
    INTEREST AND USURY.
    [Columbiana (7th) Circuit Court,
    April Term, 1907.]
    Burrows, Laubie and Cook, JJ.
    Solomon J. Firestone v. John A. Dellenbaugh et al.
    Annual Interest at ’8 Per Cent to be Paid Semiannually is not Usurious.
    A promissory note which provides “that it shall be payable one year alter date with 8 per cent interest, to be paid annually, interest and principal after maturity to bear 8 per cent annual interest, to be paid semiannually,’5 is not usurious.
    [For other cases in point, see 5 Cyc. Dig., “Interest and Usury,” §§ 337-341. — Ed.]
    [Syllabus approved by the court.]
    Error to Columbiana common pleas court.
    Potts & Wells, for plaintiff in error:
    By tbe common law, parties may contract for any rate of interest. Biddle v. Canty, 2 Dec. Be. 586 (4 W. L. M. 124) ; Watkinson v. Boot, 4 Olio 373; Beddish v. Watson, 6 Ohio 510.
    Construction of usury statute in this state. Iron By. v. Furnace' Do. 49 Ohio St. 102 [30 N. E. Bep. 616]; Bice v. Eassenpfhig, 45 Ohio St. 377 [13 N. E. Bep. 655]; McClelland v. Sorter, 39 Ohio St. 12.
    The tendency of courts in modern times is to extend the right to recover interest. Watkinson v. Boot, 4 Ohio 373; Wilson v. Troy, 135 N. Y. 96 [32 N. E. Bep. 44; 18 L. E. A. 449; 31 Am. St. Bep. 817].
    An agreement to pay interest upon interest, after the interest has accrued is not usurious. ’Foies y. Cantfield, 3 Ohio 17.
    
      The. following authorities' 'Were. also cited and commented' upon.. ’Áhdefsóii'’s íiaw Diet; 563"" l074(; 3'Pahsons, ‘Contracts 150-153 ;• Guernsey' vl'^Éexfofd, ’63 ,'Ñ.’ Ya631X''Graig' A.']MóCblldcJil'‘20‘W,í :Ya'.J 148; ''Ét'ewárt'v. PétrVe, éé'N. 'Y; .621 [14 Am.' Rep."35áj 'f^ÁnUeteí^: Con'verse, 17 Obio' ‘St.L ÍÍ";}’91 Ám* DécV:,lT5]-Marietta Ir ón^W dries-Lotti-Ohio St. 621; Dunlap v. Wiseman, 13 Dec. Re. 244 (2 Disn.. 398)";-Ctfamér \l:''Lep¥>er;'2$''Qláib 'Sf. 59"'[120':Aa.'-Rep.f756] fCvok vi. ICourtUghty'AO-'- DMo'-fít-, 248 >‘f48;'Am."sRép.1 681}"; '-'Fobes -v-. ■ Cunífield-,. *3'Ohio 1 iGtfhylóVW. meÉtúnttyáWOIáb ,Stl .34SJ’[20 <Nt Efí&ep.í 345].
    l-' ■ 4?' i i . J. R, Carey,and O. T. Farrel, for defendants in error:
    . ' Dúé'aiiS unpaid','interést''upon‘principal inay draw ihtérbsf; _ In¡-'tefesf‘upon]1 interest ‘shall nót draw' interest.,' Xnleet'el v.Converse, 17 íO'ÍY'ó.^0,ñ''t^l_:^mí‘Déb‘.:il&Í; 16 Am. '& Eng. E'riB."'Law‘(2 ed!)1.078- & Éng. Ene. LaV‘(2'‘ed4. 492; Drury V. Wolfe, 1341'].1.'!£94 ’[2b N. E. Rep. 626] ; Burns v. Anderson, 68 ’Ind. 181; Brown v. Crow, 29 S. W. Eep. 653 (Tex.- Civ> App.)T ' ' ■ ■ ■ ¡ ;
    , The question is not what the general assembly intended to enact but what 'is 'the meaning of' that "which it did etíaet.' -'Siingluff v. ■yVe'aveA,'<S§ Ohio St. 621 [64 N. E. Rep. 574], ■ : "'
    The natural ineáriing' if 'evident and in clear'tériñá, needs nb interpretation. Conjectures to restrict or extend are..but attempts to evade. Lawler v. Burt, 7'Ohio'St.' 340.' ' ' '
   COOK, J.

The action,below was.forthe fo.reclpsur.e'of a.chattel mortgage given ■¡by.Jjohn A>. Dellenbaugh-and Sarah A.'.Dellenbaugh,--his ¡^yifpy to-Fire-i; stone .Brothers,; of; yhoni; S.oloinpn J, Firestone/is the^upcessoiy tp^seenre .¡the payment of; several-promissqry notes^-all Qf the^arne character — of ;which¡the;foJlqwing ista.-copy oft®ne of-the/nutes-ii.-* ,i ,v ^

‘^Ñew Lisbon, t)hio,'February "Í,' 1888'.

“On op before-year, after .date .we. or..either of us promise tp ..pay Firestone.Brothers .or. .order..at,,,the.banking house of Firestone , Brothers, New. J/isljon,. Ohiq, ,the fum of $5.00 .with,8. per cent, interest to be paid annually,^. Interest and principal aiftempiaturity to..beaiy8 per centcannual interest to be paid'Semiannually.”,1,,, .• . ,- , . .

éfetw'eéii"Í888',"án'd 'the' tirite, of bringing1 ále"'súit '‘sofne plincipdl and a iarge aiii'ouiit of interest'hád been 'páid upoh the notes. The manner of'computing the interest aítéh nfktürítf1 by consent of both parties to compute interest upon the prmeipár at '8 per cent, payable semi-was "annually; anddhe interest up ón thó'-in4éf,ést’bvierduéJupfei lire" noté ■ uir-paid at 8 per cent payable semiannually, and upon the interest upon interest which was unpaid at 6 per cent, simple interest, up to the time of computation and settlement. " - (

The question made by the defendants before the referee in ascertaining the amount due upon the ipptes, was, that the notes were usurious and that only simple interest at 6 per cent was all that could be collected upomthe notes/' --The ¡referee held, against? the 'contention of the defendant, that the notes were not usurious; that the manner that the parties had computed the interest' niád'é in their various settlements, was correct and found for the plaintiff in the sum of about $12,000.

Upon'"his .report’s being made' exceptions were taken and the court confirmed the report in every respect except upon the finding that the notes were not usurious, and" held that they were; and rendered a judgment and decree for about $6,000 instead of $12,000. The question made upon error is, Who was right, the referee'or the court?

Revised Statute 3179 (Lan. 5095)., which was in force when the contract was made provides:

“The parties to a bond, bill, promissory note, or other instrument of writing for the forbearance or payment of money at- any future time, may stipulate therein for the payment of interest upon the amount thereof at ¿ny rate not exceeding 8 per cent per annum, payable annually. ”

While it would "seem from the text of the statute that the intent of the legislature was, that money should .in-no case earn. morg. than 8 per cent per year, yet it is now well settled that such is not the fact, and that although the statute provides that interest may be reserved at 8-per cent “per. apnum, payable.:annually,”, the words “payable annually” have no effect in qualifying, the language of the statute whatever, and that it should be ‘re,ad the same as if the words were eliminated. Cook v. Courtright, 40 Ohio St. 248 [48 Am. Rep. 681].

In that case it was íield that under the act of May 4, 1869 (66 O. L. 91; Rev. Stat. 3179; Lan. 5095):

“A promissory note stipulating for the payment of the principal at a future time,‘with interest therein at 8 per centum per''annum, payable semiannually until'"paid’ is no,t usurious.” '

In the opinion, on page 251,' it is said:

. “Tippler a'contract to,' pay ,8'pef .ceptum per'anpunp,páyable semiannually,' upon a given principal, ¡ the interest to be paid, upon that principal, is precisely the same as under a contract to pay *8'per centum per annum payable annually, ’ -upon" the 'same principal! If the installment'of interest falling due at the end of six months should not- be paid, and the law would permit interest to run upon it at 6 per cent until paid, no part of that 6 per cent interest would be interest upon the principal named in the note. And such interest upon interest, if collectible, would not form any part of the interest ‘stipulated for.’ If collectible at all it would be because of the other sections of the same statute.
“The third section applies to ‘all cases other than those provided for in the first and second sections of this act. ’ The first section we have ■quoted in full. The second applies to judgments, decrees and orders Tendered upon any contract made under the first section.' As the first section relates only to contracts for interest upon the principal, a suit for interest upon overdue interest may be considered a case ‘other than’ those provided for by said section, and is therefore collectible under said third section. And, if separately suéd for, the judgment obtained would draw interest under the fourth section.”

In the case of Taylor v. Hiestand, 46 Ohio St. 345 [20 N. E. Rep. 345], it is held:

“A promissory note bearing interest at the rate of 8 per cent per .'annum, payable semiannually, is not usurious, although it stipulates that the semiannual installments of interest shall bear interest at the same rate if not paid when due.”

And in the opinion, in referring Cook v. Courtright, supra, it is said, page 347:

“This statute was under consideration in Cook v. Courtright, 40 Ohio St. 248 [48 Am. Rep. 681], and the court there held, first, that a promissory note is not usurious though it contain a stipulation for the semiannual payment of interest at the rate of 8 per cent per annum; and second,' that the semiannual installments of interest will bear interest at the rate of 6 per cent per annum from the day they fall due, but form no part of the interest stipulated for ‘upon the amount of the note. ’ This decision has become a rule of property, and we see no sufficient reason to disturb it now; and it furnishes a rule by which the rights of parties to this action can be ascertained. It establishes the doctrine that the payee of a promissory note may receive at the end of the year, as interest, a sum of money equal to 8 per centum on the face of the note, with 6 per centum for sis months on the first installment of interest added thereto. Therefore, the fact that it is apparent on the face of a promissory note that it will earn in any one year, as interest, a sum of money greater than 8 per cent on the principal sum, will not necessarily render it usurious. The court says in that connection, Cook v. Courtright, supra, ‘No part of that 6 per cent interest would be interest upon tbe principal named in the note. ’ This is equally true of the note here, and the only difference in this respect is, that in that case the unpaid installment bears interest at 6 per cent and in this case at 8 per cent. In either case the promissory note on its face earns more than 8 per cent per annum on the principal.
“It is said, however, that in the case here, there is an expressed stipulation for interest on the several installments of interest as they respectively fell due, whilst in the case of Cook v. Courtright, supra, there was none, but that the installment bore interest by operation of law; and this distinction seems to have been in the mind of the judge who wrote the opinion in that case; but it does not appear to be the principle on which the case turned. The judge there must have referred to an express stipulation, for surely the interest on the installment in that case was the result of the stipulation for the semiannual payment of interest. v If there had been no such stipulation, there could have been no interest on interest. And it cannot be important whether the interest on the installments resulted from an express stipulation for its payment, or necessarily, by operation of law, from another stipulation; in either case the result was,apparent on the face of tbe paper.”

It is said that the note in this case differs in an essential particular from the notes that were before the Supreme Court in the cases referred to, in that it provides “interest and principal after maturity to bear 8 per cent annual interest to be paid semiannually”; that this provision makes it a compound interest-bearing note. We do not think so. There is no distinct provision in the note for rests at stated periods at which time the interest should be added to the principal and to bear interest in the same manner as the principal sum; and if a compound interest-bearing note at 8 per cent in this state is usurious, about which there might be some doubt, this is not such a note and we can see no substantial difference between this note and ones referred to. Especially the note in the case of Taylor v. Hiestand, supra.

In the case of Cook v. Courtright, supra, it was said that if interest could be collectible at all on the semiannual payments of interest, only 6 per cent could be collected and that by operation of law, under Sec. 3 of the statute which is now Rev. Stat. 3181 (Lan. 5097), but that was doubted in the case of Taylor v. Hiestand, supra, and it was held that a note of 8 per cent per annum payable semiannually is not usurious, although it stipulates that the semiannual installments shall bear interest at 8 per cent if not paid when due.

What material difference is there under these decisions between interest bearing interest at 8 per cent payable annually and payable semiannually? In either ease the interest upon the interest could only bear simple interest at‘6, per cent, which was charged and paid in this case. Anketel v. Converse, 17 Ohio St. 11 [91 Am. Dec. 115].

Indeed, what difference is there between the note specifying that the note shall bear interest at 8. per cent payable sémíánnuálly and that the interest sháíLbear interest at, 8 per cent payable semiannually? In eifher case’ more than 8 per cent per annum payable annually' is charged for the use of the money. ^.' '. . i .

In 16 Am. & Eng. Enc. Law (2 ed.) 1085,, in summing up the, authorities upon this question, it is said:

“But it is believed to, be. a safe statement, as a loose general rule, that interest on interest at a rate not greater than the statute permits should mover be held .usurious where payment of the interest installments. was actually contemplated on the dates fixed, although the aggregate of interest op. interest would, if contracted for on the original principal, exceed the rate allowed by law.” , • . .

"We-are of opinion that the referee was right and that the court ■erred in sustaining the exception -to his, report. Judgment of court of common pleas will be reversed and, this court rendering the judgment the common pleas should have rendered, the report of the. referee is confirmed.

BURROWS, J.,

concurring.

I desire briefly to give the reasons that have induced me to decide in favor of a reversal of the judgment of the court below. I have been brought to the conclusion that the notes in-suit are not-usurious against my preconceived notions and prejudices. I 'had the impression that a contract wherein- interest in excess of 8 per cent per annum is stipulated for was usurious; especially where such excess was the result of allowing interest upon interest to bear interest. These notes, according to their express terms, contain the stipulation that after maturity interest upon principal and interest shall bear interest at 8 per cent to be paid semiannually.

If these notes do not provide for the compounding of- interest semiannually after maturity it is difficult to conceive what language could be used to accomplish that purpose.

Counsel for plaintiff in error contend that they do not so provide; and contend further, that a contract to pay more than 8 per cent per annum for a loan of money, and for the payment semiannually at the same rate of interest upon accrued interest overdue is not usurious in this state; and in support of their contention they cite Cook v. Court right, 40 Ohio St. 248 [48 Am. Rep. 681], and Taylor v. Hiestand, 46 Ohio St. 345 [20 N. E. Rep. 345].

Revised Statute 3179 (Lan. 5095) provides:

“The parties to a bond, bill, promissory note, or other instrument in writing 'for the'fdrÜeáfahce or payment of money at.any future time, may stipulate therejin for the payment of interest upon .the amount thereof at any rate not'.exceeding 8 per centum per annum, payable, an-. nually.”’ ' ' ' , .

In Cook v. Courtright, supra, it is held by the Supreme Court commission that it is not usurious to stipulate in a promissory note, due one year after date, for. the payment of'interest semiannually at the rate of 8 per cent per annum, whereby the holder of the note would He entitled at its maturity to 8 per cent interest on the sum'loaned for twelve months and also 6 per "cent interest for six months on the semiannual installment of interést..

It is .plaip., that the holder pf an 8 per cent promissory note given '“for the. forbearance or payment of money-at, any future time” will receive.more than 8 per cent per annum for the use of his money if .any part of said interest is paid or to be paid prior to the expiration of said "future time,” except, of course, where the interest is made payable annually.’ .. . ' '

It is idle to attempt to .criticize the validity of the reasoning .upon which Cook v. Courtright, supra, is grounded, - as that decision seven years later was’approvéd by, the Supreme Court on the ground that.“It had become a. rule of property.” ..

In the case of Tayolr v. Hiestand, supra, the question, of the validity •of a stipulation to pay* intpresf ,at 8 per cent, semiannually, on a note payable three years after date, with interest at the same rate on install-ménts of interest overdue, was,'fully considered, and, a precise and comprehensive rulé éstablishéd) for, such eases. .

It is theretheld.th,at whaievey. stipulations may legally be. put into a new contract between^ the .parties maple after -any, installment of .interest has been paid .in respect thereof ..may .be made-in • advance and in the original.promissory.note..,,

This rule and the reasopg.. fyr jt .^e giyen at page 348:

.“Take ’another!view.„of the, subject: If. the first. installment, jmd be|n paid, it is ylear thaf h new.,Io,qp; could have been made between the parties qf the money at the rate of 8 per cent per annum.,. If 'it was not paid,( a right of action to recover it would at once accrue to the payee-/'aiid we1 thiiik'it clear the parties would be clothed" with full power, under the statute, to stipulate for its payment at a future day with interest at 8 per cent per annum. If this can be done after default in the payment of an installment, no reason is apparent why the parties in the first instance might not anticipate and provide in advance for the contingency of a default. This we think may be done, and is what the parties to the note, in fact, did in the case before us.”

Under this rule no good reason can be given why parties may not stipulate in a promissory note payable at a future time that interest upon interest may be made to bear interest indefinitely with such periodic rests as may be agreed upon, for surely they could so stipulate in a new contract as to such interest, in case the same had been paid. If we understand this rule correctly, the ease we have in hand is easy of solution.

The claims that more than 8 per cent interest per annum was agreed to be paid, and that interest upon interest is to bear interest to be computed with semiannual rests, become immaterial incidents, so long as only an 8 per cent interest rate is applied and reapplied to the interest •upon interest as it periodically falls due.

It is of no importance that we think this rule of decision indefensible and that it virtually ignores the evident intent of Rev. Stat. 3179 (Lan. 5095), which in terms permits an 8 per cent rate of interest per annum to be received and no more on the sum loaned from the date of the loan till the time the loan is paid. Nor is it important that we think that a provision for compounding the interest on a loan was not contemplated by the legislature in passing this or any other statute relating to interest; but we must adopt and apply the interpretation placed upon the statute by the Supreme Court; and this interpretation, as we understand it, leads the majority of the court to hold that the notes in suit are not usurious.

Laubie, J., dissents.  