Dominion Sav. Bank, FSB v. Costello

• Decision Date: 26 February 1999
• Docket Number: Record No. 980758.
• Citation: 512 S.E.2d 564,257 Va. 413
• Court: Virginia Supreme Court
• Parties: DOMINION SAVINGS BANK, FSB v. C. John COSTELLO.

512 S.E.2d 564

257 Va. 413

DOMINION SAVINGS BANK, FSB v. C. John COSTELLO.

Record No. 980758.

Supreme Court of Virginia.

February 26, 1999.

Fred W. Palmore, III, Richmond (Benjamin M. Butler, Winchester; Mays & Valentine, Richmond; McKee & Butler, Winchester, on briefs), for appellant.

C. John Costello, pro se.

Present: All the Justices.

KINSER, Justice.

In this appeal, we consider whether two notes, which document the terms of repayment for two first mortgage real estate loans, provide for payment of interest in advance or on arrears each month. Because we conclude that the unambiguous terms of the notes provide for interest to be charged in advance, we will reverse the judgment of the circuit court finding that interest is to be paid on arrears.

I.

Dominion Savings Bank, FSB, (the Bank)¹ made two first mortgage real estate loans to C. John Costello (Costello). The loans are evidenced by two promissory notes, each dated December 12, 1986. One note is for the principal amount of $42,000, and the other note is for the principal amount of $133,000.²

The notes contain several provisions pertinent to this appeal. In the terms regarding payments, the notes require Costello to "pay principal and interest by making payments... on the 1st day of each month beginning on January 1, 1987[,]" and continuing until December 1, 2016, at which time any remaining amounts are to be paid in full. The notes also specify that "monthly payments will be applied to interest before principal." The only difference between the notes is the amount of the monthly payments. Under the $42,000 note, Costello's monthly payment is $376.38; whereas, the monthly payment on the $133,000 note is $1,191.84.

At the closing on both loans, Costello paid interest for the period from December 12 through December 31, 1986. He then began to make his scheduled monthly payments.³ Thus, when he made the initial payments on January 1, 1987, no interest had accrued on the loans. The Bank applied those payments first to the interest that would accrue during the month of January 1987, and then to the outstanding principal balances. The Bank applied each of Costello's subsequent payments in this manner. In other words, the Bank always collected interest in advance on the principal balances of the loans rather than on arrears.

On September 9, 1996, Costello filed a motion for judgment in which he alleged that the Bank had misallocated his payments between interest and principal and thus overcharged him in the amount of $2,243.82 on the two loans. According to Costello, the notes require that the Bank charge interest on arrears rather than in advance. In response, the Bank asserted, inter alia, that the notes do provide for interest to be collected in advance. Costello later amended his motion for judgment by adding a claim for fraud against the Bank.⁴

On December 17, 1997, the circuit court, after hearing argument from both parties,⁵ found that the terms of the notes are "clear and unambiguous" and that "[t]here is no provision in the payment provisions that would make this an interest in advance note." In a final order dated January 20, 1998, the circuit court awarded judgment in favor of Costello in the amount of $105.98 for the overpayment of interest on the paid-off $133,000 note. The court also reduced the outstanding principal balance on the $42,000 note to $36,627.38 in order to adjust for portions of payments that the Bank previously had credited to interest in advance rather than on arrears. Finally, the court directed that "interest shall be charged in arrears and not in advance" thereafter on the $42,000 note. The Bank appeals.

II.

The dispositive issue in this appeal is whether the circuit court erred by finding that the two notes do not provide for interest to be paid in advance each month on the outstanding principal balances of the two loans. Like the circuit court, we find that the terms of the two notes are clear and unambiguous. "[T]he question whether a contract is ambiguous is one of law," and "[a] contract is not deemed ambiguous merely because the parties disagree as to the meaning of the language they used to express their agreement." Ross v. Craw, 231 Va. 206, 212-13, 343 S.E.2d 312, 316 (1986). Furthermore, because this Court has "the same opportunity as the trial court to consider the words within the four corners" of an unambiguous contract, we are not bound on review by the trial court's construction of that contract. Christopher Assocs., L.P. v. Sessoms, 245 Va. 18, 22, 425 S.E.2d 795, 797 (1993).

"The guiding light in the construction of a contract is the intention of the parties as expressed by them in the words they have used, and courts are bound to say that the parties intended what the written instrument plainly declares." W.F. Magann Corp. v. Virginia-Carolina Elec. Works, Inc., 203 Va. 259, 264, 123 S.E.2d 377, 381 (1962). It is well-settled in contract law that "`where an agreement is complete on its face, is plain and...