Case ID: ohio-st_28/html/0265-01.html
Source: Caselaw Access Project
Author: {"author": "Ashburn, J.", "license": "Public Domain", "url": "https://static.case.law/"}
Date Created: 2024-08-24T03:29:51.129683

Mueller and Gogreve et al. v. James McGregor, Adm’r.
    March 13, 1850, !F. mortgaged to D. certain real estate to secure the payment of five promissory notes amounting to $12,000. Afterward F. sold said real estate to M. and G. Three of HVs notes to D. remained unpaid; to secure their payment to D., M. and G. executed a mortgage to 1?. on said real estate, and agreed therein that the amount due on the unpaid notes would he, on September 1, 1855, $11,340.05. On September 27,1855, this money remaining unpaid, M. and G. entered into a written contract with D., to which B1. was a party, to pay ten per cent, interest for one year on $11,340 as a principal, that sum being the aggregate sum of principal and interest of the unpaid portion of the original notes, in consideration of the forbearance of D. to bring suit on the notes and mortgage for one year, from September 1,1855. M. and G. agreed to and did execute two notes to D. for the ten per cent, interest, payable in six and twelve months. It was also agreed that if the two interest notes were paid when due, there would be due to D. from M. and G. September 1, 1856, on said notes, $11,340, and no more. The interest notes were promptly paid, and M. and G. continued to pay interest at the rate of ten per cent, on $11,340, as a new principal, from September 1, 1856, to April, 1869. — Held:
    1. That this was an agreement for the forbearance of the payment of money for one year only.
    2. That it was an agreement in writing, in consideration of forbearance, to pay ten per cent, interest for one year only.
    3. A contract in writing, made while the statute authorising contracts for ten per cent, interest was in force, to pay that rate of interest in consideration of forbearance to bring suit for a stated time on notes evidencing the debt forborne, is a valid contract for ten per cent, interest for the time agreed upon.
    4. Interest due may, by agreement, be capitalized and united to the principal, thus forming a new interest-bearing principal.
    5. 'When payments of interest are made at the rate of ten per cent, upon an ascertained principal, agreed by the parties to be due, such payments will, if made prior to the repeal of the ten cent, statute, be allowed to stand as payments of interest at that rate, but if made after the repeal of that statute, the amount paid in excess of six per cent, will be credited to the account of principal. Samyn v. Phillips, 15 Ohio St., followed and approved.
    Error to Superior Court of Cincinnati.
    The action was brought to recover a personal judgment, and also foreclose a mortgage against defendants.
    ’William Dunlop died testate in 1868, and defendant in error was appointed ljis administrator with the will annexed. In 1850 Dunlop sold certain real estate to Eortman for $12,000, and in payment thereof took Eortman’s five promissory notes, secured by a mortgage on the real estate sold. The notes each bore date September 1,1850, and payable as follows: one for $1,000 payable September 1, 1851; one for $2,000, September 1, 1852; one for $8,000, payable September 1, 1853; one for $3,000, payable September 1,1854; and one for $3,000, payable September 1, 1855. The two first notes, aforesaid, payable September 1, 1851, and September 1,1852, having been paid by Eraneis Eortman to William Dunlop in his lifetime.
    April 19,1855, Eortman sold and conveyed the same real estate to Mueller and Gogreve, they assuming to pay the balance of the purchase money due on said three notes aforesaid, for $3,000 each, payable September 1,1853, September 1, 1854, and September 1, 1855, with accruing interest due and yet becoming due, as appears by deed of mortgage given by said defendants to Eraneis Eortman, dated April 19, 1855, containing, among other things, the following agreement with the condition contained in said mortgage: “ And shall also (said Mueller and Gogreve) pay to William Dunlop, or order, three promissory notes, for $3,000 each, with the interest thereon, which notes were given by Eortman to Dunlop, dated March 30,1850, and are payable September 1, 1853, one September 1,1854, and one September 1, 1855, with interest on all notes from September 1, 1850, and which notes are secured by mortgage on the premises herein described, and which said notes and mortgage said Mueller and Gogreve assume and agree to pay; one year’s interest on the first notes given to Dunlop has been paid by notes, leaving due on said notes, with interest note, $11,134.50, and there will be due September 1, 1855, the sum of $11,340.05, then these presents will be void.”
    Plaintiff below alleges, in his petition, that at the time Mueller and Gogreve purchased the property, there was due on the notes and mortgage of plaintiff the sum of $11,340, and Mueller and Gogreve, in order to have the time of payment of said notes and mortgage extended, did, by written agreement, agree and promise to pay interest on said sum at the rate of ten per cent, per annum, and for the first year’s interest under said contract gave their notes, which were paid, and which settled the interest up to September 1, 1856, since which time the said notes and mortgage have been running under the original agreement of September 27, 1855.
    The agreement alluded to is as follows :
    “ Whereas, upon settlement of notes given by F. Fort-man, dated March 13, 1850, for $3,000, payable three, four, and live years after date, with interest on each from September 1, 1850 (except the interest on the two first notes for the year ending September 1, 1855, having been paid), and whereas, said Fortman having sold and conveyed certain real estate described in the mortgage deed from Fort-man to William Dunlop, recorded September 3, 1850, in book No. 157, page 437, of the Records of Hamilton County, securing the payment of said notes and interest, to Mueller and Gogreve, who, as part of the consideration for said property, assumed to pay said notes and interest, and whereas, said Fortman and Mueller and Gogreve, the purchasers, for forbearance of suit on said notes aforesaid, amounting, principal and interest to the first day of September, 1855, to $11,340, after allowing all credits on same. Now, in consideration of forbearance in collecting said notes aforesaid, from said Fortman, or foreclosing said mortgage against said-Fortman, and Mueller and Gogreve, said Mueller and Grogreve agree to pay to William Dun-lop, ten per cent, interest on the amount due on said notes aforesaid, amounting to $11,340, including principal and interest for one year from the 1st day of September, a. d. 1855, payable semi-annually by the notes of said Mueller and Gogreve, one for $567, payable in six months from 1st September, 1855, and one for $567, payable in twelve months from 1st September, 1855, which, when paid, will leave due on said three notes of $3,000 each, including interest on same, on settlement as aforesaid to 1st September 1855, the sum of $11,340, which interest notes aforesaid, when paid, will settle the interest on the amount due, as aforesaid, from the 1st day of September, 1855, to the 1st day of September, 1856, to which time said notes and mortgage are extended, provided the interest note, payable in six months, shall be paid, leaving due, in ease both of said interest notes shall be paid on the 1st of September, 1856, on said notes, principal and interest, the sum of $11,-340, and no more. Said Fortman, on his part, agrees to said forbearance and extension of payment aforesaid.
    “Given under our hands this 27th day of September, 1855.
    “Attest: F. Fortman,
    “A. N. Riddle, ¥m. Dunlop,
    Mueller & Gogreve.”
    Plaintiff admits that defendants'have paid from time to time the various sums alleged in their answer, and claim that after deducting all such payments and allowing all credits there is due to plaintiff the sum of ten thousand eight hundred and eighty-four dollars and seventy-five cents from defendants, with interest at ten per cent, per annum, from April 13th, 1869. Wherefore, plaintiff asks judgment against said defendants for said sum of $10,884.75, with interest at ten per cent, per annum, from April 13th, 1869, and also for an order to sell said mortgaged premises to pay the amount so due, and all other proper relief.
    Mueller and Gogreve answer in substance that they entered into the written contract set forth in the petition and amended petition to pay interest on the sum of $11,340 for one year from and after the 1st day of September, A. d. 1855, by giving their notes therefor, and that they gave their notes therefor, as is in said petition alleged; but that they did not pay or agree to pay interest on said sum of $11,340 at the rate of ten per cent, per annum after the 1st .day of September, a. d. 1856; and deny that since the 1st day of September, A. d. 1856, said notes and mortgage have been running under the agreement of September 27,1855, or that they at any time agreed, in writing or otherwise, to pay ten per cent, on the amount payable on said notes. They allege that besides paying the two notes for $567 each, mentioned in the petition, they have made the following payments upon the notes in the .petition set forth, and the interest accruing thereon, viz:
    
      1857, March 14,.................................$ 567 00
    “ October 6,.................................. 200 00
    “ November 10,............................ 100 00
    1858, May 1,........ 125 00
    
      “ June 16,...... 450 00
    “ Deo. 3,...................................... 484 00
    1859, May 26,.................................... 200 00
    “ July 26,.................................... 500 00
    “ November 1,.............................. 434 00
    1860, April 13,.................................. 800 00
    “ April 16.................................... 334 00
    1861, April 23,................................... 200 00
    “ July 16,.................................... 200 00
    “ October 30,................................ 500 00
    1862, April 23,.................................. 234 00
    “ Nov. 26,.................................... 600 00
    1863, July 24,.................................... - 534 00
    1864, May 25,.................................... 1,134 00
    1865, April 25,............... 2,268 00
    1866, May 26,.................................... 1,134 00
    1867, May 1,..................................... 1,134 00
    1868, April 22,.................................. 1,134 00
    1869, April 13,.................................. 1,500 00
    On the trial the court found that plaintiffs were entitled to recover $11,340, with interest at ten per cent, per annum, from September 1, 1856, and ordered a sale of the mortgaged premises. Defendants below made a motion for a new trial, which was overruled. A bill of exceptions, embodying all the testimony, was allowed, and the case reserved, on the bill of exceptions, for hearing in general term of the superior court. On the hearing in that court at general term, the judgment at special term was affirmed.
    On the petition in error in this court, the following assignment of alleged errors appears :
    1. That the court erred in affirming the judgment of the court in special term.
    2. That the court in special term erred in admitting the testimony objected to by these plaintiffs at the trial of this’ cause in special term.
    3. That the finding of the court is contrary to the evidence.
    4. That, upon the law and the evidence, the court has found for the defendant in error a sum greater than is due to the said defendant in error.
    5. That the conclusion of the court upon the facts proved is contrary to law. Whereupon, plaintiffs pray that said judgment may be reversed.
    
      Stallo & Kittredge, for plaintiffs in error.
    
      Hoadly, Johnson & Colston, and J. H. & J. A. Clemmer, for defendants in error.
   Ashburn, J.

The questions in this case arise upon the agreement of September 27, 1855, the conduct of the parties in relation to interest paid and contracted to be paid.

These questions may be considered as follows :

1. As to the effect of the tripartite contract.

2. The legal effect of that contract in relation to the interest, etc.

3. The interest and rate of interest paid.

4. The application of the money paid as interest.

On the 19th day of April, 1855, when Eortman arranged with Mueller and Gogreve for them to pay Dunlop his indebtedness on the real estate they purchased from him, it was agreed in the condition of the mortgage from them to him that there was due to Dunlop from Eortman on September 1, 1855, the sum of $11,340.05. This sum Mueller and Gogreve agreed to pay Dunlop, and gave a mortgage to that effect.

When the time for payment arrived, Dunlop wanted his money, and we infer, from the facts in the case, was moving to collect his notes and foreclose his mortgage. Mueller and Gogreve were not prepared to make payment, and wanted time. Dunlop was willing to extend the time of payment provided they would pay him ten per cent, interest for a year on the whole amount due him of both principal and interest. He wanted the interest due him capitalized and aggregated with the face of the notes so as to make a new interest-bearing principal. Hence the tripartite agreement of September 27, 1855.

That agreement, when carefully examined, and we consider the situation, rights, and wants of the parties, is easily understood. After reciting the reasons for its execution, it distinctly states that the amount due to Dunlop from Mueller and Gogreve on the Eortman notes, after aggregating principal and interest, will be, September 1, 1855, $11,340. That this sum was understood by the parties as forming a new principal, on which the interest in the future would be calculated, is manifest from several considerations. The mortgage executed by Mueller and Gogreve at the time of their purchase of the real estate agrees with the fact that the sum due Dunlop on the notes held by. him on Eortman September 1,1855, would be $11,340.05. The notes given for the forbearance to collect for one year were calculated on a principal of $11,340 ; and the agreement states that if these ten per cent, notes are paid, there would be due Dunlop September 1, 1856, “ on said notes, principal, and interest, the sum of $11,340, and no more.” It clearly provides that, in consideration of Dunlop’s forbearauce “ in collecting said notes aforesaid from said Eortman, or foreclosing stiid mortgage against said Eortman, Mueller, and Gogreve, said Mueller and Gogreve agree to pay William Dunlop ten per cent, interest on the amount due on said notes aforesaid, amounting to $11,340, including principal and interest for one year.”

In pursuance of this agreement, and as an act expressing the understanding of the parties that the forbearance was to be for one year only, and that ten per cent, under that agreement was to be paid for one year only, Mueller and Gogreve executed to Dunlop two notes for one year’s interest, each for $567. If it had been the then understanding of the parties that the forbearance was to be for a longer period, and that ten per cent, was -to be paid for a longer period than one year, they would have so agreed in the writing, and executed addi tional notes for the interest.

We think this tripartite agreement in no event could be the foundation of an action for a personal judgment. It shows that the parties agreed to capitalize the interest due September 1,1855, to designate the amount of a new interest-bearing principal; that forbearance to. bring suit by Dunlop for one year was secured in favor of Mueller and Gogreve ; that a contract in writing to pay interest at the rate of ten per cent, for one year in consideration of forbearance was executed. When these were -obtained, the purpose of the agreement was accomplished.

In capitalizing the interest due on the three three-thousand dollar notes and forming a new principal to carry interest, the parties did what they might rightfully do. Interest upon interest, or compounding interest, as such, is against the policy of the law. In special cases, however, interest may be allowed upon interest. As where there is a settlement of accounts between the parties after interest has become due, or there has been an agreement for that purpose after the execution of the original contract, or upon agreed rests. A party may demand the interest due him, and turn it into principal, at his pleasure. Connecticut v. Jackson, 1 Johns. Ch. Rep., 13; Powling’s Ex’r v. Powling’s Adm’r, 4 Yates, 220; Stokely v. Thompson, 34 Penn. St., 210.

2. It is claimed by defendant in error that the tripartite agreement is substantially a contract for forbearance generally. On the other hand, plaintiffs in error urge that it is a limited forbearance, for one year only. On this point our view coincides with plaintiffs in error. To give the contract, on this question, a broader meaning, would be destructive of its plainly expressed purpose. It secured forbearance on the part of Dunlop to bring suit on his-claim for one year, and provided for the payment of ten. per cent, interest for one year on a sum of money then: agreed by the parties to be due, which sum was not to be-.increased or diminished for one year. They, the parties, could have extended the forbearance for a longer time at the same rate of interest, but, as they failed to do so, it is the province of the Court to declare the contract as the parties made it.

Plaintiffs in error claim that the contract was not such “an instrument of writing” as would secure the payment of ten per cent, under the act of March 14, 1850 (Swan’s Revised Stat., 481), because that statute requires the rate of interest to be named in the writing evidencing the principal debt. This construction would be too narrow. The act is as follows :

“ Sec. 1. That the parties to any bond, bill, promissory note, or other instrument of writing, for the payment or forbearance of money, may stipulate therein for interest receivable upon the amount of such bond, bill, note, or other instrument, at any rate not exceeding ten per cent, yearly.
“ Sec. 2. That upon all judgments or decrees rendered ■upon any bond, bill, promissory note, or other instrument -aforesaid, interest shall be computed till payment, at the (rate specified in such bond, bill, note, or other instrument, mot exceeding ten per centum as aforesaid; or in case no .rate of interest be specified, at six per centum yearly.”

' It provides clearly for the payment of ten per cent, in mases where the original written contract is for the payment or forbearance of money; and we think where the instrument of writing ” stipulates to pay ten per cent, for forbearance to sue on the original contract and secures -such postponement, it is equally within the meaning of the statute. It will impart to the original note, etc., for ■the agreed time of forbearance, the power to carry ten per ■ cent, interest.

To hold that a contract in waiting to pay interest on a named sum of money, for a given time, at the rate of ten per cent., is invalid unless such stipulation was inserted in the body of the contract, would bo too narrow a construction of the statute, where the only purpose was to secure .forbearance of payment. It would, in many cases, have defeated the purpose, or greatly embarrassed those who desired to avail themselves of the supposed benefits of the statute.

During the time the statute was in force written agreements for ten per cent, interest were lawful. The forms of the instruments in writing that would carry such rate it is not necessary, in this case., to determine. "We are of opinion the tripartite agreement under consideration was sufficient in form and substance to impart the quality of bearing interest at the rate of ten per cent, to the sum of money named as due upon the promissory notes of Eortman for one year, and for no longer time.

It does not carry the rate into the judgment simply because the parties have not so stipulated in the writing.

3. It is clear to us, from the evidence in this case, that after September 1, 1856, Mueller and Gogreve continued to pay interest at the rate of ten per cent, on $11,340, as a principal, until April, 1869. The receipt given to them by Dunlop for the first half year’s interest after September, 1856, shows it was given on a principal of $11,340, and reads:

“ $567. Cincinnati, March 14, 1857.

“ Received of Mueller & Gogreve five hundred and sixty-seven dollars interest on eleven hundred and thirty-four dollars for six months up to the 1st inst.

“ [Signed] Vm. Dunlop.”

All other receipts for payments, during the life of the ten per cent, law, were “ on account of interest.” Many of the other receipts, given after that time, bear internal evidence of the same thing.

4. Defendants paid Dunlop, during the time the ten per cent, statute was in force, $1,926. As I have made the calculation, that sum would pay interest at the rate of ten per cent, on $11,340, from September 1, 1856, to July 11, 1858. During this time we apply the doctrine laid down in Samyn v. Phillips et al., 15 Ohio St. 218. By the rule in that case the money paid, as interest, by defendants, at the rate of ten per cent., while the ten per cent, law remained in force, was within the rate then allowed by law. It being lawful for the parties to do what they might legally bind themselves to do, this payment of $1,926, as interest, at ten per cent., should be allowed to stand without deduction.

In the language of Scott, Judge, in Samyn v. Phillips: “ As to the payments subsequently made, when the statute no longer permitted contracts for more than six per cent., they can not be deemed valid unless made in pursuance of a (valid) contract entered into while the ten per cent, law remained in force.” “ As no such contract is shown,” the payments made on account of interest after the repeal of the ten per cent, law, in excess of six per cent., must be applied to the account of principal.

¥e think the court in special term should have granted a new trial, and that the court in general term erred in affirming the judgment of the court in special term.

Judgment reversed and remanded.