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Theodore Sedgwick.

A treatise on the measure of damages, or, An inquiry into the principles which govern the amount of pecuniary compensation awarded by courts of justice (Volume 2) online

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the mortgaged property, is to be deducted, even if it was bought
in by the holder of the note. '" Where the maker of a note had
made payments on it, but was entitled to recover them back on
the ground of usury, it was held that a surety on the note could
not avail himself of the payments. ^^

§ 695b. Application of payments.

The general rule for the application of payments on a note is
that a payment will first be applied to the payment of interest,

^ California: Reese v. Gordon, 19 Cal. but the mortgagor had secured them

147. by giving a bond, and the replevin suit

Illinois: Carpenter v. First Nat. was still undecided, in an action on the

Bank, 119 111. 352, 10 N. E. 18. note against an indorsee it was held

Pennsylvania: Fcssler v. Love, 43 that the amount of recovery would not

Pa. 313. be reduced on account of the cattle, but

Vermont: Richardson v. Sanborn, 33 if finally the plaintiff defaulted and got

Vt. 75. the cattle or the proceeds of them, the

See § 1050. defendant would have a claim on him

8 Indiana: Henderson v. Reeves, 6 for that amount. Trower Bros. Co. v.

Blackf. 102. Hanson, 110 Fed. GU.

Missouri: Bush v. Brandecker, 123 ^^'he^e a note was transferred to

Mo. App. 470, 100 S. W. 48. plaintiff in fraud of defendant (the

Texas: Houston v. Morrison, 10 Tex. maker), and security was given by the

1. transferor, and after learning of the

Contra, Kentucky, where promissory fraud plaintiff surrendered the security,

notes are not negotiable. Phelps v. it was held that he should have kept

Taylor, 4 J. J. Mon. 170. it, until after notice of the fraud, to

^ Phillips V. Commercial Bank, 1 protect the defendant, and he was en-

Sm. & M. (Miss.) 636. titled to recover only the amount

"> West V. St. Paul Nat. Bank, 54 actually paid by him loss the value of

Minn. 466, 56 N. W. 54. the security surrendered. Campbell v.

Where mortgaged cattle had been Brown, 100 Tenn. 245, 48 S. W. 970.
taken in replevin by the mortgagee, '' Savage v. Fox, 60 N. H. 17.



1468



ACTIONS UPON NEGOTIABLE INSTRUMENTS



§695c



and the balance will be applied on the principal. ^^ Where
several claims exist, it is usually said that a payment, in the
absence of directions by the debtor, should be applied to the
earliest claim, ^^ unless there is an agreement, understanding, or
custom to the contrary, ^^ which a court is prone to find in favor
of the sureties on a preferred claim. ^^ There are authorities,
however, which in such a case hold that in the absence of direc-
tions to the contrary the creditor may apply the payment
where he pleases, as to an unsecured as against a secured
claim. ^^



§ 695c. Attomey^s fees.

Promissory notes often include provisions for an attorney's
fee in case of collection by suit. In some States this is held in-
valid; and in a jurisdiction so holding no such fees can be col-
lected, though the stipulation was valid where made, since the
allowance is regarded as contrary to public policy.^" If the
stipulation is allowed, it is not allowed where the fee is unrea-
sonable; but it is usually held that the stipulated fee will be
regarded as reasonable in the absence of evidence to the con-
trary. ^^ The fees are to be reckoned upon the entire amount of



'2 Alabama: McQueen v. Whetstone,
127 Ala. 417, 30 So. 548 (statutory).

Missouri: Riney v. Hill, 14 Mo. 500,
55 Am. Dec. 119; Call v. Moll, 89 Mo.
App. 386.

'' AlabaTna: Stickney v. Moore, 108
Ala. 590, 19 So. 76 (semble).

Michigan: Crasser & Brand B. Co. v.
Rogers, 112 Mich. 112, 70 N. W. 445,
67 Am. St. Rep. 389 (where the creditor
has not himself made the application).

'* Alabama: Stickney v. Moore, 108
Ala. 590, 19 So. 76.

Illinois: Drake v. Sherman, 179 111.
362, 53 N. E. 628.

'* Drake v. Sherman, 179 111. 362, 53
N. E. 628.

" Michigan: Cra.sser <fe Brand Brew-
ing Co. V. Rogers, 112 Mich. 112, 70
N. W. 445, 67 Am. St. Rep. 389 {senv
hie).

Rhode Island: Burt v. Buttcrworth,
19 R. 1. 127.



" Exchange Bank v. Appalachian
Land & Lumber Co., 128 N. C. 193, 38
S. E. 813.

'^ Alabama: Stephenson v. Allison,
123 Ala. 439, 26 So. 290.

Indiana: Starnes v. Schofield, 5 Ind.
App. 4, 31 N. E. 480; Rouyer i-. Miller,
16 Ind. App. 519, 44 N. E. 51, 45 N. E.
674.

New Mexico: Dallas Exch. v. Tuttle,
5 N. M. 427, 23 Pac. 241, 7 L. R. A.
445 (unless the stipulated fee is so
large as to seem unreasonable on its
face).

Texas: Carver v. J. S. Mayfield Lum-
ber Co. (Tex. Civ. App.), 68 S. W. 711.
[explaining Land, etc., Co. v. Robert-
son (Tex. Civ. App.), 85 S. W. 1020];
Dashiell v. Moody (Tex. Civ. App.), 97
S. W. 843.

Contra, that the plaintiff must prove
the reasonable fee and can recover
only that.



§§ 696, 697 INTEREST BY CIVIL LAW 1469

the damages, interest as well as principal.''' The fee is not due
unless the litigation was reasonable; ^° and can be collected
only for services in the trial court, not on appeal. ^^

§ 696. Interest.

* In actions brought on promises to pay a liquidated sum of
money, as on promissory notes or bills, where no question arises
as to the currency or rate of exchange, the rule of damages is a
fixed and arbitrary one. It is identical with the rate of legal
interest. The actual damages may be much greater; the non-
performance of the obligation may have occasioned the great-
est distress, nay, even extreme positive loss; it may have
produced actual insolvency. These remote results the law,
however, does not investigate.^^ It takes the rate of interest as
the measure of damages; and so, says Pothier, ''as the different
damages which may result from the failure to perform this
kind of obligation vary infinitely, and as it is as difficult to fore-
see as to excuse them, it has been found necessary to regulate
them as by a species of penalty, and fix them at a precise
sum." -^ **

§ 697. Interest by the civil law.

* With this, the general language of the modern civil law
accords. The damages resulting from the non-performance of
contracts to pay money are limited to the infliction of interest.
''Interest," says Domat,-^ "is the name applied to the compen-

Alabama: Camp v. Randlc, 81 Ala. Tenn. 306, 47 S. W. 424 (suit for usur-

240, 2 So. 287 (of Georgia law). ious interest).

Minnesota: Campbell v. Worman, 58 If the maker is garnished but docs

Minn. 561, 60 N. W. 668. not pay the amount of it into court, ho

Where the provision is for attorney's will be liable for the attorney's fee if

fees "up to 10%" it must be proved necessary to collect. Brahan r. Clarks-

what the services were and what they ville First Nat. Bank, 72 Miss. 266, 16

were worth. Patillo v. Alexander, 96 So. 203.

Ga. 60, 22 S. E. 646, 29 L. R. A. 616. 2' McCormick v. Falls City Bank, 57

18 Georgia: Morgan v. Riser, 105 Ga. Fed. 107.

104, 31 S. E. 45. 22 Lewis v. Lee, 15 Ind. 499. See

Texas: Hopkins v. Halliburton, 6 § 6226.

Tex. Civ. App. 451, 25 S. W. 1005; ^3 Traite des Oblig., part i, ch. ii,

Carver v. J. S. Mayfield Lumber Co., art. 3, 170. See Heyman v. Landers, 12

29 Tex. Civ. App. 434, 68 S. W. 711. Cal. 107.

2" Tennessee: Tyler v. Walker, 101 -* Liv. iii, tit. v, § 1.



1470 ACTIONS UPON NEGOTIABLE INSTRUMENTS § 697

sation which the law gives to the creditor who is entitled to re-
cover a sum of money from his debtor in default." So, too, the
Roman law: In bonce fidei contractibus usuroe ex mora debentur."^^

These principles, equally recognized b^'' our system, are em-
bodied in the French Code by a positive provision,-^ the cor-
rectness of which is thus supported and expounded by one of
the ablest commentators on that law:

" It is certain that the non-payment of money when due may
cause, and often actually causes, the creditor loss much beyond
the legal interest on the sum. For want of the funds on the
receipt of which his calculations are made, he may have been
compelled to borrow, himself, and to submit to the exactions of
the usurer. He may have been prosecuted, in a manner calcu-
lated to destroy his credit. He may have been ejected from his
property; have become bankrupt; his house may have gone to
ruin for want of repair. He may have lost highly advantageous
bargains.

"But how are we to distribute these losses according to their
real cause, and fix on those which should be imputed to the
party in default? How is any equitable valuation to be made of
them? Add to this, that the non-payment of money is the most
common of all cases which give rise to damages, and we shall
perceive that the peace of society would be harassed by this
infinite multitude of settlements, and the litigation that would
result from them.

"The law prevents this, by declaring that the damages shall
never exceed legal interest from the day that payment becomes
due ; and this, which is a species of forfeiture, may often be ad-
vantageous to the creditor.

"Whatever may be the damage that he has suffered by the
delay in receiving his funds, whether the debtor was animated
by malicious or even fraudulent motives, the creditor cannot, it

^* L. 32, § 2, Ff . Deusur. ; propter particulibres au commerce el au cauli-

moram. L. 17, § 3, in fine codem. onnemenl.

^° Dans les ohligalions qui se bornenl Ces dommages el indrcts so7U dus,

au paiemenl d'une cerlaine somme, les sans que le crdancier soil lenu de justi-

dommages el irUerels resultants du re- fier d'aucune perte.

lard dans Vexiculion ne consistent Us ne so?U dus que du jour de la de-

januiis que dans la condammition aux niande, excepte dans les cas oil la loi

intertts fixes par la loi, sauj les regies les fait courir de plcin droit. Code C,

Art. 1153.



§ 697 INTEREST BY CIVIL LAW 1471

is true, demand any other compensation than legal interest on
his demand. But, on the other hand, he is not required to
prove the damages that the delay may have caused. And this
provision, which fixes the measure of damages for non-payment
of money at legal interest, is founded on a principle of equity.

"In cases of the non-performance of other contracts, the
party in default, as the lessee who violates his contract of let-
ting, or the architect who, by his negligence, causes the de-
struction of a house, must be fully apprised of the nature of the
loss that may result from the non-performance of his duty;
whereas with money it is different.

"On the contrary, the engagement to pay a sum of money has
no precise relation to any particular damage ; it is impossible to
know what will result from its non-payment; it is impossible to
see what the creditor will lose, or how much he will lose;
whether he will be compelled to borrow — whether he will be
driven from his house and reduced to bankruptcy — whether
his business or his credit will suffer; it is impossible to predict
any one event among the thousand which are possible, and
which depend upon the situation of the creditor's affairs.

"Money being the common measure of all things, has not,
like other things, any peculiar function. It takes the place of
all other things. The loss experienced, then, by those who are
not paid at maturity is as diversified as the use that they might
make of the money, and as unforeseen as the wants from which
the injury might arise. They are, in regard to the debtors, like
fortuitous cases, impossible to foresee, and which for this rea-
son their obligation does not embrace." "

And it should be borne in mind, as Pothier also well remarks,
that if, on the one hand, the creditor cannot recover anything
beyond the legal interest, so, on the other hand, he is not put
to any proof of damage whatever.-^ It is an arbitrary assess-
ment of damages, in the nature of the Lex Aquilia of the Roman
system. He can, it is true, recover but the legal rate of interest ;
but then, on the other hand, he might, in fact, not have been

27 Touillier, vol. vi, liv. 3, tit. 3, ch. money, are called interest. The credit-

iii. De I'Effet des Obligations, 230 et seq. or is entitled to these damages without

2* So says the civil code of Louisiana, proving any loss, and whatever loss he

"The damages duo for delay in the may have suffered, he can recover no

performance of an obligation to pay more." Art. 1935.



1472 ACTIONS UPON NEGOTIABLE INSTRUMENTS §§ 698, 699

able to gain any interest whatever during the time he has
been deprived of his funds.**

§ 698. Interest not formerly allowed.

* "It is a dictate of natural justice and the law of every
civilized country, that a man is bound in equity not only to
perform his engagements, but also to repair all the damages
that accrue naturally from their breach. Hence, every nation,
whether governed by the civil or the common law, has estab-
lished a certain common measure of reparation for the deten-
tion of money not paid according to contract, which is usually
calculated at a certain and legal rate of interest." ^^ Such is
the language of the Supreme Court of the United States; but
is to be taken with much allowance. The thunders of the
early church ^° were levelled against interest and usurj^ indis-
criminately: and up to the time of Henry VIII., as we are told
by Lord Mansfield, ^^ "all interest on money lent was prohibited
by the common law, as it is now in Roman Catholic countries. "^^
This statute simply provided that none should take for any loan
or commodity above the rate of ten pounds for one hundred
pounds for one whole year, which rate was reduced to five per
cent by a subsequent statute, passed in the reign of Queen
Anne.^'^ ** The tendency of enlightened modern opinion is in
favor of leaving the whole matter to be regulated by contract,
and this has led in England, Massachusetts, and elsewhere to
the repeal of the old statutes against usury; the law merely
providing a rate to be applied in the absence of express con-
tracts.

§ 699. Now universally allowed.

Interest is now everywhere regarded as the proper measure
of damages for the non-payment of bills and notes. In the
United States it seems that a jury should be instructed to give

^ Curtis V. Innerarity, 6 How. 146, gent: nummus mimmum non parit.

154, 12 L. ed. 380. The hostility of the church was founded

^ See Voltaire's article, Intiril, in the on the prohibition in the Old Testa-
Diet ionnaire Philosophique, whore ho mont, "Thou shalt not lond upon usury
roprosonts a .lansonist Abb^- romon- to thy brothor." Dcut. xxii, 19, 20.
Kf nit inK with a Dutch morohant aKainst " Lowo v. Waller, Dou^;. 7.%, 740.
taking interest: I'nnrz garde; vo)is '^ See also Robinson t'. Bland, 2 iJurr.
vouK dnmnez; V argent ne pent proiluirc 1077, lOSd.
dc Vargenl — ne pent produire de I'ar- '^ 12 Anne, Stat. 2, c. xvi.



§ 700 FOREIGN BILLS 1473

interest, on the same principle on which they are instructed to
give the market value of goods or the market price of the hire
of an article, for interest is the market price of the hire of the
use of money ;^^ and that is in fact the rule uni versally adopted. ^^

§ 700. Foreign bills — Cost of protest and re-exchange.

*In regard to foreign bills of exchange, the general rule is, that
the holder of a bill protested for non-payment is entitled to the
amount of the bill, re-exchange, and charges. ^^

''Re-exchange," says Mr. Chitty," "is the exchange incurred
by the bill being dishonored in a foreign country in which it is
payable and returned to the country in which it is made or in-
dorsed, and there taken up. The amount of it depends on the
course of the exchange between the countries through which
the bill has been negotiated. It is not necessary for the plain-
tiff to show that he has paid the re-exchange ; it suffices if he be
liable to pay it; but if the jury find that there was not at the
time any course of re-exchange between the two foreign places,
then no re-exchange is recoverable." ^^

''By re-exchange," says Mr. Justice Story, "is meant the
amount for which a bill can be purchased in the country where
the acceptance is made, drawn upon the drawer or indorser, in
the country where he resides, which will give the holder of the
original bill a sum exactly equal to the amount of that bill at
the time when it ought to be paid, or when he is able to draw
the re-exchange bill, together with his necessary expenses and
interest, for that is precisely the sum which the holder is en-
titled to receive, and which will indemnify him for its non-
payment." ^^

The question of re-exchange usually arises in regard to the
drawers and indorsers; for the acceptor is not, upon non-

^* See, per Spencer, Senator, Reus- cost recovered. Pearson v. Crallan, 2

selaer Glass Factory v. Reid, 5 Cow. Smith, 404.

587, 610. " Bills, 684.

^*See ante, §301. ^s gee, also, De Tastet v. Baring, 11

^^ In re Gillespie, 16 Q. B. D. 702. East, 265, where the origin and princi-

Acc, Pavenstedt v. New York L. I. Co. pie of the right to redraw is gone into

(N. Y.), 96 N. E. 104. at large. Mellish v. Simeon, 2 H.

When necessary, notice of protest may Black. 378, 379; Pollard v. Herries, 3

be sent by a special messenger, and the B. & P. 335.

39 Story on Bills, § 400.

93



1474



ACTIONS UPON NEGOTIABLE INSTRUMENTS



§700



payment of the bill, ordinarily liable to the holder for anything
more than the principal sum, and the expenses of the protest,
with interest. '^^ But if he has expressly or impliedly agreed
with the drawer, or wdth any indorser, for a valuable considera-
tion, to pay the bill at its maturity, and has failed to do so, and
the drawer or indorser has been compelled to take up the bill,
and pay damages and other expenses necessarily incurred
thereby, he may, perhaps, be compellable fully to indemnify
the drawer or indorser for all the damage and expense so paid
by him, on account of the breach of liis contract.''^

The subject of re-exchange is very differently treated in
England and in the United States. The rate which the holder
is entitled to recover depends in the former country on the
actual course of exchange, as proved at the trial ; while in this
country, with that leaning to a fixed rule, which we shall have
occasion again to notice, when speaking of the subject of in-
surance, the amount of re-exchange is generally regulated by
positive statutory provision.

To obtain a correct appreciation of this branch of our law, it
is necessary to consult those treatises which are specially de-
voted to it; it will be enough here to make a brief examination
of a few of the cases which have been decided in this country,
and a reference to the statutory provisions of the various
States; in making which it should be borne in mind that these
statutes have no extra-territorial operation. Thus it has been
held in Massachusetts, that the statute of Maine, which enacts,
that in an action on a bill of exchange drawn or indorsed in
that State, but payable out of it, and protested for non-pay-
ment, the holder shall recover three per cent damages in addi-
tion to the contents of the bill and interest — does not entitle the
holder to recover those damages in a suit against the acceptor
in the courts of Massachusetts. ■^-



«»Bowen v. Stoddard, 10 Met. 375,
43 Am. Dpc. 442; Newman v. Goza, 2
La. Ann. 642.

♦'Story on Bills, §398; Chitty on
Bills, part 2, ch. vi, 684 to 687; VVool-
sey V. Crawford, 2 Camp. 445; Nai)i('r
V. Srhnoidcr, 12 East, 420; Baylcy on
Bills, ell. i\, 35.^; IliRKs /-. I-ind.say, 7



Cranch, 500; Bowen v. Stoddard, 10
Met. 375; Pothier de Change, 115, 117.

It has been decided in Pennsylvania
that the acceptor is not liable for re-
exchangc. Watt v. Riildle, 8 Watts,
545.

*'■ Fiske V. Foster, 10 Met. 507, 43
.\iii. Dec. 450.



§ 700 FOREIGN BILLS 1475

The desire to establish a fixed rule in the matter of re-
exchange manifested itself in this country at an early period of
our colonial history. In Pennsylvania, as far back as the year
1700, the legislature enacted, that if any person within that
province should draw or indorse any bill of exchange upon any
person in England, or other parts of Europe, and the same
should be returned unpaid, Avith a legal protest, the drawer
and all concerned should pay the contents of the bill, with
twenty per cent advance for the damage thereof, in the same
specie as the bill was drawn, or current money of that province,
equivalent to that which was first paid to the drawer or in-
dorser.'*'^ So in Massachusetts, the old rule, founded on usage
(since modified by the statute), was to allow on all foreign bills
drawn on England, and probably also upon any part of Europe,
ten per cent as damages in lieu of re-exchange.''^

In New York, the original usage was to allow twenty per cent
damages, in lieu of re-exchange, on all bills drawn on England
or any part of Europe. In an action brought in New York, on
a bill drawn by the defendant on a Liverpool house, indorsed
to the plaintiff, and protested for non-payment, the plaintiff
claimed twenty per cent damages and interest, together with
two per cent for the difference of exchange, it being two per
cent above par when the defendant was notified of the non-
payment of the bill. But the claim for this difference was re-
fused, notwithstanding reliance was placed on a usage of the
Chamber of Commerce. Spencer, J., said:

''The right to recover damages on the protest of a foreign bill
of exchange rests with us on immemorial commercial usage,
sanctioned by a long course of judicial decision. ... It is pre-
sumed that our rule to allow twenty per cent on the protest of
a foreign bill, was originally co-extensive with the rule estab-
lished in Pennsylvania, and that the same reasons induced both

*^ See Francis v. Rucker, Ambler, 161, 162. In Maine, the mercantile

672, and Hendricks v. Franklin, 4 usage is the same. Wood v. Watson, 53

Johns. 119. In Rhode Island, as early Me. 300. Such a rule of damages es-

as 1743, an act of similar purport was tablished by long usage has the force of

passed, fixing the damages at ten per law. It must be taken as part of the

cent. Brown i'. Van Braam, 3 Dall. contract of indorsement, and cannot be

344, 346, 1 L. ed. 629. changed by the court, whatever mone-

** Grimshaw v. Bender, 6 Mass. 157, tary crisis may occur.



1476 ACTIONS UPON NEGOTIABLE INSTRUMENTS § 700

rules. The twenty per cent was in lieu of damages, in ease of
re-exchange, and because there was no course of exchange
from London to New York, and to avoid the constant fluctua-
tion and uncertainty of exchange."

After saying that the usage of the Chamber of Commerce
was too recent to alter the rule of law, he closed by stating:

''In my opinion, the twenty per cent is in lieu of all claims for
damages in such cases; and the claim for the difference in the
price of the bills cannot be supported, and therefore it must be
deducted in this case." ^^

In a subsequent case, however, in the Court of Errors,^®
though the twenty per cent was allowed, the rule in regard to
the sum on which it was assessed was altered. The court de-
cided that the holder of a bill of exchange, drawn here on Eng-
land, and protested there, was entitled to recover the contents
of the bill at the rate of exchange on England at the time of the re-
turn of the dishonored bill and notice given to the drawer, and
that the twenty per cent damages and interest were to be cal-
culated on this amount, as the principal sum, and not upon the
fixed par of exchange. The judgment of the Supreme Court
was reversed, but no reasons were assigned. ^^

*^ Hendricks v. Franklin, 4 Johns, and if so, in what manner it should be
119. redressed. An able report was made
^ Graves v. Dash, 12 Johns. 17. on the subject by Mr. Verplanck to
" Ace, Denston v. Henderson, 13 the House of Representatives of the
Johns. 322. But the holder of a bill of ITnited States, in March, 1826, main-
exchange remitted to pay an anteced- taining the right of Congress to control
ent debt is not entitled to recover the the subject, urging the importance of
twenty per cent. Kenworthy v. Hop- establishing a uniform rule, and strong-
kins, 1 Johns. Cas. 108; Thompson v. ly contending for the rule of actual re-
Robertson, 4 Johns. 27. The Amer- exchange as opposed to that of arbi-
ican Jurist for July, 1829, vol. ii, p. 79, trary damages. "In fact," says the
contains an interesting article on the report, "this principle is the only one
subject of Damages on Bills of Ex- which can perfectly and under all cir-
changf. It states the difference be- cumstances and fluctuations of ex-
tween the system of re-(!xchange in change, secure anything like a fair
force in Great Britain and France, and comjjensation of tlu^ loss sustained by



Online LibraryTheodore SedgwickA treatise on the measure of damages, or, An inquiry into the principles which govern the amount of pecuniary compensation awarded by courts of justice (Volume 2) → online text (page 69 of 91)