Alan J. Stein, New York City, of counsel (Leonard Zissu, New York City, on the brief; Zissu & Marcus, New York City, Attorneys), for plaintiffs-appellants.
Nicholas LaCarrubba, Brooklyn, for respondent.
Before PECK, P. J., and COHN, CALLAHAN, BREITEL, and BOTEIN, JJ.
Order, so far as appealed from, affirmed with $20 costs and disbursements to the respondent. Order filed.
All concur except BREITEL, J., who dissents and votes to modify and affirm.
BREITEL, Justice (dissenting in part).
Plaintiffs, composers of a musical composition, sued defendant, a music publisher, seeking, among other things, to recover for failure to account and make royalty payments as required under their written contract. Involved is the question whether acceptance by the composers of an amount equal to the principal due under the contract, during the [142 N.Y.S.2d 341] pendency of their motion for partial summary judgment, disentitled them to interest.
Defendant, in answering the complaint, did not deny its failure to pay the amounts due under the contract. Rather, it merely claimed that such failure
over a period of at least five years was inadvertent and that it had insufficient time, after demand, within which it make the required payments.
Plaintiffs moved, on December 15, 1954, for partial summary judgment for the sum of $3,258.73, plus interest. After receipt of the notice of motion, and on December 26, 1954, but before the return date, defendant, conceding that it owed the principal amount, paid an amount equal to the principal to plaintiffs. The payment was by check forwarded by letter from defendant's attorney to plaintiffs' attorneys. There was no reference to interest as distinguished from principal. Then, in opposing the motion for partial summary judgment, defendant recited the fact of payment of the amount equal to the principal. Plaintiffs, in their supplemental affidavit, noted, however, that their claim was not satisfied since they had not received interest. Their motion was denied.
Even in the absence of an agreement, express or implied, to pay interest, the obligee is entitled to interest on the amount of the debt, as an item of damages. In such a case, a payment on the debt, unless otherwise applied by the creditor, is generally first applicable to the interest due, and then to the principal. Shepard v. City of New York, 216 N.Y. 251, 256, 110 N.E. 435. In the Shepard case, it was said:
'The general rule is that in the absence of an agreement providing otherwise payment upon a debt consisting of principal and interest not actually applied by the debtor or creditor is first applicable to the interest due, and then to the principal. Merchants' Bank v. Freeman, 15 Hun 359; Dean v. Williams, 17 Mass. 417; Moore v. Kiff, 78 Pa. 96; Bradford Academy v. Grover, 55 Vt. 462. This rule applies equally whether the debt be one which expressly draws interest or a debt upon which interest is given as damages. Story v. Livingston, 13 Pet. 359, 10 L.Ed. 200.' 216 N.Y. at page 256, 110 N.E. at page 436.
In applying the payment, the option is with the creditor. Specifically, in order to foreclose a claim for interest, 'there must be affirmative acceptance of the payments as applicable to the principal of the debt only and the actual exercise by the creditor of the option'. Davison v. Klaess, 280 N.Y. 252, 262, 20 N.E.2d 744, 748. Where the creditor, in receiving payment of an amount equal to the principal, accepts it unconditionally or without a suggestion of a claim to interest, it is generally assumed that the payment is in full satisfaction of the debt and interest. Shepard v. City of New York, supra, 216 N.Y. at pages 256-257, 110 N.E. at page 436. Thus, in such a situation, it has been said that [142 N.Y.S.2d 342] 'the interest is not regarded as a part of the debt, but as a mere incident to it, and the receipt of the principal bars a subsequent claim for the interest, for the reason that * * * interest, being a mere incident, cannot exist without the debt, and, the debt being extinguished, the interest, must necessarily be extinguished also'. Crane v. Craig, 230 N.Y. 452, 461, 130 N.E. 609, 612. But this rule is not one of inexorable application. It depends upon an unequivocal acceptance of the amount as principal only, and not on account of principal and interest. It merely describes the intention of the ...