McClain v. Continental Supply Co.

• Decision Date: 06 November 1917
• Docket Number: 8123.
• Citation: 168 P. 815,66 Okla. 225,1917 OK 516
• Parties: McCLAIN et al. v. CONTINENTAL SUPPLY CO.
• Court: Oklahoma Supreme Court

168 P. 815

66 Okla. 225, 1917 OK 516

McCLAIN et al. v. CONTINENTAL SUPPLY CO.

No. 8123.

Supreme Court of Oklahoma

November 6, 1917

Syllabus by the Court.

Where a note by its terms provides for $10 and 10 per cent. of principal and interest to be added as collection fees, in case payment of said note is not made at maturity, and suit is brought on said note, held, that it is not error to include in the judgment the attorney's fee stipulated for in said note.

Commissioners' Opinion, Division No. 2. Error from Superior Court, Muskogee County; H. C. Thurman, Judge.

Suit by the Continental Supply Company against George W. McClain and Dave Anderson, copartners doing business under the firm name and style of Eureka Drilling Company. Judgment for plaintiff and defendants bring error. Affirmed.

H. C Wipperman, of Muskogee, for plaintiffs in error.

J. F Brett, of Muskogee, and Randolph, Haver & Shirk, of Tulsa for defendant in error.

WEST C.

This suit was instituted in the superior court of Muskogee county, Okl., by defendant in error, plaintiff below, against plaintiff in error, defendant below, on five separate causes of action, first upon an account, then upon four promissory notes for $1,000 each, dated February 19, 1915, due in 30, 60, and 90 days, and 4 months, respectively, from date. One of said notes is as follows:

"$1,000.00 Muskogee, Okla., Feb. 19, 1915.

Thirty days after date, for value received, we promise to pay to the order of the Continental Supply Co., Third National Bank Building, St. Louis, Mo., one thousand and no/100 dollars, at First National Bank, Morris, Okla., with interest at the rate of eight per cent. per annum from date until paid.

The parties hereto each severally waive presentation for payment, protest, notice of protest and notice of dishonor and if payment of this note is not made at maturity, it is hereby agreed that an additional amount of $10.00 and ten per cent. of the principal and interest of this note shall be added to same as collection fees.

Eureka Drilling Co., by Geo. McClain.

P. O. Address: _____.

Due: _____."

Indorsements:

"The undersigned hereby waive presentment for payment, protest, notice of protest and notice of dishonor of the within note."

The others are duplicates and exact copies of the above, except the due date. The parties will hereinafter be referred to as they appeared in the court below.

Upon trial of the case to the court the plaintiff recovered judgment for the amount sued for, that is, the amount of each note and interest with an attorney's fee of $113.17, as provided in each note. The only question raised on appeal is as to the finding of the court for the attorney's fee of $113.17 stipulated for in each note; defendants claiming that the language used in providing for collection fees amounts to a penalty or stipulated damages to be paid for breach of obligation and in anticipation thereof, and therefore within the intent and meaning of sections 974, 975, and 976, R. L. 1910, and void.

These notes were made after the adoption in this state of what is known as the Uniform Negotiable Instrument Act. Section 4052 thereof is as follows:

"When sum payable is a sum certain. The sum payable is a sum certain within the meaning of this chapter; although it is to be paid: *** Fifth. With costs of collection or an attorney's fee, in case payment shall not be made at maturity."

The authorities urged by plaintiffs in error in their briefs we do not think are applicable to the case at bar, for the reason that in each case cited was where the court had under consideration an ordinary contract for the performance of certain acts, not the payment of money, and providing for a stipulated sum as damages in the event of a breach thereof.

Section 974, 975, and 976, supra, are taken from Dakota, and the Dakota Supreme Court has construed these sections as applying to negotiable instruments, providing for attorney's fees, and in the syllabus of case of Farmers' National Bank of Salem v. Rasmussen, 1 Dak. 60 (57), 46 N.W. 574, lays down the following rule:

"A promise in a note to pay '$10 attorney's fee, if action is commenced hereon,' is not usurious, nor is it invalid, under Civil Code Dak. 1865, §§ 830, 831, providing that every contract which determines in advance the damages to be paid for a breach is to that extent void, except that, when it would be extremely difficult to fix the actual damage, the parties may agree on an amount which shall be presumed to be the damage sustained."

In case of Danforth v. Charles et al., 1 Dak. 285 (273), 46 N.W. 576, the Supreme Court of Dakota, in the first paragraph of the syllabus, has this to say:

"A stipulation in a mortgage for reasonable attorney's fees, in case of foreclosure by action, is not within Civil Code Dak. §§ 829, 830, declaring provisions of a contract for penalties or liquidated damages for any nonperformance to be void."

In the body of the opinion the court uses the following language:

"And it is further insisted by counsel for appellees that either stipulation is void, as being prohibited by sections 829 and 830 of the Civil Code, which read as follows: 'Penalties imposed by contract for any nonperformance are void.' *** 'Every contract by which the amount of damage to be paid, *** for a breach of an obligation is determined in anticipation thereof, is to that extent void, except as expressly provided by the next section.' Stipulations of this character have been and are now enforced by courts of equity in almost every state and territory in this country, so far as I have been able to extend my examination; and yet no principle is better settled or of more universal application than that courts of equity will never enforce either a penalty or a forfeiture. Story, Eq. Jur. § 1319, and authorities cited. Hence we are certainly justified in concluding that these courts have never construed a stipulation in a mortgage for attorney's fees to be either a penalty or forfeiture. But what is the meaning of the term 'penalty'? It is defined to be a clause in an agreement by which the obligor agrees to pay a certain sum of money, if he shall fail to fulfill the contract contained in another clause of the same agreement. A penal obligation differs from an alternative obligation, for this is but one in its essence; while a penalty always includes two distinct engagements, and when the first is fulfilled the second is void. When a breach has taken place the obligee has his option to require the fulfillment of the first obligation, or the payment of the penalty (Bouv. Law Dict.), but not both. He cannot compel compliance with the conditions, and then pursue the penalty, or vice versa; he must elect. If these propositions are correct law, with what degree of accuracy can this stipulation be termed a penalty? Is it a sum to be paid in lieu of a compliance with conditions and in full discharge of the obligation? Must the mortgagee elect before

bringing suit, and abandon all his other rights under the contract, if he would collect the fee? Certainly not. I therefore conclude that it can in no sense be a penalty, and therefore does not come within the provision of section 829, Civil Code."

It would therefore appear that sections 974, 975, and 976, supra, have been construed by the highest court of the state from which said sections were adopted. In the adoption of the sections if we take them with the construction placed upon them by the court of last resort of the state from which they were taken, then we must hold that the provision for an attorney's fee or costs of collection stipulated for in a promissory note does not fall within the pale of inhibition of said sections, besides our courts have spoken upon this matter and have not only held that a provision for an attorney's fee does not render said notes nonnegotiable, and that an unconditional stipulation in a promissory note to pay an attorney's fee is valid, and an agreement in a promissory note to pay costs of collection authorizes the recovery in a suit on said note of a reasonable attorney's fee, as will be seen from the examination of the following authorities, to wit:

In case of Baker Gin Co. v. N. S. Sherman Machine & Iron Works, 31 Okl. 484, 122 P. 235, the syllabus is as follows:

"An unconditional stipulation in a promissory note to pay an attorney fee is valid."

In the body of the opinion the court says:

"The only question involved is the validity of that provision in the notes sued upon providing, 'and also attorney fee.' The trial court held in favor of its validity, and permitted a recovery. This was right. In Clowers et al. v. Snowden et al., 21 Okl. 475, 96 P. 596, following the former holding of this court, *** it would be difficult for us to now hold this provision to be invalid, as we are asked to do. This for the reason that, if we should so hold, it would be difficult to reconcile this case with that, and explain how this cause being invalid could affect the note at all."

In case of Seton v. Exchange Bank of Perry, 150 P. 1079, the first paragraph of the syllabus is as follows:

"The provision in a promissory note. '*** If suit is begun, judgment may be taken for an additional $15.00 and ten per cent. of the amount due for attorney's fees,' does not render the amount to be paid uncertain, under the provisions of the Uniform Negotiable Instruments Act, which went into effect June 11, 1909 (section 4052, Rev. Laws

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