 per cent for the quarter preceding February 26, 1934. These facts are evidenced by the notices sent by the bank and stamped paid by it, and were offered as exhibits by defendants. Thereafter the receiver claimed interest at the rate of 8 per cent, and this dispute started, and this petition was filed claiming interest at that rate from maturity, May 26, 1932, subject to the payments made.
The defendants claim that the bank, by quarterly statements which it presented to them and they paid, waived any right it may have had to charge the 8 per cent rate, and that the receiver is now estopped from claiming the higher rate.
In the books there are a great number of definitions of the term 'waiver,' but looking to Ohio law, the opinion in Marfield v. Cincinnati, D. & T. Traction Co., 111 Ohio St. 139, 144 N.E. 689, 691, 40 A.L.R. 357, furnishes one suited to this case:
By the conduct of the parties, a new contract with a consideration was made with each quarterly payment of interest after maturity. By the terms of the note, after maturity interest was 'to be computed and paid semi-annually.' The bank submitted quarterly statements of interest then 'due.' This was in effect saying to the makers each quarter: 'You pay your interest quarterly instead of semi-annually as you have a right to do it under the note, and the rate will be 6 per cent instead of 8 per cent'; by paying each demand, the offer was accepted. This resulted in both a 'benefit' to the bank and a 'disadvantage' to the makers.
There can be no doubt but that this disposed of one question as to the interest rate during the time the bank was functioning as a going concern. The question left is: Did the conduct of the parties amount to permanent modification of the contract of the note, or was each interest statement a new offer and its payment an acceptance? If the former, it bound both the conversator and the receiver; if the latter, it did not, and neither of them, being merely trustees as they were, for the benefit of the creditors and stockholders of the bank, had power to thus modify the contract.
Interest, as the term is used in common parlance, has two aspects: (a) Money paid by agreement for the use of money; or (b) damages assessable for the detention of money by one from another after it is due.
The former only arises by reason of a contract between the parties and the rate cannot exceed the maximum rate fixed by law; the latter, within the statutory rate limits, may be determined by agreement of the parties, but in the absence of an agreement, the statutory rate prevails. In either event, such rate determines the measure of damages resulting from the detention of the money.
The interest received by the bank before the defendants' note matured was conventional interest of type a; that which accrued after maturity is liquidated damages, type b. An extended discussion of these two phases of so-called interest is to be found in Mason v. Callender, Flint & Co., 2 Minn. 350, 2 Gil. 302, 72 Am.Dec. 102, and Close v. Riddle, 40 Or. 592, 67 P. 932, 91 Am.St.Rep. 580; Shoemaker v. United States, 147 U.S. 282, 321, 13 S.Ct. 361, 37 L.Ed. 170, 188.
In some jurisdictions a contractual provision for a higher rate after maturity than is agreed upon before maturity is regarded as a penalty. Bradford & Son v. Hoiles, 66 I11. 517. In other jurisdictions such agreement is void and the creditor can only collect the statutory rate. Mason v. Callender, Flint & Co. supra. In Ohio the agreement is legal, expressly made so by statute (Section 8303, General Code); and if an after-maturity rate is not provided for, the damage rate is the same as the contract rate was (Section 8304, General Code); and if there is no contract rate, it is 6 per cent per annum (Section 8305, General Code).
As Ohio regards the after-maturity rate as contractual, either express or implied, and not penal, it would seem that each offer of the bank to accept the 6 per cent rate after maturity and acceptance of the offer constituted an implied modification of the original contract for that period and did not abrogate it. It could amount to no more than as though the parties had expressly agreed upon such limited modification as was done in North v. Walker's Admr., 66 Mo. 453, where after maturity the parties agreed upon an extension for a definite time at a lower rate, and when payment was not made at the expiration of the extension, without any action of the parties, the higher, note rate became effective.
Several cases are cited by defendants as at variance with this thought, especially Bradford & Son v. Hoiles, supra. As previously pointed out, in that state and agreement like this one for a higher rate after maturity, while given effect, is regarded as a penalty. As penalties are odious to the law, it seeks to avoid them on any possible pretext; hence that court is consistent with this policy of the law in treating the receipt of the lesser rate as a continuing 'waiver' of the penalty. As already suggested in some states, as formerly in Minnesota, public policy (because of its abhorrence of the penalty) makes void such higher, after-maturity rate.
In Thompson v. Gorner, 104 Cal. 168, 37 P. 900, 43 Am.St.Rep. 81, the higher, after-maturity rate was treated as a contractual matter, not as a penalty, and the oral modification was effective only to the extent it was executed. Under the statute of frauds of that state, the modification could not have...
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