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Henry v. Madison Aerie No.

623, Fraternal Order of Eagles of Madison,


Wis., et al. (1933)
Fowler, Justice.

FACTS:

Madison Aerie (Madison) had three separate checking accounts with


the First National Bank of Madison
(Bank). Its deposits totaled $958.02.

The Bank had in its favor two notes of Madison amounting to $3,000
each, payable in installments.
Acceleration clause: Failure to pay any installment as the same
becomes due shall render the entireobligation then due and
demandable.

For six months commencing Feb. 1, 1932, Madison was able to pay the
installments. In July and August, it defaulted, but the amounts then due
were paid on August 3. The amounts were merely accepted and the Bank
never said anything about extending the time of payment or waiving the
defaults of nonpayment.

Concerning a different contract, Plaintiff Mamie Henry (Henry) sued


Madison. Henry moved for the garnishment of Madisons funds deposited
with the Bank.

The Bank denied the allegation. Garnishment summons were served on


the Bank on August 15, 1932. On that day, it decided to apply the
balance of Madisons deposits to the amounts due on the notes
(it applied the acceleration clauses on the notes rendering the entire amount
due).

The following question was submitted to the jury at trial: WoN the Bank
waived its rights to consider the notes asbeing matured on Aug. 15.The
jury answered yes, meaning, they considered the acceleration clause as
optional.
Effect: Henry can garnish the funds deposited with the Bank
because the latter cannot apply the funds tothe payment of the
notes, having waived its right to invoke the acceleration clause.
ISSUE + RULING:

WoN the acceleration clause in the notes took effect automatically upon
Madisons failure to pay. YES.

Hodge v. Wallace: failure to pay interest when due renders the whole note
due absolutely
and not at the option of the holder.
To construe such language [that of the acceleration clause] as
merely optional or permissive would be to destroy the clearly
expressed contract which the parties made for themselves and
to force upon them contract to which neither of them ever gave
their consent. The terms of the contract are so clear as to
seemingly preclude construction.

As soon as Madison failed to pay the installment in July, default kicked


in and the notes became due immediately.

Thus, when Madison made payments subsequent to its default, such


amounts were considered as partial payments on the total amount due
($3,000 for each note) and not as installments anymore.

There is a division of authorities on the subject, because some cases


state that unconditional acceptance of past-due interest upon notes
containing a clause accelerating payment for default in interest payments
waives the acceleration.

This ruling was often applied to cases wherein the acceleration


clauses were expressly optional as opposed to absolute.

Fant v. Thomas concerned an acceleration clause similar to the


one in the present case, and the court considered the
acceptance of late payment as waiver of the acceleration clause.

However, in Miles v. Hamilton, decided just before Fant, it was


held under a like clause that default ofpayment of interest when
due rendered a note due at the time of the default and a
subsequent paymentof interest and a part of the principal did
not postpone the due date to the date of original maturity or
anew default.
In the interest of maintaining the stability and certainty of the law
relating to negotiable instruments, the courtdeclined to overrule
Hodge and Miles.

Since the notes fell due upon Madisons default, the Bank had the right
to apply Madisons deposits to the
payment of the notes. When garnishment summons was served on the Bank,
there was nothing left to garnish.

DISPOSITION:
Reversed and remanded.