Defendant mortgage company

Procedural Posture

Defendant mortgage company challenged the judgment of the Superior Court of Los Angeles County (California), in favor of plaintiff developer in a dispute over the terms of the prepayment clause of a promissory note related to a mortgage.

Overview: fraud elements california

Defendant mortgage company sought review of the lower court's judgment that ordered defendant to return a prepayment penalty to plaintiff developer in an action arising from a dispute over when plaintiff could repay the mortgage note without a penalty. On appeal, the court reversed and remanded for entry of judgment for defendant. Plaintiff had argued that the principles of waiver and estoppel barred defendant from assessing a prepayment penalty because defendant waived certain other late fees and defendant did not advise plaintiff of default on any payments. The court found that the prepayment penalty was for the privilege of exercising the option to prepay the note before it was due and was equivalent to unearned interest, therefore waiver and estoppel did not apply.

Outcome

The court reversed the judgment and remanded it to the lower court for entry of a judgment for defendant because the prepayment penalty was imposed for the privilege of paying the note early and to compensate defendant for the loss of interest anticipated by defendant on the note.