after the lawful interest has become due, and even then the agreement to be valid must be prospective in its operation, as that the interest then due and payable shall carry interest thereafter. An agreement made at the time of the original contract or loan, that interest shall begin and run upon the lawful interest, from the period stipulated for its payment, is not valid.1 In New Jersey, the court of chancery will not allow interest to carry interest, unless after the interest has become due there is an agreement that the interest shall carry interest, and this agreement must be prospective and not retrospective.❜ In Pennsylvania, it was decided by a circuit court composed of two of the judges of the supreme court, in 1805, that where a bond was given conditioned for the payment of a sum of money in seven years, and the interest thereon yearly and every year, and an agreement endorsed thereon by the obligor, that if any part of the interest should remain unpaid for the space of three months, to allow the obligor lawful interest for the same, from the end of three months until paid, such agreement may be enforced, and a recovery was had accordingly. There is no subsequent case expressly recognising this decision as law, but the general expressions of judge Washington, in the circuit court of the United States for the eastern district of Pennsylvania, in Barclay v. Kennedy, are strongly confirmatory of it. He says: "Although interest cannot as such bear interest, there can be no doubt but that the creditor and 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 'Van Benschooten v. Lawson, 6 Johns. Ch. Rep. 313. * M. S. Opinion of chancellor Williamson, 1 Halsted's Digest 552. 8 * Pawling's Exrs. v. Pawling's Admrs., 4 Yeates 220. * 3 Wash. C. C. Rep. 350; see Denniston et al. v. Imbrie, ib. 396. 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." So it was subsequently decided in the same court, under the presidency of judge Baldwin, that an account current received and not objected to in a reasonable time becomes a settled account, bearing interest from the time it is stated, and the balance is payable on demand. An account made up of principal and interest becomes one principal debt when settled, the aggregate balance bearing interest. Compound interest is not illegal, and may be recovered on an express promise or one implied by law, as a part of the contract.1 Our second question, however, is answered in the negative by the decision in Sparks v. Garrigues, in which it was held, that when the condition of a bond was for the payment of interest annually, and of the principal at a distant day, but with no agreement for interest upon interest, interest could not be recovered upon the interest due and unpaid. It has, however, been held, under the provisions of an act of assembly, which declares that "lawful interest shall be allowed to the creditor for the sum or value he obtained judgment for, from the time the said judgment was obtained till the time of sale, or till satisfaction be made," that where a judgment is revived by repeated writs of scire facias, the plaintiff has a right to charge interest on the aggregate amount of principal and interest due at the time of rendering judgment on each scire facias. And when a sum of money is set apart by will and charged upon land, the interest of which is to be paid annually to a legatee, it was decided, that if it be not punctually paid, the annuitant is entitled to re 'Bainbridge v. Wilcocks, Baldw. 536. VOL. IV. * 1 Binn. 152. cover interest upon the annuity from the time it was payable.1 "For want of it," said judge Kennedy, "it may be, that debts were contracted upon which the legatee had to pay interest. It was itself principal to her, so far as she had a claim to it; and therefore ought to have been punctually paid. And had it been so, she would have had the use of it, which we must presume would have been equal in value to the interest; but having lost the use of it, by reason of the delinquency of the owners of the land, who were bound to have paid it regularly as it fell due, it is but reasonable that interest should be allowed as a compensation for the loss so occasioned." It is but fair to admit that the decision in Graham's admr. v. Williams,2 seems in its spirit contrary to these cases. That decision, however, simply was, that a practice by a storekeeper to balance his books at the end of each year, and charge interest on the balance of a running account, upon which there has been no settlement, is illegal. There was no account rendered-no knowledge of the debtor from which his acquiescence could be implied. Judge Rogers, however, seems to recognise the English equity cases, which relieve a debtor even from his agreement to pay compound interest, as unjust and oppressive. Without going more particularly through the cases it may be stated, that while in North Carolina and Ohio the English rule seems to have been rejected, in most of the other states of the Union it has been adopted and followed.3 'Addams v. Hefferman, 9 Watts 529. See also Knettle v. Crouse, 6 Watts 123; Stewart v. Martin, 2 Watts 200. 2 16 S. & R. 257. * Kennon v. Dickens, 1 Taylor 231, S C.; Cam. & Nor. 357; Watkinson v. Root, Ohio Cond. Rep. 831, S. C.; 4 Hamm. 373; Fobes et al. v. Cantfield, Ohio Cond. Rep. 455, S. C.; 3 Hamm. 17; Doe v. Warren, 1 Greenleaf 48; Wheelock v. Moulton et al, 13 Vermont 430; Darrel v. Eden, 3 Dessaus. 241; Lewis' exrs. v. Bacon's exrs., 3 Hen. & Munf. 89; Childers v. Dean et al., 4 Rand. 406; Breckenridge v. Brooks, 2 Marsh. 340; Rodes v. Blythe, 2 B. Monroe 336; Such being the state of authorities upon these questions both in England and this country, it will not be presumptuous to consider them as open to a free examination upon the grounds of principle and reason. All executory contracts between competent parties, and upon sufficient consideration, are valid obligations, unless their object be unlawful, impossible, vain, or immoral. Examine the contract to pay compound interest, and what law or what rule of morality or good policy does it infringe? It very clearly is not against the statute of usury. Such has been the decision in many cases both in England and this country, and it may be considered as settled beyond possibility of cavil or dispute, that the taking such interest does not subject the parties to the penalties, nor does it taint the contract in England or those states where usury has that effect. The statute 12 Anne, st. 2, c. 16, provides that "no person shall, upon any contract, take directly or indirectly for the loan of any moneys, wares, merchandize or other commodities whatsoever, above the value of £5 for the forbearance of £100, and so after that rate for a greater or lesser sum, or for a longer or shorter time." It is clear that compound interest falls within these words, being nothing but a receipt of money for the forbearance of a sum due after the lawful rate. The first statute which permitted, limited the rate of interest Mar's exr. v. Southwick, 2 Porter 351; Hyde v. Brown, 5 Louisiana Rep. 33. The Ohio court say in reference to an argument upon the subject, which will be adverted to before the article closes: "This is claimed to be a rule of policy, and it is supposed that a contrary rule would tend to oppression, hard dealing, and other evils. We deem it unnecessary to inquire into the correctness of this policy, although the current opinions of modern political economists render it at least doubtful. Such a contract as the present is prohibited by no statute, and we see no reason why it should not be enforced." Ohio Cond. Rep. 831. 1 Caliot v. Walker, 2 Anstr. 495; Le Grange v. Hamilton, 4 T. R. 613, S. C.; 2 H. Bla. 144; 5 T. R. 367; Lord Elden, in Chambers v. Goldwin, 9 Ves. 271; Powell on Mortgages 918; note by Coventry; Ord on Usury 36; Eaton et al. v. Bell et al., 5 Barn. & Ald. 34, S. C.; Eng. Com. Law Rep. vii. 13; Camp v. Bates, 11 Conn. 487; Kellogg v. Hickok, 1 Wend. 521. in England to 10 per cent. St. 37 Hen. VIII. c. 9, declared, that "none shall sell his wares or merchandize to any, and within three months after buy the same again at a lesser price, knowing them to be the same wares, or buy any corrupt bargain of lands, money, or other things, or buy any mortgage of land, and take in gain for giving day of payment more than according to the rate of £10 per cent. for one whole year." To take in gain for giving a day of payment according to the specified rate, is all that is done in the receipt of interest upon interest. It is said, however, to tend to usury, and though in itself neither unfair nor illegal, is therefore not to be enforced.1 If these expressions were not taken from such high authority, we would be disposed to characterize them not only as wanting in legal precision, but as absurd. How tending to usury, and yet not usury? Why not enforced, if neither illegal nor unfair? It is true that by compounding the interest at short intervals, a larger sum is obtained for one year than that prescribed by the statute. But suppose even the compounding to take place de die in diem, the lender still receives but interest after the legal rate for a shorter time 'Chambers v. Goldwin, 9 Ves. 271. Lord Eldon: "There is nothing unfair or perhaps illegal, in taking a covenant originally, that if interest is not paid at the end of the year, it shall be converted into principal. But this court will not permit that as tending to usury; though it is not usury.” 2แ a" By such an agreement a higher interest may be obtained than 5 per cent.: for supposing the adding on of the interest takes place every quarter, instead of £5, the lender will have received at the end of the year, for the loan of £100, the sum of £5 18. 104d. and a fraction, and by increasing the pauses and periodical calculations, the interest would be somewhat increased. But the highest interest to be obtained by this method of reserving interest at 5 per cent. payable at the shortest intervals, is somewhat less than £5 2s. 6d. per cent. per annum. By adding on the interest at the end of the year, and so continuing to convert the growing interest on the annual principal and interest into principal, a sum will double itself in little more than fourteen years, which it would not otherwise do in less than twenty." Comyn on Usury, 151, note. At the rate of 6 per cent., compounding the interest annually, will double the principal in about 11 years 329 days. At the rate of 7 per cent., in 10 years 92 days. |