443 F.2d 653 (D.C. Cir. 1970), 23440, Westminster Investing Corp. v. Equitable Assur. Soc. of United States

Docket Nº:23440.
Citation:443 F.2d 653
Case Date:November 20, 1970
Court:United States Courts of Appeals, Court of Appeals for the District of Columbia Circuit

Page 653

443 F.2d 653 (D.C. Cir. 1970)




No. 23440.

United States Court of Appeals, District of Columbia Circuit.

November 20, 1970

Argued April 24, 1970.

Page 654

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 4 1/2% 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

Page 655

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...

To continue reading