Case Name: Pindall's Ex'x &c. v. The Bank of Marietta
Court: Supreme Court of Appeals of Virginia
Jurisdiction: Virginia
Decision Date: 1839-07
Citations: 10 Leigh 481
Docket Number: 
Parties: *Pindall’s Ex’x &c. v. The Bank of Marietta.
Judges: (Absent Krooku, J.)
Reporter: Virginia Reports
Volume: 37
Pages: 433–435

Head Matter:
*Pindall’s Ex’x &c. v. The Bank of Marietta.
July, 1839,
Lewisburg.
(Absent Krooku, J.)
Debtor and Creditor — Payments—Application to Principal — interest on interest. — A debtor owing- a debt consisting ot principal and interest, it is agreed between him and his creditor, that he shall in the first place pay oil the principal, and that the interest may for a time remain unpaid. The creditor, having received money from the debtor, applies it in satisfaction ol the principal. After-wards many years elapse without payment of the interest. Htibb. the creditor is only entitled to the interest due at the time the principal was paid, and not to -interest on that interest; there having been no agreement to pay interest on interest.
In the case of The Bank of Marietta v. Pindall &c., 2 Rand. 41S, this court considered that the plaintiffs should recover against the defendant 2500 dollars, with legal interest thereon from the 29th of August 1815 till payment, and their costs in the superior court of law expended.
On the 11th of December 1824, an agreement was made between James Pindall and John J. Allen attorney of the bank of Marietta, which, after reciting the judgment, proceeded as follows :
‘‘And whereas the said Pindall hath this day, under this agreement with the bank, paid 1500 dollars (as per receipt given) applicable to so much of said principal sum of 2500 dollars, and not applicable to the interest or costs, the residue of the principal shall continue on interest till paid. The said James hath a suit depending in chancery against Benjamin Wilson junior, to obtain from him an indemnity against said judgment, or to reimburse himself for the payment thereof, and hath
this day assigned, and hereby doth assign, to said bank so much of the first money to be recovered in said suit as shall be sufficient for the payment of said ^interest and costs. The said bank agrees to wait for said interest and costs till the final determination and event of said cause; but if, by such determination, the said James Pindall should not recover, or not recover enough to pay said interest or costs, or if, after obtaining a decision in his favour, the same cannot be collected, either by reason of the insolvency of said Wilson or otherwise, then the aforesaid assignment shall not be taken or considered as a payment of said interest and costs, or only a payment of so much as shall be obtained and received by the bank in said cause. The bank or their attorney shall, whenever they request (being such assignees) be entitled to control so much of said suit as relates to their interest therein, but will not, wichout consent of said James, throw any ■ obstacle in the way of the prosecution of said cause. The said judgment is to remain as a security for the fulfilment of this agreement on the part of said James; and after the event of said chancery cause can be known, if, under this agreement, the said James becomes liable for said interest and cost's, an execution may issue without any scire facias.”
Besides the sum of 1500 dollars paid under the agreement on the day of making the same, and for which a receipt was given as therein mentioned, Pindall, on the 18th of June 1825, paid the further sum of 516 dollars 79 cents, and subsequently paid as much more as was equal to the balance of the principal, with interest on the 1000 dollars not paid at the date of the agreement, from the time of that agreement.
The suit against Wilson was proceeded in, after’his death, against his administra-trix ; and by the decree rendered in that suit the 30th of May 1832, it was ascertained that the whole of Wilson’s estate would be exhausted in paying preferable claims, and that Pindall would neither be reimbursed for the payments he had made, nor obtain "any money from the suit, to satisfy the interest and costs remaining due.
^Afterwards the bank of Marietta' .filed a bill in chancery in the circuit court of Harrison, against Pindall’s executrix, devisees and legatees, to recover from his estate the balance due upon the judgment.
In this suit, the commissioner to whom the accounts were referred, stated the balance due upon the judgment in three ways : 1. Shewing that the interest on the original principal from the 29th of August 1815 to the 11th of December 1824 amounted to 1392 dollars 50 cents, and that the costs to be added thereto amounted to 57 dollars 56 cents, making together 1450 dollars 6 cents. 2. Deducting from the 2500 dollars paid as of the 11th of December 1824, 1450 dollars 6 cents for the amount of interest and costs, and then deducting the balance of 1049 dollars 94 cents from the original principal, whereby there was stated to be due of principal money 1450 dollars 6 cents, on which interest was calculated from the 11th of December 1824. 3. Treating the principal as paid, as in fact it was, and on 1392 dollars 50 cents, the interest to the 11th of December 1824, calculating interest from the 30th of May 1832 (the time of the decree in the suit against Wilson), and then adding the costs, whereby a sum was made due, on the 10th of May 1838, of 1946 dollars 72 cents.
On the 25th of May 1838, the circuit court declared its opinion to be, that on the interest and costs, the plaintiffs were not entitled to interest from the date of the agreement, but that they were entitled to interest from the time at which they had a right, under the agreement, to resort to Pindall, viz. from the date of the decree in the suit against Wilson; and therefore the court, approving the third way in which the account was stated, pronounced a decree in favour of the plaintiffs for 1946 dollars 72 cents, with interest on 1392 dollars 50 cents from the 10th of May 1838.
From this decree an appeal was allowed on the petition of Pindall’s representatives.
*William A. Harrison for the appellants.
As a general rule, interest is not allowed on interest. It is only allowed by virtue of a special written agreement. It is the agreement to pay interest upon interest, and not the law, nor the delay of payment, that will turn interest into principal. State of Connecticut v. Jackson, 1 Johns. Ch. Rep. 13; Van Benschooten v. Dawson, 6 Johns. Ch. Rep. 315; Childers v. Deane &c., 4 Rand. 406. In this case, there is nothing in the agreement between the bank and Pindall to authorize the compounding of interest.
G. D. Camden for the appellees.
When interest has accrued, the parties may by contract, express or implied, convert it into principal. ■ By the agreement in this case, the bank was to wait for the interest and costs until the determination of the suit against Wilson, and should that prove unproductive, Pindall was then to discharge the interest and costs. It was intended that Pindall should not be subject to interest while the suit was pending. But when that was determined, the bank had the right to demand payment of the interest and costs, and if there was a failure to pay, a debt then existed upon which interest might run.
Debtor and Creditor — Payments - Application to Principal, — The rule laid down in the principal case that “a debtor owing a debt consisting of principal and interest, and making a partial payment, has a right to direct its application to so much of the principal in exclusion of the interest, and the creditor, if he receives it, is bound to apply it accordingly." is approved and acted on in Miller v. Trevilian, 2 Bob. 1, 2, 27. In this case, it was further held that the case was not taken out of the influence of this rule by the circumstance that the party who agreed to such an application of the partial payment was a fiduciary.
Same — Interest on interest, — The general rule of law is that interest shall not bear interest. Stuart v. Hurt, 88 Va. 345, 13 S. E. Rep. 438; Genin v. Ingersoll, 11 W. Va. 557, both citing the principal case.
But it is definitely settled in Virginia and West Virginia, that an agreement to pay interest upon interest is valid if made after the interest which is to hear interest has become due. Craig v. McCulloch, 20 W. Va. 154; Stansbury v. Stansbury, 24 W. Va. 638. As authority for this proposition, these cases cite Pindall v. Bank of Marietta, 10 Leigh, 481, Childers v. Deane, 4 Rand. 406, Fultz v. Davis, 26 Gratt. 903-911, and Genin v. ingersoll, 11 W. Va. 549.
For further authority, see Barbour v. Tompkins, 31 W. Va. 410, 7 S. E. Rep. 1; monographic note on "Interest" appended to Fred v. Dixon, 27 Gratt. 541.

Opinion:
CABEDE, J.
A debtor owing a debt consisting of principal and interest, and making a partial payment, has a right to direct its application to so much of the principal, in exclusion of the interest; and the creditor, if he receives it, is bound to apply it accordingly. And it is the general rule of law that interest shall not bear interest. This rule of law will, however, yield to the agreement of the parties, express or implied. If therefore a debtor, in consideration of forbearance, agrees with the creditor that he will pay interest on interest heretofore accrued, that agreement will be enforced. So also, I apprehend, if a debtor, in consideration of forbearance, agrees that he will, on a future '"day, pay the interest heretofore accrued, and fails to pay it on the day, a jury or a court of chancery will give interest on the amount of that interest, after the expiration of the day. This, however, is on the ground that the contract of the parties has converted the interest into a debt. But the circumstances of this case negative the idea of any such contract. There is no agreement on the part of Pindall to pay the interest, not even that which had previously accrued. The stipulation is that the bank shall be at liberty to pursue its legal remedy by execution on the original judgment, without suing out a scire facias; a proceeding which would not allow the recovery of interest upon interest.
I am therefore of opinion that the court of chancery erred in giving interest on the interest. The decree must be reversed, and one entered up for 1450 dollars 6 cents, with the costs in the court of chancery.
The other judges concurring, decree reversed accordingly.