Indiana Tel. Co. v. Indiana Bell Tel. Co., Inc., 2--475A115

• Citation: 171 Ind.App. 616,360 N.E.2d 610
• Decision Date: 07 March 1977
• Docket Number: No. 2--475A115,2--475A115
• Parties: INDIANA TELEPHONE CORPORATION, Appellant (Defendant below), v. INDIANA BELL TELEPHONE COMPANY, INC., Appellee (Plaintiff below).
• Court: Court of Appeals of Indiana

Page 610

360 N.E.2d 610

171 Ind.App. 616

INDIANA TELEPHONE CORPORATION, Appellant (Defendant below), v. INDIANA BELL TELEPHONE COMPANY, INC., Appellee (Plaintiff below).

No. 2--475A115.

Court of Appeals of Indiana, Second District.

March 7, 1977.

Claude M. Warren, Claude M. Warren, Jr., Warren, Snider, Koeller & Warren, Samuel A. Fuller, Stewart, Irwin, Gilliom, Fuller & Meyer, Indianapolis, for appellant.

Bruce N. Cracraft, Harold L. Folley, Indianapolis, for appellee.

OPINION ON PETITION FOR REHEARING

SULLIVAN, Judge.

Appellee, Indiana Bell Telephone Company (Bell), has filed its Petition for Rehearing for the sole purpose of allowing this Court to rectify what is alleged to be an erroneous statement of law. Bell does not seek further modification or correction of the judgment below, because following our decision of December 30, 1976, the parties made full settlement with respect to the matters in controversy. Notwithstanding the latter fact, we deem it necessary to reexamine those matters heretofore decided in Part III (C) of our December 30, 1976 opinion (Indiana Telephone Corp. v. Indiana Bell Telephone Co. (2d Dist.1976) Ind.App., 358 N.E.2d 218).

In that opinion we were concerned with the trial court's computation of damages 1) for payments which Indiana Telephone Corp. (ITC) never remitted to Bell (non-payments), and also 2) for payments which ITC wrongfully withheld from Bell for certain period of time (deferred payments).

As to non-payments we upheld the trial court's allowance of damages in the full amount left unpaid plus pre-judgment interest thereon (See Part III (A)). Pre-judgment interest is sanctioned not only by Indiana case law, but also by IC 24-4.6-1-103 (Burns Supp.1976), which states that interest shall be allowed 'from the date an itemized bill shall have been rendered and payment demanded on an account stated . . .'

As to deferred payments we upheld the trial court's allowance of damages for the deferral, measured in the simple interest such amounts would have drawn over the period of deferral. (See Part III (B)). We then disallowed pre- judgment interest on the damages for deferral inasmuch as no demand for the payment of principal, (that is, simple interest in the form of damages), had ever been made by Bell until it filed its complaint. Pre-judgment interest on a principal amount composed in part of simple interest was challenged by ITC as 'interest on interest', and we erred in our conclusion that it was not. We arrived at our decision by analogy to the prerequisites for the allowance of pre-judgment interest on other principal amounts outstanding at judgment. Marsteller v. Crapp (1878), 62 Ind. 359; Kuhn v. Powell (1916), 61 Ind.App. 131, 111 N.E. 639; IC 24-4.6-1-103 (Burns Supp.1976).

The existence or non-existence of a demand for the principal amount owning has no relevance to the proper resolution of this case at Part III (C), and we must now recant that portion of our holding. ¹

Bell's Petition for Rehearing prompted our search for a more satisfactory resolution of the issue and led us to the following commetary:

'In regard to compound interest, or interest on interest, there has existed much doubt and difference of opinion. It was rigorously prohibited by the Roman law: Nullo modo usurae usurarum a debitoribus exigantur. The English law followed in the same track. So in an early case in chancery, Lord Cowper held a clause in a mortgage, that if the interest was behind six months, then it should be accounted principal and compound interest, was 'void and of no use;' 'that to make interest principal, it is requisite that it be grown due, and then an agreement concerning it may make it principal.' It is not regarded as within the statutory prohibition of usury, but as leading to oppression and abuse. So Lord Eldon has said, 'There is nothing unfair or perhaps illegal in taking a covenant, originally, that if interest is not paid at the end of the year, it shall be converted into principal. But this court will not permit that, as tending to usury, though it is not usury."

'. . . (I)n subsequent case, the . . . learned judge laid down the rule that 'compound interest cannot be demanded and taken, except upon a special agreement made after the interest has become due' . . ..'

'So in ascertaining the amount due on a note made payable with interest annually, simple interest only is to be computed; and interest on the interest will not be allowed. But if a new note is given for the interest, it is thereby converted into capital, and it may be given with interest.'

'WHERE ALLOWED.--An exception has been, however, introduced by the usages of modern trade to the general rule which denies compound interest. As between merchants upon their mutual accounts, it is the custom to cast interest upon the several items, and to strike a balance at the end of the year of the items of principal and those of interest, and to carry the footing of the two to a new account, as forming the first item of principal for the ensuing year. In this manner, yearly rests, as they are called, have for a long time been made and acquiesced in by the mercantile world. But after the mutual trade and annual have ceased, the right to make annual rests ceases; and in the absence of any specific agreement, the creditor is allowed simple interest only...