Boston Investment Co. v. Board of Education ( 1913 )

PO'EEEY, J.

This is a 'proceeding in mandamus. The only question at is-s-ue is the method of computing interest and applying payments. It appeal® from the (record in the case, that, on the 18th day of July, 1899, a judgment, in the sum o[ $4,511.67, of which plaintiffs are now the owners, was entered against the Board of Education of Hot Springs. Thereafter, between the 3d day of February, 190-2, and the ist day of July, jgw, -both dates inclusive, the .defendants made- ten partial payments -on the judgment, aggregating $4,511.67, the exact amount of the original judgment, and all of which payments -defendants insisted -should' be applied on the principal of the judgment. When the different payments -were made, plaintiffs! followed the usual method of applying -them -on the judgment ■ — known- as the Chancellor Kent ruil-e. They computed the interest on tire principal at 7 per -cent, per annum to' the date -of .payment. This interest was deducted from 'the payment, and the balance of -the amount of payment was applied on the principal. The amount left after making this- deduction was treated as •the new principal, upon which interest was computed- -until the next payment was- made,, -which was applied in a similar manner. By this method of computing interest there was left -due on the 'judgment, after the last payment, the sum of $3,247.30. It is the contention of the -defendants that this- is not the proper method- of applying- partial payments on a judgment, that interest -should be computed upon the full amount -of -the judgment from the date of -its entry until the 16th day of August, 1912, when this- action was commenced, and that against the judgment- and such interest should be credited the amount of eac-h partial payment, with interest thereon, at 7 per cent, per annum, from the date of its payment until the time of final settlement. If this, latter method were followed, the amount due on the judgment, at the time of the commencement of tills action, would be some $1,400 less than the amount claimed to be due by plaintiffs. Moreover, defendants claimed that, having paid the full amount of the original judgment, the balance due was all interest, and, being interest, 'of course no interest could be computed thereon without violating the law prohibiting the compounding of interest. Tn other words, defendants, claimed to have cancelled' their interest bearing obligation and substituted in lieu thereof a non-interest bearing obligation, and this, too, without the consent of the plaintiffs, and without regard to the length of time -it was to run before it was paid. It is apparent that, if this method of computing interest and applying partial payments were adopted, it is only a question of time until the interest on defendants’ partial payments would wipe out, or exceed, the entire balance clue on the judgment. The court sustained defendants' contention, and from the judgment and order overruling plaintiffs’ motion- for -a new trial, plaintiffs appeal.

[1, 2] Defendants’ contention is based upon the peculiar wording of sections 14-17 and 1420 of the Civil Code. Section T417 permits- the parties to contract for any rate of interest, not exceeding 12 per cent, per' annum, and arbitrarily fixes the rate in all cases where it has not been fixed by the contract at 7 per cent, per annum, except on judgments; and section 1420 fixes the rate of interest on all judgments at 7 per cent, per annum, and prohibits the compounding of the interest thereon, in any manner or form. The language of these two sections does not indicate an intent on the part of the lawmakers that the manner of computing interest -and applying partial payments on judgments should be other or different from the method applied to other money obligations. The method adopted by the plaintiffs is the one that is followed by almost universal consent, and is the correct rule. It was -approved by this court in Northwestern Mortgage Trust Co. v. Ellis, 20 S. D. 543, 108 N. W. 22; Dickson v. Stewart, 71 Neb. 424, 98 N. W. 1085, 115 Am. St. Rep. 596; Connecticut v. Jackson, 1 Johns. Ch. (N. Y.) 13, 7 Am. Dec. 471. The clause relating to judgments in the second subdivision of section 1417, Civ. Code, is intended to. except judgments' from the class of obligations upon which parties may fix the rate of interest by contract, and' has no reference to the manner of computing interest or of applying' partial payments’ on judgments..

From this it follows that the judgment and order appealed from must be reversed.