Diven v. Diven

222 P. 106, 115 Kan. 119, 1924 Kan. LEXIS 206

• Court: Supreme Court of Kansas
• Decided: January 12, 1924
• Docket: No. 24,884
• Status: Published

Opinions

The opinion of the court was delivered by

Johnston, C. J.:

This action was brought to recover upon the following instrument:

“Promissory Note and Contract.

Franklin County, Pa.

April 12, 1874.

“At the expiration of my life I promise to pay for value received to Sarah J. Diven, my wife, or her heirs, from my estate or any part thereof $950.00 Nine Hundred Fifty Dollars, at 6% interest from date, payable annually, and if interest be not paid to become as principal and bear the same rate of interest annually. Signed Andrew Diven to Wife

Sarah J. Diven.”

On the same paper and immediately following the signatures was the following statement:

“Please notice that this is for money received from her grandfather, John Stazman estate, left to her as his granddaughter from his estate in which Andrew J. Diven was appointed by the court to act as administrator for the estate in which the amount has never been paid to her.

Signed Andrew Diven.”

The payee, the wife of the maker, died, and Andrew Diven, the maker, died in 1922. There is no controversy in the case as to the principal of the note, but the parties are divided as to the amount of interest that is recoverable. The plaintiffs contend that the interest not being paid annually became principal, that the interest payments due annually were not barred by the statute of limitations, and that plaintiffs were entitled to the sum named in the note with interest thereon for the intervening forty-eight years amounting to $15,500.

The defendants insist that the interest on the note became due and was payable at the end of each year, that the statute of limitations ran on each year’s interest as it accrued, and that all the interest was barred except that which accrued the last five years preceding the death of the maker. The trial court held that the statute of limitations barred all the interest on the note except that which fell due and was not paid during the last five years of the maker’s life. Judgment was given against the estate of Andrew Diven for $1,309.10.

In their appeal plaintiffs urge that the terms, of the note do not provide that the interest shall become due annually. That it was optional with the payor to pay the interest at the end of each year or treat it as a part of the principal, that the failure to pay interest annually did not mature the indebtedness, either principal or interest, as the only time of payment mentioned in the instrument was the expiration of the maker’s life. By the terms of the note the time of payment thereof was the end of the maker’s life. It is the only time at which payment could be enforced and it contained no stipulation by which payment might be accelerated. While the note recites that interest is payable annually, payment at the end of a year is not enforceable since the stipulation is coupled with another giving the maker an option to consider the interest due and not paid as principal. It is competent for parties to contract that accrued interest may become as principal and that a legal rate of interest shall be charged on the augmented principal. The consideration for the compound interest is the forbearance to enforce the collection of the simple interest when it is due and thereafter it may be treated as principal and the agreed rate of interest allowed thereon. When the interest is merged into the principal the statute of limitations does not run against it until the principal becomes due and payable. It is conceded that interest on interest may be agreed upon and collected where it does not exceed the maximum rate allowed by law, but plaintiff insists that interest was payable annually and that the interest for each year was a separate obligation which became barred at the end of five years. The holding of the court is that when the amounts of interest became due and were not fully paid, they were merged into the original principal and the statute did not run thereon until the note matured. It follows that the judgment must be reversed with the direction to award judgment for plaintiffs on the augmented principal in consonance with this rule.