Rodgers v. Rainier Nat. Bank

• Court: Washington Supreme Court
• Writing for the Court: BRACHTENBACH; PEARSON
• Citation: Rodgers v. Rainier Nat. Bank, 757 P.2d 976, 111 Wn.2d 232 (Wash. 1988)
• Decision Date: 15 July 1988
• Docket Number: No. 54477-8
• Parties: S. Michael RODGERS and Marcia A. Rodgers, individually and the marital community comprised thereof, Respondents, v. RAINIER NATIONAL BANK, as Trustee for the Carpenters' Retirement Fund of Western Washington, Appellant.

Page 232

111 Wn.2d 232

757 P.2d 976

S. Michael RODGERS and Marcia A. Rodgers, individually and the marital community comprised thereof, Respondents, v. RAINIER NATIONAL BANK, as Trustee for the Carpenters' Retirement Fund of Western Washington, Appellant.

No. 54477-8.

Supreme Court of Washington En Banc.

July 15, 1988.

Reconsideration Denied Sept. 14, 1988.

Carney, Stephenson, Badley, Smith, Mueller & Spellman, William M. Wood, Sylvia Luppert, Seattle, for appellant.

Preston, Thorgrimson, Ellis & Holman, John A. Gose, Judith A. Bigelow, Seattle, for respondents.

BRACHTENBACH, Justice.

Debtors on a promissory note defaulted and the lender accelerated the maturity date pursuant to a default-acceleration provision. As a requirement for the debtor to avoid foreclosure sale, the lender demanded unaccrued interest for the period during which prepayment was prohibited, and also demanded a prepayment penalty which would have been due had prepayment occurred subsequent to that prohibition period. The question presented is whether the debtors can recover the unaccrued interest and the prepayment penalty which they paid under protest. The trial court answered in the affirmative and we agree.

Resolution of the issues is narrowly circumscribed by debtor's position that he "does not dispute that properly drawn prepayment provisions in loan documents are enforceable in the event of prepayment." Brief of Respondent, at 11. Since there is no challenge to the validity or enforceability of a prepayment fee under these facts, our analysis is restricted to an interpretation and application of the specific terms of this particular note to these particular facts.

This transaction arose from the financing of a commercial property owned by debtors. Rainier National Bank, acting as trustee for the Carpenters' Retirement Fund of Western Washington, agreed in a commitment letter to lend $1,312,000 to debtors. The transaction resulted in a promissory note secured by a deed of trust on the commercial property.

The note provided for interest at 13 percent per annum, principal and interest payable in monthly installments, due in full at the end of 10 years. The relevant note provisions are:

6. Prepayment

(a) This Note may not be prepaid in whole or in part (except to the extent of the regular monthly payments) during the first four loan years. Thereafter, the loan may only be prepaid in full and only by paying a prepayment fee. The prepayment fee shall be 5% during the fifth loan year and shall be reduced by 1% each loan year until such premium is 1%, which shall be the prepayment fee for the balance of the loan, except for the last month of the loan, at which time there shall be no prepayment premium.

Clerk's Papers, at 58.

7. Default

If any payment of principal or interest is not paid when due, or in the event of any default in the performance of any of the terms of this Note or the Loan Documents, then the entire principal sum and accrued interest shall at once become due and payable at the option of the holder of this Note, ...

(Italics ours.) Clerk's Papers, at 59.

The note was dated January 31, 1984, and debtors made monthly payments from February 1984 through April 1986. In a letter dated March 31, 1986, debtor's attorney expressed to trustee a desire to gain a reduction in the interest rate to facilitate a possible sale of the secured property. Trustee declined any modification. Thereafter debtors stopped monthly payments. Other than the March letter there is no explanation in the record of the reasons for default. In October 1986 lender sent borrowers notice of nonjudicial foreclosure and sale. The lender informed the borrowers they could reinstate the loan if by February 9, 1987, they paid the delinquent payments plus costs, but after February 9 they would be required to pay total principal plus accrued interest as well as unpaid and unaccrued interest charges for the first 4 years of the loan term during which prepayment was prohibited.

After the time to cure the claimed defaults, but before sale, debtor tendered unpaid principal plus accrued interest and costs. The trustee rejected the tender and additionally demanded the unaccrued interest through the first 4 loan years, and, for the first time, the 5 percent prepayment fee due for prepayment in the fifth year. In summary, the trustee demanded (1) principal in full, (2) interest to the date of payment of the principal sum, (3) costs and fees due for foreclosure proceedings, (4) interest from the date of tender of full payment of principal to the end of the fourth loan year and (5) the prepayment fee which would have been due upon prepayment during the fifth loan year. Debtor's challenge is to items 4 and 5.

Debtor paid the full amount demanded, paying items 4 and 5 under protest, received a full reconveyance from trustee and brought this suit. The trial court granted a partial summary judgment in debtor's favor in the sum of $205,637.78, plus pre- and post-judgment interest. No ruling was made on attorney fees or on a claimed violation of RCW 19.86. The calculations used to arrive at the judgment amount are not clear from the record, but neither party disputes in this appeal the sum awarded.

At the outset we must note that a number of assertions which might be relevant are not supported by this record. It is urged that the documents were drawn by the lender, the debtors were sophisticated borrowers, and that both parties were represented by competent counsel. It is urged that the default was deliberate, purposeful and intentional. Rainier describes the debtors' actions as a sophisticated orchestration to avoid their contractual obligations. The record does not disclose anything about the debtors other than the husband was an attorney. We do not know whether either party was represented by counsel. We do not know who drew the papers; both counsel stated in oral argument that neither of their firms had prepared the documents. Other than the March letter expressing an interest in a payoff or refinancing, the record is silent as to the reasons and circumstances of default. We know that the debtors refinanced for a greater amount than due Rainier, but there is nothing in the record to show why or on what terms. Consequently there are present here no elements of economic coercion, unwritten intent of the parties or reliance and we need not consider the relevance or consequence of such elements.

It is clear from the record that the Carpenters' Trust desired and needed the fixed return on its money for a set period of time. Unfortunately for the Trust the clear terms of the note do not...