Court Opinion

ID: 6604121
Source: CourtListenerOpinion
Date Created: 2022-07-20 20:10:35.092613+00
Date Added: 2024-06-11T15:58:07.670051
License: Public Domain

- Colb, O. J.
In the examination of these appeals it is essential, at the outset, to ascertain, if possible, the real relation which the parties held to each other during the period, •covering the transactions to be considered. The defense of usury must turn principally upon the view w'hich is taken *94of that relation. On the part of the plaintiff it is claimed, in brief, that pursuant to a verbal agreement entered into about the time of the judicial sale, in March, 1868, it was understood that he should, by that sale, become the absolute owner of the personal property and effects of Eish Brothers; that thereafter the business of manufacturing wagons at their establishment, in Racine, was to be conducted by him as principal, the Fish Brothers managing it as his agents; that he was to furnish the necessary means and use his personal credit in carrying on the business, until such time as he should receive from the avails thereof the money which he had paid and’ become liable to pay to buy the debts of Eish Brothers, and all his advances to the business, with annual interest at the rate of ten per cent, per annum, and the amount of their indebtedness to him for loans, represented by notes which he then held, with like interest, and reimbursement for his services and expenses; that in the meantime the Eish Brothers .were each to receive from the proceeds of the business $100 per month for their living expenses, and in the end were to have and own whatever was earned or saved in the undertaking, — over and above such expenses and the amount which he was entitled to receive,— together with all the property and assets of the concern. On the part of the defendants it is claimed that the simple relation of debtor and creditor, or mortgagor and mortgagee, always existed between the plaintiff and Eish Brothers, and parties deriving an interest under them, and that the rights and liabilities of the respective parties must be determined by the principles of law applicable to such a relation. This claim, of course, implies that Eish Brothers continued to be the real owners, or at least the mortgagors in possession, of the personal property and assets of the firm; that they controlled the business for themselves as principals, and for their own benefit, the plaintiff loaning them money from time to time to carry it on as they might need.
*95This contention of the defendants is entirely irreconcilable ■with the facts of- the case as we understand them, and with the manner the business was conducted for several years after the early part of March, 1868. Undeniably the plaintiff held, in December, 186Y, a chattel mortgage on all the personal property and effects of Elsh Brothers, to secure the payment of $20,000 which he had loaned them and for which he held their notes. ITe had likewise a mortgage on their real estate to secure another loan, but that debt and security may for the moment be laid out of view, for the purpose of the argument we are now considering. In March, 1868, it is admitted a sale of the personal property of Eish Brothers — subject to the plaintiff’s mortgage — was made under the Pratt judgment, and the judgments which the plaintiff had obtained on a portion of their debts which he had brought up pursuant to the compromise arrangement. The plaintiff bid in all the property sold at these sales, paying the Pratt judgment in full. What was the object of these judicial sales? What purpose or end was intended to be subserved or secured by them? The plaintiff’s contention is that the object was to transfer and vest in him the absolute title to the property sold, in order that the business might be thereafter carried on as his own, but under the management of Fish Brothers as his agents, until he should be paid out of the business or by them his debts and expenses as above stated. This certainly gives some legal effect — some rational meaning — to those sales. But according to the claim of the defendants the sales really amounted to nothing; they did not change the relation of the parties in the least; were simply a sham, only designed to force reluctant creditors to come into the compromise arrangement. The plaintiff already held the title to the personal property -as security by his chattel mortgage. He, therefore, gained nothing by going through the' formality of a judicial sale unless he acquired whatever right the Fish Brothers had in the property.
*96But it is said the onus was on the plaintiff of showing that the legal relation of the parties had been changed; that from ■a mortgagee of chattels he had become the absolute owner by a purchase of the equity of redemption at a fair sale, and that this was so understood by both parties, and that the relation of mortgagor and mortgagee in respect thereto •should cease. The plaintiff does show all this by proof which seems to us overwhelming and conclusive. But before we proceed to notice some of that evidence which shows that the relation of the parties was changed, and was intended to be changed, by those judicial sales and the agreement ■entered into about that time, let us consider for a moment the position of the plaintiff, according to the defendants’ theory of the case. The plaintiff was the mortgagee of chattels which were in the possession of Fish Brothers, the mortgagors. ' The latter had the right to go on and manufacture into wagons the materials and stock on hand,— which constituted a large portion of the mortgaged property,— sell such wagons, and with the proceeds buy other materials and stock, and so continue the business. What would become of the property specifically mortgaged after it had thus been manufactured into wagons and the wagons sold ? .Excepting .the tools and machinery covered by the mortgage, would a vestige of it remain to which the mortgage would attach or •upon which a lien would exist ? Or is it claimed that the mortgage was a floating one, which changed and attached, •contracted and expanded, as the stock and materials used in the business should change, contract, or expand ?
FTo one understands better than the very able and intelligent counsel for the defendants that such a mortgage would not be valid, nor create any lien, legal or equitable, in this state. For the rule established by this court in many well-considered cases is “that a chattel mortgage of after-acquired goods does not create a lien, legal or equitable, by force of •the mortgage, upon after-acquired goods.” Ryan, C. J., Hunter v. Bosworth, 43 Wis., 583-591. So it would follow *97, on defendants’ theory of the relation existing between the parties, that in a few weeks or months the plaintiff’s security would be wholly lost. Most of the specific chattels included in the mortgage would ha ve'be'en manufactured into wagons, the wagons sold, and the property absolutely gone beyond the power of the mortgagee to'identify or recover the same. This is the fatal vice in the argument of counsel, as we regard it, in attempting to apply to the chattel mortgage in 'question the same rules of law which control as to a mortgage of real estate, or a mortgage of specific chattels which are intended to remain in substantially the same condition as when the lien is created. In this case there is no pretense that the parties expected the stock and materials should remain in the condition they were when mortgaged, or when the judicial sales took place. And if the defendants had an equity of redemption in the mortgaged property, what became of it, or to what property did such equity attach under the circumstances in this case? But we pass on.
There does not seem to have been any change in the legal Telation of the parties after the failure of Eish Brothers, and while- the compromise agreement was being consummated. The Eish Brothers expected some satisfactory arrangement would be made with their creditors, and, by such aid as the plaintiff had offered to render them, they would be enabled to resume business and carry it on as before until their stock was worked up and debts paid. But in that expectation they were disappointed, in consequence of the action of some of their creditors, who refused to come into the ■compromise. But the stock and material on hand when the chattel mortgage was given remained in their possession; some new material was purchased by the plaintiff for them, ■so that they could finish some wagons; and doubtless some material was worked up, but how much does not appear. The plaintiff advanced them some money on the real estate mortgage to pay workmen, and these accounts were assigned *98to him. But there was no material change in the management of the business until after the judicial sales. Soon after these sales a new set of books was opened, an inventory of the property on hand was taken, and this entry was made in the books: “ Inventory of the effects of J. I Case as principal, and T. G. and A. C. Fish as agents, under the name and style of Fish Bros., Agents, on commencing business in the manufacture of wagons, carriages, etc., on State street. Inventory of wagon material, machinery, and fixtures, as per inventory book, $15,543.21; office furniture, $554. Total, $46,091.27.”
At about this time the plaintiff claims he went into the actual possession of the property purchased at the sales, became the absolute owner thereof according to the terms and conditions of the agreement he had made with Fish Brothers, which has been already mentioned. Indisputably, from that time all purchases of material were made upon the individual credit of the plaintiff, who held himself out to the world as principal, and responsible for all the debts and liabilities of the concern. Also it is admitted that the financial business was removed to the plaintiff’s private office, quite a distance from the office of the concern, and was there attended to by the plaintiff or by his private clerk. All collections, all payments, the handling of the money of the concern, were attended to by the plaintiff or by his clerk. The plaintiff assumed the right to advise and control as to the way the business should generally be conducted; he assumed the right to fix the amount of salary which each of the Fish Brothers should have or withdraw from the business for their expenses; he assumed the right to fix the salary of the book-keeper and to discharge employees. His right or authority to do these things, to control the business as he did, was not challenged in any way by the Fish Brothers, or either of them. On the contrary, they held themselves out to the world as acting as his agents in the *99business, so described themselves in business letters, statements of account, shipping bills, etc. Most of the above facts are admitted to be true. That being so, with what reason can it be seriously claimed that they do not show an essential, radical, and important change in the relation of the parties and in the management of the business ?
It will be borne in mind that this was the way in which a large business was conducted for years — a business which involved the plaintiff in personal liabilities to the amount of several hundred thousand dollars annually some years. How idle, then, to say, in view of these indisputable facts and of others which might be alluded to, having the same bearing, that the relation between the plaintiff and Fish Brothers, and Fish Bros. & Co., was simply that of mortgagor and mortgagee, or that of debtor and creditor. It is true, while neither of the Fish Brothers deny the fact that the business was conducted in the manner above stated for years, they do pretend the “ agency arrangement,” as they call it, was merely a cover, so that the plaintiff should be secure as to outside parties while they went on and worked up the stock as before, and should pay the plaintiff his claims and advances, with interest. But the accuracy of that statement is most conclusively disproved, as well by their own conduct as by all the facts and probabilities of the case. That they were to own the business when they had satisfied all the claims of the plaintiff according to the agreement, and had relieved him from the liabilities which he had incurred in its management, is precisely what the plaintiff claims. But how the “ agency arrangement,” if not real, but a sham, would inure to his advantage or security, when he was personally responsible for every dollar of indebtedness contracted in carrying on the business, is a matter not explained and is difficult of explanation. But, as already intimated, the statement of the defendants in that regard cannot be accepted as correct.
*100Accepting as substantially correct — as we are disposed to do — the agreement as claimed by the plaintiff, there was much discussion as to its legal effect, and the rights of the parties under it. On the part of the plaintiff, it was said the engagement entered into was in the nature of an agency coupled with an interest, or a ^««¿-partnership where the title and ownership were in the plaintiff, as principal, until the defendants should be entitled to have the property and business as their own by the extinguishment of plaintiff’s claims and liabilities. It is not denied that the defendants had rights in the business which the plaintiff could not ignore, and which a court of equity would protect. The plaintiff could not, by reason of his superior interest, take advantage of the defendants, or dismiss them at will from the management of the business. But it is not easy to define the real relation of the parties under the agreement. It would not essentially aid us in the solution of the questions involved, if we should attempt to do so, and try to properly classify the engagement. The parties’ rights rest upon the contract which they have made. It is peculiar in many of its features. In some aspects it is much like a partnership, though there was to be no communion of profit. But it is a grave question, if the business had turned out unprofitable, whether the plaintiff would not have lost all advances which he had made on its faith and credit. Our present impression is that he would; that he trusted the business alone for the return of such advances. If there was an obligation on the part of the defendants to pay these advances, such liability was “ anomalous ” and “ peculiar.” But it clearly appears that the plaintiff held himself out to the world as the responsible party in the business. All debts were contracted with him as principal. lie retained the entire control of-the finances. The defendants, not ostensibly but really, acted as his agents in its management. These are features which distinguish the engagement from an ordinary partnership, where *101each, partner has power to bind the firm by simple contracts relating to the business, to receive debts due the firm, and to share in the profits and losses. But whether the engagement in question created an agency coupled with an interest, or a gwasi-partnership, or a yiiasi-trust, certain it is the parties could fix their obligations and duties under it. It was a lawful contract to carry on a lawful business in a lawful way, and the parties should abide by the terms of the agreement which they have made.
The plaintiff did not agree to continue the business for any length of time; but he did agree to furnish whatever money should be necessary to carry it on, no amount being specified. The expectation seems to have been that by good management the business would pay the plaintiff’s claims within two or three years, when the Fish Brothers would be entitled to have and own it, with whatever had been saved or made out of it. But that expectation, it seems, was not realized. The business was conducted in the manner as indicated, the plaintiff furnishing all necessary means for the purpose, orlising his credit at the banks to procure discounts as needed. The volume of business was largely increased. In January, 1869, the plaintiff claimed and charged in account, as compensation for his personal services and clerk hire for 1868, $2,000; for 1869, $1,500-; for 1870, $1,250; and for 1871, $1,250. These charges were over and above ten per cent, interest on all advances which he had made to the business, on all moneys which he had paid to buy up the debts of Fish Brothers,, and on their notes which he held. That rate of interest he exacted, and it was allowed him on these several amounts. The- plaintiff says that all these charges for compensation for personal services and clerk hire were made by arrangements at different times with Fish Brothers, or one of them, who consented and agreed to them.
The defendants allege in their answer, and offered proof *102to sustain the allegation, that the plaintiff, knowing that they were unable to discharge their indebtedness to him, about January 27,1869, demanded and required that they should agree to pay and pay, as and for interest upon all their indebtedness then contracted or to be contracted, interest at the rate of twelve and one half per cent., and that the above charges were a mere shift or device for exacting usurious interest, which, in their straitened circumstances, they were compelled to accede to and did agree to pay. This presents the first defense of usury which we have to consider. Now we have just stated that in our view, after the judicial sales and agreement, the parties did not stand to each other in the simple relation of debtor and creditor or mortgagor and mortgagee. The Fish Brothers, after that time, were not the owners ■ of the business and property as they claim. The plaintiff became the owner, and carried it on in his name, as his own, under their management as agents. Therefore, whatever advances he made were not by way of loans to the defendants which they undertook to repay, except as they gave their notes, as they did for advances February 1, 1876, and January 29, 1877. But as to other advances to the business they made no express promise to repay them. Of course they would not be entitled to have the business and property as their own unless they paid these advances, with other indebtedness, together with interest at the agreed rate. But that is another matter' not affecting the question of usury. If the defendants had really been the owners of the business and the plaintiff had made advances to carry it on, doubtless they would be liable for the amount on an implied assumpsit, if there were no express promise. Such was not the position of the parties.
It seems to us the usury laws have really no application to the transactions under review. The plaintiff made advances under the agreement to carry on the business, and became liable for every debt that was contracted. This is *103an incontestable fact. The defendants do not deny his personal responsibility to every creditor of the concern, and the evidence shows that he did give the business more or less personal attention; that his own clerk attended to it; that in some years he actually incurred liabilities about the business amounting to a half million of dollars. It is obvious that this was not a simple loan by the lender to the borrower. It is not a case where more than lawful interest is exacted for the simple use of money. That is the transaction which the statute condemns. Nor is there any ground 'for saying that the transactions took the form they did as a shift or device to cover usury. The parties had the undoubted right to agree as to what compensation the plaintiff •should receive out of the business for his personal services and the services of his clerk. Such an agreement having been fairly made, what principle of law or morals will be violated if effect is given to it? Neither in form nor in substance did the transaction amount to a loan and borrowing, or a forbearance of money.
The referee and circuit court, while holding that the only Interest which the plaintiff had in the personal property and business was as security for the indebtedness due, yet were of the opinion that the charges for personal services, etc., above alluded to, were legal, and were not a cover for usury exacted on loans. In that view we fully concur. Rut in respect to another claim of the plaintiff the defense of usury was sustained. Owing to changes in the manner of conducting the business, the concern became embarrassed, and in 1873 the plaintiff was. applied to for additional advances to carry it on. The evidence shows that with great reluctance, after having taken an inventory of the assets, and having investigated the condition of the concern, he did advance $75,000, or thereabouts, to carry it on. It is alleged on the part of the defendants, and proof was given tending to support the allegation, that the plaintiff, taking advan*104tage of defendants’ necessities, demanded and required, as a condition of all further advances, that they should pay him twelve and one half per cent.interest on all sums which he should advance, and that they were compelled to agree-to do so. According to the theory of the defendants as to-the relation of the parties, such a contract would, doubtless, be illegal; that is, if they were really the owners of the concern, and that rate of interest was exacted merely as a compensation for the use of money loaned, there being no other element of risk except the responsibility of the borrowers entering into the transaction. But such a theory of the case we reject as not supported by the facts and conduct of the parties. The plaintiff made these advances, as he had others, on the credit of the business, not as loans to the defendants. The business at the time was really his, subject to the right of the defendants to become the owners.
The plaintiff says that in no event was he to receive more than ten per cent, interest on his money, and that the excess, was charged as compensation for personal and clerk’s services, and the use of his credit. Such charges were made in account for the years 1813, 1874, and 1875. The plaintiff says that the charges as to each year were pursuant to an arrangement made with one of the defendants. Much stress was laid upon the fact that in the entry in the plaintiff’s books for 1873 the charge was for interest at twelve and one half per cent., thus, it is said, rebutting the inference that the parties understood the excess was for personal and clerk’s services. The plaintiff also stated that the use of money was worth more than ten per cent., and that more than that rate could be obtained for if in Chicago and Minnesota. But the entry and these statements are satisfactorily explained in the evidence. They would be entitled to much weight as tending to prove usury, if the relation of the parties was that of borrower and lender. As it is they have little or- no significance. If. the business had resulted disastrously *105would not the plaintiff have lost his advances? Could not-the defendants, if repayment had been demanded, have said: “We did not promise to make good these advances;, they were made under the agreement by which the business and property became yours until such time as we should be entitled to have them by paying you all indebtedness and charges. We were managing the business for you, as your agents; we have assumed no liability for the debts of the concern, either to you or to third parties. We surely have entered into no express obligation to pay the principal or interest, except in two instances.” Now this they might well have said under the arrangement for conducting the business. Such being the case, what ground is there for predicating usury on the transaction of 1873 any more than upon that of 1869? We can see no material difference in the cases.
It need not be remarked that to constitute usury within the prohibitions of the statute there must be an intention knowingly to contract for and take more for the mere use of money than the law allows. There necessarily enters into the transaction a loan, where the principal is to be repaid,, with illegal interest by way of compensation for the use of the principal. That cannot be said was the real transaction as to any advances agreed to be made in 1873. The plaintiff not only risked the advances, but he had incurred and continued to rest under vast liabilities for the concern besides.
In case of an actual partnership, where there is a risk that the principal contributed may be lost, an advantage to be taken out of the trade may be measured in any way agreed on without subjecting the • arrangement to the charge of usury, because the money is not lying at interest, but is employed in making profits, subject to losses. Tyler on Usury, 185; Fereday v. Hordern, 1 Jac. Ch., 144; Gilpen v. Enderbey, 5 Barn. & Aid., 951.
*106The head-note states the ease of Fereday v. Hordern as follows: “ Deed by which A., B., and 0., partners in trade, in consideration of £4,000 paid to them by D. in augmentation of their capital, agree to admit him into partnership with them for a term. It was agreed that D. should receive in lieu of profits a clear sum of £550 per annum, and all the property of the concern was charged with the payment of this sum quarterly, and of the £4,000 at the determination of the partnership. A., B., and 0. were to pay rent, taxes, wages, and the other outgoings of the trade, which was to be carried on by them, and in their names only; and D. was not to be required to attend to it. D. was at liberty to retire on giving twelve months’ notice; and on his retiring, or at the end of the term, the £4,000 and the arrears (if any) of the £550 per annum were to be paid to him by A., B., and 0. by instalments, to be secured by their bonds, and they were to indemnify him from the debts of the partnership.” Lord Eldon held this deed not usurious.
In Gilpen v. Enderbey, “ by deed A. and B. covenanted to become partners in the business of army clothiers for ten years, and that A. should advance £20,000 as part of the capital for carrying on the business, and that B. should find a like sum; that A., during the continuance of the partnership, should have out of the profits, if sufficient, and if not, out of the capital, £2,000 yearly for his share of the profits. B. then covenanted that, on the determination of the partnership by effluxion of time, the sum of £20,000 should be repaid to A.; that B. should guarantee all debts and pay all losses. In an action brought upon this deed to recover the £20,000 at the expiration of ten years, the defendant pleaded that the deed was executed, byway of shift, in pursuance of an usurious agreement. That plea, upon issue joined, was negatived by the verdict of the jury, and judgment was given by the court of O. B. for the plaintiff. Held, upon error in K. B., that after that finding the deed must be *107taken to disclose the real intention of the parties, and that it was not in that case void upon the ground of usury.”
Other authorities of a similar import might be referred to in this opinion, but will not be, as they will be found on the brief of plaintiff’s counsel. Of course, the principle of these authorities does not apply where the real nature of the contract is a loan, and not a partnership, as was held in Morse v. Wilson, 4 Term, 353; Cooper v. Tappan, 9 Wis., 362; and that class of cases.
Mr. Collyer says: “ The better opinion, however, is that an agreement having the form of a partnership agreement, but in which profits beyond the legal rate of interest are reserved to one of the parties, is legal, unless it appears to have been executed by way of shift or contrivance to cover usury, because at all events the principal, for which such profits, and interests are taken, is hazarded to third persons.” Law of Partnership, (6th ed.), § 68. It is obvious that the principle of contingency or hazard applies with far greater force here than in a case of actual partnership. ' But it seems unnecessary to dwell longer upon the question of usury; for, under the arrangement for conducting the business as we have assumed it to be, the usury laws have no application to the case.
There is one piece of testimony which ought, perhaps, to be noticed, for it militates against the views we have expressed, and seems inconsistent with them. We refer to the notes which were given the plaintiff for advances February 1, 1876, and January 29, 1877. If he was the real owner of the business, it is certainly strange that his agents should give notes for advances to carry it on. The plaintiff gives an explanation of the object in taking these notes, but the reason assigned is not very satisfactory to my mind. But still no such weight or importance should be attached to these exceptional acts as to countervail or destroy the general tendency and effect of the evidence in the case, for the method *108of conducting the business through a series of years, the numerous acts and declarations of the parties as to their relations, force us irresistibly to the conclusion that the relation of debtor and creditor did not exist in the management of the business.
There is no sufficient reason shown for disturbing the settlements which were made from time to time by the parties. The accounts on both sides were more than once looked over, examined, and adjusted. The result of such settlements, or the balance found due, was entered on the books kept by the defendants. The proof is perfectly conclusive on this point. Now, what fact is shown to impeach the correctness of these settlements? What error, mistake, or fraud does it appear was committed in making them? The charges for personal and clerk’s services were agreed upon and allowed. We have-seen there was no legal objection to such charges, especially where the parties agreed as to the amount. It is true, compound interest entered into these settlements, but that affords no reason • — • as we shall presently see — for opening them. The principle or rule of law applicable to a stated account or settlement, applies with full force to these settlements which were made. That rule, as often stated by this court, is that a settlement once deliberately made is not to be opened except upon the clearest and most positive proof of fraud or mistake therein. Martin, v. Beckwith, 4 Wis., 219; Marsh v. Case, 30 Wis., 531; Kercheval v. Doty, 31 Wis., 476; Wilson v. Runkel, 38 Wis., 526; Hoyt v. McLaughlin, 52 Wis., 283; Klauber v. Wright, id., 303.
The first reason given for opening these settlements is that the defendants were completely in the plaintiff’s power, and 'were compelled to acquiesce in their correctness, otherwise the plaintiff would break up and destroy the business. We do not think this shows a good reason for setting the settlements aside. Suppose an actual partnership had existed which could be dissolved at the will of either partner, and *109that full settlements had been made between the partners. 'Would the fact that defendants apprehended the plaintiff would withdraw his capital, unless they acquiesced in the correctness of the settlements, constitute a sufficient .ground for opening them, no mistake or fraud being shown in respect to them? It seems to us not. And still there would be the same moral duress in that case as in this. But the truth is, there is no duress or compulsion shown which ¡should open the settlements. They were fairly made by parties competent to make them, and are binding as to the matters embraced in them. Another objection taken to the fairness of the settlements is that the interest was compounded, or the accounts were adjusted with annual rests. This was the ground on which the referee and court below set aside the earlier settlement. But it is well settled that •an agreement to compound the interest does not render the .contract usurious. Tyler on Usury, 240, 244. A contract for interest upon interest was not favored by the ancient authorities, mainly because it was deemed a hard and oppressive exaction. Courts refused to enforce such a contract on grounds of public policy. Mosher v. Chapin, 12 Wis., 453. But that rule has been greatly relaxed in many modern cases. Where it appears that the parties have adjusted their accounts, have agreed that interest due shall be turned into principal and draw interest, this court has adhered to the doctrine that such a transaction was not illegal or wrong. Austin v. Bacon, 28 Wis., 416.
In the case before us there were a, great many items of indebtedness on both sides which were adjusted and the balance struck. The interest on the notes, on the “ forty per <cent.” account, and on the current account was computed, and also the interest upon the items upon the other side of the account. These settlements were voluntarily made; no •error or fraud is shown in respect to them; the defendants were under no such duress or coercion as should avoid them; *110and under the circumstances the settlements must stand, notwithstanding compound interest is included in them. Of course, the note for $15,262.75, dated January 1, 1876, given for interest due, is perfectly valid. There was a good consideration to sustain that note, even within the opinion of the majority of the court in Young v. Hill, 67 N. Y., 162. There was a forbearing and giving day of payment of money due, which was a good consideration. The plaintiff says that he was to have interest upon his entire indebtedness annually. “ Interest was justly and equitably due at the end of each year; and if the debtor, instead of paying it, gives his note or bond for it, there is no legal objection to enforcing its payment. If the interest is carried into an account current, and the debtor gives his note for the balance of his account, it stands in principle on the same footing.” Sutherland, J., in Kellogg v. Hickok, 1 Wend., 521; Tylee v. Yates, 3 Barb., 222. It is said that our statute declares that in the computation of interest upon any bond, note, or other agreement the interest shall not be compounded, nor shall interest thereon be construed to bear interest. See 1 Tay. Stats., ch. 61. But this, we apprehend, does not prevent parties from making settlements of their mutual accounts which include compound interest. The case then stands on the footing of an executed contract.
It follows from these views that the balance found due the plaintiff at the last settlement, January 1, 1876, must be deemed to be correct; and in stating the account this rule has been adopted in this court: “ When partial payments have been made, the payment is to apply in the first place to the discharge of the interest due. If the payment exceeds the interest, the surplus goes towards discharging the principal, and the subsequent interest is to be computed on the balance of principal remaining due. If the payment be less than the interest, the surplus of interest must not be taken to augment the principal, but interest continues on *111the former principal until the period when the payments, taken together, exceed the interest due, and then the surplus is to be applied towards discharging the principal, and the interest is to be computed on the balance.” Hill v. Durand, post, p. 160. Under this rule no compound interest should be allowed. It is true, the plaintiff claims that he was to have interest on all his indebtedness at the rate of ten per cent, computed annually. But we are not disposed to enforce the agreement for compound interest further than it has been acted upon by the parties in their settlements. But the question is, What rate is the plaintiff entitled to receive on the amount found due at the last settlement? So far as the notes are concerned, there can be no question, for they all expressly state that the interest shall be at the rate of ten per cent. Under the agreement for conducting the business the account current and the forty per cent, account were to bear interest at ten per cent. But it is said the statute provides, where there is a contract to pay interest at a rate exceeding seven per cent., it must. “ be clearly expressed in writing,” to have effect given it. 1 Tay. Stats., ch. 61, § 1. The statute cleaxly refers to a loan or forbearance of money. Now, as to the advances made upon the contract, they stand upon a different footing from an ordinary loan, for the reasons given. There may be some doubt whether the forty per cent, account does not come within the statute; but we are inclined to think it does not. Besides, if the defendants ask to have the property and business as their own, why should they not pay the rate of interest which they agreed to pay as a condition to having them? In asking relief from a court of equity, should they not be required to do equity- on their part? Interest at ten per cent, cannot be said to be excessive, or an unconscionable exaction.
We do not think the plaintiff should recover anything on his claim for personal and clerk’s services, or for the use of *112his credit, after January 1,1816. It does not appear that he gave the business any special attention after that time. And while it may be true that his high commercial credit was invaluable to the concern, yet, under the circumstances, we are not disposed to allow him anything after the period indicated.
The judgment on the plaintiff’s appeal is reversed, and the cause is remanded for a restatement of the account on the basis laid down in this opinion. That portion of the judgment appealed from by the defendants must necessarily be reversed, not because there is any error in it of which they can complain, but for the reason that the entire judgment is set aside on the other appeal. We do not feel called upon to consider at this time what relief the plaintiff will be entitled to in case the amount found due him on another accounting is not paid. The circuit court has ample power ¡to grant such further relief as may be necessary for the protection and security of his rights.
We cannot take leave of the case without expressing our great obligation to the counsel on both sides for the very lucid and masterly manner they discussed the questions of law and fact which we have had to consider. Their arguments were of essential aid in the examination of the case.
By the Court.— The judgment on both appeals will be entered in accordance with this opinion.
Lvou, J., took no part.