In re White, Bankruptcy No. 87-10548-JNG.
| Decision Date | 01 July 1988 |
| Docket Number | Bankruptcy No. 87-10548-JNG. |
| Citation | 88 BR 498 |
| Parties | In re Peter J. WHITE a/k/a Pufferbellies and Jeanne Marie White, Debtors. |
| Court | U.S. Bankruptcy Court — District of Massachusetts |
Jon D. Schneider, Goodwin, Procter & Hoar, Boston, Mass., for creditor-Wedgestone Realty Investors Trust.
Christopher W. Parker, Hinckley Allen Tobin & Silverstein, Boston, Mass., for debtors.
Wedgestone Realty Investors Trust ("Wedgestone") has filed a claim against the Debtors based upon a loan made in June of 1986 secured by four properties owned by the Debtors individually or as trustees of real estate trusts. Wedgestone's claim, as of January 1, 1988, totals $4,032,011.03. It consists of the remaining loan balance of $2,460,000, insurance premiums of $14,052.08, appraisal fees of $8,000, interest in the amount of $1,511,184.48 and attorneys' fees of $38,774.47. Substantially all the interest is due to the application of a default rate of 4% per month per annum since October 1, 1986. Wedgestone maintains that since January 1, 1988 interest at the default rate accrues at the rate of approximately $3,360 per day. The Debtors and the Creditors' Committee object to the allowability of a portion of Wedgestone's claim.1
The undisputed facts with respect to Wedgestone's claim are succinctly set forth in the joint pre-trial memorandum submitted to the Court by the Debtors and Wedgestone. Except for a few additional details and editorial changes, the Court will use the statement of facts adopted by the parties in their joint pre-trial memorandum.
On or about June 18, 1986, Peter J. White ("White") sought a loan from Wedgestone in the amount of $2,650,000. The purpose of the loan was to enable White to acquire a nightclub known as "Pufferbellies" and certain associated real and personal property located in Hyannis, Massachusetts. At that time, White, a sophisticated businessman, was operating, individually or through corporations he controlled, two other restaurants, namely "Vanderbilts" in Methuen, Massachusetts and "Pufferbellies" in Newton, Massachusetts. White proposed to secure the loan from Wedgestone with a mortgage on the Hyannis real property that would be subordinate to a $1,200,000 mortgage in favor of the sellers and with mortgages on three other parcels of real property in Newton, Massachusetts that he owned or controlled through realty trusts. Specifically, White proposed to grant Wedgestone a second lien on a commercial building on Needham Street, a first lien on a three family investment property on River Street and a first lien on the Debtors' residence and two adjacent lots on Wykeham road.
Less than one week later, Wedgestone, on or about June 22, 1986, issued a commitment letter with respect to the requested loan. The commitment letter indicated that interest would accrue on the principal amount of the loan at the prime rate plus 6% per annum (but not less than 14.5% per annum) prior to a default and at the rate of 4% per month after a default. In either case, interest would be payable on the first day of each month.
At the loan closing, Wedgestone declined to make the loan on the terms set forth in the commitment letter. Wedgestone asserted that White had failed to deliver the following documents required by the commitment letter:
White disputed Wedgestone's contentions, believing that any alleged failure on his part to deliver documents was not the true reason why Wedgestone declined to make the loan on the terms set forth in the commitment letter. Nevertheless, White, who was represented by an attorney at the closing, and Wedgestone agreed to modify various terms of the loan from those specified in the commitment letter as follows:
The parties did not alter the default rate of interest.
On June 26, 1986, in accordance with the modifications just identified, Wedgestone loaned White $2,710,000. A note executed by White and secured by various mortgages and security agreements evidenced the loan.
The note executed by White contains the default rate of interest provision at issue here. The provision provides:
In the event of (i) a default continuing uncured for five (5) days in making any payment of interest due hereunder, or (ii) default in making any payment of principal or other charges due hereunder, then during the period of any delinquency, which shall relate back to the date of original default, and after maturity (which shall mean the date stated above on which the entire balance of principal and interest is due and payable hereunder, or such earlier date on which the entire sum may become due and payable at the option of the holder following default as set forth above) this Note shall bear interest at the rate of four percent (4%) per month from the date such payment was due or from maturity, as the case may be.
The promissory note dated June 26, 1986 also contains the following late charge provision:
In the event any payment required hereunder is not paide sic within five (5) days of the date such payment is due the holder may, at its option, charge a late charge in the amount of five (5%) of such overdue payment.
Wedgestone duly perfected its mortgages and security agreements covering the real property and related personal property owned by White or by the realty trusts he controlled. White and his wife as trustees of the realty trusts also guaranteed the note.
The note provided that Wedgestone was entitled to recover from the Debtors its costs and expenses, including all reasonable attorneys' fees, in connection with the documentation of the loan, the collection of the note and the enforcement of its rights under the note or agreements securing the loan. The mortgages securing the loan also provided that Wedgestone could pay the premiums for insurance with respect to its collateral to the extent such insurance was required under the mortgages and then could add the amount of the premiums to the indebtedness secured by the mortgages.
Consistent with the final terms of the loan, the note required a prepayment of principal in the amount of $300,000. That amount was to be paid in two installments of $150,000 each on August 1, 1986 and September 1, 1986. At White's request, Wedgestone orally agreed to change the number of required installments. Wedgestone contends that the oral agreement contemplated three payments of $100,000 each on August 1st, September 1st, and October 1, 1986. The Debtors contend that the amount of the payment required to be made on October 1, 1986 was only $50,000. The Court heard evidence relative to this issue, which is the only serious factual issue in dispute. The issue is important because its resolution will govern when the Debtors defaulted under the note.
White made three principal prepayments on the note as follows: $100,000 on August 4, 1986, $100,000 on August 29, 1986, and $50,000 on October 6, 1986. On October 21st and 29th and on November 3, 1986, Wedgestone notified White in writing that it considered him to be in default on the note for having paid only $250,000 of the $300,000 in principal prepayments required by the terms of the note. On October 17th and November 17, 1986, Wedgestone sent interest payment notices to White notifying him that the principal balance of the loan was $2,460,000 and that the amount of interest due was $32,517.08 on November 1, 1986 and $99,044.58 on December 1, 1986. On November 30, 1986, John J. Heaney, treasurer of Wedgestone, sent a letter to White requesting that White confirm to Wedgestone's auditors that the principal balance of the loan was $2,460,000 and that interest was paid to November 30, 1986.
On November 19, 1986, Wedgestone purported to accelerate the maturity of the note based on White's failure to make the $50,000 principal payment. It demanded payment of the accelerated principal and accrued interest. White failed to pay the amounts demanded. However, the Debtors maintain that they were not in default until after January 26, 1987.
On December 4, 1986 and January 30th and February 3, 1987, Wedgestone again notified White that he was in default and that, accordingly, interest at the default rate was accruing. Again, the Debtors maintain that they were not in default until after January 26, 1987. Wedgestone received payments on account of the note after White's alleged default in the following amounts: $35,000 on October 6, 1986, $33,000 on November 7, 1986, $33,000 on December 9, 1986 and $32,000 on February 3, 1987. The Debtors maintain that such payments were mailed earlier than the dates indicated. Wedgestone maintains that the payments were all slightly less than the accrued interest due at the pre-default rate. White otherwise failed to make any payments to Wedgestone through March, 1987.
On March 31, 1987, Wedgestone notified the Debtors of the commencement of...
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In re White
...88 B.R. 494 (1988) ... In re Peter J. WHITE a/k/a Pufferbellies and Jeanne Marie White, Debtors ... Bankruptcy No. 87-10548-JNG ... United States Bankruptcy Court, D. Massachusetts (Boston) ... July 1, 1988.88 BR 495 Louis S. Robin, Foley ... ...