Peyser v. Cole

• Decision Date: 01 March 1884
• Citation: 4 P. 520,11 Or. 39
• Parties: PEYSER v. COLE.
• Court: Oregon Supreme Court

4 P. 520

11 Or. 39

PEYSER v. COLE.

Supreme Court of Oregon

March, 1884

Appeal from Polk county.

WALDO J., dissenting.

Weatherford & Blackburn, for respondent.

Flinn & Chamberlain, for appellant.

WATSON, C.J.

The promissory note upon which this action was brought was executed March 9, 1882, in this state, presumably, and bore 10 per cent. per annum interest, which was the highest rate allowed by the law then in force. Laws Or.1880, p. 17. It also contained the following stipulation upon which the judgment for attorney's fees appealed from was rendered:

"And in case suit or action is instituted to collect said note, or any portion thereof, to pay such additional sum as the court may adjudge reasonable as attorney's fees in such suit or action."

The question here is whether this stipulation was void per se. Much diversity, as well as conflict of judicial opinion, is to be found in the reports of the several states upon this point. As early as 1841 the supreme court of Ohio held that such a stipulation was "against public policy and void." State v Taylor, 10 Ohio, 378. Wood, J., delivering the opinion of the court, says:

"It must be admitted, if this agreement can be enforced the statutes of Ohio regulating the rate of interest, whether upon loans by the fund commissioners or in other cases, are at once virtually repealed. The statute passed on March 28 1837, provides that the fund commissioners, in a certain event, may loan the money to individuals at a rate of interest not exceeding seven per cent. Seven per cent is the maximum of interest the commissioners are authorized to contract for or receive for the forbearance of their loans. They are prohibited from receiving more, in fact, in express terms,--that is, as interest. It is said, however, that the five per centum in this case is, by the agreement of the parties, to be added to the seven per cent., not as interest but as costs agreed upon as such for collection by the parties. Now, it seems to be of little consequence in this case what this five per cent. may be called, but the inquiry is, what is the thing itself? However it may be designated, it is very clear to us it is a mere shift or device by which twelve per cent. is retained as interest upon this loan, and in this view of the case cannot be enforced. This court have decided that under the laws of Ohio but six per cent. interest is recoverable, though the parties contract for more or higher rates. But is it such a contract as public policy should execute? What may be supposed as the natural result to the community from the execution of this agreement? It would be the condition of future loans that that the borrower should pay the expenses of collection, and perhaps the tax thereon."

This is a clear and strong statement of the objections to the validity of stipulations of this character in interest-bearing contracts. The same doctrine prevails in Kentucky, Michigan, and Nebraska; in some of which, however, it is placed upon the broader ground of such stipulations being opposed to public policy. Witherspoon v. Musselman, etc., 14 Bush, 214; Bullock v. Taylor, 39 Mich. 137; Myer v. Hart, 40 Mich. 517; Dow v Updike, 11 Neb. 95; S.C. 7 N.W. 857. But in Illinois, Indiana, Iowa, Pennsylvania, Tennessee, Texas, and many of the other states, a different view has been taken, and the opposite doctrine established. Clawson v. Munson, 55 Ill.394; Smith v. Silvers, 32 Ind. 321; McGill v. Griffin, 32 Iowa, 445; McIntire v. Cagley, 37 Iowa, 676; McAllister's Appeal, 59 Pa.St. 204; Hulnig v. Drexell, 7 Watts, 126; Imler v. Imler, 94 Pa.St. 372; Minor v. Paris Exchange Bank, 53 Tex. 559; Parham v. Pulliam, 5 Coldw. (Tenn.) 407.

In Hulnig v. Drexel, supra, the court say:

"The contract here has nothing in it oppressive to the borrower; it is advantageous to the borrower and lender when merely intended to enforce a punctual performance of the contract; nor is there the slightest pretense to say that it is intended as a cover to usury. A failure on the part of the borrower puts nothing in the pocket of the lender; on the contrary, the probability is he will not be reimbursed the expenses which he may incur. With such stipulations, which are frequently made, persons may borrow money at a less rate of interest, as punctuality is always taken into consideration in fixing the terms of a loan."

And in Parham v. Pulliam, 5 Cold. 487, similar views are expressed. In this case the court say: "The contract of the debtor to pay the attorney's commissions, in case of suit upon default of payment of the debt for the prescribed time, adds nothing to the amount of interest to be paid to the creditor. If the debtor pays the ten per cent. interest stipulated, and also pays the attorney's commissions, the creditor has received no more than the ten per cent. interest. If he does not pay the attorney's commissions, the creditor receives, to that extent, less than the ten per cent. interest."

The supreme court of Indiana thus expresses its unqualified approval of such engagements on the part of the borrower:

"A stipulation whereby the debtor agrees to be liable for reasonable attorney's fees, in the event that his failure to pay the debt shall compel the creditor to resort to legal proceedings to collect his demand, is not only not usurious, but is so eminently just that there should be no hesitation in enforcing it." Smith v. Silvers, supra.

As to the consideration to such stipulations, the supreme court of Texas, in Minor v. Paris Exchange Bank, supra, say:

"If the contract were lawful in other respects, the conditional stipulation to pay the usual attorney's fees, in the event suit had to be instituted to enforce it, would be legal, and founded upon a valuable consideration. Such fees, though not an element of damages, in an ordinary suit for the collection of money, can be made such by express contract." Citing Roberts v.

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