Joseph H. MARTIN, Plaintiff,
THE STAR PUBLISHING COMPANY, a corporation of the State of Delaware, Alexis I. duPont Bayard and Erwin M. Budner, Defendants.
Action for breach of contract for payment of purchase money in semi-annual installments. The Superior Court, New Castle County, Herrmann, J., held that interest at statutory rate upon matured and overdue principal installments was due plaintiff where contract for payment of money at specified times fixed rate of interest to be paid before maturity but was silent as to interest to be paid thereafter in case of default.
Judgment for plaintiff.
Stewart Lynch, Clarence W. Taylor, Wilmington, Hastings, Lynch & Taylor, Wilmington, for plaintiff.
[48 Del. 515] William E. Taylor, Jr., Wilmington, for defendants.
In this action for breach of contract for the payment of purchase money in semi-annual installments, a non-jury trial resulted in an announcement by the Court that verdict would be entered for the plaintiff in the sum of $28,000., with interest. Computation of interest was left to counsel.
The verdict represented the amount found to be due under the contract for installments of principal that had matured during the years 1951 through 1954. The contract provided that, during a period of years ending in 1957, installments of principal in stipulated amounts would be paid semi-annually on fixed dates, ‘ with interest on the unpaid balance at the rate of 4% per annum, payable on principal payment dates.’ The contract contained no other pertinent provision regarding interest.
Two questions have arisen regarding the amount of interest to be included in the verdict and judgment thereon:
1. Is the plaintiff entitled to interest upon matured and overdue principal installments at the contract rate of 4% or at the statutory rate of 6%?
2. In the plaintiff entitled to interest upon matured and overdue installments of interest?
There is a sharp contrariety of opinion as to both of these questions. The conflicting views on the first question are reflected in the annotation at 75 A.L.R. 399 et seq. and the division of authority on the second question appears in the annotation at [48 Del. 516] 27 A.L.R. 81 et seq. See also 30 Am.Jur. ‘ Interest’ § 37 and § 58; 47 C.J.S., Interest, § 39(b) and § 15. No case has come to my attention establishing the rule in this jurisdiction on either of these questions.
As to the first question, I adopt the view that the statutory rate of interest, rather than the contract rate, should be applied after the date of maturity where, as here, a contract for the payment of money at specified times fixes the rate of interest to be paid before maturity but is silent as to the interest to be paid thereafter in case of default. This rule is consonant with Jefferis v. William D. Mullen Co., 15 Del.Ch. 9, 130 A. 39, wherein the Chancellor held that, as a matter of law, interest runs after the maturity of a note notwithstanding the fact that the words ‘ with interest’ had been stricken from the printed form of the note and the obligation, therefore, was deemed to be interest-free prior to maturity. The Supreme Court of the United States has approved the doctrine that, in the absence of an express agreement to the contrary, the statutory rate of interest, rather than the contract rate, should be allowed after maturity of the obligation and such is the prevailing rule in our neighboring jurisdictions of Pennsylvania, Maryland and New York. See Brewster v. Wakefield, 22 How. 118, 127, 16 L.Ed. 301; Holden v. Freedman's Savings & Trust Co., 100 U.S. 72, 25 L.Ed. 567; Miller v. City of Reading, 369 Pa. 471, 87 A.2d 223; Brown v. Hardcastle, 63 Md. 484; Pryor v. Buffalo, 197 N.Y. 123, 90 N.E. 423.
This rule is based upon the theory that the contract rate ceases at maturity and upon breach by default and that the legal rate is allowed thereafter as damages for the breach; that when the agreement of the parties, as to interest, extends no further than the maturity date, there is no agreement on the matter of post-maturity interest, express or implied, and the law interposes not only to allow such interest but also to regulate the rate that should be paid as damages for the wrongful detention of the indebtedness after the due date. The reasoning usually employed to support the opposing view is that where parties to [48 Del. 517] a contract for payment of money fix the rate of interest to be applied before maturity, but make no agreement as to interest thereafter in the event of default, there is an implied contract to pay the same rate both before and after maturity. In my opinion, the implied contract doctrine lacks the force of logic and fairness of result afforded by the damages theory.
Accordingly, in the instant case, interest will be allowed at the statutory rate of 6% per annum upon matured and overdue principal installments, from the maturity dates thereof to the ...