Nat'l Life Ins. Co. v. Hale

• Decision Date: 11 January 1916
• Docket Number: Case Number: 5485
• Citation: 1916 OK 53,154 P. 536,54 Okla. 600
• Parties: NATIONAL LIFE INS. CO. v. HALE.
• Court: Oklahoma Supreme Court

1916 OK 53

154 P. 536

54 Okla. 600

NATIONAL LIFE INS. CO. v. HALE.

Case Number: 5485

Supreme Court of Oklahoma

Decided: January 11, 1916

Syllabus

¶0 1. INTEREST--"Penalty"--Bills and Notes. Where a promissory note, drawing five and one-half per cent. interest, payable semi-annually, contains a clause which provides that the rate shall be increased to the maximum legal rate of interest in the event of default in payment of either principal or interest at maturity, such increased rate of interest is not a penalty, but it valid contract for the payment of interest (overruling the first paragraph of the syllabus in National Life Ins. Co. v. Hall et al., 34 Okla. 395, 125 P. 1108).

2. PLEADING--Answer--Motion to Strike. Where the answer fails to state a defense to the action, or to any part thereof, a motion to strike said answer from the files should prevail.

Curtis M. Oakes and Wm. H. McNeal, for plaintiff in error.

COLLIER, C.

¶1 This action was brought August 16, 1912, upon a promissory note, made to the Deming Investment Company in the sum of $ 1,600, and by said company, for value and before maturity, assigned to plaintiff in error, and to foreclose a mortgage given to secure payment of said note. Said note is as follows:

"No. 12185.

$ 1,600.00.

"On the 1st day of December, 1906, I promise to pay to the order of the Deming Investment Company (a corporation), the principal sum of sixteen hundred dollars, with interest thereon at the rate of 5 1/2 per cent. per annum from Nov. 21, 1901, until maturity, payable annually, according to the tenor of five interest notes, one being for ninety and 25/100 dollars, and four others for eighty-eight and no/100 dollars each, all of even date herewith, both principal and interest notes payable at the National Park Bank, New York City, N. Y. If default be made for ten days in the payment of any sum, either principal or interest, after the same becomes due and payable according to the terms hereof, then the whole amount herein promised to be paid shall at the option of the holder hereof at once become due and payable.

"All sums herein promised to be paid shall bear 12 per cent. per annum interest after maturity, payable annually, whether the same become due according to the terms hereof, or by reason of default of any payment of principal or interest.

"Privilege is reserved to pay $ 100 or any multiple thereof or the whole amount at the maturity of any coupon on and after Dec. 1, 1902, by giving 60 days' notice.

"Dated this 21st day of November, 1901.

"[Signed] LIDA A. MILLER.

"Attest:

"L. J. HOOVER.

"BERT E. BICKFORD."

¶2 The only defense interposed was by defendant in error, who was permitted to intervene in the case, upon the ground that he had purchased the land described in said mortgage and execution sale, which sale was confirmed by the district court of Canadian county, and that he was the owner of said land. He further averred in his answer that:

"Defendant denies that the plaintiff is entitled to recover $ 160 as attorneys' fees for the foreclosure of said mortgage, for the reason that this defendant offered to pay the said plaintiff the amount of said indebtedness, with interest at 5 1/2 per cent. per annum, and $ 75, which was reasonable attorney's fees for the amount of services rendered by plaintiff's attorney in said action, * * * but that the plaintiff refused to accept same, and insisted on having this defendant pay interest on said indebtedness at the rate of 12 per cent. per annum from December 1, 1911."

¶3 Defendant prayed that plaintiff be awarded judgment in the sum of $ 1,600, with interest thereon at 5 1/2 per cent. per annum from December 1, 1911, together with $ 75 as attorney's fees and costs of suit. Plaintiff moved to strike from the files said answer and plea of intervention of defendant in error, upon the ground that the averments of the plea did not state a defense to the action, nor did they show such equities in him to entitle him to intervene in this action. The court overruled said motion to strike, to which plaintiff excepted. The case was tried to the court. Plaintiff offered in evidence the note and mortgage described in the petition, and the written assignment of said note and mortgage by the Deming Investment Company to plaintiff, and the written application for an extension of time of payment of said note made by the makers thereof, which was the only evidence offered or introduced in the case. The court rendered judgment for plaintiff for $ 1,600, together with interest thereon at the rate of 5 1/2 per cent. per annum from December 1, 1911, and for the further amount of $ 160 attorney's fees, with interest thereon at 6 per cent. per annum from the filing of this action, and for cost and disbursements of said action. That portion of the decree, limiting the recovery of plaintiff to 5 1/2 per cent. interest per annum from December 1, 1911, to date thereof, was objected to by plaintiff, which objection was overruled, and exceptions saved. Thereupon plaintiff filed a motion for new trial, which was overruled, and exceptions saved. To reverse said judgment this appeal is prosecuted. There is but one question involved in this controversy, viz., whether the increased rate of interest provided for in the note and mortgage in case of default of payment at maturity shall be construed as interest proper, or a penalty for failure to pay when due. If the increased rate can be properly held to be "interest," the provision as to the increased interest is valid. If said increased rate of interest can be properly held to be purely a "penalty," it is in contravention of the laws of this state and void. While the adjudicated cases are not in entire harmony as to whether or not said advanced rate of interest should be held to be a penalty, we are of the opinion that the great weight of authority and the better considered cases force the conclusion that the advanced rate of interest provided to be paid after maturity of said note--12 per cent. being a legal rate of interest in Oklahoma Territory at the time said note and mortgage were executed--was not a penalty, but a legal and binding obligation to pay interest. In Miller v. Kempner, 32 Ark. 573, it is held:

"Where a note contains a stipulation for interest, at the rate of 10 per cent. per annum until maturity, and 2 per cent. per month after maturity, the increased interest after maturity cannot be treated as a penalty."

¶4 In the case of Portis v. Merrill, 33 Ark. 416, it is said:

"The note on its face is plainly a contract for interest at 5 per cent. per month from its maturity, and the appellant could not set up a contemporaneous verbal agreement that it was to be a penalty, and thereby vary the plain terms of the written contract. * * * We cannot make new contracts for parties, or alter their plain meaning by consideration. * * * A sane man has no claim upon a court of law or equity to relieve him from a hard bargain, when it is voluntarily entered into, and no fraud is practiced upon him."

¶5 In Thompson v. Gorner, 104 Cal. 168, 37 P. 900, 43 Am. St. Rep. 81, it is held:

"A provision in a promissory note, after providing for the payment of monthly interest at the rate of 8 per cent. per annum, that, 'if said principal or interest is not paid as it becomes due, it shall thereafter bear interest at the rate of 1 per cent. per month,' is not to be treated as a penalty, but as a contract to pay 1 per cent. per month interest upon a contingency."

¶6 In Finger v. McCaughey, 114 Cal. 64, 45 P. 1004, it is held:

"An agreement in a note secured by mortgage for interest from date at the rate of 10 per cent. per annum, provided that, if the note is not paid at maturity, it shall bear interest at the rate of 12 per cent. per annum from its date until paid, is valid and binding as to the increase of rate contingent upon nonpayment. * * *"

¶7 Said cases of Thompson v. Gorner and Finger v. McCaughey, supra, are decided under statutes of California (Civ. Code), which contain a provision practically the same as section 1125, Comp. Laws 1909, which reads:

"Sec. 1670. Every contract by which the amount of damage to be paid, or other compensation to be made, for a breach of an obligation, is determined in anticipation thereof, is to that extent void, except as expressly provided in next section. Section 1671. The parties to a contract may agree therein upon an amount * * * of damage sustained by a breach thereof, when, from the nature of the case, it would be impracticable or extremely difficult to fix the actual damage."

¶8 In Eccles v. Herrick et al., 15 Colo. App. 350, 62 P. 1040, it is held:

"An agreement in a promissory note to pay an additional interest on the principal of the note from its date, in case of default in the payment of the principal or any interest coupon when due, is not a penalty, but is an agreement into which the parties have a right to enter and is binding."

¶9 In McKay, Adm'x, v. Belknap Sav. Bank, 27 Colo. 50, 59 P. 745, it is held:

"A contract in a promissory note to pay a certain interest if paid at maturity, but, if not paid at maturity, to pay a higher rate of interest from date of note, is not a penalty imposed for the purpose of enforcing prompt payment, but is an agreement to pay a higher interest on a contingency, and is enforceable." See, also, Hubbard v. Callahan, 42 Conn. 524, 19 Am. Rep. 564.

¶10 In Wilkerson v. Daniels, 1 Greene 180, it is said in the syllabus:

"Under the statute authorizing parties to contract for interest not exceeding 20 per cent. per annum, it was legal to make a note drawing 12 per cent., and, if not paid when due, 15 per cent., per annum. It will not be considered by a court of equity as a contract for a penalty, but for interest after a given day."

¶11 And in the opinion the court says:

"The statute in force at the date of the execution of the note regulating interest permitted parties to contract for the payment of interest at the rate of 20 per cent. per annum. The

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