Ridgley v. Topa Thrift and Loan Association

ROBERT M. RIDGLEY et al., Appellants v. TOPA THRIFT AND LOAN ASSOCIATION, Appellant C.A. 2nd, No. B088215 S061765 California Supreme Court Filed July 9, 1997
        Petition for review GRANTED.



[Editor's Note - For your convenience we reprint below the Daily Journal's Ruling column brief which summarized the earlier decision of the lower court.]


CONTRACTS

Penalty Triggered by Prepayment On a Loan Is Not an Invalid Charge Or Forfeiture.
        The C.A. 2nd has held that a prepayment penalty provision was not invalid simply because it conditioned waiver on a lack of default.
        In 1990, Robert and Marlene Ridgley obtained a loan to build a luxury custom home for speculation and sale. When the home was almost complete, the Ridgleys obtained a bridge loan from Topa Thrift and Loan Association. Topa arranged to loan the Ridgleys $2.3 million for two years. The original loan agreement provided for a prepayment penalty of six months interest if the loan was paid off during the first five years. The Ridgleys obtained a revised agreement which provided that no prepayment penalty would be assessed after the first six months, provided that none of the payments during the life of the loan were late, and the loan did not go into default. The Ridgleys mistakenly understood this to mean that no penalty would apply if all of the first six months of payments were timely. The agreement was entered into on Dec. 21, 1990 and all of the payments were timely except the February 1991 payment. The house was sold in April 1991 and the loan was paid off. Topa demanded that the Ridgleys pay $114,622.42, which included the prepayment penalty, a demand fee, and late charges. The Ridgleys paid the penalty and filed a breach of contract action against Topa. Ruling in favor of the Ridgleys, the trial court held that the prepayment clause was a late charge and a penalty in the nature of an unenforceable forfeiture.
        The C.A. 2nd reversed. The prepayment provision was not made invalid by conditioning waiver on a lack of default. Since the penalty was triggered by the prepayment, it was a valid prepayment provision and not an invalid late charge or forfeiture. The trial court determined that the provision was a late charge as a matter of law, and did not make any findings on whether the provision was ambiguous or what it meant. The Ridgleys misunderstood the terms of the prepayment agreement. The only reasonable reading of the provision was that no penalty would apply after six months if all payments made during the life of the loan were timely. The Ridgleys' knew when the payments were due, but they failed to make the February 1991 payment on time. Even assuming that the Ridgleys were misled into believing that compliance with the rescheduled payment plan would have been acceptable, their payment was still made late. The prepayment penalty provision was not waived because Topa agreed to waive certain late charges associated with the late payment.
        Ridgely v. Topa Thrift and Loan Association, CA 2nd, No. B088215, filed March 27, 1997, by Woods, J.
        The full text of this case appears in 97 Daily Journal DAR on page, 4105, March 31, 1997.



98 Daily Appellate Report