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.
o Acceleration clause: Failure to pay any installment as the same becomes due shall render the entire
obligation 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 as
being matured on Aug. 15. The jury answered yes, meaning, they considered the acceleration clause as optional.
o Effect: Henry can garnish the funds deposited with the Bank because the latter cannot apply the funds to
the 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.
o 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 a
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.
o This ruling was often applied to cases wherein the acceleration clauses were expressly optional as
opposed to absolute.
o 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.
o However, in Miles v. Hamilton, decided just before Fant, it was held under a like clause that default of
payment of interest when due rendered a note due at the time of the default and a subsequent payment
of interest and a part of the principal did not postpone the due date to the date of original maturity or a
new default.
In the interest of maintaining the stability and certainty of the law relating to negotiable instruments, the court
declined 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.