Court Opinion

ID: 7906805
Source: CourtListenerOpinion
Date Created: 2022-09-08 22:01:24.42505+00
Date Added: 2024-06-11T16:32:26.876900
License: Public Domain

Johnston, C. J.
(dissenting): I am unable to concur in the ruling of the court. Granting that the promise to pay compound interest is valid, the stipulation that if interest be not paid annually to become as principal did not merge such interest debt in the expressed principal in the note. It became as principal, that is a new principal, a distinct obligation on which interest was payable. That it was so regarded and should be so treated is shown by the stipulation that the new principal should bear the same rate of interest as the note. If it was merged into and became part of the main principal, the interest provided for the express principal would have covered the’increased principal and there would have been no occasion to provide for interest on interest.
Again, the courts generally hold that a promise to pay interest on interest before interest becomes due, is contrary to public policy and invalid while a promise to pay such interest after it accrues is valid and enforceable. (Note 33 L. R. A., n. s., 296.) A few courts hold that parties may agree in advance for the compounding of interest. (22 Cyc. 1488.) It is generally said that the consideration for a promise to pay interest on interest is the forbearance of the payment of the principal, but there was no consideration for that promise because the principal was not due and did not become due for about forty-eight years after the first payment of interest became due. Defendants are not contending that the promise made to pay compound interest is invalid but simply insisting that the statute of limitations began to run on the annual accruals of interest as they become due and that all were barred except those *122which accrued during the five years preceding the maturity of the note. In my view if the promise to pay compound interest is treated as valid the amount due at the end of each year was a distinct and separate debt to be treated and draw interest thereon as the principal drew interest upon which an action might have been brought the same as if a coupon had been attached for the interest and when not paid the statute of limitations ran on each unpaid installment of interest after it accrued. The note did not have a shifting principal which changed annually as interest payments accrued, but the defaulted payments were debts which bore interest from their maturity. Such debts did not become an integral part of the principal stated in the note, but was a new obligation which is to be treated as principal that is to draw interest thereon the same as the principal. By the rule of compounding insisted upon by plaintiffs requiring a payment of interest upon interest upon interest, multiplied forty-eight times, the debt which was originally $950 becomes $15,500, and in my view the court correctly held that all of these additions were barred except those maturing within the last five years.