October 16, 1980 Subject:
Interest; Judgment.
Requested By:
Sanford Steelman, Esquire, County Attorney Union County
Question:
What is the rate of interest applicable to a judgment rendered in an action on a promissory note?
Conclusion:
As to judgment entered prior to July 1, 1980, 6%. As to judgments entered on and after July 1, 1980, 8%.
G.S. § 24-1 provides:
"The legal rate of interest shall be eight percent (8%) per annum for such time as interest may accrue, and no more."
The legal rate raised from 6% to 8% by Session Laws 1979, (Second Session 1980) Chapter 1157, § 1. Section 8 of the same Act provides:
"This Act shall not apply to judgments entered prior to July 1, 1980."
Other provisions of Chapter 24 provide for charging interest at other or higher rates than 8%.
Prior to judgment interest accrues at the contract rate, G.S. § 24-3, and the jury must distinguish principal and interest in its verdict, G.S. § 24-5. Interest from verdict to the entry of judgment is added, at the contract rate, to the costs, G.S. § 24-7.
At the common law the taking of any interest was an indictable offense. Interest is now purely statutory, being chargeable in such cases and to such extent as is expressly allowed by statute. Smith v. Old Dominion Building and Loan Association, 119 N.C. 249, 26 S.E. 41 (1896). G.S. § 24-5 provides:
"All sums of money due by contract of any kind, excepting money due on penal bonds, shall bear interest, and when a jury shall render a verdict therefor they shall distinguish the principal from the sum allowed as interest; and the principal sum due on all such contracts shall bear interest from the time of rendering judgment thereon until it is paid and satisfied. . . ."
In, McNeill v. Railroad, 138 N.C. 1, 50 S.E. 458 (1905) our court said: "At common law a judgment did not carry interest when an execution or sic. fa. was issued upon it. In an action upon the judgment the plaintiff could recover interest by way of damages for the detention of money. The statute was passed for the purpose of amending the law in this respect. Collais v. McLeod, 30 N.C. 221. The intent was that principal should bear interest in this case as in all others, because it was just and right that it should, and that the technical rule of the common law should no longer stand in the way. The sole purpose was to have it appear on the record what sum will carry interest after judgment."
While the parties may contract for the payment of a rate higher than 8%, the plaintiff, by prosecuting his claim to judgment, acquires an obligation of a different character from the obligations of the contract. A cause of action on contract or tort loses its identity when merged in a judgment; and thereafter a new cause of action arises out of the judgment. McDonald v. Dickson, 87 N.C. 404 (1882). These same rules are stated in Restatement Judgments 2d, § 47, (Tentative Draft No. 1 1973). Comment (a) to that section says:
"When the plaintiff recovers valid and final personal judgment, his original claim is extinguished and rights upon the judgment are substituted for it. The Plaintiff’s original claim is said to be "merged" in the judgment. . . ."
Thus, a judgment draws interest at its own rate, in this state, since July 1, 1980, 8%.
While Bank v. Burnette, 38 N.C. App. 120, 247 S.E. 2d 648 (1978), rev’d on other grounds, 297
N.C. 524, 256 S.E. 2d 388 (1979) would appear, at first blush, to be contrary, a careful reading of the opinion discloses that the issue in that case was the plaintiff’s right to interest at the contract rate from the time of the filing of the complaint, not the rate of interest applicable to the judgment which was rendered in its favor.
Rufus L. Edmisten Attorney General
David S. Crump Special Deputy Attorney General Special Assistant to the Attorney General