MAYER ET AL., APPELLEES, v. MEDANCIC ET AL., APPELLANTS.
Nos. 2008-2363 and 2009-0170
Supreme Court of Ohio
Submitted September 30, 2009—Decided December 3, 2009.
124 Ohio St.3d 101, 2009-Ohio-6190
O‘CONNOR, J.
SYLLABUS OF THE COURT
{¶ 1} Pursuant to
{¶ 2} We hold that because
Relevant Background
{¶ 3} This action stems from an agreement between appellees, Marcia and Robert Mayer, and appellants, Mario Medancic, Marija Medancic, Mladen Medancic, Karoline Medancic, and A-Custom Builders (a corporation owned and controlled by the Medancic family), to purchase real estate in Chester Township, Geauga County, Ohio. As a result of the agreement, appellants executed three promissory notes in favor of appellees, each secured by a mortgage deed. The July 3, 1995 promissory note for $20,000 was payable no later than November 1, 1995, and set forth a 13 percent per annum interest rate. The December 11, 1995 note for $67,000 was payable no later than November 1, 1997, and carried a ten percent per annum interest rate. Finally, the January 8, 1996 note for $37,500 was payable no later than November 1, 1997, and set forth a 12 percent per annum interest rate. The documents made no mention of postjudgment interest.
{¶ 4} In 1998, appellees filed three foreclosure complaints alleging that appellants had failed to pay both the principal and interest due on the notes. Appellants answered the complaints and counterclaimed for breach of contract. The trial court consolidated the actions.
{¶ 5} In May 2006, after a bench trial, the trial court ruled in favor of appellees, holding that they were entitled to judgments of foreclosure and payment of the principal of the notes and interest at the rates specified therein. The trial court also ordered portions of the land contracts rescinded and ordered a refund of a portion of the purchase price to A-Custom Builders by appellees.
{¶ 6} The parties have engaged in extensive postjudgment litigation, which has resulted in multiple appeals to the Eleventh District Court of Appeals.1
{¶ 8} In February 2008, an entry titled “Agreed Judgment Entry” was filed that purported to resolve all remaining disputes between the parties. However, appellees objected to the agreed entry, arguing that they were entitled to compound interest. In light of appellees’ objection, in March 2008, the trial court refiled its April 2006 judgment entry with the additional language that there was “no just reason for delay” so that appellees could appeal the court‘s denial of compound interest to the Eleventh District Court of Appeals. The court of appeals reversed the trial court‘s judgment on the authority of State ex rel. Bruml v. Brooklyn (1943), 141 Ohio St. 593, 599, 26 O.O. 168, 49 N.E.2d 684, holding that because Bruml allowed the collection of “interest on interest,” appellees were entitled to compound interest at the rates specified in the notes. Mayer v. Medancic, Geauga App. Nos. 2008-G-2826, 2008-G-2827, and 2008-G-2828, 2008-Ohio-5531, ¶ 21-22.
{¶ 9} The case is now before us on our acceptance of a discretionary appeal and our recognition of a conflict between the Eleventh District Court of Appeals decision and the Tenth District‘s decision in Thirty Four Corp. v. Sixty Seven Corp. (1993), 91 Ohio App.3d 818, 633 N.E.2d 1179. Mayer v. Medancic, 121 Ohio St.3d 1422, 2009-Ohio-1296, 903 N.E.2d 322, and 121 Ohio St.3d 1424, 2009-Ohio-1296, 903 N.E.2d 324. The conflict certified for our review is the following: “When a written instrument sets forth a specific rate of interest to be paid, and there is a default in the payment of that interest, is the creditor entitled to compound interest, even absent a statute or provision therefor in the written instrument, pursuant to the rule in State ex rel. Bruml v. Brooklyn (1943), 141 Ohio St. 593 [49 N.E.2d 684]?” Id.
{¶ 10} Appellants ask the court to reverse the judgment of the Eleventh District Court of Appeals and hold that appellees are entitled to simple interest. Appellants maintain that because neither the notes nor the applicable statutory provision provides for compound interest, only simple interest has accrued. Appellants further argue that the Eleventh District erred in reading Bruml to require the compounding of interest here and that unlike the case at bar, Bruml involved investment bonds that expressly provided for periodic payments of interest on interest.
Analysis
{¶ 12}
{¶ 13} Although the instant dispute originates out of appellants’ motion to modify postjudgment interest, in which appellants argued that postjudgment interest should be calculated at the statutory rate set forth in
Compound Interest Is Not Available Absent Statutory Provision or Agreement
{¶ 14} Although neither
{¶ 15} In denying appellants’ motion for reconsideration, the Eleventh District Court of Appeals acknowledged the rule that simple interest should be awarded on judgments unless there is a specific agreement or statutory provision requiring the payment of compound interest. Nonetheless, the court of appeals distinguished the cases that appellants cited in support of this rule from the case at bar based on (1) those cases’ application of
{¶ 16} Although the cases that set forth the rule that simple interest accrues absent a statutory provision or agreement to the contrary generally arise under
{¶ 17} Appellees’ argument that the parties’ intent and the terms of the promissory notes allow for the interest to be compounded annually is not persuasive. The notes do not include any provision for the collection of compound interest. Appellees argue that because the promissory notes state that interest is to be calculated at the specified rates “annually,” they authorize
{¶ 18} Appellees also argue that the evidence established that the parties intended interest to compound annually. In support of their claim, appellees rely on an affidavit that appellee Robert Mayer executed in February 2006—more than a decade after appellants executed the first note and nine years after appellants defaulted on the last note. Mayer attested that “it was never [his] intention that these debts would bear merely simple interest for the ten year period, but instead it was [his] understanding that the interest would be compounded if the debtors failed to pay the principal and interest pursuant to the terms of the Notes and Mortgages.”
{¶ 19} After considering Mayer‘s self-serving affidavit and the parties’ arguments, the trial court concluded that the affidavit was not sufficient to overcome the plain meaning provided by the language of the notes—that the principal was to accrue interest at the specified rates and that no compounding was provided for. Because the trial court‘s conclusion is a finding of fact, based on competent and credible evidence, we defer to the trial court‘s finding, Myers v. Garson (1993), 66 Ohio St.3d 610, 614, 614 N.E.2d 742, and hold that there was no agreement by the parties providing for the compounding of interest.2
Bruml Does Not Support an Award of Compound Interest in the Absence of a Statutory Provision or Agreement
{¶ 20} Relying on Bruml, 141 Ohio St. 593, 26 O.O. 168, 49 N.E.2d 684, appellees argue that they are entitled to compound interest even absent a statutory provision or agreement. Appellees claim that they are entitled to compound interest because in Bruml, this court allowed the collection of interest upon interest owed on municipal bonds. Ignoring the general rule that compound interest is not available absent a statutory provision or agreement of the parties, the Eleventh District Court of Appeals reversed the judgment of the trial court and awarded appellees compound interest based solely on the authority of Bruml. Mayer, 2008-Ohio-5531, 2008 WL 4694517, ¶ 21 (stating only that “Bruml remains good law“). Indeed, in its ruling on appellants’ motion for
{¶ 21} Contrary to appellees’ argument and the Eleventh District‘s decision, it does not follow from this court‘s decision in Bruml that appellees are entitled to compound interest. In Bruml, the court held that “[u]nder a contract for the payment of interest at a specified rate annually, whereon there is a default of payment of such interest when due, interest on interest will be computed at the regular rate.” (Emphasis added.) Bruml, 141 Ohio St. at 599, 26 O.O. 168, 49 N.E.2d 684. Bruml does not allow for the collection of compound interest for two reasons. First, Bruml allows only “interest on interest,” which is not the same as the annually compounded interest that appellees seek. Id. Second, although Bruml allowed interest to accrue periodically on interest that was due, but not paid, the case involved an investment bond that expressly provided for the periodic payment of interest. Id. The notes in this case provide for no such periodic payment.
{¶ 22} Contrary to the court of appeals’ holding, Bruml does not provide for accrual of compound interest absent a statutory provision or agreement. Bruml, 141 Ohio St. at 599, 26 O.O. 168, 49 N.E.2d 684. To be sure, Bruml made no mention of either (1) compound interest or (2) the annual computation that appellants seek. Rather, Bruml merely permits the collection of interest on an amount that is due and payable, but not paid, even if that amount includes previously earned interest. Id. “[T]he ‘interest due upon interest’ awarded by the court in * * * [Bruml] was not compound interest on the judgment, but rather simple interest on that portion of the judgment which accrued by unpaid installments of interest. Indeed, [Bruml] stand[s] for the proposition that interest upon a judgment is not compound interest, but rather simple interest, on all amounts which the debtor had promised but failed to pay. The expression ‘interest due on interest’ is merely the recognition that, when periodic payments of interest have not been paid as promised, the unpaid interest can constitute a part of the judgment which can then bear simple interest in the same manner as the portion of the judgment which represents principal.” Thirty-Four Corp. v. Hussey (May 7, 1985), Franklin App. No. 84AP-337, 1985 WL 10275, *8.
{¶ 23} Equally telling is Bruml‘s reliance on Anketel v. Converse (1866), 17 Ohio St. 11, in permitting “interest on interest.” In Anketel, this court held that
{¶ 24} Appellees’ reliance on Bruml is also misplaced because that case involved an investment bond that expressly called for the periodic payment or accrual of interest. Bruml, 141 Ohio St. at 599, 26 O.O. 168, 49 N.E.2d 684. Interest due, but not paid, periodically became part of the amount owed to the bondholder, and subsequent interest was properly calculated based on that total. Contrary to Bruml, each note in this case provided for only one payment of interest, which was due on the same date as the repayment of the principal. Because the notes did not provide for periodic payments of interest, the interest due on the notes is not periodically added to the amount on which future interest may be calculated.
Simple Interest Accrues on the Entire Amount Due at the Time of the Default on a Written Instrument
{¶ 25} Anketel and Bruml permit simple interest to accrue on interest that is due and payable from the time the interest is due until it is paid. Anketel, 17 Ohio St. 11, paragraph four of the syllabus; Bruml, 141 Ohio St. at 599, 26 O.O. 168, 49 N.E.2d 684. Accordingly, consistent with Anketel and Bruml, the simple interest that accrues after a default on a written instrument pursuant to
{¶ 26} “Generally, a right to interest on unpaid obligations accrues on the date of scheduled payment, and runs until paid * * *” Lehman v. Lehman (May 4, 1995), Cuyahoga App. No. 67483, 1995 WL 264556, *4. Principal and interest earned on the notes were due on November 1, 1995, and November 1, 1997. Therefore, pursuant to
Conclusion
{¶ 27} Because there is neither a statutory provision providing for compound interest nor an express agreement between the parties, appellees are entitled to simple, not compound, interest. However, the interest that accrues is calculated on the entire amount due at the time of the default, including both the principal
Judgment reversed and cause remanded.
MOYER, C.J., and LUNDBERG STRATTON, O‘DONNELL, LANZINGER, and CUPP, JJ., concur.
PFEIFER, J., concurs in judgment only.
Gallagher Sharp, Timothy T. Brick, Timothy J. Fitzgerald, and Catherine F. Peters, for appellees.
Joel A. Nash, for appellants.