Student Loan Marketing Ass'n v. Raja, WD

• Decision Date: 02 January 1996
• Docket Number: No. WD,WD
• Citation: 914 S.W.2d 825
• Parties: 108 Ed. Law Rep. 1302 STUDENT LOAN MARKETING ASSOCIATION, Respondent, v. Abdulrahman A. RAJA, Appellant. 50339.
• Court: Missouri Court of Appeals

Page 825

914 S.W.2d 825

108 Ed. Law Rep. 1302

STUDENT LOAN MARKETING ASSOCIATION, Respondent, v. Abdulrahman A. RAJA, Appellant.

No. WD 50339.

Missouri Court of Appeals,

Western District.

Jan. 2, 1996.

Motion for Rehearing and/or Transfer to

Supreme Court Denied Feb. 27, 1996.

J. Michael Murphy, Liberty, for appellant.

Keith J. Shuttleworth, Susan Saper Galamba, Buck, Bohm & Stein, P.C., Kansas City, for respondent.

Before BRECKENRIDGE, P.J., and ULRICH and LAURA DENVIR STITH, JJ.

LAURA DENVIR STITH, Judge.

Defendant-Appellant Abdulrahman Raja appeals from a trial court judgment against him and in favor of Plaintiff-Respondent Student Loan Marketing Association ("SLMA") in the total amount of $82,861.19 (which includes $50,202.58 in principal, plus interest and attorney's fees), the amount due and owing on three educational promissory notes.

This is the second appeal of this case. In the first appeal, Student Loan Mktg. Ass'n v. Raja, 878 S.W.2d 830 (Mo.App.1994), this Court affirmed summary judgment against Mr. Raja but found that the interest figure included in the judgment was duplicative. This Court thus remanded for the trial court to recalculate the amount of principal and interest owing on the three notes. In this second appeal, Mr. Raja contends the trial court erred on remand by not following the opinion and mandate of this Court on the first appeal regarding the calculation of principal and interest. Mr. Raja also contends there was not substantial evidence to support the trial court's findings as to the amount of interest due and owing.

We hold that the trial court did not err in its recalculation of interest and principal upon remand. While this Court held on the first appeal that the interest previously calculated was duplicative, it also specifically ordered the trial court to recalculate interest and principal on remand. To the extent the recalculation was based on evidence not available to this Court in the prior appeal, and which revealed that the principal and interest amounts sought were not duplicative, the trial court properly resolved any conflict in this Court's mandate by calculating the true and correct amount of interest owed based on the evidence then presented. Alternatively, this Court has the power on appeal to correct a mistake in its prior mandate. Finally, there was substantial evidence to support the trial court's finding of the amount of accrued interest.

I. FACTUAL AND PROCEDURAL BACKGROUND

This is the second appeal in this case involving three educational promissory notes between the borrower Defendant-Appellant Abdulrahman Raja and the lender Plaintiff-Respondent Student Loan Marketing Association ("SLMA").

Mr. Raja executed three promissory notes in the original amounts of $15,000, $6,000, and $5,000. The loan proceeds were disbursed to Mr. Raja on September 1, 1981 October 20, 1983, and June 10, 1983, respectively. These notes were health educational assistance loans, otherwise known as HEAL loans, to be used for postgraduate medical education.

SLMA is a congressionally-chartered private corporation which acts as a secondary market for the student loan industry. SLMA purchases student loans from private banks, returning funds to the banks so that additional loans can be made. In March, 1985, SLMA purchased Mr. Raja's three promissory notes from the original lender. As the purchaser of the notes, SLMA owns, holds and services the notes for the life of the loan.

Mr. Raja defaulted on the notes on September 30, 1988. As a result, SLMA filed suit against Mr. Raja seeking recovery of the amounts due, plus interest and attorney's fees.

On the first appeal of this case, Mr. Raja appealed from a grant of summary judgment in favor of SLMA on the three promissory notes in the amount of $50,252.21, designated as principal, plus $20,499.81 in pre-judgment interest awarded as of May 28, 1993. This Court upheld the grant of summary judgment in favor of SLMA. Student Loan Mktg. Ass'n v. Raja, 878 S.W.2d 830 (Mo.App.1994). The total amount of the judgment was not contested by either party. This Court, however, sua sponte remanded the case for a recalculation of the principal and interest amounts owing on the three promissory notes, stating as follows:

Unmentioned by either party to the appeal, the $50,252.21, denominated "principal" in the petition, and in the judgment, to which is added $20,499.81 pre-judgment interest, is incorrect. We deal with it as plain error under Rule 84.13(c). The $50,252.21 principal figure actually includes interest accrued to April 30, 1993, on the $6,000 note, and interest accrued to April 20, 1993, on the $5,000 and $15,000 notes. The $20,499.81 prejudgment interest item in the judgment is therefore duplicative. We remand to the trial court for recalculation of the principal and interest owing.

Id. at 832 (emphasis added).

SLMA filed a Motion for Rehearing in this Court, explaining that the amount denominated as "principal" included not only the original principal amounts of the loans, but also interest that had been capitalized into the principal as permitted by regulations regarding HEAL loans, 42 C.F.R. § 60.13(b), and the express language of the three promissory notes. Moreover, the $20,499.81 interest amount was not duplicative interest, but rather was interest which had accrued and had not been capitalized since Mr. Raja defaulted on the three notes in September, 1988. This Court denied the Motion for Rehearing. No Application for Transfer was filed in the Supreme Court.

Upon remand, the trial court conducted an evidentiary hearing at which new evidence was presented concerning how to recalculate the amount of principal and interest owing. David W. Twigg, the coordinator of HEAL loans for SLMA, testified regarding how SLMA calculated the principal balance and interest owed on the three promissory notes. Mr. Twigg explained that, under the HEAL loan program, interest begins to accrue immediately upon the disbursement of the loan proceeds to the student. The rate at which interest accrues is established by the Public Health and Welfare Act, 42 U.S.C.A. § 201 et seq. The interest rate is a variable rate which is based on the 90-day Treasury bill, plus 3.5 percentage points rounded to the nearest one-eighth percent. This rate changes quarterly based on the performance of the Treasury bill the previous quarter.

Mr. Twigg also explained that any accrued interest could be compounded or "capitalized" into the principal. The student has the option of making payments of principal and interest, or of making "interest-only" payments. These payments, however, can be deferred at the option of the student. If the student chooses to make interest-only payments, and then chooses to defer these payments, the interest that has accrued on the principal balance is "capitalized," that is, compounded, into the principal balance on a semi-annual basis.

The result is that the principal balance is increased by the amount of previously accrued interest and the interest owed is temporarily reduced to zero. This capitalization process is repeated semi-annually until the student begins to repay interest, and eventually principal. 42 C.F.R. § 60.13(b). ¹

If at any point the student borrower ceases making payment of accrued interest or principal, the loan goes into default and the capitalization process stops. Any interest which accrues between the time of default and the time of payment on the loan is not compounded into the principal, but rather continues to be treated as interest.

The evidence was that Mr. Raja executed three promissory notes. Interest began to accrue on each note immediately upon the disbursement of the loan proceeds to Mr. Raja, to wit, on September 1, 1981 for the $15,000.00 note; on October 20, 1983 for the $6,000.00 note; and on June 10, 1983 for the $5,000.00 note. The three promissory notes executed by Mr. Raja stated that interest could be capitalized in the manner described above if, as was the case here, Mr. Raja chose to make interest-only payments and to defer even those payments. Mr. Twigg explained that the interest due was thus capitalized into the principal.

SLMA purchased these notes from the original lender in March, 1985. Mr. Twigg testified that he had a document published by the Department of Health & Human Services which reflected the quarterly interest rates for the notes from the date of disbursement up and until SLMA purchased the notes. Mr. Twigg's figures where not challenged, and thus this document was not entered into evidence by counsel for SLMA. Rather, documents were entered into evidence which showed the total principal amounts (including capitalized interest up to that point) as of the time of purchase in March, 1985. Mr. Twigg testified that these figures were verified during a pre-note examination that was conducted by the SLMA purchasing staff. During this examination, the purchasing staff reviewed the records of the original lender to verify the amounts due.

Interest continued to be capitalized on Mr. Raja's notes until September 30, 1988, when Mr. Raja defaulted on the notes. Interest continued to accrue after that date, but was no longer capitalized. Mr. Twigg produced records which showed the interest rates charged on the notes from the date of purchase by SLMA, March, 1985, to the present. These indicated total principal amounts of $31,859.33, $9,928.31 and $8,414.94, respectively. The accrued interest on each note from the date of default, September 30, 1988, through October 21, 1994, the date of the evidentiary hearing, was $16,113.44, $4,865.21, and $4,149.57, respectively.

Mr. Raja did not offer any evidence to dispute this testimony.

Based on this evidence, the trial court found that accrued interest on the notes was capitalized into the principal through September 30, 1988. After that point, interest continued to accrue on the three notes, but was not capitalized. The trial court...