Krutz v. Robbins

• Decision Date: 15 May 1895
• Citation: 40 P. 415,12 Wash. 7
• Parties: KRUTZ v. ROBBINS ET AL.
• Court: Washington Supreme Court

40 P. 415

12 Wash. 7

KRUTZ v. ROBBINS ET AL.

Supreme Court of Washington

May 15, 1895

Appeal from superior court, King county; J. W. Langley, Judge.

Action by Thomas S. Krutz against Eliza J. Robbins and others to foreclose a mortgage. From a judgment in his favor, plaintiff appeals. Affirmed.

George Fowler, for appellant.

Greene & Turner, for John and Jane Campbell, respondents.

ANDERS J.

On March 1, 1889, the defendants Robbins borrowed from the plaintiff, Thomas S. Krutz, the sum of $2,500, for which they gave him their promissory note, payable five years after that date, at the Chemical National Bank in the city of New York with interest at the rate of 7 per cent. per annum, payable semiannually. Coupons for the several semiannual installments of interest were attached to the note, in each of which it was provided that the sum therein named ($87.50) should draw interest at the rate of 12 per cent. per annum after maturity. The note further provided that it should bear interest after maturity at 12 per cent. per annum, and that on failure to pay the interest when due the principal should become due and payable, and might be at once collected. To secure the payment of this note the makers, on said day, executed to the plaintiff a mortgage on certain real estate in A. A. Denny's addition to the city of Seattle; which mortgage contained, among others, the following covenants and agreements: "And the said first parties do hereby covenant and agree that at the delivery hereof they are the lawful owners of the premises above granted, and seised of a good and indefeasible estate of inheritance therein, free from all incumbrances, and that they will warrant and defend the same against the lawful claims of all persons whomsoever. *** Now, if said first parties shall pay, or cause to be paid, the said sum of money, with interest thereon, according to terms of said note, then these presents shall be void; but if said sum of money, or any interest thereon, is not paid when due and payable, or if any taxes or assessments now or hereafter levied or imposed in said county or territory against said real estate, or upon this mortgage, or the notes secured thereby, are not paid when the same are due and payable or if default be made in the agreement to keep said property insured as hereinafter set forth, then, in either of these cases, the said principal note, with the interest thereon shall, and by this indenture does, immediately become due and payable at the option of the second party or assigns, to be at any time thereafter exercised without notice to the first parties. But the legal holder of this mortgage may, at his option, pay said taxes, assessments, or charges for insurance, so due and payable, as the mortgagors or assigns shall neglect or refuse to pay, as herein set forth, and charge them against said first parties; and the amount so charged, together with interest at the rate of twelve per cent. per annum, payable semiannually, shall be an additional lien upon the said mortgaged property; and the said mortgages or assigns may immediately cause this mortgage to be foreclosed, and shall be entitled to the immediate possession of the premises, and the rents, issues, and profits thereof. Said first parties agree to keep the buildings erected or to be erected on said land insured to the amount of $3,000, to the satisfaction of and for the benefit of the second party or assigns, from this time until said note, and all liens by virtue hereof, are fully paid. It is hereby agreed that, in case of default of payment of any sums herein covenanted to be paid, or in default of performance of any covenant herein contained, the said first parties agree to pay to said second party or assigns interest at the rate of twelve per cent. per annum, computed semiannually, on said principal note, from the date thereof to the time when the money shall be actually paid; and any payments made on account of interest shall be credited in said computation, so that the actual amount of interest received shall be and not exceed twelve per cent., computed semiannually as aforesaid." The first two coupons, due September 1, 1889, and March 1, 1890, respectively, were paid in full at maturity, and thereafter, at irregular intervals, various sums, but in each instance less than the amount due, were paid on account of interest, the last payment having been made on June 28, 1892. The plaintiff paid insurance premiums on two occasions, a part of which was repaid by the mortgagors; and he also paid the taxes on the mortgaged property for the years 1890 and 1891, after the same had become delinquent. The note was not paid at maturity, and in May, 1894, this action was instituted to foreclose the mortgage.

The plaintiff in the action sought to recover interest on the note from its date at the rate of 12 per cent. per annum compounded semiannually, in accordance with the stipulation in the mortgage above set forth. The court, however, awarded him but 7 per cent. interest on the note, computed semiannually from date to maturity, and thereafter at the rate of 12 per cent. per annum. Interest was also allowed on each coupon at the rate of 12 per cent. per annum from maturity, as therein specified. The amount recovered is $866.33 less than plaintiff conceives himself entitled to, and hence this appeal. The trial court, it will be seen, based its decision as to the rate of interest on the stipulation in the note itself in regard thereto; but appellant contends that the ruling was erroneous, for the reason that it gave no effect whatever to the stipulation in the mortgage providing for interest on the principal note, at the rate of 12 per cent per annum from its date in case of default. He claims that that provision was part of the contract between the parties, and that inasmuch as it is not contrary to law or public policy, and is not immoral, it should be enforced as made. On the other hand, the respondents insist that the provision in the mortgage for a higher rate of interest in default of payment of the principal or interest specified in the note is in the nature of a penalty, and unenforceable in equity. If this provision is a penalty, there can be no doubt that it is unenforceable, for it is a universal rule in equity never to enforce either a penalty or a forfeiture. 2 Story, Eq. Jur. § 1319. But what is a penalty, and what is liquidated damages in a given case, it is not always easy to determine. As the question is one of intention, no single rule can be laid down which will furnish a certain and satisfactory criterion for all cases. In most cases many circumstances must be considered in order to ascertain the real intention of the parties. The courts, however, have deduced from the authorities certain general rules, "each having more or less weight, according to the peculiar circumstances of each case." Among these rules is one which is almost universally recognized and acted on, and which is that, where the payment of a smaller sum is secured by an agreement to pay a larger sum, the larger sum will be held a penalty, and not liquidated damages. Keeble v. Keeble, 85 Ala. 552, 5 So. 149, and cases cited; 1 Pom. Eq. Jur. § 441; Adams, Eq. p. 108; 2 Pars. Notes & B. pp. 413-414; Seton v. Slade, 7 Ves. 265; 3 Bl. Comm. 432; Holles v. Wyse, 2 Ver. 289; Strode v. Parker, Id. 316; Orr v. Churchill, 1 H. Bl. 227; Bonafous v. Rybot, 3 Burrows, 1370; Parker v. Butcher, L....