Hart v. Dorman

Chief Justice Douglas delivered the following opinion : This suit is founded upon a promissory note, upon which several payments were made after it fell due, leaving, however, a balance unpaid, for which a judgment was rendered against the defendant— from which he appealed to this Court. No errors have been assigned, and the only one alleged by the counsel for the appellant in the argument of the case, was as to the calculation of interest, and the application of the partial payments. How that was done is not stated in the record ; but we understand, from the course of the argument, that the payments were applied in the first place to the interest, and it appears from the record that they all exceeded it, unless it was one of nineteen dollars and eighty-two cents, by bill rendered. But it was insisted by the attorney for the appellant, that the interest should have been calculated upon the principal of an account stated, according to mercantile usage, and it is said in a note to Fonb. Equity, 2 vols. in one, Ed. 1831, page 664, (side 440,) that “ it is usual amongst merchants, in stating their accounts; to let the principal continue upon interest, and to compute the interest upon the payments as they are successively madebut the [447] annotator adds : “ It is the debtor who gains, and the creditor who loses by this mode — for it is susceptible of mathematical demonstration, that a debt will be wholly extinguished in the course of a tew years, (and the time will be longer or shorter, according to the rate of interest,) by the payments of interest, without paying a cent of principal; and Chancellor Kent makes the same remark, in the case of Stoughton vs. Lynch, 2 John. Chy. Keps., 214; and in Wasson vs. Gould, 3 Blackford Reps., 21, the court held that this mode is not correct — that it subjects the creditor to a loss which he ought not to bear, citing Stoughton vs. Lynch. In the case of the State of Connecticut vs. Jackson, 1 John. Chy., Reps. 17, Chancellor Kent held the rule for casting interest, when partial payments have been made, to be, to apply the payments in the first place to the discharge of the interest then due. If the payment exceeds the interest, the surplus goes towards discharging the principal; and the subsequent interest is to be computed on the balance of the principal remaining due. If the payments be less than the interest, the surplus of interest must not be taken to augment the principal; but interest continues on the former principal, until the period when the payments, taken together, exceed the interest due ; and then the surplus is to be applied towards discharging the principal, and interest is to be computed on the balance of principal as aforesaidand this rule is sustained by Penrose vs. Hart, 1 Dall., 378. Lightfoot vs. Price, 4 Hen. & Munrford, 431. Wasson vs. Gould, 3 Blackford, 21. Smith vs. administrators of Shaw, 2 Wash. C. C. Reps., 167 to 169. Williams and others vs. Houghtailing and Bevier, 3 Cowen Reps., 87, note A.—Fonblanque Eq., page 654, note above cited. Meredith vs. Banks, 1 Halstead’s Reps., 408 & 409, note. Story vs. Livingston, 13 Peters’ Reps., 371. Edes vs. Goodridge, 4 Mass. Reps., 103 ; and the United States vs. McLemoire, 4 Howard’s S. C. Reps., 288. And this rule is (we think) more entirely free from objection than any other that has been adopted. The interest was calculated, and the payments were applied, as we understand, according to this rule, in the case now under consideration ; and we do not perceive how it gives compound interest. It is believed that there is nothing peculiar in the provision of our statute relating to interest, as the counsel for the appellant seemed to suppose ; nothing which would make this mode of calculation of interest, and applying partial payments under it, give usurious inteiest; [448] nothing which would not he equally usurious interest under the statutes of at least twenty-six other States of this Union, which have been looked into and examined, including the States, the decisions of whose courts we have just now cited, and in one of which, it will he observed, the rule itself was laid down, and that, too, by one of her ablest jurists ; and we have not been able to find, nor have we been referred to, a decided case, or any elementary work, in which the mercantile mode above stated is sustained ; and in Meredith vs. Banks 1 Halstead’s Reps., 408, it is expressly’ repudiated, as well as in Wasson vs. Gould, 3 Blackford Reps., 21, above cited. The judgment of the court below is, therefore, in all things affirmed. Per curiam.