I concur in the result reached in the majority opinion; however I think that the judgment should be reversed on another ground.
The pertinent facts as to which there is no dispute are: That a judgment was rendered against the defendant in the sum of $26,665.38, which was for taxes, penalty and interest; $22,674.03 of that amount was by the terms of the judgment to draw interest from the date thereof at eight per cent. per annum until paid. The balance of the judgment was for interest and the judgment provided that that amount should not draw interest in *Page 146 order to avoid the effect of compounding interest. About a year after the entry of judgment, and presumably after the appeals had taken place, defendant and the State Board of Equalization met and mutually computed the amount due, i.e., the amount of tax, the penalty and the interest. In legal effect this amounted to an account stated. It was then ascertained that the balance then due was $28,781.87. Thereafter a series of monthly installment payments was inaugurated by the defendant and paid to the Board of Equalization. Two years later the full sum of $28,781.87 was paid.
All payments were made to the State Board of Equalization, which, in turn, after entering the same on its books and receipting therefor, deposited the respective amounts in the office of the State Treasurer. With the payment of April 14, 1931, the last one made, defendant and the board apparently considered the amount of the judgment paid in full, except that the board asserted that there was a small balance of accrued interest. No effort was made to collect this balance by the board or by the state, or by anyone representing either, for about seven years at which time the State Treasurer secured a copy of the records of the State Board of Equalization with relation to the payments made, and from those records made independent computations and allocations of the payments received, as to interest and principal, respectively, and decided that there was still owing to the state over $1,000 of principal and interest. The result of these computations furnished the basis for the 1938 action and the present appeal.
The only error assigned by plaintiff is that the court erred in granting judgment for less than the amount demanded in its complaint. Defendant's cross-assignments challenged the court's action in (1) overruling its demurrer to the complaint; (2) failing to dismiss the action with prejudice; (3) failing to hold that the plaintiff's cause of action was barred by the statute of limitations; and (4) failing to hold that the action could not be maintained because the full amount due had already been paid. *Page 147
It will be observed that the merits of the controversy are squarely tendered by the plaintiff's one assignment of error, and the contention of defendant that the full amount had been paid. The other assignments of the defendant are of a more technical nature and to sustain any one of them would deny the plaintiff the right of recovery. In effect they are (1) that the action on the judgment was not instituted for more than ten years after the entry of the same; (2) that plaintiff did not plead ownership of the judgment at the time of the new suit; and (3) that the state had estopped itself from maintaining an action for the interest after accepting full payment of the principal amount due as such.
In 1921 the gasoline distributor's license tax law under which the tax here existed, was enacted and appeared as Chapter 185, Revised Codes of 1921. Under this Act (sec. 2386, Rev. Codes 1921) distributors of gasoline were required to make quarterly reports showing the total number of gallons of gasoline and distillate refined, manufactured or compounded, sold within the state. Certain other information as required by the Board of Equalization was also to be furnished and the reports delivered to the State Treasurer. Section 2387, Revised Codes of 1921, required payment of the amount shown to be due for taxes to be made to the State Treasurer. In the event that a distributor failed to make out the required statement, section 2389, Revised Codes 1921, directed the Board of Equalization to inform itself of the information required to be set forth in such statement for the particular quarter and determine and fix the amount of license tax due the state. Such information and estimates were to be turned over to the State Treasurer to be used in the collection of the tax, and he in turn was authorized to call upon the attorney general for legal assistance in the matter.
In 1927 Chapter 79 was enacted as amended, now sec. 2122.23, Revised Codes. Thereby the responsibility for collecting the gasoline license tax and issuing receipts therefor was taken from the State Treasurer and placed upon the State Board of Equalization with directions to turn such collections over to the treasurer *Page 148 on the 10th and 25th of each month. This Act was approved and became effective March 8, 1927.
The original judgment was entered February 15, 1928. I have detailed the history of the gasoline license tax law for the purpose of showing how the State Board of Equalization became involved in the collection of the tax. As I have stated, at the outset, after ascertainment of the exact amount due the state from defendant, all installments paid thereunder were transmitted and delivered to the State Board of Equalization, and by it turned over to the State Treasurer. This is apparently the statutory method of procedure and has been since 1927. (Sec. 2122.23, Rev. Codes.)
It is urged by counsel for the state that when the delinquencies were reduced to judgment, the manner of collection was changed, and that the Board of Equalization had no further power in the matter. Technically speaking, such may have been the case, and probably thereafter the correct and safest procedure for all concerned would have been to have the money paid to the clerk of the district court in which the judgment was rendered, rather than to either the State Board of Equalization or the State Treasurer. But the fact is that the defendant did pay its money to the Board of Equalization, and that that board, assuming that the law I have mentioned was controlling, turned it over to the State Treasurer.
From letters of transmittal from the defendant to the board and the board's receipts therefor, it appears that neither the board nor defendant regarded the payments as made on a judgment, because the documentary evidence introduced shows that both always referred to the payments as so much on the "1926 tax." The money may have arrived at the office of the treasurer by the wrong method and through erroneous channels, but nevertheless it did arrive, and apparently from the acquiescent attitude of the officials as manifested by the record, the procedure was satisfactory to all, including the State Treasurer.
The only record of the payments made and of the credits receipted therefor appeared in the office of the State Board of *Page 149 Equalization. It was impossible for the treasurer's office to have evolved any theory of payment, credit and allocation affecting the instant litigation without first obtaining the board's records of payments made on the delinquencies.
The record does not disclose explicitly in what manner the board allocated the payments with reference to the discharge of principal and interest. From the documentary evidence consisting of letters of transmittal to the board, endorsements of payments by the board on defendant's current monthly reports, defendant's Exhibit A, consisting of a copy of the original record from the office of the board carrying an itemized account of defendant's payments in such an arrangement as to indicate that it was the intent of the board to apply the installment payments first to the liquidation of the tax item and then to interest, and most important of all the letter from the board's chief clerk in response to defendant's last remittance with relation to the delinquent tax, it would appear beyond doubt that the board did actually apply the payments in discharge, first, of the principal amount of the tax due, and then to the accrued interest. Whatever method of allocation was adopted by the board seems immaterial in view of what finally transpired between the parties. The payments were all made within two years of the time the amount had been computed and settled upon, i.e., the full amount of $28,781.87, ascertained to be due at the time the joint computation was made. This amount represented all of the tax, penalty and accrued interest to the date it was figured. The chief clerk's response to defendant's last payment on the 1926 delinquencies, dated April 16, 1931, was as follows:
"We received today your gasoline license tax report for the month of March with $487.87 [$480.87?], which makes a total paid by you on your 1926 gasoline tax of $28,781.87. As I understand it there is interest due at 8%, which will have to be paid, and I would suggest that you figure out the interest due up to the date of the last payment which was this date, and send us a check covering the amount of the interest. As the *Page 150 judgment is in the Attorney General's office I expect you have a copy of the same on which you can figure the interest."
From this letter, and the other documentary evidence mentioned, in which reference was always made to a payment of the 1926 tax, it is evident that some interest was still claimed by the board. The district court apparently took the same view and ascertained the amount to be $247.95, and gave judgment therefor. I do not deem it necessary to set forth the computation which illustrates how this figure must have been accomplished, nor my own independent calculations, which on the theory apparently adopted by the lower court would have made the amount due from defendant $329.70, instead of the amount of the judgment. The smaller amount was the result of erroneous computation by the trial court.
Under my view of the law, it would serve no useful purpose to set forth the calculations of the treasurer's office, because at best they only represent a theory of allocation adopted long after the events and compiled from a set of figures obtained from the Board of Equalization just before the institution of this suit. His result was obtained by crediting accrued interest to the date of each payment, which, as I have indicated, was not done by the Board of Equalization, and was not the method employed by either party at the time.
It is clear that the whole principal of the obligation owing was accepted by the Board of Equalization as such. That being the case, the plea of defendant with relation to section 8665, Revised Codes, becomes important. That section provides: "Accepting payment of the whole principal, as such, waives all claim to interest." This section was adopted from California (sec. 3290, Civ. Code), and appeared in our Code as section 4283 of the Civil Code of 1895. The section has been under consideration by the California courts. (City of Los Angeles v.City Bank, 100 Cal. 18, 34 P. 510; Valentine v.Donohoe-Kelly Banking Co., 133 Cal. 191, 65 P. 381.)
As I have pointed out, the principal amount due on the original tax and penalty, as shown by the judgment, was $22,674.03. *Page 151 The total amount, adding the interest item, was $26,665.38. The judgment specifically provided, however, that only the former sum was to draw the legal rate of interest of eight per cent. This, no doubt, was to give effect to the prohibition against compounding interest. At the time the amount was mutually ascertained, the total amount due was $28,781.87. This amount was paid in full. It may readily be observed that this consisted of a composite of three distinct items: tax, penalty and interest, as directed by the court. The board accepted this amount and the later interest, being the item suggested by the chief clerk's letter of acknowledgment, which most logically was interest accumulated on the installment payments over the two-year period consumed in paying up the delinquencies, and under the theory of defendant and its asserted bar of the statute forever waived.
The general rule with reference to the effect of the acceptance of the principal insofar as it affects unpaid interest is stated in 15 Ruling Case Law, section 11, page 13, as follows: "The right to recover interest after the payment of the principal sum due depends upon whether the interest is due by the terms of the contract, or whether it is merely implied and allowed by way of damages in an action for the principal. If interest is due by the terms of the contract, the payment of the principal is no bar to its subsequent recovery, but if it is not due by the terms of the contract, the payment of the principal sum is a bar to recovery." (See, also, 100 A.L.R. 96, for a comprehensive annotation of the subject.)
If I were permitted to apply the general rule in disposing of this assignment, the result in the light of judicial precedent might be different. The contention of the defendant under the general rule might not be sustained, but the legislature in enacting section 8665, supra, has substituted in this jurisdiction the statute for the general rule. In one short sentence the legislature made a plain, unequivocal and unambiguous declaration. It laid down a comprehensive rule with relation to the waiver of interest. *Page 152
It seems to me that the statute does not require construction or interpretation. However, if it does require such we must be guided by section 10519, Revised Codes, which provides: "In the construction of a statute * * * the office of the judge is simply to ascertain and declare what is in terms or in substance contained therein, not to insert what has been omitted, or to omit what has been inserted." This statutory rule has been universally recognized by this and other courts in the construction of statutes, and I think is of binding effect in this instance.
There is nothing in section 8665, supra, that limits the effect of the provision to any specific class of claims or obligations. It is general in its terms, and to impose a limit so as to exclude judgments or obligations reduced to judgment would be to insert what has been omitted in derogation of the last mentioned section.
A similar statute, one the provisions of which are of like effect as our own, in the state of Louisiana, was under consideration by the Court of Appeals in the case of Grennon v.New Orleans Public Service, Inc., 17 La. App. 700, 136 So. 309,314. There the court said: "It is not necessary, however, for us to decide whether the interest given by the Act of 1916 is to be treated in the same way as contractual interest is treated in the common-law cases referred to above, or whether it should be analogized to interest in the way of damages. Article 2925 of the Louisiana Revised Civil Code seems to establish in Louisiana a general and comprehensive rule with reference to the waiver of interest, and the language of this article, which is unqualified, indicates that the distinction established by the common-law cases we have referred to is not recognized or applied in Louisiana."
Our statute is stronger and more explicit than that of Louisiana. There the statute (Revised Civil Code, Louisiana Article 2925), only created a presumption. That statute reads: "The release of the principal, without any reserve as to interest, raises *Page 153 the presumption that it also has been paid, and operates a release of it."
Here plaintiff asserts that the release of the interest by operation of the statute would be in violation of section 39, Article V of our Constitution, which provides: "No obligation or liability of any person, association or corporation, held or owned by the state, or any municipal corporation therein, shall ever be exchanged, transferred, remitted, released or postponed, or in any way diminished by the legislative assembly; nor shall such liability or obligation be extinguished, except by the payment thereof into the proper treasury."
To give this provision the effect that is claimed for it by the state would be equivalent to saying that no statute of limitations can run against the state wherein any obligation due the state is involved, and this in spite of any derelictions or actions of state officials. To illustrate: In this case the defendant pleaded the statute of limitations as to the judgment, and pointed out that section 9043, Revised Codes, provides that certain enumerated sections of the statute apply to actions brought in the name of the state in the same manner as actions by private parties. If such construction is put upon the constitutional provision mentioned, then the plea of the statute of limitations as to the time of the institution of this action could not in any event prevail.
Again, under another assignment of error by defendant it is asserted that the complaint was defective in that it did not plead present ownership of the judgment. This likewise should be of no importance under such construction. Indeed, it would seem that if the far-reaching construction contended for by the state is to be given to the constitutional provision, no rights could be lost to the state in any manner. In fact, statutes of limitations, failure to properly plead, and all of the generally recognized factual or procedural deficiencies would be without effect in a case against the state. It is my belief that the constitutional provision mentioned never was intended to have any such comprehensive effect. It was designed and adopted to prevent *Page 154 voluntary compromise, postponement or remission of obligations due the state, and never was designed to save the state harmless in any and all contingencies.
While section 8665, Revised Codes, is not, strictly speaking, a statute of limitation in the usual sense, i.e., it does not set up an arbitrary time limitation, nevertheless it does erect a bar or barrier to an action after the occurrence of an event. In effect, then, it is a statute of limitation. Long ago this court held a statute of limitation applicable to a tax demand, on the theory that it was not a statute of release or liquidation, but only affected the remedy and not the right. In that opinion section 39, Article V of the Constitution was under consideration. (Board of County Commrs. v. Story, 26 Mont. 517,69 P. 56.)
More persuasive, however, is the theory adopted in the recent case of State ex rel. Sparling v. Hitsman, 99 Mont. 521,44 P.2d 747. There we had under consideration a statute which authorized the payment of delinquent taxes without penalty and interest, — in other words, a statute which authorized the remission of penalty and interest. It was held upon modern and well-reasoned authority that interest is penalty, and that penalties are no part of a tax obligation, and, hence, that the authorization by the legislature of the remission of penalty and interest was not prohibited by the constitutional provision. While the conditions with relation to section 8665, supra, are somewhat different from those of the Sparling Case, the principle is manifestly the same.
The fact that the matter has been reduced to judgment does not affect the principle. An examination of the record in the original action in which the judgment was obtained discloses that the case did not involve a controversy over the amounts due for the tax, but the litigation was conducted as a test of the law upon which the taxes were based. The liability was assumed if the law was good. The action was then in reality, not one to collect a legal tax when due, but to ascertain if any tax at all had been legally imposed. The law being upheld, the judgment for the amount due thereunder followed as a necessary legal consequence. *Page 155
The character of the obligation was not changed although the form thereof may have been. As I have shown, the state still proceeded to collect the tax as such, rather than to collect the amount of the judgment, and did collect the whole thereof, together with most of the subsequent accrued interest. There can be no doubt about the general rule that the effect of a judgment is to merge the cause of action (15 R.C.L., sec. 236, p. 782); but the question of merger in a given instance depends upon the intention of the parties (id., sec. 238, p. 783). In section 242, just following the last cited sections, it is said: "Even when the evidence of a debt is merged by a judgment the character of the debt remains unchanged." (See, also, Gibson v. Green'sAdmr., 89 Va. 524, 16 S.E. 661, 37 Am. St. Rep. 888.) It then seems beyond question that, if effect is to be given to the principles laid down in State ex rel. Sparling v. Hitsman, supra, and to the intentions of the parties as evidenced by their actions, section 39, Article V of the Constitution does not apply to render section 8665, Revised Codes, ineffective as a bar to the remission of the interest by operation of law.