Anderson v. Perkins

Decision Date11 October 1890
Citation25 P. 92,10 Mont. 154
PartiesANDERSON v. PERKINS et al.
CourtMontana Supreme Court

Appeal from district court, Gallatin county; FRANK G. HENRY, Judge.

M. J Liddell, for appellants.

Armstrong & Hartman, for respondent.

HARWOOD J.

The main question brought to this court for determination by this appeal relates to the computation of interest and the application of partial payments on a certain promissory note made and delivered by appellants to respondent, in the following terms: "$1,250. Bozeman, M. T., February 6 1883. On or before the first day of August, 1883, we, or either of us, promise to pay to the order of David Anderson twelve hundred and fifty dollars, for value received negotiable and payable without defalcation or discount, with interest at the rate of one and one-half per cent. per month from date till maturity; and, if this note is not paid at maturity, we will pay the same rate of interest upon said principal sum until the sum is fully paid and satisfied. WILLIAM L. PERKINS. HOWARD STONE." It was admitted by plaintiff's complaint, and found by the trial court, that payments had been made on said note as follows: May 8, 1883 $250; April 13, 1885, $250; September 29, 1886, $673.36. The appellants contend that, under the terms of said note, if the same was not paid at or before maturity, they had a right after maturity to apply their payments first upon the principal sum, and then upon the interest. If such payments were applied in that manner, the result would be that on the 20th day of February, 1890, prior to the commencement of this action, the defendants were indebted to the plaintiff in the sum of $875 only, as a balance of interest and principal due on said promissory note. Said sum was tendered to plaintiff on that date in full satisfaction of the balance due on said note, according to the construction of defendants. The plaintiff applied said payments first upon the interest accrued on said note to the date of payment, before crediting any portion of the payments to the principal sum; and, as a result of such application, the plaintiff claimed, and the trial court found, that defendants were indebted to the plaintiff in the sum of $1,256.52 at the time this action was commenced, April 25, 1890. In the absence of any conditions of the contract to the contrary, it is a well-established rule of law that, where partial payments are made on an interest-bearing obligation, the payment must be first applied to the liquidation of the interest accrued to the date of such payment, and the balance, if any, applied upon the principal. "The rule for casting interest," says Chancellor KENT, in State v. Jackson, 1 Johns. Ch. 13, "when partial payments have been made, is to apply the payment in the first place to the discharge of the interest then 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 the former principal until the period when the payments, taken together, exceed the interest due, and the surplus is to be applied towards discharging the principal, and interest is to be computed on the balance, as aforesaid." This rule is generally adopted by modern authority, and in some states of the Union has been confirmed by statute. See 3 Rand. Com. Paper, § 1497; Story v. Livingston, 13 Pet. 359; Backus v. Minor 3 Cal. 231; Estate of Den, 35 Cal. 692. There may be exceptions to this rule involved by special terms of the contract, or by the parties adopting a different method in their transactions. Stoughton v. Lynch, 2 Johns. Ch. 209; Backus v. Minor, supra. The general rule, as to the application of partial payments upon interest-bearing obligations, above set forth, apparently is not questioned by counsel for appellants, but he insists that the terms of the note in question indicate that, in case the same was not paid at maturity, the defendants had the right after maturity to apply their partial payments upon the principal first, and secondly upon the interest. To sustain this theory of construction, counsel refers to the fact that the note provides for "interest at the rate of one and one-half per cent. per month from date till maturity; and, if this note is not paid at maturity, we will pay the same rate of interest upon said principal sum until the same is fully paid and satisfied." The counsel for a...

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