Starr v. Richmond

Walker, J. When the payment in controversy was made, neither principal nor interest of the debt was due. Nor did the maker of the note exercise his right to appropriate it to either. The holder also failed, when he indorsed the payment on the instrument, to specify whether it was to apply on the one'or the other. In the absence of any positive proof, or any thing specific, it leaves the intended application to inference, or the law to make it. The holder of the note was not bound to receive a partial payment on the debt, nor was the maker then bound to pay any portion of the note. It was both voluntarily made and received by the parties, independent of any legal obligation. The use of the money was doubtless worth to either of them the interest the note was drawing. If it had not been to the holder, he would not have been willing to receive it until it was due. Nor can it be inferred, that the maker would be inclined to pay a debt not due, drawing no interest, in prefer ence to one that was. It would seem the rule, that of two debts due, one drawing interest and the other not, when the law has to make the application, that it must be applied to that which draws no interest, cannot be applied in this class of cases. It appears to be more equitable and just, that when the holder receives money before it is due, on a demand drawing interest, that it should be applied, in the absence of an agreement to the contrary, to the principal. Otherwise, by loaning the sum thus received, he would, in effect, compound the interest, or have placed at interest before its maturity, a larger sum than his original claim. In other words, he would receive interest on the maker’s money as well as his own. After the principal and interest both became due, it would be otherwise. The court below, we think, erred in applying any portion of the payment made before the maturity of the note, to the ex-tinguishment of interest, but should have appropriated the whole of the payment to the principal. The judgment of the court below must be reversed, and the cause remanded. Judgment reversed.