Townsend v. Riley

46 N.H. 300

• Court: Supreme Court of New Hampshire
• Decided: December 15, 1865
• Status: Published

Opinion

Bellows, J.

The first question is, whether Alexander S. Riley was a competent witness, the adverse party being an administrator, and not having elected to testify; and this depends upon the inquiry Avhether he is to be regarded as a party or not, within the meaning of our statute.

On this point it appears, that, before the commencement of the original suit, Alexander had conveyed two thirds of his equity of redemption to his brother, the defendant, and one third-to his - sister: but before the suit Avas brought, they had both reconveyed their interests to Alexander, and at the commencement of the suit the defendant was in possession of the demanded premises. It does not appear that the said Alexander had ever assumed the defense of the action, or had ever been notified to do so. In addition to this the defendant by deed released the said Alexander from all liabilities or demands arising out of this suit.

Under these circumstances, Ave think the witness Avas not a party to the suit Avithin the. meaning of the statutes of 1857 and 1858, relating to the competency of Avitnesses. In the former case between the parties, reported 43 N. H. 109, it was found as matter of fact that the Avitness, Alexander Biley, was a party in interest; and he Avas held, therefore, to bo incompetent. Now, hoAAmver, there is no such finding, and the evidence reported does not shoAV it. If the defendant Avas the tenant of the Avitness, and holding under his title Avith warranty, a different question might be made; but then it is by no means certain.that the warrantor would be regarded as a party, although, if notified, he might be bound by the judgment. But in this case no such relation is shoAvn between the witness and the defendant, and it does not even appear that the latter is in under the witness as his tenant.

In Barker v. Remick, 43 N. H. 235, Avhich was a suit against the former sheriff of Carroll county for the default of his deputy, Charles H. Parker, the present sheriff of that county, the defendant pleaded in abatement that said Parker Avas the party defendant in interest, and that the services by his deputy was therefore invalid; but it Avas decided that the fact that the said Parker had an interest in the suit did not make him a party, inasmuch as he might determine to take upon him the defense, and leave the sheriff to his remedy on the deputy’s official bond.

In Carlton v. Patterson, 29 N. H. 587, it is said that to make the admissions of a person not a party to the record, eA'idence as of a party, it is necessary to show that he is the party in interest — the party who really carries on the controversy, under a party who has no interest in it, and is merely a nominal party, or under one who is fully indemnified. See also Reed v. Spalding, 42 N. H. 120.

In the case before us, it does not appear that Alexander S. Riley had any interest in the event of the suit, or if he had, that he had assumed the defense of it; and upon the principles of the cases cited, he can in no sense be deemed a party. It is true that he'appears to be the owner of the equity of redemption,, but there is nothing that establishes a legal priority with the defendant so that the witness would be bound by the judgment.

The testimony of Alexander S. Riley was therefore properly received, and being so, according to the provisions in the case, it is to be taken as found, that, at the making of the note, the debtor paid eighty dollars over and above the legal interest; and therefore there should bo deducted from the sum lawfully due on the note, three times the amount of such unlawful interest, being two hundred and forty dollars.

It is further claimed by the defendant that there should be deducted, also, three times the amount of the unlawful interest agreed to be paid in New York, October 23, 1849, under the name of New York interest. On that point it appears, that, after the note was given in 1837, payable in New .Hampshire, and secured by a mortgage of real estate here, the said Alexander remained in New York, and was residing there on the 23d day of October, 1849, and then and there in writing agreed to allow and pay to said Britton who was then in New York, upon this note, interest as by law established in the State of New York.

Upon this state of facts a question arises whether by this agreement any interest was secured upon the money sued for, within the provisions of our usury laws, and if so, whether the interest so secured was unlawful. The note was originally made payable in New Hampshire, and by parties having their domicil here, and it was also secured by a mortgage of bonds in this State.

And this raises the general question whether, in the case of a note payable in one State, an agreement, subsequent to its maturity, made in another where the maker had his domicil, to pay the rate of interest allowed by the latter State, is usurious, when that rate happens to be greater than is allowed in this State where it was originally payable. If the interest due by such subsequent contract is to be regarded as payable in New York where the contract was made, there would seem to be' no doubt that it would be valid.

In this case the principal was payable originally in New Hampshire, and ordinarily in the absence of express stipulations, the interest is regarded as a mere incident, and yet there would seem to be no doubt that a subsequent agreement might be made for the payment of the interest at a different time and place from what is designated in the note ; such'agreement being evidenced by a bond, note, or other contract. So, if in consideration of forbearance, the maker made a verbal agreement to pay the interest half yearly, or otherwise, expressly at the place of his domicil in a State other than the one where the note was originallv payable, we see no reason to doubt the validity of such an agreement, even if it stipulated a rate of interest higher than is allowed in the latter State, unless such agreement was entered into for the purpose of evading our statute of usury.

If the place of the payment of the interest be not named in such subsequent agreement, the question would arise whether it would follow the place of the payment of the principal, or would be regarded as payable in the State where it was made. If it would be regarded as payable where the principal was payable, the question would then arise whether the parties to a contract made in one State and payable in another, may lawfully stipulate for the rate of interest of the State where the contract is made, although higher than is allowed in the State where the money is payable.

Upon a careful consideration of the authorities bearing upon this question, we think that the parties may stipulate for the legal interest of either State, unless the arrangement be entered into merely as a cover for usury. If, then, the contract was made in New York in good faith, and not to evade the usury laws of New Hampshire it must be regarded as valid, although the New York rate of interest was higher than that of New Hampshire, but it would be otherwise if the place of making the contract was selected merely as a cover for usury, and so it would be if the place of payment was selected for the purpose of obtaining a higher rate of interest than is allowed where the contract is made.

These views are sustained by decided cases in New York, Vermont and Louisiana, and none of an opposite character have been brought to our notice. The case of Depan v. Humphreys, 20 Martin’s Louis. Rep. 1, is a leading case on this subject, and was much considered, and it was held, that, upon a loan of money in New Orleans, and a note given for it there, the parties might stipulate for the highest legal rate of interest allowed by the laws of that State, although the note was made payable in New York where the rate of interest was less.

In Chapman v. Robinson & al., 6 Paige Ch. Rep. 627, the same doctrine was fully recognized. There a resident in England agreed to loan money to a citizen of New York on a bond and mortgage of lands in that State at New York interest, and, according to the agreement, the securities were sent to England and the money deposited to the credit of the borrower with his banker in London. It was decided that the stipulation for New York interest’ was valid, though it was to be deemed payable in England. In ginng the opinion of the court, the chancellor says, that if a contract for the loan of money is made here upon a mortgage of lands in this State, which would be valid if the money was payable to the creditor here, it cannot be a violation of the English usury laws though the money is there payable, and the rate of interest is less there than in New York; holding, in substance, that a loan of money upon personal security, at the rate of interest allowed by the place where it was made, and the security given, though payable in another place where the rate of interest is less, would not be a violation of the usury laws of the latter place, unless such arrangement was intended as a mere coyer for usury. To the same effect is Pratt v. Adams, 7 Paige Ch. Rep. 632, where it was held that a contract to pay the legal rate of interest in the State where the money was loaned, and the contract made, is not usurious because the bill or note given for it was made payable in a State where the legal rate of interest was lower, unless the loan out of the State was a mere device to evade the laws of the State where the money was payable.

In Hosford v. Nichols, 1 Paige Ch. Rep. 225, lands in New York were bargained to be sold, both parties then residing there; but before it was executed, the seller removed to Pennsylvania, and there gave a deed of the land and received back a mortgage for the price, reserving New York interest, which was greater than that of Pennsylvania. It was held that giving the deed and taking the mortgage was only a consummation of the original contract made in New York and not void for usury.

In Peck & al. v. Mayo & al., 14 Vermont 38, it is laid down by Pedfield, J., as a rule deduced from the authorities cited, that if a contract be entered into in one place, to be performed in another, and the rate of interest differ in the two places, the parties may stipulate for the rate of interest of either, and thus by their own express contract determine with reference to the laws of which country that incident of the contract shall be decided, and that if the contract stipulate for interest generally, it shall be at the rate of the place of payment, unless it appears that the parties intended to contract with reference to the law of the other place.

In regard to Depau v. Humphreys, 20 Martin’s Louis. Rep. 1, Mr. Justice Story, in his Conflict of Laws, p. 252, thinks the foreign points, cited in that case, do not establish the doctrine there laid down; but says, on the other hand, there are other foreign points not cited in that case whose doctrines lead to an opposite conclusion, and yet he lays it down on page 244 of the same work, as having been decided, that a subsequent contract in ánother State to pay the legal interest of that State, which is higher than is allowed where the note was originally payable, is valid. Chancellor Kent also, in 2d vol. of his Commentaries, p. *461, note c. says that the principle now established in Louisiana and New York, is, that the place where the contract is made determines its validity as to interest, though made payable in another State or country where the interest is lower. This principle has much-to recommend it for reasonableness, convenience and certainty, except in cases where the whole arrangement was evidently and fraudulently intended as a mere cover for usury.”

These authorities, we think, are entitled to great weight, and in the absence of controlling considerations must be regarded as decisive. It is true that in many cases interest may properly be regarded as a mere incident of the debt, and so payable only where the principal is payable; but this is by no means always the case, for by express stipulation the interest may become payable by itself, and a suit maintained for it before the principal becomes due, as in the case of a contract to pay interest annually ; so in the case of bonds with coupons attached; and we see no objection to the parties being allowed to fix the amount of interest, and the time and place of payment of it, as they may all other particulars of the contract, provided it be done in good faith and with no design to evade the usury laws.

Again, there are decisions which assume that the rate of interest may be other than that of the place where the contract was made, where it appears that the parties contracted in reference to the laws of another place, although not expressly so stipulated. So it is laid down in Fanning & al. v. Consequa, 17 Johns. Rep. 518; and cases may readily be conceived where it might be difficult to determine whether the parties had reference to the laws of the place where the contract was made, or some other place, as where the bargain is made in one State, for the sale of lands there situate, and consummated in another by executing the deed and pairing back the mortgage for the. price, or where it is left doubtful whether the money is to be paid at the domicil of the promisor, or that of the promisee in another State. In such cases it is desirable that the parties should be at liberty to determine by express stipulation, made in good faith, by which law the rate of interest shall be governed.

With these views, we are of the opinion that if a contract for New York interest was made there, October 23, 1849, whether such interest wms to be regarded as payable there or in New Hampshire, it is not affected by the usury laws of this State, unless made there with a design to evade them; and, as no such design is found by the judge who tried the cause, or is to be gathered from the facts reported, we are of the opinion that if such a contract was made it is not aflected by our usury laws.

It appears that the domicil of the debtor was in New York, and that the creditor was there, and the debt had been long due though originally payable in New Hampshire; and there is nothing tending to show that the place of making this contract was selected with any view to evade the usury laws of New Hampshire. Under such circumstances a contract, in consideration of further forbearanee, to pay the legal rate of interest of the State of New York, would be valid by the laws of that State, and equally so by our own.

Whether the parties on that occasion made a contract, that, independent of the statutes of usury would be binding, or whether it was merely a naked promise, we give no opinion, because the conclusion we have reached upon the other point renders it unnecessary.

The remaining question is as to the computation of interest, and the main difference between the parties is whether rests ought to be made at the various times when there were partial payments, but of sums less than the interest due. The general principle is well established in this State, that partial payments are to be applied first to the extinguishment of interest due, and then to the principal. If the payment equals or exceeds the interest the course is plain ; but here many of the payments are less, and it does not appear to have been expressly decided in this State how the interest is to be computed in such case. There is nothin^, however, in the principles already established in our courts, that suggests a rest wherever a payment is made, by which interest may be turned into principal; on the contrary it has been generally understood that in case a payment is made of a sum less than the interest due, the surplus of interest must not be taken to augment the principal; and this, we think, accords with the course of the court, and is the legitimate result of the principles laid down in the decided cases.

Such is distinctly the doctrine of the New York courts, as laid down by Chancellor Kent in The State of Connecticut v. Jackson, 1 Johns. Ch. Rep. 13, 16, and cases cited, showing very clearly that at common law it is the general rule that interest does not carry interest.

In Massachusetts, interest upon interest is not allowed, even if there be a contract expressly to pay interest annually. Wilcox v. Howland, 23 Pick. 167 ; Ferry v. Ferry, 2 Cush. 92, and Dean v. Williams, 17 Mass. 417, where it is expressly held that if the payment is less than the interest the surplus is not to be added to the principal, and that interest is never allowed to form part of the principal so as to carry interest. The same general views are recognized in Maine. Doe v. Warren & al., 7 Greenleafs Rep. 48.

In New Hampshire, where there is an agreement to pay interest annually, the rule is that for the detention of the annual interest, simple interest is to be computed, and that only from the time such annual interest becomes due. Little v. Riley, 43 N. H. 113; Pierce & al. v. Rowe, 1 N. H. 179. But we find nothing to give any countenance to the allowance of interest on any surplus of interest that may have accrued at other times than at the end of the year, because payments may thus have been made. Such a doctrine would be a great hardship upon the debtor, discouraging the payment of small sums, and giving to the creditor an undue advantage that, as we think, finds no countenance in usage, or the principles of the common law.

Another question arises upon the fact that indorsements have been made at various times and some within the year, of sums less than the amount of interest then due. In such cases interest should be computed upon the principal yearly with simple interest on the annual interest, applying the payments of each year, first to the payment of the interest on the annual interest, then to the annual interest itself, and if any remain, to the principal. In the case of payments made before the end of any year, they should be applied as above stated, at the end of the year with interest from the time they were paid. Hill v. McIntyre, Rock. Co. June, 1865.

It has been sometimes said interest on such indorsements ought not to be reckoned, upon the ground that it should be regarded as a payment in advance of the interest due at the end of the year. If it were so stated expressly, or such was the necessary inference from the indorsement, this view might be the correct one; but ordinarily, where there is nothing to indicate a different intention, it must be deemed to be a payment on account of interest, if any be due, and if none is due, then on account of principal; and it is at once to be applied accordingly. If the payment be less, than the interest, and the debt be upon simple interest only, it is immaterial whether in the final computation such payment be applied and deducted from the amount due at the time it is paid, or at the time of such final computation, because the interest does not bear interest.

If the debt bears annual interest, in which case by our law the annual interest bears simple interest, but there is no interest due upon the principal, except what is accruing during the year when such partial payment was made, then, as there is no interest which is bearing interest, it stands like the case of a debt bearing simple interest only, so far as the computation for that year is concerned, and it is immaterial whether such payment, if made on account of interest and is less than the interest, is applied at the time it is made or at the end of. the year.

If, as in the case before us, interest for previous years had accumulated, and is bearing interest, such partial payment should at once be applied to the interest already due, and deducted therefrom; that is, to the annual interest up to the end of the year preceding the one where such payment was made, with simple interest upon such annual interest up to the time of the payment; such annual interest when accrued being like a debt due upon demand with interest. The sum so paid should be applied first to the interest on the annual interest, then to the annual interest itself, and the remainder to the principal. This is in strict accordance with the well settled principle in this State, that payments are first to be applied to the interest due, and then to the principal. Here the accumulated annual interest by our law draws simple interest, and it therefore assumes the character of principal; and where simple interest upon it has accrued, and is detained, it is but an extension of the settled principle to require that general payments should first be applied to extinguish that interest.

As an objection to the computation of interest upon payments made during the year, it is urged, that, by carrying out that method of computation, the entire debt might be extinguished without even paying anything beyond the interest; and this is undoubtedly true, where the interest draws no interest, and the sums paid are not, as they should be, applied to extinguish the interest, because if payments are made annually, or semi-annually, of sums equal to the accruing interest, and such payments are put upon interest, the aggregate of such payments would in process of time, depending upon the rate of interest, exceed the principal, which at length must necessarily extinguish it, ahd simply because there, had come to be a greater amount at interest in favor of the debtor. In this way at seven per cent, interest, and a payment of a yearly sum equal to the yearly interest, the debt would be extinguished in little short of twenty-one years. See Stoughton v. Lynch, 2 Johns. Ch. 210, and the table prepared in that cause in Hoffman’s Masters in Ch. appendix 360. Of course no such result could happen where, as in the case of a note on interest annually, the interest is put on interest at the end of the year, and the payments are made only as the annual interest becomes due, because in such case the same sums, and at the same time, would be put on interest, but it would be otherwise if the payments were made before the interest became due. If the debt was on simple interest only, it would be objectionable without doubt, because the payments should be applied to extinguish the interest.

The rules for the computation of interest on this note to be deduced from these yiews are, that simple interest is to be cast upon the annual interest when it becomes due at the end of each year, but without rests on account of intermediate payments ; that the payments of each year are to be applied first to the interest on the annual interest, then to the annual interest itself, and then to the principal; and when payments are made before the end of any year, they should be applied at the end of the year with interest from the time they were made; though if, where a partial payment is made on account of interest, there is due no interest except what is accruing during the same year, and the payment be less than the interest, the deduction at the end of the year of such payment, should not be with interest added.

Upon these principles the interest may be computed and judgment rendered accordingly.