DeKalb County v. United Family Life Ins. Co.

• Citation: 219 S.E.2d 707,235 Ga. 417
• Decision Date: 16 October 1975
• Docket Number: No. 29904,29904
• Parties: , 84 A.L.R.3d 938 DeKALB COUNTY v. UNITED FAMILY LIFE INSURANCE COMPANY.
• Court: Supreme Court of Georgia

Page 707

219 S.E.2d 707

235 Ga. 417, 84 A.L.R.3d 938

DeKALB COUNTY v. UNITED FAMILY LIFE INSURANCE COMPANY.

No. 29904.

Supreme Court of Georgia.

Oct. 16, 1975.

Rehearing Denied Oct. 28, 1975.

Harvey, Willard & Elliott, Wendell K. Willard, Decatur, Huie, Brown & Ide, Tom Watson Brown, Charles N. Pursley, Jr., Atlanta, for appellant.

Heyman & Sizemore, William H. Major, Atlanta, for appellee.

JORDAN, Justice.

This is a certiorari to the Court of Appeals. United Family Life Ins. Co. v. DeKalb County, 134 Ga.App. 1, 213 S.E.2d 123. In July, 1974, DeKalb County brought a land condemnation proceeding to acquire land necessary for construction of a public transportation system by the Metropolitan Atlanta Rapid Transit Authority. United Family Life Insurance Company, one of the condemnees, held a deed to secure debt on the condemned property. The deed to secure debt was evidenced by a promissory note to United Family executed by Ralph E. Berger, who was also named as a condemnee. The promissory note made the following provision with regard to prepayment of interest: 'No right to prepay for five years; privilege to prepay in full or in part beginning the fifth year at a 5% penalty declining 1/2 of 1%. Penalty shall be calculated on the unpaid principal balance of the loan. In any case, thirty days notice of intent to make a prepayment must be given in writing.'

As of August 1, 1974, the prepayment penalty which would be due should the mortgagor choose to prepay under the circumstances contemplated in the promissory note amounted to $48,162.44. The principal amount of the note, dated October 28, 1971, was $225,000.

United Family claimed the prepayment penalty as an element of damage in the condemnation. Such award was refused by the Special Master. United Family filed exceptions in DeKalb Superior Court, wherein the Special Master's award was upheld. Upon appeal, the Court of Appeals ruled the prepayment interest penalty was an element of damage under the Georgia Relocation Assistance and Land Acquisition Policy Act of 1973 (Acts 1973, p. 512; Code Ann. § 99-3701 et seq.) if such award would be reimbursed by the Federal Government. We reverse.

Article 1, Section III, Paragraph I of the 1945 Constitution mandates that just and adequate compensation must be paid before private property may be taken by the state. This mandate is declaratory of common law principle that property may not be taken without compensation. Young v. McKenzie, 3 Ga. 31 (1847).

Just and adequate compensation has been judicially defined in Georgia as the fair market value of the property at the time of the taking. State Highway Board v. Warthen, 54 Ga.App. 759, 189 S.E. 76 (1936). State Highway Dept. v. Howell, 119 Ga.App. 606, 168 S.E.2d 213 (1969).

Unlike other jurisdictions, Georgia does not statutorily restrict compensable elements of damage in eminent domain proceedings, but instead relies on a system of case-by-case adjudication. This was referred to in footnote 1 in the Colorado case of Auraria Businessmen Against Confiscation, Inc. v. Denver Urban Renewal Authority, Colo., 517 P.2d 845 (1974), citing Bowers v. Fulton County, 227 Ga. 814, 183 S.E.2d 347 (1971).

United Family contends that the nonpayment of the prepayment penalty not only amounts to failure of just and adequate compensation, but also works a constitutionally proscribed impairment of contract. A contract is obviously a property right, and the sort of taking or damaging which poses the constitutional requirement of just and adequate compensation may be any species of property. Woodside v. Atlanta, 214 Ga. 75, 83, 103 S.E.2d 108 (1959). As property, contracts may be condemned. City of Atlanta v. Airways Parking Company, 225 Ga. 173, 175, 167 S.E.2d 145 (1969). There is thus no need to reach the constitutional issue of impairment of contract, because United Family's right to money from its mortgages is by operation of law transmuted to a claim for money paid in the condemnation process.

The measure of value of the contractual right condemned was considered by the Florida court in Associated Schools, Inc. v. Dade County, Fla.App., 209 So.2d 489 (1968). The District Court of Appeals held therein that since Florida had previously held in Shavers v. Duval County, Fla., 73 So.2d 684 (1954), that when there was no right to prepayment, a mortgagee was not entitled to receive an amount from the proceeds equal to his unearned interest; he therefore would not be entitled to prepayment penalties. Both Associated Schools and Shavers were cited with approval by the Appellate Division of the Superior Court of New Jersey in Jala Corp. v. Berkeley Savings & Loan Assn., 104 N.J.Super. 394, 250 A.2d 150 (1969). Jala involved a factual situation quite similar to the one at bar. The court in Jala dismissed as 'frivolous' the contention that the prepayment charge might be considered as a loss incidental to the condemnation. Jala, p. 402 250 A.2d at 154. The New Jersey court also quoted with approval the following excerpt from Shavers: 'It would be unfair and contrary to the principles of equity and good conscience for the mortgagee to have the principal of the note and the free use and enjoyment thereof and at the same time require the mortgagor or the condemnor to pay it interest on that same principal for no other reason than that a naked legal provision of the note and mortgage, at the time it was executed, required that the mortgagor should do so.' Jala, p. 399, 250 A.2d p. 153.

At this point it should be noted that the promissory note made by Berger was dated October 28, 1971. The instrument expressly stated that there was to be no right to prepayment for five years. The property was condemned less than five years from the making of the note. Therefore, this fact situation is peculiarly analagous to the one considered in Chestnut Corp. v. Bankers Bond and Mortgage Co., 395 Pa. 153, 149 A.2d 48 (1959).

In Chestnut, the question was if when a mortgaged building was destroyed by fire, the mortgagee was entitled to recover a prepayment premium out of the proceeds of the fire insurance. The Pennsylvania court reasoned its decision on the voluntariness of the prepayment, and the ability of the mortgagee to provide for such a contingency in the debt instrument: 'Neither the bond nor the mortgage specifically or expressly provides for the exact situation which has arisen, namely, a prepayment of the entire principal loan with interest during the premium period, due not to a voluntary election of prepayment but to a fire. If defendant (the obligee-mortgagee) believed it should be entitled to the premium under these circumstances it could easily and should have so provided in the bond and/or mortgage. In the absence of such a provision we believe that defendant who received the entire unpaid principal and accrued interest of its mortgage is not entitled to the prepayment premium.' P. 156, 149 A.2d p. 50.

This reasoning is applicable to the case at bar because, due to the express term of the note; it cannot be contended that United Family is claiming a premium for the exercise of a right bargained for with Berger. Berger, in fact, had no right whatsoever to prepay for a period of five years from the date of the making of the note.

Since United Family cannot claim the premium as the negotiated price for the sale of a right, it must be considered what, if any, economic loss it has suffered. This consideration is based on the theory that the condemnation has deprived United Family of a valuable property right. However, since there is no showing in the record that United Family cannot reinvest its funds at an interest rate equivalent to or higher than the interest rate provided for in the mortgage, it has suffered no real damage. 44 Tex.L.Rev. 1534. Therefore, United Family has suffered no damage which could not have been provided for by the contract, and, in fact, shows no real economic loss. To allow award of the prepayment penalty would be to allow speculative damages, since it is unforeseeable whether or not the mortgagor would ever choose to prepay as provided for in the contract. It is basic that in case of breach of contract, for whatever reason, justice requires nothing more than compensation measured by the amount of harm suffered. 5 Corbin on Contracts 280 (1951).

United Family argues that the validity of prepayment penalty costs is specifically recognized by Public Law 91-646, enacted in the first session of the 91st Congress on January 2, 1971, and is made a part of the costs of acquisition. The Court of Appeals accepted this argument when it stated in its decision that the Georgia Relocation Assistance and Land Acquisition Policy Act of 1973 (Acts 1973, pp. 512, 513, Code Ann. § 99-3702 et seq.) controlled its decision. The Georgia Act provides in part as follows at § 99-3705: 'The Several Public Entities are hereby authorized to and shall make or approve the payments required by Section 305(2) of the Uniform Relocation Assistance and Real Property Acquisition Policies Act of 1970, Public Law 91-646, 91st Congress, approved January 2, 1971, for expenses incident to the transfer of real property acquired by any of the Several Public Entities, prepayment of mortgage penalties, and a pro rata portion of real property taxes on real property acquired by any of...