Court Opinion

ID: 9682815
Source: CourtListenerOpinion
Date Created: 2023-08-24 13:17:29.280709+00
Date Added: 2024-06-11T18:17:41.948944
License: Public Domain

ON MOTION FOR REHEARING
In their motion for rehearing, respondents point out that while they had no legal right to pay the monthly installments on the note in advance, the association has accepted partial payments made prior to maturity. They insist that each payment so made should be credited in accordance with the so-called United States rule, and that interest would thereafter accrue only on the principal balance remaining unpaid. No decisions bearing directly on this question are cited by either party, and we have found relatively few.
The bond in Spires v. Hamot, 8 Watts & S. 17 (Pa.1844), was payable “on or before” ten years after date with lawful interest, but the fact that the debtor had the right to make payments in advance of maturity apparently was not regarded as significant. In holding that advance payments should be applied first to accrued interest and the remainder to principal, the court said:
“A creditor may refuse to receive the principal before it is due, or a part of it when due, except on his own terms; and were he to receive it as a payment bearing interest, it would, in effect, be a loan. But if he receive it unconditionally, the residue applied to the principal, after payment of the interest, stops interest on the principal pro tanto.”
In Jencks v. Alexander, 11 Paige’s Ch. 619 (N.Y.1845), the principal of the note was payable in five equal annual installments, and the interest was also payable annually. The following rules were announced for crediting payments made in advance of maturity :
“ ⅜ * * where principal is not due, but interest is due, the payment must be applied to the extinguishment of the interest then due and payable, and the residue to the extinguishment of that part of the principal which will first become due; so as to stop the interest, pro tanto, from the time of such payment. But *552where neither principal nor interest has become due at the time of the payment, such payment, in the absence of any agreement as to the application, is to be applied to the extinguishment of principal and interest, rateably; according to the decision of the supreme court in the case of Williams v. Houghtaling [& Bevier], (3 Cowen’s Rep. 86).”
The situation of the parties is somewhat different where interest has been paid in advance or included in the face amount of the note. In Skelly v. Bristol Savings Bank, 63 Conn. 83, 26 A. 474, 19 L.R.A. 599, the note was payable on demand and stipulated that interest would be paid semi-annually in advance. It was held that full payment of the principal prior to the date to which interest had been paid did not entitle the debtor to recover the unearned interest. The court pointed out that there was no express promise to return unearned interest, and concluded that such a promise could not fairly be inferred under the circumstances.
In Pool v. First Nat. Bank of Princeton, 287 Ky. 684, 155 S.W.2d 4, the first year’s interest was included in the face of the note. The note was payable one year after date with interest from maturity, and payments were made thereon before the note was due. • The maker claimed that he was entitled to a rebate of interest on the amount of each payment from the date of such payment to the due date of the note. This claim was denied, and the court said:
“It will be assumed that the loan would not have been made had it not been for an agreement on the part of the debtor to pay the exact amount of interest recited in the contract, and, the parties having entered into a specific contract to that effect, the court will not make a new contract for them. Especially is it true where the debtor includes the amount of the interest in the face of the note, thus merging the interest with the principal and designating it for all purposes to be a part of the principal.”
Interest was included in the face amount of the note in the present case. According to the terms of the instrument additional interest was to accrue only after maturity. Respondents unconditionally promised to pay 120 monthly installments of $90.00 each, and the only stipulation for rebate of interest is in the event of prepayment of the entire balance of the note. The parties thus expressly dealt with the effect of advance payments upon the interest included in the note, and made no provision for any rebate in the event of partial payments prior to maturity. It is our opinion that in these circumstances such partial payments do not entitle respondents to a rebate of interest.
The motion for rehearing is overruled. Respondents will have fifteen days from.this date within which they may file another motion for rehearing if they so desire.