Opinion ID: 1564562
Heading Depth: 1
Heading Rank: 3

Heading: Claim for Interest.

Text: The defendant contends that the reciprocal interest clause is not applicable because the plaintiffs accepted the principal. Where interest is recoverable only as damages and payment of the principal is accepted as such, interest cannot be recovered because payment of the debt extinguishes the right to recover interest thereon. Stewart v. Barnes, 153 U. S. 456, 14 S. Ct. 849, 38 L. Ed. 781; Hammond v. Carthage Sulphite Pulp & Paper Company (D. C.) 34 F.(2d) 157; Graves v. Saline County (C. C. A.) 104 F. 61; Southern Railroad Company v. Dunlop Mills (C. C. A.) 76 F. 505. Where a claim for interest is based on a contract, express or implied, acceptance of the principal debt will not defeat the right to recover accrued interest in a subsequent action. New York Trust Company v. Detroit T. & I. Railway Company (C. C. A.) 251 F. 514; Bennett v. Federal Coal & Coke Co., 70 W. Va. 456, 74 S. E. 418, 40 L. R. A. (N. S.) 588 and note, Ann. Cas. 1913E, 578. Clearly, the right to recover interest after the principal has been received and accepted depends on whether the interest is due by the terms of a contract or as damages in an action for the principal. When the right to interest is based on a contract, it becomes a substantive part of the debt itself and is recoverable even though the principal debt has been paid and extinguished; but where the interest is in the nature of damages for the breach of a duty, or a contract not providing for interest, it can be recovered only with the principal. Of these two well-defined classes of cases, the one before us belongs to the former for the simple reason that the contract involved expressly provided for the payment of interest. The defendant contends that even if the interest clause is applicable, it was justified in terminating the contract and holding the money without interest because of the suit of the levee board against the plaintiffs. When the plaintiffs' title was attacked, the defendant unquestionably was entitled to protect itself from possible claims by both these contesting parties. It could have done so by terminating the contract, but it did not terminate the contract. Notwithstanding the suit the plaintiffs continued to cut and deliver timber and the defendant continued to receive it and to apply the proceeds to the payment of the indebtedness above mentioned  the greater part of which was due to itself  and when the debts were liquidated to hold the balance. Obviously both parties for very evident reasons desired to continue operations under the contract. The defendant could have protected itself, and likewise the fund in its hands, by paying it into court in the levee board suit or by impounding it in a depository acceptable to all parties pending the outcome of the suit. Then the defendant with some plausibility might have denied liability for interest. Apparently it held the money as its own subject to the rights of its creditors, used it, and did nothing to relieve itself of responsibility for it or from paying interest on it. The interest provision of the contract was applicable and the defendant was bound by it.