Hutchinson v. Benedict

• Decision Date: 01 July 1892
• Citation: 49 Kan. 545,31 P. 147
• Parties: CATHERINE HUTCHINSON et al. v. E. G. BENEDICT
• Court: Kansas Supreme Court

31 P. 147

49 Kan. 545

CATHERINE HUTCHINSON et al. v. E. G. BENEDICT

Supreme Court of Kansas

July 1, 1892

Error from Osborne District Court.

JUDGMENT for plaintiff, Benedict, at the May term, 1892. Defendants Catherine Hutchinson and another, come to this court. The opinion states the facts.

Judgment modified.

E. F Robinson, for plaintiffs in error:

Any additional burden imposed because of a default is a penalty and so it must be regarded in this case, as viewed by the plaintiffs in error. Another principle well settled is, that penalties generally will be enforced only so far as their enforcement is equitable. These premises were accepted by the trial court, and the intimation from the bench was that resulting conclusions would have followed, except for the decision of this court in the case of Parker v. Plymell, 23 Kan. 402. This case in no sense controls, none of the questions here raised being before the court in that case viz.: No bond or note complete within itself; no interest contract separately evidenced; no mortgage (whose only purpose is to secure the bond) security whatever. While no exception is taken to the general doctrine that the note and mortgage must be construed together, the principle is limited as to the purpose of such joint consideration. The mortgage clause providing 12 per cent. interest from date will not be enforced, for the following reasons: (1) Because it is in direct conflict with the conditions of the bond, in providing a greater penalty than the bond itself provides in case of default. And as the stream cannot rise higher than its source, so the mortgage can secure and enforce no more than its principal, the bond, may exact. (2) The coupon interest contracts are complete within themselves; and, so long as they are performed and taken up, an estoppel as to interest is created, behind which the holder may not go, and especially to enforce a penalty. (3) Its enforcement would be not only inequitable, but unconscionable--the purchaser having bought the paper on the basis of 7 per cent. interest, as no one would think of buying on the speculative theory of accruing benefits in the way of penalties by virtue of defaults in either interest or principal, and no claim of any such purchase is made. (4) Inserting an extra sub-clause into a mortgage, not agreed upon in fact between the parties, and not mentioned in the bond or interest contracts, and never read and understood by the mortgagor, is only a means of evading the law in providing damages and collection fees in case of foreclosure. True, the amount would not, in all cases, be as much as in the one at bar, yet it would often be much more, and in all cases the same principle applies.

If the view of plaintiffs in error be sustained, then what are the rights of the holder as to amount of his judgment? Noting all this court has said about legislation not changing contracts as to interest, the law of 1889 is in force as to contingent penalties, and any provision for a penalty to go into effect contingently at a future time after its enactment, as in this case, is void. This in no sense conflicts with our law that "when a rate of interest is specified in any contract, that rate shall continue until full payment is made," etc.

Nebraska has held, on the question being directly presented, Richardson v. Campbell, 43 N.W. 405, that where a note provided for 12 per cent. interest after due, and the legal rate in the meantime was reduced to 10 per cent., that no more than 10 per cent. was recoverable. If, however, the note had borne 12 per cent. from date, likely the change in legal rate would not have affected it. Applying the principle of the last-cited case, with the additional element in our 1889 law, that no greater rate shall accrue as a penalty for any default than is named in the bond, note, or bill, it follows that at most but 10 per cent. could be allowed after maturity; but as the stipulated rate of interest -- 7 per cent. -- runs by the contract only till maturity, and as the law will not support the rate attempted to be contracted for thereafter, the rate recoverable must be controlled by the law where no contract is made, to wit, 6 per cent.

The judgment, being based on the rate controlling at the time it is taken, must be the same. If the law of 1889 is valid as to reducing maximum rate to 10 per cent. on contingency of its running overdue, then the same law adding a penalty by increasing the rate for a default is also in force, and the conclusion here reached seems irresistible. The judgment should be modified accordingly.

D. M. Thorp, S. S. Spencer, C. M. Higley, and C. W. Wolbert, for defendant in error:

1. "The note and mortgage, having been made at the same time, and in relation to the same subject, are a part of one transaction, and constitute one contract, and must be construed together, as if they were parts of one instrument." Meyer v. Graeber, 19 Kan. 166; Darrow v. Scullin, 19 id. 57; Muzzy v. Knight, 8 id. 456.

2. The note and mortgage in this case, when construed together, are equivalent to a promise to pay interest from date until paid at 12 per cent. per annum, with a proviso that if interest and principal were promptly paid at maturity 5 per cent. interest would be remitted. Parker v. Plymell, 23 Kan. 402.

3. And in so construing the bond and mortgage, there is no conflict between the conditions of either, and it gives effect to the contract as made by and between the mortgagor and the mortgagee, and the mortgagee relying thereon parted with its money; and when it guaranteed the payment of said indebtedness and placed said bond and mortgage upon the market, it did so upon a basis of 12 per cent. interest; and the assignee, when purchasing said bond and mortgage, was justified in believing that if said interest or the principal, or either, was not promptly paid at maturity, he would receive 12 per cent. interest per annum from date, less the amount already paid, according to the terms of said bond and mortgage; and any other construction given to the bond and mortgage, diminishing the rate of interest, would necessarily impair the market value of said bond and mortgage, and change the contract...