Palm v. Fancher , 93 Miss. 785 ( 1908 )

Mayes, J.,

delivered the opinion of the court.

The chancellor has settled all questions in this case save one of law. On the 12th day of February, 1903, the appellants .gave a mortgage on property therein described to secure the appellees in the sum of $356.42 then owing. The note is as follows:

“$356.42. McOool, Miss., Feb. 12, 1903. On November 1, 1903, after date, we or either of us promise to pay to the order of Seward & Fancher three hundred and fifty-six and 42-100 dollars, for value received, negotiable and payable, without defalcation or discount, and with interest from maturity at the rate of ten per cent per annum, and if interest be not paid annually to become as principal, and bear the same rate of interest. It suit be instituted on this note, it is agreed that judgment shall include a reasonable amount as fee for the plaintiff’s’ attorneys.”

It is claimed that this note is usurious, because there is in it an agreement to compound the interest, if it be not paid annually as provided for in the note; and the case of Perkins v. Coleman, 51 Miss. 298, is relied on as authority on this point. We think that the case above referred to is, on its face, a different case from the one here prsented. By the contract in Perkins v. Coleman, it was provided that the principal debt was to run for twenty-six months, bearing interest at ten per cent annually, interest to be compounded and to become principal. No annual rest period was allowed for the payment of the interest, but the contract itself forbade the payment of interest under twenty-six months, and required its compounding, thus making it imperative that the borrower pay a greater rate of interest than a straight ten per cent on the principal amount borrowed, and the court held this contract to be usurious, because by its very terms it compelled the borrower to pay more than ten per cent interest on the amount borrowed by'him. Under the facts of this case there is no stipulation compelling the borrower to pay compound interest, except in the event of his failure to pay the annual interest at maturity. If the borrower, under the agreement in this case, fulfill his contract, it is impossible for the lender to collect more than the legal contractual rate of interest. The note provides for, annual payment of interest, in-default of which the interest then becomes principal and bears interest; but the note here does not, as did the contract in case of Perkins v. Coleman, forbid annual payment of interest and require same to be compounded. There is a wilderness of authority on this subject. Decisions may be found taking almost any view of the,question.

We do not think this contract is in any sense usurious. It would never be doubted but that the parties might, under a separate agreement, after the interest became due and default therein, have executed a second note for the interest and made this second note for the arrearage in interest become interest-bearing principal. It would not be seriously contended that such an agreement would constitute usury, though interest was thereby compounded. Conceding this, we fail to see why parties may not provide in the same instrument for the compounding of interest, when the stipulations of the contract are not such as require a compounding of the interest as a part of the contract, not leaving any option or right in the borrower to avoid' paying compound interest. Such a contract is amere matter of convenience to the parties-, and places nothing in the contract they could not lawfully do as an independent transaction.

We concur in the view expressed in section 129 of Webb on Usury, which says: “It is difficult to understand how such an agreement, made after the loan contract, is generally accepted as valid; but, if made contemporaneously with the loan contract, it is in many cases held to be usurious.”

Affirmed*