Opinion
G036693
5-4-2007
LIN KUEI YING KO et al., Cross-complainants and Respondents, v. SHYH HUANG LEE et al., Cross-defendants and Appellants.
Law Offices of Raymond Gaitan and Raymond Gaitan; Law Offices of Paul Taylor Smith and Paul Taylor Smith, for Cross-defendants and Appellants. Garrison & McInnis, Gregory M. Garrison and Amelia A. McDermott, for Cross-complainants and Respondents.
NOT TO BE PUBLISHED
Cross-defendants Shyh Huang Lee, Hsu Min Ling Lee, Lin Tsai Ching, and Kuan Jung Lin (the Lees) appeal from a judgment in favor of cross-complainants Lin Kuei Ying Ko and Hsi Ming Ko (the Kos). The court enforced a $460,000 promissory note between the parties, finding the Lees owed the Kos more than $140,000 in unpaid principal and interest. The Lees contend the judgment wrongly includes interest on their late and missed payments. We see no error, and affirm.
FACTS
The Lees bought a motel from the Kos in 1991. They executed a promissory note for $460,000 in favor of the Kos, secured by a deed of trust. The note required monthly payments of $4,900 each for 200 months, ending in December 1997. It stated an interest rate of 10.5 per cent per annum. It provided, "Each installment shall be applied first on the interest then due and the remainder on principal; and interest shall thereupon cease upon the principal so credited." It further provided, "all unpaid principal and accrued interest shall become immediately due and payable" in December 1997.
The Lees often paid late and missed payments. By December 1997, they owed over $80,000 in unpaid principal and interest. The Lees did make an additional payment of approximately $3,600 in October 1998.
Eventually, Yoon Sik Park and Han Hee Park bought the motel and filed a quiet title action against, inter alia, the Lees and the Kos. The Kos filed a cross-complaint against the Lees, seeking to quiet title and foreclose on the deed of trust. The Lees filed a cross-complaint against the Kos for reconveyance of the deed of trust.
After trial and supplemental briefing, the court found the Lees owed the Kos over $140,000 in unpaid principal and interest. The court granted the Kos motion to recover attorney fees and costs. The Lees separately appealed the underlying judgment and the attorney fees award.
DISCUSSION
The record suggests the Kos allocated each payment on the note between principal and interest by first calculating the daily interest accrued on the unpaid principal since the date of the previous payment. The Kos applied the Lees payment first to the interest owed, and applied the remainder to the principal. A late payment increased the amount of interest owed, which increased the portion of the payment applied to interest, thereby decreasing the portion applied to principal. The Kos used the remaining principal amount to calculate the accrued daily interest for the Lees next payment.
The Lees contend the court erred by adopting the Kos methodology for determining their debt. They contend the note simply required them to make monthly payments of $4,900 to cover principal and interest, plus one final balloon payment. In their view, interest stopped accruing on the date payment was due, no matter how late the payment was actually made. Thus, they assert the Kos effectively charged them either improper compound interest or an unauthorized late fee.
The Kos appropriately calculated the Lees debt, pursuant to the promissory notes unambiguous language. The note provided, "Each installment shall be applied first on the interest then due and the remainder on principal; and interest shall thereupon cease upon the principal so credited." The Kos did this precisely. Manifestly, interest cannot "cease" at the time the principal is credited, unless the interest was still accruing until that very moment.
The Kos ask us to review the courts interpretation of the promissory note for an abuse of discretion. But the note is unambiguous, and the Kos provide no record citations to any extrinsic evidence admitted to construe it. Thus, we will interpret it independently. (Parsons v. Bristol Development Co. (1965) 62 Cal.2d 861, 865.)
The Kos charged neither compound interest nor unauthorized late fees. The Kos simply continued to charge simple interest on unpaid principal. Simple interest, the Lees concede, is determined by multiplying the unpaid principal (P) by the interest rate (R) by the period of time for which the principal is borrowed (T): I = PRT. A late payment increases (T) — the period of time for which the principal is borrowed — thus increasing the amount of interest. As the Lees own cited treatise notes, "The measure of damages [for the failure to pay a sum of money] is interest on the delinquent payment from the due date until the money is paid." (10 Miller & Starr, Cal. Real Estate (3d ed. 2001) § 10:80, p. 257.) This additional simple interest on the unpaid principal is all the Kos charged, and they are entitled to it. It is neither compound interest nor a late fee.
Another treatise makes the point explicitly. "In the absence of a late-charges clause, the lender cannot impose an additional fee on the borrower for making a late payment [citation]; the lender should be entitled only to additional interest for the delay under [Civil Code] §[]3302." (Bernhardt, Cal. Mortgage and Deed of Trust Practice (Cont.Ed.Bar. 3d. ed. 2007) § 8.22, p. 598, italics added; accord Civ. Code, § 3302 ["The detriment caused by the breach of an obligation to pay money only, is deemed to be the amount due by the terms of the obligation, with interest thereon"].)
The Lees authorities are inapt. They contend that if the Kos wanted to charge additional simple interest on unpaid principal when the Lees paid late, the promissory note should have mimicked the contract language in Kawasho Internat. U.S.A., Inc. v. Lakewood Pipe Service, Inc. (1983) 152 Cal.App.3d 785, 788. But that case does not purport to set forth any mandatory contract language. The Lees note the contract in Curry v. Moody (1995) 40 Cal.App.4th 1547, 1553, expressly allowed for compound interest; accordingly, the case has no application here, where compound interest was neither allowed nor charged. The Lees cite South Bay Chevrolet v. General Motors Acceptance Corp. (1999) 72 Cal.App.4th 861, 872, fn. 5 (South Bay Chevrolet), for the proposition that charging daily interest is appropriate only on short-term commercial loans. Although that was the type of loan at issue in that case (see id. at p. 870), the case simply does not support the Lees overbroad proposition. And while the Lees correctly note the law disfavors forfeitures, the law surely favors timely payment of obligations. None of the Lees authorities suggest the promissory note absolved them from paying simple interest on the unpaid principal while it remained unpaid.
On the other hand, South Bay Chevrolet and a case neither party cites, Chern v. Bank of America (1976) 15 Cal.3d 866, may suggest the Kos erred by using the 365/360 method to calculate the Lees daily interest. (Id. at p. 876.) But the Lees do not challenge this specific aspect of the Kos debt calculation, waiving any error.
DISPOSITION
The judgment and postjudgment order are affirmed. The Kos shall recover their costs on appeal.
The Lees raise no independent challenge to the order awarding attorney fees and costs to the Kos, other than their challenge to the underlying judgment.
We concur:
OLEARY, Acting P. J.
ARONSON, J.