Barclay v. Kennedy

2 F. Cas. 777, 3 Wash. C. C. 350

• Court: United States Circuit Court
• Decided: April 15, 1818
• Status: Published

Opinion

WASHINGTON, Circuit Justice,

charged the jury. In the case of Smith y. Shaw, [Case No. 13,107,] this court decided, that the proper mode of charging interest, was to deduct the payments from the interest, and if any surplus remained, to apply it to diminish so much of the principal. This decision was grounded upon two well established principles of law; 1st. That interest is incapable of producing interest, inasmuch as it forms no part of the debt; and is a mere compensation for the detention of the debt, or principal sum, and is recoverable as damages, the rate of which is ascertained by the laws against usury; 2d. That where the creditor has different demands against his debt- or, and a partial payment is made, if the latter does not make the application to the one or the other, the former may make it; and, as the interest does not, and cannot, upon general principles, carry interest, he will of course, and may, lawfully, apply the payment to the discharge of the interest.

But although interest cannot, as such, bear interest, there can be no doubt but that the creditor ánd debtor may agree to give it that capacity, either at the time the contract is made, or after it has become due. Whenever the creditor has a right to demand it, he may waive that right, and lend it to the debtor, as so much money due; and thus change its nature, by contract, into debt. In running accounts, the parties may agree, at stated periods, to settle their accounts, strike the balance, and convert the interest into principal. The general principle of law before mentioned, does not forbid such an agreement, nor is it opposed to the provisions of the statute of usury. In such a case, the credit expire0, and the principal debt becomes due at the time the account is settled; and the creditor, or the party in whose favour the balance is, has a right to stipulate for a prolongation of the credit, upon the condition of making the interest principal, instead of insisting upon a payment of the whole. If such an arrangement may legally be made by an express agreement, it may be done by an implied one; and accounts, regularly stated and balanced, and the interest added to the balance, received by the debtor, and acquiesced in without objection, may fairly be considered by the jury, as evidence of such agreement. In like manner, a well established usage of trade, sanctioning such a mode of stating the account, may have the effect of an agreement. But, in such a case, the usage should be fully proved, and should appear to be sufficiently ancient and uniform, to leave no doubt of its being known by all persons concerned in that particular trade. Nevertheless, if this question rested upon the testimony of the single witness, who was examined in the cause,, respectable as he is, we should not think it sufficient to establish such a usage; and we are, therefore, of opinion, that the only ground for admitting this contested charge, is the implied' agreement between the parties: should the jury be satisfied that the accounts, adding the interest to the balance of principal and interest, were regularly transmitted to the defendants, and were acquiesced in by them.