It is most important to express definitely and clearly the method of calculating interest on unpaid balances, but many forms of contract are ambiguous in this respect. For instance, they usually contain a clause similar to the following: "with interest at the rate of......per cent per annum on the unpaid portion of said purchase money." It is also common to specify whether this interest shall be calculated quarterly, half-yearly, or on certain specified dates.
The uncertainty is due to the use of the expression "unpaid portion of said purchase money," the exact interpretation of which probably depends upon the laws of the locality in which the contract is executed. In many states it will be interpreted to mean that, estimating on half-yearly periods, a calculation must be made at the time of each payment. In other words, when the purchaser makes a payment, the vendor must calculate the interest to that date, add this to the existing principal, and credit the payment made.
It is believed that under most of the existing laws the ambiguity of contracts in regard to interest could be removed by the following phrasing: "Interest shall be calculated half-yearly on the first day of......and the first day of......upon the balances remaining unpaid," or "Interest shall be payable half-yearly on the first day of......
and the first day of......and on being so calculated shall be added to the principal." The exact wording of this modifying phrase must be left to the attorney of the concern, for it will depend not only upon the wishes of the vendor, but also upon the laws under which he is living.