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V. PARTIAL PAYMENTS

353. A partial payment is a payment of part of a debt. Payment on a note, or other interest-bearing obligation, is frequently made before it is due, to lessen the interest.

354. A note, or promissory note, is a written promise to pay a specified sum at a specified time, or on demand.

355. The maker, or drawer, or promisor, of a note is the person who signs it, and who thereby promises to pay it.

356. The payee is the person to whom, or to whose order, the note is made payable.

357. The face is the sum specified in the note.

1904

Dallas, Texas, July 24
after date & promise to pay to

$600

One year abe Doe the order of...... Six hundred and at The First National Bank Value received

Nr. 48 Que July 24-8205.

Dr Dollars

100

Henry Sikes.

In this promissory note, Henry Sikes is the maker, Abe Doe the payee, $600 the face, and the face plus the interest the maturity value.

358. A negotiable note is one made payable to bearer, or to the order of the payee.

A negotiable note may be sold by the payee, the transfer being indicated by the payee's indorsing the note; that is, by writing his name across the back of the note. By indorsing the note, the payee becomes responsible for its

payment in case the maker does not pay it. The indorser, however, may be released by first writing the words “without recourse" across the back, and then his name.

359. If a note reads "with interest," but does not specify the rate, it draws the legal rate. If it does not call for interest, it draws none until it becomes due and payment is demanded, after which it draws the legal rate.

360. A protest is a formal declaration in writing, made by a notary public, at the request of the holder of a note, notifying the maker and the indorsers of its non-payment.

NOTE.—The failure to protest a note on the day of maturity or immediately thereafter releases the indorsers from all obligation to pay it, unless the note contains the words “protest waived.”

361. The United States Rule is most generally used in making computations involving partial payments. This rule was first announced by Chancellor Kent of New York. It has been adopted by the Supreme Court of the United States, and by the courts of nearly all the states.

UNITED STATES RULE.-1. Find the amount of the given principal to the time of the first payment, and if this payment equals or exceeds the interest then due, subtract it from the amount obtained, and treat the remainder as a new principal.

2. But if the interest is greater than any payment, find the amount on the same principal to a time when the sum of the payments equals or exceeds the interest then due; subtract the sum of the payments from that amount, regard the remainder as a new principal, and proceed as before.

362. Fundamental principles of the U. S. Rule:

1. Making a payment makes the interest on the principal fall due, up to that time.

2. A partial payment must be applied first to the discharge of the interest due, and then the balance, if any, to the discharge of the principal.

3. Interest must not bear interest.

4. Payments must not bear interest.

EXAMPLE

A note of $800 is dated Oct. 1, 1904, with interest at 8%. This note has the following indorsements:

Jan. 1, 1905, $80; April 19, 1905, $10; Sept. 1, 1905, $240; what was due Jan. 1, 1906?

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SOLUTION:

$16.

1. Int. on $800 for 3 mo. at 8%
2. $800 + $16 - $80 $736, 2d, or new principal.
3. Int. on $736 for 3 mo. 18 days at 8%
4. $17.66 $10 $7.66, unpaid interest.
5. Int. on $736 for 4 mo. 12 da. at 8% = $21.59.

$17.66.

6. $736 + $7.66 + $21.59 — $240 = $525.25, 3d principal.

7. Int. on $525.25 for 4 mo. at 8% $14.01.
8. $525.25 + $14.01 $539.26, am't due at settlement.

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NOTE.-Beginning with the latest date above, arrange the dates in order. Beginning below, subtract each date from the one immediately above it.

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REMARK. The work may be shortened by putting steps (3) and (5) together. Since the payment ($10) is not sufficient to

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discharge the interest up to that date, we should find the interest on $736 for 8 mo., which is $39.25. The am't is $736 + $39.25 = $775.25. $10 + $240 $250, am't of the payments. $775.25$250 $525.25, 3d principal in step (6)

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363. Business men often settle notes and accounts running for a year or less, upon which partial payments have been made, by the Mercantile Rule.

RULE.-If the time does not exceed one year, subtract the sum of the amounts of the payments to the day of settlement from the amount of the principal to the day of

settlement.

If the time exceeds a year, find the balance due at the end of each year by the rule above stated, and treat it as a new principal.

EXAMPLE

NOTE.-In applying this rule, since the time is usually short (generally less than a year), it is customary to find exact interest (see Sec. 344, p. 162).

SOLUTION:

1. Am't of $500 from June 1 to Dec. 28 (210 da.)=...

2. Am't of $120 from Aug. 1 to Dec. 28 (149 da.) =$122.94 3. Am't of $100 from Oct. 1 to Dec. 28 (88 da.) =$101.45 4. Am't of $25 from Nov. 16 to Dec. 28 (42 da.) $25.17. 5. Sum of amounts of payments.

6. Balance due, Dec. 28, 1903...

A note of $500, dated June 1, 1903, interest at 6%, had the following indorsements:

Aug. 1, 1903, $120; Oct. 1, 1903, $100; Nov. 16, 1903, $25: what was due Dec. 28, 1903?

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$517.26.

249.56

$267.70

Exercise XLIV

Use the U. S. Rule:

1. A note of $1450, dated Feb. 3, 1902, interest at 5%, was indorsed as follows:

April 3, 1902, $64.10; July 9, 1902, $168.67; Nov. 18, 1903, $20; March 18, 1904, $21: what was due June 14, 1904?

2. $600.

PADUCAH, KY., April 1, 1902. On demand, I promise to pay to the order of Pete McGhee, six hundred dollars, for value received, interest at 6%.

JOHN TODD. Indorsements: July 16, 1902, $63.20; Oct. 16, 1902, $58.05; Dec. 30, 1902, $154.99; May 17, 1903, $9; Sept. 29, 1903, $9. What was due Jan. 1, 1904?

3. $3475.

CHICAGO, ILL., March 6, 1903.

On demand, I promise to pay to the order of David Sisk, three thousand four hundred seventy-five dollars, for value received, interest at 5%.

BEN SUMMERS. Indorsements: June 1, 1903, $1247.60; Sept. 10, 1903, $1400. What was due Jan. 31, 1904?

Use the Mercantile Rule:

4. A note of $1750, dated April 5, 1903, drawing 6% interest, has the following indorsements:

May 10, 1903, $190; July 1, 1903, $250; Aug. 5, 1903, $645; Oct. 1, 1903, $372. What was due Dec. 31, 1903?

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