Court Opinion

ID: 7994964
Source: CourtListenerOpinion
Date Created: 2022-09-09 01:35:44.041388+00
Date Added: 2024-06-11T16:35:30.264303
License: Public Domain

Smitjí, C. J.
(dissenting).
I am of the opinion, in which Judges Cook and Sykes concur, that the interest here sought to be collected is not usurious. The opinion in chief rests on two grounds: First, that section 2678, Code of 1906 (section 2075, Hemingway’s Code) “contemplates annual rests and payment of interest at each rest;” and, second, that the payment of accrued interest at any time before an annual rest period is equivalent to the payment of interest in advance. Neither of these grounds, in my judgment, is tenable.
The statute provides that — ‘ ‘ The legal rate of interest on all notes, accounts and contracts shall be six per cent, per annum; but contracts may be made, in writing, for a payment of a rate of interest as great as eight per centum per annum.”
It is manifest from this language that the statute simply fixes the rate of interest that may be charged and not the length of time for which a loan must run before interest thereon can be collected. Bank v. Caston, 97 Miss. 309, 52 So. 633. Loans for less than a year at the highest legal rate of interest are of everyday occurrence, the validity of which, so far as I am aware, has never been, and I do not understand is here, challenged. The note here sued on runs for only six months and seven days. The payment of accrued interest on a loan of money before the maturity thereof is not a payment on the principal but simply of a sum of money to which the lender is then entitled for having made the loan.
The distinction between lawful and unlawful agreements to pay interest on interest is illustrated by the cases of Perkins v. Coleman, 51 Miss. 298, and Palm v. Fancher, 93 Miss. 785, 48 So. 818, 33 L. R. A. (N. S.) 295, as was pointed out in the latter, and is this: An agreement for the compounding of interest at stated intervals without the right in the debtor to pay the interest as it accrues and thus prevent the compounding of the interest, is usurious, and therefore unlawful, provided the ag*763gregate of the interest thereby contracted for exceeds the legal rate on the principal; but an agreement which provides for the payment of and confers on the debtor the right to pay interest at stated intervals, unpaid interest to bear interest at the same rate as the principal, is not usurious, and is therefore lawful, although the aggregate of the interest thereby contracted for may exceed the legal rate on the principal. This is the distinction between lawful and unlawful contracts for the compounding of interest that runs through many of the cases, is the one that has heretofore been in vogue in this state, and should not now be departed from.
In the note to the case of Palm v. Fancher, 33 L. R. A. (N. S.) 295, quite an array of authorities are cited iu support of the statement that — “it is thoroughly settled that- a stipulation made before interest has become due, that unpaid interest shall itself bear interest, or shall from time to time become principal, and bear interest as such, does not, unless intended as a cover for usurious interest, taint the original obligation with usury.”
No authorities are cited in support of the opinion in chief, and I suspect that none can be that are in accord with Palm v. Fancher,
That interest may be made to become due in less than a year after the making of a loan, and if not then paid to thereafter bear interest at the same rate as the principal, was necessarily decided in Banh v. Caston, 97 Miss. 309, 52 So. 633. The opinion in that case in part is as follows:
“The only question in this case is whether this contract is usurious: Note for one thousand dollars loan, datel January 22, 1907, due July 22, 1907 (six months after date), with interest added in the face of the note at ten per cent, per annum from date until, due, making the note for one thousand and fifty dollars, and providing for interest on this amount at ten per cent, per annum from maturity until paid. Under the authority of Palm v. Fancher, 93 Miss. 785, 48 So. 818, we hold that it is not.”
There can be, of course, no difference between the legal effect of the note there sued on and one for the principal *764only of a loan due six months after date with a provision that if not paid at maturity the interest shall become a part of the principal and bear interest at the same rate.
In the case at bar the loan was for six months and seven days, interest payable at the end of the sixth month and again seven days thereafter; and there can be no rational distinction in so far as the question of usury is concerned between such a loan and one made by means of two notes, one due six months after its date, for which there is substituted on the maturity thereof a new note covering the principal thereof and interest due thereon, due seven days thereafter. The first of these loans is here held usurious while the second, under Bank v. Caston, could not be so held.