[Cite as Mayer v. Medancic, 124 Ohio St.3d 101, 2009-Ohio-6190.]




         MAYER ET AL., APPELLEES, v. MEDANCIC ET AL., APPELLANTS.
       [Cite as Mayer v. Medancic, 124 Ohio St.3d 101, 2009-Ohio-6190.]
Written instruments — Compound or simple interest absent agreement or statute
        — Because R.C. 1343.02 does not provide for it, compound interest is not
        available upon a default on a written instrument absent agreement of the
        parties or another statutory provision expressly authorizing it — The
        simple interest that accrues after a default on a written instrument under
        R.C. 1343.02 accrues on both the principal and the interest that was due
        and payable at the time of the default — Certified question answered in
        the negative, judgment reversed, and cause remanded.
 (Nos. 2008-2363 and 2009-0170 — Submitted September 30, 2009 — Decided
                                  December 3, 2009.)
     APPEAL from and CERTIFIED by the Court of Appeals for Geauga County,
      Nos. 2008-G-2826, 2008-G-2827, and 2008-G-2828, 2008-Ohio-5531.
                                 __________________
                              SYLLABUS OF THE COURT
1.      Because R.C. 1343.02 does not provide for it, compound interest is not
        available upon a default on a written instrument absent agreement of the
        parties or another statutory provision expressly authorizing it.
2.      The simple interest that accrues after a default on a written instrument
        under R.C. 1343.02 accrues on both the principal and the interest that was
        due and payable at the time of the default.
                                 __________________
        O’CONNOR, J.
        {¶ 1} Pursuant to R.C. 1343.02, interest on written instruments
containing stipulations for the payment of interest accrues at the rate specified in
                            SUPREME COURT OF OHIO




the instrument until payment is made. In the case at bar, we determine whether
simple or compound interest accrues in the absence of the parties’ agreement on
this issue. Simple interest is calculated only on principal and not on accumulated
interest. Black’s Law Dictionary (9th Ed.2009) 887. Compound interest, on the
other hand, is paid both on the principal and the “previously accumulated
interest.” Id. In other words, simple interest does not merge with the principal
and thus does not become part of the base on which future interest is calculated.
Id.
       {¶ 2} We hold that because R.C. 1343.02 does not provide for it,
compound interest is not available upon a default on a written instrument absent
agreement of the parties or another statutory provision expressly authorizing it.
However, upon a default on a written instrument, simple interest accrues on the
entire amount owed, which includes both the principal and interest due and
payable at that time.
                             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.




                                        2
                                     January Term, 2009




         {¶ 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
         {¶ 7} The instant appeal arises from a January 2006 motion filed by
appellants to declare the rate of postjudgment interest owed on the notes to be the
statutory rate set forth in R.C. 1343.03.              In response to appellants’ motion,
appellees argued that they were entitled to postjudgment interest at the rates set
forth in the notes and that the interest should be compounded annually until the
debt is paid. In April 2006, the trial court held that pursuant to R.C. 1343.02,
appellees were entitled to postjudgment interest at the rates set forth in the notes
and rejected appellees’ claim that they were entitled to compound interest.
         {¶ 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


1. Although this case has a lengthy and complex history, our recitation of the background is
limited to the facts that pertain to the instant appeal. For more detailed background and history of
litigation in this matter, see the previous decisions by the Eleventh District Court of Appeals.
Mayer v. Medancic (Dec. 21, 2001), Geauga App. Nos. 2000-G-2311, 2000-G-2312, and 2000-G-
2313, 2001 WL 1647119; Mayer v. Medancic, Geauga App. Nos. 2002-G-2431, 2002-G-2432, and
2002-G-2433, 2003-Ohio-5355; and Mayer v. A-Custom Builders, Inc., Geauga App. No. 2004-G-
2563, 2005-Ohio-2083.




                                                 3
                            SUPREME COURT OF OHIO




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




                                         4
                                 January Term, 2009




involved investment bonds that expressly provided for periodic payments of
interest on interest.
          {¶ 11} In contrast, appellees contend that the Eleventh District correctly
relied on Bruml, 141 Ohio St. 593, 26 O.O. 168, 49 N.E.2d 684, and properly held
that they were entitled to compound interest. Appellees claim that simple interest
will not make them whole for appellants’ failure to pay on the promissory notes
for more than a decade, and therefore, they must receive compound interest.
Finally, appellees maintain that the “unrefuted evidence” establishes that the
parties intended that the interest on the promissory notes be compound, not
simple.
                                      Analysis
          {¶ 12} R.C. Chapter 1343 sets forth statutory limitations to the interest
that may accrue on written instruments and judgments. R.C. 1343.02 provides,
“Upon all judgments, decrees, or orders, rendered on any bond, bill, note, or other
instrument of writing containing stipulations for the payment of interest in
accordance with section 1343.01 of the Revised Code, interest shall be computed
until payment is made at the rate specified in such instrument.” R.C. 1343.03 sets
forth the statutory interest rate that applies “when money becomes due and
payable upon any bond, bill, note, or other instrument of writing, upon any book
account, upon any settlement between parties, upon all verbal contracts entered
into, and upon all judgments, decrees, and orders of any judicial tribunal for the
payment of money arising out of tortious conduct or a contract or other
transaction * * * unless a written contract provides a different rate of interest in
relation to the money that becomes due and payable, in which case the creditor is
entitled to interest at the rate provided in that contract.” Neither R.C. 1343.02 nor
R.C. 1343.03 specifies whether simple or compound interest accrues after default
on an instrument.




                                          5
                            SUPREME COURT OF OHIO




       {¶ 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 R.C. 1343.03, both
the trial court and the court of appeals held that because the notes set forth the
applicable interest rates, R.C. 1343.02, not R.C. 1343.03, governs. Mayer v.
Medancic, 2008-Ohio-5531, ¶ 20. Appellants do not argue the issue to this court,
and we proceed based on the lower courts’ conclusions that R.C. 1343.02 applies.
  Compound Interest Is Not Available Absent Statutory Provision or Agreement
       {¶ 14} Although neither R.C. 1343.02 nor R.C. 1343.03 articulates
whether interest that accrues thereunder is simple or compound, courts of appeals
throughout the state consistently hold in relation to R.C. 1343.03 that in the
absence of a statutory provision or specific agreement to the contrary, only simple
interest accrues. Fifth Third Mtge. Co. v. Goodman Realty Corp., Hancock App.
No. 5-08-30, 2009-Ohio-81, ¶18; Safdi v. Gallegos (July 16, 1999), Hamilton
App. Nos. C-980814 and C-980857, 1999 WL 498082, *4; Berdyck v. Shinde
(1998), 128 Ohio App.3d 68, 87, 713 N.E.2d 1098; Bank One, Steubenville, NA v.
Buckeye Union Ins. Co. (1996), 114 Ohio App.3d 248, 256, 683 N.E.2d 50;
Trebmal Constr., Inc. v. Sherway Application Co. (Feb. 7, 1991), Cuyahoga App.
No. 58033, 1991 WL 12995, at 7; Viock v. Stowe-Woodward Co. (1989), 59 Ohio
App.3d 3, 7l, 569 N.E.2d 1070; Harrison v. Harrison (Jan. 18, 1989),
Montgomery App. No. 11056, 1989 WL 3762, *3; State ex rel. Elyria v. Trubey
(1984), 20 Ohio App.3d 8, 9, 20 OBR 8, 484 N.E.2d 169. Indeed, the Tenth
District Court of Appeals applied this general rule in the case certified as in
conflict with the Eleventh District’s decision in this case. Thirty Four Corp., 91
Ohio App.3d at 825, 633 N.E.2d 1179 (“Simple interest is the rule and is to be
applied, absent a specific agreement that interest be compounded”).
       {¶ 15} In denying appellants’ motion for reconsideration, the Eleventh
District Court of Appeals acknowledged the rule that simple interest should be




                                        6
                                January Term, 2009




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 R.C. 1343.03 instead of R.C. 1343.02,
(2) the fact that the interest in those cases had accrued on judgments for torts and
other causes of action, not breach of contract, and (3) the other courts’ failure to
consider this court’s decision in Bruml.
       {¶ 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 R.C. 1343.03, we see no reason that the same rule should not apply to
interest that accrues after the default on a written instrument, where the rate is
governed by the terms of the instrument under R.C. 1343.02. Because, pursuant
to R.C. 1343.02, the applicable interest rate is determined by the written
instrument, the lack of a provision for compound interest illustrates that the
parties did not intend that interest compound. Accordingly, we hold that absent
agreement by the parties or a statutory provision expressly authorizing it,
compound interest is not available upon a default of a written instrument under
R.C. 1343.02. Because R.C. 1343.02 does not provide for compound interest,
simple interest accrues on the notes unless the parties have agreed that the notes
are subject to compound interest.
       {¶ 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
compound interest. However, calculating the interest annually is different from
compounding it annually. Viock, 59 Ohio App.3d at 7, 569 N.E.2d 1070 (“Simple
interest can be computed annually, semi-annually, biannually, or even daily, if the



                                           7
                                 SUPREME COURT OF OHIO




terms so dictate. To do so, one computes the interest on the original principal at
the stated interval.” (Emphasis sic)). Accord Berdyck v. Shinde (1998), 128
Ohio App.3d 68, 88, 713 N.E.2d 1098, quoting Trebmal Constr., Inc., Cuyahoga
App. No. 58033, 1991 WL 12995, at *7 (noting that interest calculated “per
annum” generally means “ ‘at a simple rate per annum until paid’ ”).
        {¶ 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

2. Appellees seemingly conceded the issue at oral argument, arguing instead that they are entitled
to compound interest based on nothing more than Bruml.




                                                8
                               January Term, 2009




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, ¶ 21 (stating only that “Bruml remains good law”).
Indeed, in its ruling on appellants’ motion for reconsideration, the Eleventh
District suggested that but for Bruml, the court would not have awarded appellees
compound interest. “In Thirty Four Corp. [91 Ohio App.3d 818, 633 N.E.2d
1179], the Tenth Appellate District did consider whether compound interest was
due on a note, and relying on the general rule that interest is only to be
compounded when an agreement specifically calls for it, confirmed the trial
court’s decision that the note in question provided simple interest. Generally, we
would agree with that holding. However, the applicability of Bruml seems not to
have been argued.”
       {¶ 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




                                         9
                             SUPREME COURT OF OHIO




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
“[w]here interest is payable annually, or at other stated periods, it bears simple
interest from the time it falls due till paid.” (Emphasis sic.) Id. at paragraph four
of the syllabus.
       {¶ 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




                                         10
                               January Term, 2009




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 R.C.
1343.02 accrues on both the principal and the interest that was due and payable at
the time of the default. Safdi v. Gallegos, Hamilton App. Nos. C-980814 and C-
980857, 1999 WL 498082 *4 (noting that pursuant to Bruml, “when a bond
specifically provided for the payment of interest at a specified rate, and there was
a default in the payment of the interest, interest on the defaulted interest was
permissible”). See also 61 Ohio Jurisprudence 3d (2002), Interest and Usury,
Section 29.
       {¶ 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 R.C. 1343.02, simple interest continues to accrue on the
principal and interest due on the notes at the rates set forth therein from those
dates until payment is made.
                                   Conclusion



                                        11
                             SUPREME COURT OF OHIO




       {¶ 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 and the interest due and payable at that time. Accordingly, we answer
the certified question in the negative, reverse the decision of the court of appeals,
and remand this case to the trial court for further proceedings consistent with this
opinion.
                                                                 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.
                            ______________________




                                         12
