Frye v. Shepherd

• Decision Date: 28 July 1913
• Parties: ALBERT F. FRYE, Respondent, v. EDWARD LEE SHEPHERD, Appellant
• Court: Missouri Court of Appeals

158 S.W. 717

173 Mo.App. 200

ALBERT F. FRYE, Respondent, v. EDWARD LEE SHEPHERD, Appellant

Court of Appeals of Missouri, Springfield

July 28, 1913

Appeal from Jasper County Circuit Court, Division No. One.--Hon Joseph D. Perkins, Judge.

Judgment affirmed.

A. C Burnett for appellant.

(1) If by agreement interest on a note is to be paid annually this constitutes a debt if the parties make it so by their contract. And where a note provides for compounding interest if not paid when due it is optional with the holder of the note to compound interest or foreclose. And he may foreclose if he desires. Maples v. Jones, 62 Mo. 440; Rowe v. Schertz, 74 Mo.App. 602. (2) Where a mortgage provides for a foreclosure if note be not paid according to the tenor and effect, it means any part and default of interest will warrant fore-closure. Scherbe v Kennedy, 64 Wis. 564. (3) Where a note reads "with annual interest" if the interest is not paid annually it becomes a debt and it must be sued for on the mortgage securing the note foreclosed by reason thereof. Cook v. Wiles, 4 N.W. 169. (4) Where parties to a contract have given its terms particular construction, such construction will generally be adopted by the court in giving effect to its provisions. Welch v. Mischke, 154 Mo.App. 728. (5) Where language of a written contract is ambiguous the mutual construction given it by the parties is admissible to show their meaning. The object of interpretation of instruments should be to reach the actual intention of the parties. Ellis v. Harrison, 104 Mo. 270; Carter v. Foster, 145 Mo. 383; Union Depot Co. v. Railroad, 131 Mo. 305. (6) Where contracts are of doubtful meaning the construction given by the parties will be adopted by the courts. Laing v. Holmes, 93 Mo.App. 231; Craig v. Seybt, 91 Mo.App. 242; Mathews v. Danahy, 26 Mo.App. 660.

John Dolan for respondent.

(1) Where a note, by its terms, is made payable in a given number of years with interest from date at the rate of eight per cent per annum, the interest is payable, not annually, but at maturity of the note. Koehring v. Muemminghoff, 61 Mo. 403; Ramsdell v. Hulett, 50 Kan. 440, 31 P. 1092; Motsinger v. Miller, 59 Kan. 573, 53 P. 869; Tanner v. Dundee Land Co., 12 F. 646. (2) The use of the words, per annum, in fixing the rate of interest in a promissory note, and the provision therein that if interest be not paid annually, to become as principal and bear the same rate of interest, cannot be regarded as a promise to pay interest annually. Motsinger v. Miller, supra; Koehring v. Muemminghoff, supra. (3) Even if appellant was correct in construing such words as a special promise to pay interest annually, his action would be premature, because, where interest is payable annually with an option to the maker to make it a part of the principal in case of default, no action can be brought for it until the principal becomes due. Wood v. Whisler, 67 Iowa 676, 25 N.W. 847. (4) The words used with reference to the payment of interest were plain and capable of legal construction, and parol evidence to contradict that construction would be improper. If the contract is not ambiguous, the parties must be governed by the contract. Koehring v. Muemminghoff, supra; Ramsdell v. Hulett, supra.

OPINION

FARRINGTON, J.

This was a suit to enjoin a mortgagee from advertising and selling certain real estate mentioned in a mortgage which had been given by plaintiff to secure his promissory note, which is as follows:

"Joplin, Mo., May 31, 1911.

"Five years after date I promise to pay to the order of Edward Lee Shepherd forty-five hundred no-100 dollars. For value received negotiable and payable without defalcation or discount and with interest from date at the rate of eight per cent per annum, and if the interest be not paid annually to become as principal and bear the same rate of interest. The right is given to pay any part or all of said note at any time.

"Albert F. Frye."

The plaintiff's petition alleged the facts concerning the note and mortgage, and stated that the mortgage contains this provision: "Now, if the said Albert F. Frye, his executor or administrator, shall pay the sum of money specified in said note and all the interest that may be due thereon, according to the tenor and effect of said note, then this conveyance shall be void. But if said note shall not be well and truly paid according to the tenor and effect thereof, then this deed shall remain in force; and the said Edward Lee Shepherd or his legal representatives may proceed to sell the property herein described," etc.

It is alleged in the petition that the note is not yet due and payable according to its tenor and effect, but that defendant has caused said property to be advertised for sale on a certain date for the purpose of paying said note. The usual allegations of irreparable damage to invoke equitable jurisdiction are followed by a prayer for injunctive relief, restraining the defendant from selling said property under the mortgage until maturity of the note and default in its payment.

After a hearing, and upon the issuance of a permanent injunction, the defendant appealed. The question for our determination is whether a failure to pay interest annually on the note is a breach authorizing foreclosure of the mortgage. Appellant contends that it is, and respondent by a vigorous negative supported by the decision of the learned trial judge, makes the issue. The evidence shows that about thirty days before the expiration of the first year of the note's existence, the payee notified respondent that he expected the interest to be promptly paid; that it was not so paid, respondent saying he applied for an extension of time and was given ten days, at the end of which time he says he went to defendant's office and asked to see the note, and upon seeing it told the defendant that it was a compound interest note, that it was optional with him whether he would pay the interest until the maturity of the note, and that defendant had no right to sell the property under the note and mortgage. Appellant advertised the property for sale and respondent brought this suit.

The note is unambiguous, and means just what its language imports in plain English. A similar case arose in the State of Kansas in which the note followed substantially the same form as the one in our case (Motsinger v. Miller, 53 P. 869). The Supreme Court of that State said: "As will be observed, the note contains no express provision for the annual payment of interest. The promise is to pay the principal and interest two years after date, and the words, 'and interest from date at the rate of six per cent per annum,' cannot be construed to mean that the interest should be paid yearly, but are only a measure for the calculation of interest on the note. In the absence of a specific promise to pay the interest at a different time from that fixed for the payment of the principal, the principal and interest both become due at the same time. [Ramsdell v. Hulett, 50 Kan. 440, 31 P. 1092.] The provision in the note that, 'if interest be not paid annually, to become as principal, and bear the same rate of interest,' is not a promise to pay annually. While it apparently gives the promisor an option to pay the interest annually, yet, if he does not pay, he is not deemed to be in default. The only consequence of the maker failing to take advantage of the privilege is that the interest should become principal, and bear the same rate of interest. It did not give the payee any right or authority to enforce the collection of interest, or treat the entire indebtedness as represented by all the notes to be due and payable."

In Koehring v. Muemminghoff, 61 Mo. 403, the Supreme Court of this State said:

"The language of the note, so far as it is material to its proper construction as it affects this case is: 'Five years after date, I promise to pay to the order of J. H. Koehring, thirty-three hundred dollars. . . . with interest from date at the rate of eight per cent per annum.'

"It is contended by the plaintiff that the language used is properly construed to be a promise by the defendant to pay the interest, on the sum secured by the note, annually, or if this is not the proper construction of the language of the note, then oral evidence was admissible to show that that was the understanding of the parties at the time, by the use of said language.

"We do not agree with the plaintiff in either view of the question as taken by him. Whether the interest accruing on a promissory note should be paid annually, monthly, or at any other specified period, depends in each case upon the contract or agreement of the parties. There is no rule of law independent of any contract to that effect, requiring interest on promissory notes to be paid annually. [Bander v. Bander, 7 Barb. 560, and cases cited.] In the note under consideration, the promise in the note was to pay the sum of money named, 'with interest from date at the rate of eight per cent per annum,' five years after the date of the note. No different time is fixed for the payment of the principal secured to become due by the note. In such a case both principal and interest become due at the same time; in fact the promise plainly is to pay the principal, with the interest, five years after the date of the note. The words 'with interest at the rate of eight per cent per annum,' only fix the rate of interest to be calculated on the note, and have nothing to do with the time that it shall be paid."

In Wood v. Whisler, 67 Iowa 676, 25 N.W. 847, it was held that where the notes secured by a mortgage provide that "if interest is not promptly paid annually, the same becomes a part of the principal and shall bear interest at...