Morley v. Lake Shore & M. S. Railway Company/Opinion of the Court

John S. Prouty, of the city and state of New York, was a holder and owner of certain preferred and guarantied stock of the Michigan Southern & Northern Indiana Railroad Company. This stock was issued in the city of New York, in the year 1857, and the guarantied dividends and interest were to be there paid. Subsequently, it being alleged that the said company was in arrears of dividends and interest due Mr. Prouty as holder and owner of its stock, an action was commenced by him in the supreme court of the state of New York in and for the city and county of New York, special term, upon the equity side, to compel the said company specifically to perform its contract and agreement with him. During the pendency of the action, evidence was produced tending to show that, after the commencement of the same, the said company was, with various other companies, merged or consolidated into the Lake Shore & Michigan Southern Railway Company, the present defendant in error. Upon this evidence the consolidated company was permitted to be brought in as defendant by supplemental complaint. In pursuance of this complaint, after a trial at special term, the supreme court, on motion, decreed that the railroad company should specifically perform all and every act and acts necessary and proper for the specific performance of the contract and agreement in the findings and decisions of the special term set forth, and made as therein stated, with the plaintiff as holder and owner of the stock in question, and to pay the plaintiff the amount of the arrears as dividends, being $27,426.67, with interest, the whole aggregating $53,184.88; and also decreed that immediately after service of a copy of the judgment the company should declare and make payable, and pay out of any of the net earnings of the company, the said sum of $53,184.88, together with interest thereon from the entry of said judgment; and that, in case of failure within 30 days after service of the judgment to pay the said sum of $53,184.88 and said interest, the plaintiff should have execution therefor against the defendant. On appeal by the defendant from this decree to the general term of the supreme court, (1 Hun, 655,) and afterwards to the court of appeals, (52 N. Y. 363,) the decree was affirmed, and was entered in the office of the clerk of the county of New York on the 26th day of January, 1878. The proceedings in the action prior to this decree do not appear in the record before this court, but such facts as are not shown by the record, and which deserve to be stated here, are gathered from the briefs and data therein cited, and seem to be undisputed.

The directions of the said decree not being complied with, on the 21st day of May, 1881, an execution was duly issued for the amount of the decree, with interest, and thereupon the defendant company paid to the sheriff the said amount, with interest at the rate of 7 per cent. per annum up to January 1, 1880, and interest at the rate of 6 per cent. per annum from January 1, 1880, to May 21, 1881, the time of such payment, and demanded that the execution be returned satisfied. It would seem that the reason for the refusal to pay 7 per cent. interest after January 1, 1880, was the passage of the act of June 20, 1879, of the legislature of the state of New York, changing the rate of interest upon the loan or forbearance of any money, goods, or things in action from 7 per cent. to 6 per cent. per annum, which act, upon January 1, 1880, began to take effect. The sheriff and plaintiff received the said sum on account, and demanded an additional amount, which would be the balance due upon computing the interest at the rate of 7 per cent. per annum for the whole time. Thereupon the railroad company, by its attorney, obtained a rule to show cause why the said execution should not be returned fully satisfied, or why the said judgment should not be discharged, and marked satisfied of record, or why the sheriff should not be forever enjoined from making any levy or sale under said execution. This application was, at a special term of the supreme court of New York, denied. The general term of the same court afterwards affirmed the denial of this motion by the special term. 26 Hun, 546. An appeal was then taken from the said general term of the said supreme court to the court of appeals, where the decision of the supreme court was reversed, and that court was ordered to grant the motion. 95 N. Y. 428, 667.

The complainant thereupon, by a writ of error, brought the matter from the court of appeals, which is the highest court having jurisdiction thereof in the state of New York, to this court.

In considering this case, we shall find it convenient to have before us certain sections of the statutes of New York, namely:

Rev. St. pt. 2, c. 4, tit. 3, enacted December 4, 1827, and taking effect January 1, 1830, (1 Rev. St. 771:)

'Section 1. The rate of interest upon the loan or forbearance of any money, goods, or things in action shall continue to be seven dollars upon one hundred dollars for one year, and after that rate for a greater or less sum, or for a longer or shorter time.'

'Laws 1879, c. 538, p. 598, (an act to amend the title containing the section above quoted, passed June 20, 1879, and taking effect January 1, 1880:)

'Section 1. The rate of interest upon the loan or forbearance of any money, goods, or things in action shall be six dollars upon one hundred dollars for one year, and after that rate for a greater or less sum, or for a longer or shorter time; but nothing herein contained shall be so construed as to in any way affect any contract or obligation made before the passage of this act.

'Sec. 2. All acts or parts of acts inconsistent with the provisions of this act are hereby repealed.

'Sec. 3. This act shall take effect on the first day of January, 1880.'

Laws 1877, c. 417, pp. 468,477. (An enactment of June 2, 1876, taking effect September 1, 1877.)

'Sec. 1211. A judgment for a sum of money, rendered in a court of record or not of record, or a judgment rendered in a court of record directing the payment of money, bears interest from the time when it is entered.'

The first question we have to consider is the effect to be given to the saving clause contained in the first section of the act of June 20, 1879, which provides that nothing therein contained shall be so construed as to in any way affect any contract or obligation made before the passage of that act. This question is answered for us by the decision of the court of appeals of New York in this very case, holding that this saving clause is not applicable in the case of a judgment like the plaintiff's. In Louisiana v. Pilsbury, 105 U.S., at page 294, this court, speaking by Mr. Justice Field, says: 'Whether such a construction [by judicial decisions, upon a clause of the state constitution] was a sound one, is not an open question. * *  * The exposition given by the highest tribunal of the state must be taken as correct so far as contracts made under the act are concerned. * *  * The construction, so far as contract obligations incurred under it are concerned, constitutes a part of the law as much as if embodied in it. So far does this doctrine extend that when a statute of two states, expressed in the same terms, is construed differently by the highest courts, they are treated by us as different laws, each embodying the particular construction of its own state, and enforced in accordance with it in all cases arising under it.' 'The rule of construction adopted by the highest court of the state in construing their own constitution and one of their own statutes in a case not involving any question re-examinable in this court under the twenty-fifth section of the judiciary act, must be regarded as conclusive in this court.' Provident Inst. v. Massachusetts, 6 Wall. 611, 630. 'The construction given to a statute of a state by the highest judicial tribunal of such state is regarded as a part of the statute, and is as binding upon the courts of the United States as the text.' Leffingwell v. Warren, 2 Black, 599, 603. The meaning of a state statute, declared by the highest court of a state, is conclusive upon this court. Randall v. Brigham, 7 Wall. 523, 541. If, then, the law as enacted by the legislature, and construed by the state judiciary, will be the law of the state, it follows that, as to the proper construction of the statute, and as to what should be regarded as among its terms, no federal question could arise. The most that could be claimed would be that, although the statute of the state was unobjectionable, yet the state court had erroneously construed it. This would constitute a purely judicial error, involving no question of the validity of the law; which latter question alone is, by the plainest possible terms of the constitution and judiciary act, subject to investigation here. Assuming, then, that the statute in question was correctly construed by the New York court, our only inquiry must be as to the validity of the statute itself, as construed by the state court. Did, then, the law that changed the rate of interest thereafter to accrue on a subsisting judgment infringe a contract, within the meaning of the constitution of the United States?

Before we state the conclusions reached by this court, the contention on behalf of the plaintiff in error may be briefly stated, as follows:

The judgment was based on a contract, which, as soon as it became a cause of action by the failure of the defendant to comply with its terms, began, under the then existing law of the state, to draw interest at the rate of 7 per cent. per annum, and, when merged into judgment, was entitled to draw interest at that rate until paid; that such judgment was itself a contract in the constitutional sense; and that the interest accruing and to accrue was as much a part of the contract as the principal itself, and equally within the protection of the constitution.

Interest on a principal sum may be stipulated for in the contract itself, either to run from the date of the contract until it matures, or until payment is made; and its payment in such a case is as much a part of the obligation of contract as the principal, and equally within the protection of the constitution. But if the contract itself does not provide for interest, then, of course, interest does not accrue during the running of the contract, and whether, after maturity and a failure to pay, interest shall accrue, depends wholly on the law of the state as declared by its statutes. If the state declares that, in case of the breach of a contract, interest shall accrue, such interest is in the nature of damages, and, as between the parties to the contract, such interest will continue to run until payment, or until the owner of the cause of action elects to merge it into judgment.

After the cause of action, whether a tort or a broken contract, not itself prescribing interest till payment, shall have been merged into a judgment, whether interest shall accrue upon the judgment is a matter not of contract between the parties, but of legislative discretion, which is free, so far as the constitution of the United States is concerned, to provide for interest as a penalty or liquidated damages for the nonpayment of the judgment, or not to do so. When such provision is made by statute, the owner of the judgment is, of course, entitled to the interest so prescribed until payment is received, or until the state shall, in the exercise of its discretion, declare that such interest shall be changed or cease to accrue. Should the statutory damages for nonpayment of a judgment be determined by a state, either in whole or in part, the owner of a judgment will be entitled to receive and have a vested right in the damages which shall have accrued up to the date of the legislative change; but after that time his rights as to interest as damages are, as when he first obtained his judgment, just what the legislature chooses to declare. He has no contract whatever on the subject with the defendant in the judgment, and his right is to receive, and the defendant's obligation is to pay, as damages, just what the state chooses to prescribe.

It is contended on behalf of the plaintiff in error, as stated above, that the judgment is itself a contract, and includes within the scope of its obligation the duty to pay interest thereon. As we have seen, it is doubtless the duty of the defendant to pay the interest that shall accrue on the judgment, if such interest be prescribed by statute; but such duty is created by the statute, and not by the agreement of the parties, and the judgment is not itself a contract within the meaning of the constitutional provision invoked by the plaintiff in error. The most important elements of a contract are wanting. There is no aggregatio mentium. The defendant has not voluntarily assented or promised to pay. 'A judgment is in no sense a contract or agreement between the parties.' Wyman v. Mitchell, 1 Cow. 316, 321. In McCoun v. Railroad Co., 50 N. Y. 176, it was said that 'a statute liability wants all the elements of a contract, consideration and mutuality, as well as the assent of the party. Even a judgment founded upon a contract is no contract.' In Bidleson v. Whytel, 3 Burrows, 1545, it was held by Lord Mansfield, after great deliberation, and after consultation with all the judges, that 'a judgment is on contract, nor can be considered in the light of a contract; for judicium redditur in invitum.' To a scire facias on a judgment entered in 13 Car. II., the defendant for plea alleged that the contract upon which recovery was had was usurious, to which plea the plaintiff demurred, saying that judgments cannot be void upon such a ground, since by the judgment the original contract which is supposed to be usurious is determined, and cited the case of Middleton v. Hall, Gouldsb. 128, and Cro. Eliz. 588; and according to this the plea was ruled bad, and judgment given for the plaintiff. Rowe v. Bellaseys, 1 Sid. 182. 'To a scire facias on a judgment by confession the defendant pleaded that the warrant of attorney was given on an usurious contract; and upon demurrer it was held that this was not within the statute 12 Anne, [of usury,] or to be got at this way, for this is no contract or assurance, a judgment being redditum in invitum.' Bush v. Gower, 2 Strange, 1043. In Louisiana v. Mayor, etc., 109 U.S. 285, 288, 3 Sup. Ct. Rep. 211, in which it was contended on behalf of an owner of a judgment that it was a contract, and within the protection of the federal constitution as such, it was said that 'the term 'contract' is used in the constitution in its ordinary sense, as signifying the agreement of two or more minds, for considerations proceeding from one to the other, to do, or not to do, certain acts. Mutual assent to its terms is of its very essence.' Where the transaction is not based upon any assent of parties, it cannot be said that any faith is pledged with respect to it, and no case arises for the operation of the constitutional prohibition. Garrison v. City of New York, 21 Wall. 196, 203. It is true that in Louisiana Mayor, etc., and in Garrison v. City of New York, the causes of action merged in the judgments were not contract obligations, but in both those cases, as in this, the court was dealing with the contention that the judgments themselves were contracts proprio vigore.

A large portion of the able argument in behalf of the plaintiff in error was directed to a discussion of the question how far the legislature may change remedies on existing contracts without impairing their obligation in the constitutional sense, and our special attention was asked to the case of Gunn v. Barry, 15 Wall. 610. That was a case wherein this court held that, as respects a creditor who had obtained by his judgment a lien on the land which a former exemption secured to him, while the new one destroyed it, the law creating the new exemption impaired the obligation of a contract, and was unconstitutional and void. The doctrine of that and similar cases does not seem to be applicable to the present case. Much discussion has been had in many cases in this and other courts in the attempt to fix definitely the line between the alterations of the remedy which are deemed legitimate, and those which, under the form of modifying the remedy, impair substantial rights; but, if we are right in our view of the nature of the present case, we are not called upon to review or consider those cases. If it be true, as we have endeavored to show, that interest allowed for nonpayment of judgments is in the nature of statutory damages, and if the plaintiff in the present case has received all such damages which accrued while his judgment remained unpaid, there is no change or withdrawal of remedy. His right was to collect such damages as the state, in its discretion, provided should be paid by defendants who should fail to promptly pay judgments which should be entered against them, and such right has not been destroyed or interfered with by legislation. The discretion exercised by the legislature in prescribing what, if any, damages shall be paid by way of compensation for delay in the payment of judgments, is based on reasons of public policy, and is altogether outside the sphere of private contracts.

The well-settled rule, that in a suit on this New York judgment in another state the interest recoverable is that allowed by the latter, points to the conclusion that such interest is in the nature of damages, and does not arise out of any contract between the parties; for, as is said by Chief Justice Marshall in Ogden v. Saunders, 12 Wheat. 213, 343, 'if the law becomes a part of the contract, change of place would not expunge the condition. A contract made in New York would be the same in any other state as in New York, and would still retain the stipulation originally introduced into it.'

The further contention of the plaintiff in error, that he has been deprived of his property without due process of law, can be more readily disposed of. If, as we have seen, the plaintiff has actually received on account of his judgment all that he is entitled to receive, he cannot be said to have been deprived of his property; and whether or not a statutory change in the rate of interest thereafter to accrue on the judgment can be regarded as a deprivation of property, the adjudication of the plaintiff's claims by the courts of his own state must be admitted to be due process of law. Nor are we authorized by the judiciary act to review this judgment of the state court because this judgment refuses to give effect to a valid contract, or because such judgment, in its effect, impairs the obligation of a contract. If we did, every case decided in the state courts could be brought here, when the party setting up a contract alleged that the court took a different view of its obligation from that which he held. Knox v. Bank, 12 Wall. 379, 383.

The result of these views is that we find no error in the record, and that the judgment of the New York court of appeals is accordingly affirmed.