Westminster Investing Corp. v. Equitable Assur. Soc. of US

• Decision Date: 20 November 1970
• Docket Number: No. 23440.,23440.
• Citation: 443 F.2d 653
• Parties: WESTMINSTER INVESTING CORPORATION, Appellant v. The EQUITABLE ASSURANCE SOCIETY OF the UNITED STATES.
• Court: U.S. Court of Appeals — District of Columbia Circuit

443 F.2d 653 (1970)

WESTMINSTER INVESTING CORPORATION, Appellant v. The EQUITABLE ASSURANCE SOCIETY OF the UNITED STATES.

No. 23440.

United States Court of Appeals, District of Columbia Circuit.

Argued April 24, 1970.

Decided November 20, 1970.

Mr. Daniel Webster Coon, Washington, D. C., with whom Mr. Edmund D. Campbell, Washington, D. C., was on the brief, for appellant.

Mr. Allan I. Mendelsohn, Washington, D. C., with whom Mr. Henry H. Glassie, Washington, D. C., was on the brief, for appellee.

Before ROBINSON, MacKINNON and ROBB, Circuit Judges.

MacKINNON, Circuit Judge:

In this case the appellant borrower seeks to recover $39,679.17 in unearned interest it paid to the lender as part of the prepayment of a note secured by a deed of trust. By the terms of the note, prepayment was permitted on any regular quarterly date specified in the note for the payment of blended installments of principal and interest. The unearned interest claim arises out of the fact that the lender required the borrower to pay interest to the next regular payment date before it would accept prepayment of the entire indebtedness in the interim between the regular payment dates. We decide that the lender was within his rights in so doing and affirm the decision of the District Court.

Appellant, Westminster Investing Corporation (Westminster) has owned a piece of real property known as "Seven Corners" in Fairfax County, Virginia, since March of 1963. Westminster acquired the property subject to a first deed of trust held by the appellee. Equitable Life Assurance Society (Equitable). In 1968, Westminster made preliminary arrangements with Aetna Life Insurance Company (Aetna) to refinance the outstanding indebtedness of approximately $5.7 million bearing interest at 4½% and to increase it along with other Westminster properties to $22.5 million at 6%. This necessitated paying off the indebtedness to Equitable.

The Equitable note had originated in 1956 as a loan from American Security and Trust Company to the then owners for $8 million secured by a first deed of trust on the same piece of property. When Equitable purchased the note in 1957 it entered into a modification agreement with the borrower, the provisions of which control this controversy. The modification agreement provides for quarterly installment payments; that partial prepayments may be made up to $500,000 in any one loan year; any prepayment in excess of $500,000 in any loan year is "* * * subject to a prepayment charge of three percent on such excess during the fourth loan year and declining one quarter percent each loan year thereafter"; and that prepayment of the "whole of the principal balance" of the note may be made "on any regular quarterly installment due date" which the agreement specified was "the first day of each February, May, August and November. * * *"¹ By letter of September 30, 1968 from its vice president, Westminster informed Equitable that they intended to pay the loan in full on or about December 2, 1968. This date was in between the November and February regular quarterly installment due dates upon which such prepayment was authorized to be made by the terms of the note. The letter requested Equitable to "please confirm to Mr. Ralph Smith of the Title Company the amount necessary to pay off the loan on December 2nd and the daily interest due in case of any delays." It seems clear from Westminster's letter that they contemplated making the regular interest payment on November 1 and paying daily interest thereafter only until on or about December 2nd when the total payment of earned interest, principal and prepayment charge would be made. Equitable replied as requested in the Westminster letter by a letter to the title company handling the closing. This letter dated October 14, 1968, stated:

We have been informed that your office will handle a settlement on the above numbered mortgage in which our loan will be repaid in full.

In connection with the repayment of this mortgage, we have prepared the following statement of account.

                Balance of Principal            $5,569,007.02
                Interest due February 1, 1969       62,651.33
                Prepayment Charge                   49,916.58
                                               ______________
                       Total Due                $5,681,574.93
                

This statement of account has been prepared on the assumption that the installment due November 1, 1968 will be paid when due.

By this letter Equitable made it clear that they considered "the amount necessary to pay off the loan on December 2nd" included the unpaid principal, interest of $62,651.33 to February 1, 1969 (the next regular quarterly installment due date), as well as the prepayment charge of $49,916.58. The interest figure of $62,561.33 included unearned interest for the period from December 5, 1968 (the actual closing date) to February 1, 1969 amounting to $39,679.17 which is the subject of this action. Westminster's letter accompanying their checks turned over at the closing makes clear their disagreement with Equitable's statement of account. Westminster tendered one check for $5,641,895.76 to cover the unpaid principal, interest to December 5, 1968 and the prepayment charge and in the accompanying letter stated that: "Upon receipt of this check we hereby make demand upon you to take the necessary steps to release the deed of trust on the Seven Corners property securing said note." By the same letter, however, Westminster also tendered and paid under protest a second check for $39,679.17 for the amount of the unearned interest which Equitable claimed was required to be paid by Westminster for the period from December 5, 1968 to February 1, 1969.

In a tightening money market both Westminster and Equitable had ample reason to desire prepayment of this loan on December 5th. Westminster wanted the benefits of its 2-year-old agreements with Aetna for substantially increased financing of $22.5 million at a then favorable rate of 6%, and Equitable was presumably quite happy to receive payment of over $5.5 million which it could reloan at rates higher than the 4½% it was then returning. Their disagreement was handled by both parties in such manner that the question involving the unearned interest for the period from the date of payment to the next regular installment due date was preserved properly for judicial determination. Had Westminster prepaid the note on November 1, 1968, no question would have arisen as to the amount of interest due as the agreement allowed payment on that date. The issue in this case is caused by Equitable agreeing to accept payment to be made on December 5th in the interim between the regular quarterly installment due dates of November 1st and February 1st, a payment date that was not contemplated or provided for in the note agreement.

Westminster contends that the cashing of the $5,641,895.76 check it tendered for the lesser amount it claimed to be due, operates as an accord and satisfaction of the claim.² The fact however is that Westminster tendered two checks together, the second check being for the disputed amount. The proper view of the tender, acceptance of payment and the execution of the satisfaction of the deed of trust is that their acts did not constitute an accord and satisfaction and neither party waived any claim. Westminster tendered two checks which together totaled the full disputed amount because it wanted a clear title to the property on December 5th and did not want to wait until February 1st to get it. Equitable accepted payment by the two checks and satisfied the encumbrance. Had Equitable not done so they could have caused Westminster to suffer a considerable loss. At the time of the prepayment the parties did not have a meeting of the minds as to their respective legal rights and obligations under their written agreements or as to the consequences of their acts in paying and receiving the full sum claimed; all they did was to insure that neither party would be damaged pending the outcome of a judicial determination of their controversy.³ Since the intention of the parties at the payment stage is not dispositive of the question we are relegated to the terms of the note agreement where the parties did purport to come to an agreed understanding.

This is not a case of one party, holding a superior bargaining position, leading the other astray through economic coercion or fraud. Both parties are experienced in finance of this type and magnitude. The court's role is to fairly act as an arbiter of this dispute based upon the written agreement of the parties, their intentions, the accepted commercial usage and the applicable law.

Westminster maintains that at the very least the agreement is ambiguous and should be construed against the one who drafted it.⁴ But we find no ambiguity here. The written agreement between the parties is very clear in providing for prepayment of the "whole of the principal balance" on "any regular quarterly installment due date" and in not providing for prepayment at any other time. It is thus not a case of ambiguity, but the complete absence of any provision for prepayment between specified regular payment dates. So we are required to decide whether in connection with the receipt of an interim payment under an installment note, which makes no provision for interim payment, the law permits a lender to require the payment of unearned interest computed to the earliest payment date authorized in the agreement for the prepayment of the entire amount of the principal.

Although it has often been stated that a lender cannot be compelled to accept prepayment of a mortgage note even when the full amount of interest for the full term of the mortgage is tendered,⁵ we find it unnecessary to go this far in deciding the instant case. At the very minimum, it is clear that it is not inconsistent with the terms upon which this loan was made for the lender upon a request for prepayment to require payment of the full amount of...