Dugan v. Grzybowski

• Decision Date: 20 June 1973
• Court: Connecticut Supreme Court
• Parties: , 86 A.L.R.3d 591 Anna H. DUGAN v. Nicholas GRZYBOWSKI.

Page 97

332 A.2d 97

165 Conn. 173, 86 A.L.R.3d 591

Anna H. DUGAN v. Nicholas GRZYBOWSKI.

Supreme Court of Connecticut.

June 20, 1973.

Harry L. Nair, Hartford, for appellant (plaintiff).

Edward C. Krawiecki, Hartford, for appellee (defendant).

Before HOUSE, C.J., and SHAPIRO, LOISELLE, MacDONALD and BOGDANSKI, JJ.

SHAPIRO, Associate Justice.

In this action, the plaintiff, Anna H. Dugan, sought to foreclose a mortgage given to secure a promissory note. The defendant, Nicholas Grzybowski, successor in title to the original mortgagor, filed no answer or disclosure of defense and the court rendered judgment in favor of the plaintiff in the amount of $1904.92 as the unpaid principal balance of the mortgage debt, together with reasonable attorney's fees and costs. On the appeal, the plaintiff's only attack relates to the method the court used in fixing the amount of the unpaid balance due on the note. The plaintiff contends that the sum of $2896.09 was due her. Put simply, the parties' theory of computation, the principal unpaid balance would be $2896.09, whereas on the defendant's theory of computation that sum would be $1904.92.

The parties have no quarrel with respect to the facts. On November 15, 1962, Joseph Krukowski, predecessor in title to the defendant, executed a promissory note to the plaintiff. ¹ The note was secured by a mortgage on premises known as 22 Townley Street in the city of Hartford. By the terms of the note, Krukowski agreed to pay to the plaintiff the sum of $10,000 with interest at the rate of 6 percent per annum, payable monthly, on the unpaid balance of the note, together with all taxes levied on the note against the holder and costs of collection, including reasonable attorney's fees involved in collecting the note or foreclosing the mortgage. The note provided that the principal sum and interest were to be paid in monthly installments of $111.03, commencing one month from the date thereof and a like amount each and every month thereafter until the principal sum, with interest, was fully paid. The instrument further provided that each monthly installment would be applied first to the payment of interest on the unpaid principal of the note and the balance would be applied on account of the principal. The following clause was also contained in the note: 'The maker hereof reserves the right to anticipate any or all of said final installments before any of the same become due and payable.' The note contained no express maturity date.

During the first seventy-seven months of the life of the note, all payments with the exception of the sixty-first payment, were made. During the same period, fifty-two payments of $150 each, one payment of $140 and six payments of $100 each were made by the owner of the equity resulting in a net excess payment of $1878.20 over and above that required by the provisions of the note. No payments were made on the note after May 17, 1969, and the defendant was concededly in default.

The total amount paid on the note through May 15, 1969, the date of the last of the seventy-seven payments, was $10,427.51. Had the obligor of the note made payments of the precise amount of the monthly installment of $111.03 over a period of ten years, it is agreed that the total payments would have amounted to $13,323.60. The question which the court decided was whether the prepayment of an amount of $1878.20 over and above the amounts due monthly reduced the unpaid principal. The plaintiff asserted at the trial and presses again her contention on appeal that she is entitled to 'her full investment of principal and interest computed on the note to maturity, whether or not pre-payments are made.' The plaintiff insists that the sum of $2896.09 is due her to bring the total amount of the note to $13,323.60, despite the plain provision of the note giving the mortgagor the right to anticipate 'any or all' of the final installments.

In the discussion of general principles applicable to this dispute, both parties cite Abbe v. Goodwin, 7 Conn. 377, 384. That case entailed a mortgage secured by four promissory notes maturing on different dates. None of the notes contained a prepayment provision, and this court simply held that without a prepayment clause, the mortgagor could not compel the mortgagee to accept payment or to discharge the mortgage before it is due. That rule, which is not questioned here, is elementary. See Trahant v. Perry, 253 Mass. 486, 489, 149 N.E. 149; Peter Fuller Enterprises, Inc. v. Manchester Savings Bank, 102 N.H. 117, 152 A.2d 179; cf. Bloomfield Savings Bank v. Howard S. Stainton & Co., 60 N.J.Super. 524, 159 A.2d 443. See generally, 2 Jones, Mortgages (8th Ed.) § 1137; 3 Powell, Real Property, p. 656 n. 4; 59 C.J.S. 695 Mortgages § 447(a). ²

The question before the court involved the interpretation of the prepayment clause in the mortgage note: 'The maker hereof reserves the right to anticipate any or all of said final installments before any of the same become due and payable.' The court, accepting the defendant's theory, concluded that the defendant owed $1904.92 as the unpaid principal balance of the mortgage debt, and not $2896.09, the amount claimed by the plaintiff. The court arrived at the lower figure by computing interest due on the unpaid principal when a payment was made. As the court noted in its memorandum of decision, the purpose of the anticipatory clause in the promissory note whereby any advance payments were to be credited on the 'final installments' was to protect the lender. Specifically, the fact that the borrower had made an advance payment would not relieve him from his obligation to pay the next regular monthly installment; rather, an advance payment would only make the life of the note shorter. In support of its conclusion, the court reasoned that if the mortgagor could compel the mortgagee to accept payment one month after the date of the mortgage, the plaintiff's interpretation would create an unconscionable result: on the plaintiff's theory, the mortgagor would owe $3323.60 for one month's use of $10,000. The court observed that such a result seemed not only unconscionable but bizarre.

We agree with the court but on different grounds. Of course, if a provision is susceptible of two interpretations, that which is more fair, reasonable and rational is to be preferred. Perruccio v. Allen, 156 Conn. 282, 286, 240 A.2d 912; People v. New England Lumber & Box Co., 107 Conn. 724, 726, 142 A. 387; Volk v. Volk Mfg. Co., 101 Conn. 594, 602, 126 A. 847. The plaintiff's theory collapses, however, not simply because it would lead to bizarre or unconscionable results, but because it ignores the note provision in the note: '(It is) agreed that each monthly installment shall be applied, first, to the payment of interest on the unpaid principal of this note, and the balance on account of the principal of this note.' (Emphasis added.) This provision for monthly amortization provides the clue to the interpretation of the prepayment clause. It unequivocally allocates each payment first to earned interest as of the date of payment, and the remainder of that payment to the reduction of outstanding principal. The plaintiff's theory is inconsistent with the operation of this provision, since it calls for the allocation of any advance payment or overpayment to the payment of unearned interest rather than to the direct reduction of principal. This allocation, in turn, would defeat the prepayment privilege by attaching what would be essentially a penalty for prepayment. Under the terms of the note, the plaintiff was entitled to recoup her investment in terms of principal and interest, which, in the business world, means compensation for the use of forbearance of money. Commissioner of Internal Revenue v. Meyer, 139 F.2d 256 (6th Cir.); cf. Wilshire Holding Corporation v. Commissioner of Internal Revenue, 262 F.2d 51, 53 (9th Cir.). Although the plaintiff has devised an ingenious argument, the court's interpretation was more in harmony with the rules of construction which dictate giving effect to all the provisions of a contract, construing it as a whole and reconciling its clauses. Weil v. Beresth, 154 Conn. 12, 19, 220 A.2d 456; Byram Lumber & Supply Co. v. Page, 109 Conn. 256, 265, 146 A. 293. Where two clauses which are apparently inconsistent may be reconciled by a reasonable construction, that construction must be given, because it cannot be assumed that the parties intended to insert inconsistent and repugnant provisions. Eastern Bridge & Structural Co. v. Curtis Building Co., 89 Conn. 571, 576, 94 A. 921.

With respect to the words 'final installments' in the anticipation clause, the plaintiff insists that an amortization schedule which she introduced into evidence supplies the only acceptable definition. It is unknown whether such a schedule was discussed by the mortgagor and mortgagee or if the exhibit was in existence at the time the mortgage was executed. This printed schedule, which was neither part of the note nor referred to therein, contemplated 120 monthly payments in equal amounts of $111.03 and was obviously designed to aid the mortgagee in computation. By itself, the schedule constitutes a document extraneous to the contract between the parties. Although it might be evidence of the plaintiff's motives, still the controlling...