CHAPTER VIII.

ON PROMISES TO PAY

INTEREST:

AND UPON WHAT CON

A

TRACTS OR DEBTS INTEREST IS RECOVERABLE.

CONTRACT or promise to pay interest is lawful if it do not ex

ceed the rate allowed by the statute 12 Ann. c. 16.; and an action of assumpsit or debt will lie for the recovery thereof. (a)

In actions of assumpsit for the recovery of money lent or paid, &c.; and also for money due upon bills of exchange, and for goods sold and delivered, and other book debts, a contrariety of decisions have been made as to the plaintiff's right to recover interest. The general question, however, was much discussed in the case of Calton v. Bragg (6) which was an action for goods sold and delivered, for money lent, money paid, money had and received, and also upon a count for interest. It was stated at the trial, before Bayley Just., that there had been a running account between these parties; in the course of which the plaintiff had supplied the defendant with goods, and had also lent him several sums at different times, to the extent on one occasion of 100%. : the balance of the account, however, had been paid by the defendant to the plaintiff for the goods sold, and for the money lent, but not for interest on the latter; which balance the plaintiff had received, saving his claim for interest, to recover which this action was brought; and the learned judge directed the jury to find for the plaintiff for the amount of the interest proved, which was 351.; reserving the question for the opinion of the Court, whether interest was by law due, or could be recovered in such a case; and the defendant's counsel had liberty to move to set aside the verdict and enter a nonsuit. This motion was accordingly made, and a rule to show cause granted; Bayley Just. at the same observing, "That there was no evidence of any course of dealing between the parties, from whence it might be inferred that interest was tacitly agreed to be taken." The case was fully argued, and all the former authorities cited. But the Court determined that

(a) Cro.Car.272. Palm. 291. 10 Mod. 312. 5 Term Rep. 555. Com. Dig tit. Action upon assumpsit. F. 4.

(b) 15 East Rep. 223.

interest could not be recovered. And Lord Ellenborough Ch. J., in delivering his opinion, said "It is not only from decided cases, where the point has been raised upon argument, but also from the long continued practice of the courts, without objection made, that we collect rules of law. Lord Mansfield sat here (b) for upwards of 30 years, Lord Kenyon for above 13 years, and I have now sat here for more than 9 years; and during this long course of time, no case has occurred where, upon a mere simple contract of lending, without an agreement for payment of the principal at a certain time, or for interest to run immediately, or under special circumstances from whence a contract for interest was to be inferred, has interest been ever given. The mere form of the count cannot make any difference in this respect; for in most cases it happens, that a plaintiff may either frame his count for money had and received, or for money lent. If interest were due in this case, why should it not also be due where goods are to be paid for at a certain day, when that time arrives, as Baron Montagu in one of the old cases is stated to have held; or in any other case where money is to be paid at a certain day? Those cases press closely upon the present. If there were any general rule for interest to run upon money due, why should it not be allowed upon all book debts? Juries would give ear readily enough to such a direction; but I dare not vary from the practice which has. long prevailed in all the Courts of Westminster-hall. If it be fit that the whole course of our proceedings in respect to giving interest should be recast, it must be done by act of parliament. Where one directs his agent to advance money to another, what difference can it make as to the point of interest, whether he afterwards counts for money had and received, or for lent. If interest were demandable generally upon money money due, why should it have been thought necessary to introduce, as it has prevailed in practice, a particular count for interest agreed to be paid where the law would have given it without such an agreement. But in fact there has been no instance of its being allowed except upon written securities for the payment of money at a given time, or upon an express or implied agreement for it. The judgment of Lord Mansfield in the case of Robinson v. Bland, (c) and of the eminent judges who sat with him, shows that interest is not due without a contract for it for they would never have resorted to the argument of intention, to be collected from the giving a void bill of exchange, in order to support the claim of interest, if the law would have given it without, upon the mere loan of money. Where a balance has been settled upon an allowance of interest in a banker's books, that is an admission by the party of a contract to pay interest on the sums advanced to him by the banker. The cases in equity also show the understanding which has prevailed

(b) Court of King's Bench.

(c) 2 Bur. 1077. 1085.

upon this subject, not only in those Courts, but also in the Courts of law; as Lord Alvanley, when Master of the Rolls, states, in Parker v. Hutchinson, (d) that he had received the rule there laid down from Lord Kenyon, as derived from the practice adopted at the sittings at Nisi Prius. It was said indeed in Blaney v. Hendrick, that interest is due upon liquidated sums from the instant the principal becomes due and payable. (e) But those words must be taken in a restricted sense, and I must understand by them something more than an account stated. If an account be stated, and the nature of the transaction be such as to afford evidence of an agreement for interest, as if it be shown to have been allowed before upon a prior settlement of accounts, then it may be warranted. But if it be understood as extending the claim of interest upon money lent generally, without any certain time of payment, or any agreement for interest expressed or to be implied, I shall expect a body of authorities more strong and consistent than has yet been brought forwards, before I can venture to say that it is allowable by law. Hitherto it has only been allowed upon written contracts for the payment of money at a given day, and upon contracts express or implied for the payment of interest. If it be fit that the rule should be carried further, it must be done by the legislature."

Mr. Justice Grose said, "During all my experience I have never known interest given upon money lent, or due for goods sold, or in any other case but upon a contract for interest express or implied. It is the lender's own fault if he do not contract for interest when he advances the money but the law has long been settled, as I have stated. Why should interest be paid at all without a contract for it? If there be no proof of a contract, it might be given against the intention of the parties at the time of the loan. If they did not then contract for interest, it shows that they did not mean to reserve it. To allow interest therefore in this case would be inconsistent with the practice which has long prevailed in Westminster-hall, and to the general understanding of mankind upon the subject; it would not be reasonable but unjust; there is uniform usage against it, and the claim is unauthorised by law."

So, in the recent case of Higgins v. Sargent, (*) it was held, that in covenant upon a policy of insurance upon the life of A., payable six months after due proof of his death, the assured are not entitled to recover interest upon the principal sum insured, from the expiration of six months after due proof of the death of A.

And Abbott Ch. J. said, "It is now established as a general principle,

(d) 3 Ves. Rep. 133.

(e) It is so stated in the report of the case in 2 Bl. 761. But the statement in 5 Wils. 206. is, that "upon an account stated between merchant and merchant,

it shall carry interest from the time it was liquidated:" which is more plainly referable to an implied contract by the usage of trade.

(*) 2 Barn. & Cres. 348.

that interest is allowed by law only upon mercantile securites, or in those cases where there has been an express promise to pay interest, or where such promise is to be implied from the usage of trade or other circumstances. It is of importance that this rule should be adhered to; and if we were to hold that interest was payable in this case, the application of the general rule might be brought into discussion in many others."

And Holroyd, Just. said, "It is clearly established by the latter authorities, that unless interest be payable by consent of the parties, express, or implied from the usage of trade (as in the case of bills of exchange), or other circumstances, it is not due by common law. In De Haviland v. Bowerbank (ƒ), Lord Ellenborough was of opinion, that where money of the plaintiff had come to the hands of the defendant, to establish a right to interest upon it, there should either be a specific agreement to that effect, or something should appear from which a promise to pay interest might be inferred, or proof should be given of the money being used; and in Gordon v. Swan (g) the same noble and learned judge said, that the giving of interest should be limited to bills of exchange, and such like instruments and agreements reserving interest. In the latter case, although the money was payable at a particular day, non-payment at that day was held not to give any right to interest. Independently of these authorities, I am of opinion upon the principles of the common law, that interest is not payable upon a sum certain, payable at a given day. The action of debt was the specific. remedy appropriated by the common law for the recovery of a sum certain. Now in that action the defendant was summoned to render

The payment of the

the debt, or show cause why he should not do so. debt satisfied the summons, and was an answer to the action. If this therefore had been an action of debt, the payment of the principal sum would have been a good defence, because the interest is no part of the debt, but is claimed only as damages resulting from the non-payment of the debt. When, indeed, the interest becomes payable by virtue of a contract express or implied, then it becomes part of the debt itself, and consequently it would then be no answer to an action of debt for the defendant to show that he had paid the principal sum advanced. Here, there being no contract, either express or implied, to pay interest, it was no part of the debt, but could only be recovered by way of damages for detaining the debt. Inasmuch, therefore, as it appears, that if the plaintiff had pursued that remedy which by the common law is specifically applicable to his case, he could not have recovered interest: I think that he ought not to be permitted to recover interest by way of damages in an action of covenant. I cannot, therefore, say that the jury ought to have given interest in this case, and I doubt

(f) Post, 424.

(g) Post, 124.

much whether the verdict could have been supported if they had done so."

Now it may be collected from these and several other cases which will be cited, that, as a general and established rule, interest is allowed and recoverable in the following cases. First, where there is an express promise to pay interest (h); secondly, upon bills of exchange and promissory notes, and other commercial instruments or contracts, upon which interest is usually paid and allowed (i); thirdly, upon awards, where the money awarded is to be paid at a certain day, and it has been demanded (k); fourthly, in all cases where, from the usage of trade, or the general course of dealing between the parties, an intention to pay and allow interest may be reasonably inferred; as for instance, where goods sold are to be paid for by a bill of exchange, and the buyer refuses to give the bill, the seller is entitled to interest from the time when the bill, if given, would have become due (l) : and so upon a similar contract where the buyer refuses to accept the goods bought. (m)

But interest is not allowed in actions for goods sold and delivered without such an agreement, even though the price is to be paid at a certain day. (n) Nor for work and labour or other book debts, unless there be a special agreement or particular usage to pay interest. (o)

So, interest cannot be recovered in an action for money had and received, unless it can be proved that the defendant has used the money, or something shall appear from which a promise to pay interest may be inferred. (p) Nor upon the balance of a settled account, without either an express promise to pay interest, or it has been allowed upon former balances. (q) Nor upon a policy of insurance. (r)

So, compound interest is not recoverable: and therefore in an action by bankers for money over drawn, the court will allow only simple interest upon the sums actually advanced; not interest upon rests or balances struck by them at stated times, where such balances are partly made up of the interest already incurred. (s) unless interest has

(h) See the case of De Haviland v. Bowerbank, 1 Campb. 50.

(i) Ibid., and see Bayley & Chitty on Bills.

(k) Penhorn v. Tuckington, 3 Campb. 468. Marquis of Anglesea v. Chafey, Manning's Index. 185. See also 1 East. Rep. 400. Sed quære; vid. ante, 423.

(1) Becher v. Jones, 2 Campb. 428. (m) Porter v. Palsgrave, Ib. 472, See also Boyce v. Warburton, Ib. 480.

(n) Gordon v. Swan, Ib. 429. 13 East. 419. Chalie v. The Duke of York, 6 Esp. Rep. 15.

(0) Calton v. Braggs, ante,420. See also Bunb. 119. 3 Wils. 206. 2 Bl. Rep. 672. 1 H. Bl. 305. 4 Bro. P. Cas. 539.

(p) De Havilardv. Bowerbank, 1 Campb. 50. De Bernales v. Fuller, 2 Campb. 426. 14 East. Rep. 490.

(q) Chalie v. The Duke of York, 6 Esp. Rep. 45. Nichol v. Thompson, 1 Campb. 52. n. (r) Kingston v. M'Intosh, 1 Campb.