French v. Kennedy

By the Court, Gridley, J. The defendant below, and appellant here, is the holder, by assignment, of a bond and mortgage executed by the respondent French, bearing date the 18th of March, 1831, conditioned to pay the just and full sum of “ §1256,50, with interest after the first day of April next, in fourteen equal annual payments on the first day of April of each and every year after the first day of next April.” The respondent filed his complaint upon the ground that he had paid and tendered the entire sum due on the above securities, and prays for a judgment that they be surrendered and cancelled. Upon the argument two questions become material. 1st. Whether by the terms of the bond annual interest on all sums unpaid is recoverable, or whether the interest on each instalment is payable at the same time with the instalment; and 2dly. Whether, upon the principle last stated, by the legal mode of computation of interest, the amount paid and tendered on the mortgage was sufficient to pay the debt due thereon. I. Upon the first question we are of opinion that the interest upon each instalment falls due when the instalment is payable, and not before. Interest is not payable before the principal on which it accrues, unless there be a special agreement to that effect. Here there is no such agreement. It is provided that [455] the instalments shall bear interest after a certain day, but it is not stipulated that such interest shall be paid before the instalments respectively fall due. It would be a most unusual construction to hold that the word instalments should apply to the interest as well as the principal; and the appellant does not contend for such a construction. The true reading of the condition of the bond is, that the obligor shall pay $1256,50 in fourteen equal annual instalments, such instalments to be paid on the first day of April in each and every year, &c. with interest, &c. The meaning of which is that the interest on each instalment shall be paid, when the instalment becomes due. The language of the instrument is not fairly susceptible of any other interpretation. II. The second question involves the correctness of the mode of computing partial and overpayments adopted by the referee. The referee has struck balances on the first of April in each year, which has compelled him to compute interest on the payments made by the obligor. There have been some overpayments, and interest has been computed on them, and the aggregate amount applied to the amount due and payable on the next annual pay day. The appellant insists that this mode of computation is erroneous—that the true rule is, in the case of partial payments, to compute interest up to the time of the payment which either alone or with the prior payments, exceeds the interest due, making no rest at the annual pay day, unless such payment was made thereon ; and that in the case of over-payments the amount of such overpayment should be immediately applied to the principal and interest to become due on the next succeeding annual pay day, leaving the interest to be computed on the balance. In the case of partial payments the rule was laid down in the case of Connecticut v. Jackson, (1 John. Ch. Rep. 17,) in these words: “ The rule for casting interest when partial payments have been made is to apply the payment 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 prin [456] cipal remaining due. If the payment 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 aforesaid.” The like rule is laid down in nearly the same words by the judges of the supreme court as a direction to their clerks in the computation of interest. (See 3 Cowen, 87, note a.) The same rule prevails in Massachusetts. (4 Mass. Rep. 103. 17 Id. 417. 1 Pick. 194. See also the rule laid down in Walsh’s Arithmetic, with an illustration; 2 Cowen’s Tr. 1005, 1006; see also Perkins’ Arithmetic, 134 to 136.) It seems, therefore, to be settled in this state that when partial payments are made on a bond or other obligation, after the money has become due and payable by the terms of the instrument, the day on which the payment was to be made is disregarded in the computation of interest. The rests are made at the times when the payments are actually made; unless any should fall short of the interest then due, in which case the rest is made when the first payment, which, taken with the previous smaller ones, in the aggregate, exceed the amount of interest due at the time, is made. . The mode of computing the interest in this case is, therefore, in this respect, erroneous. In the case of an overpayment, which becomes a partial ante-payment, with respect to future instalments, the rule is settled as the appellant insists it should be, in Williams v. Houghtaling, (3 Cowen, 86.) This is a different rule from that laid down in Tracy v. Wikoff, (1 Dallas, 124,) but it is an adjudication expressly in point, from our own reports, and we are bound to follow it, though it will generally be more difficult of application than it was in the case cited. By this rule the ante-payment is to be applied to a portion of the future, instalment and the interest on that portion. It will follow that the sum tendered may be found insufficient to pay up the amount remaining, due and payable on the securities in question. Therefore the judgment must be reversed. [457] and the cause be referred back to the referee to make a new report, adopting the principle of computation above laid down, unless the parties agree upon the amount. Judgment accordingly,