Opinion
No. C95-00932
July 11, 1997
FINDINGS OF FACT, RULINGS OF LAW, AND ORDER OF JUDGMENT
Plaintiffs seek a declaration that the promissory note executed on February 18, 1989, in favor of the defendant is not in default and a permanent injunction barring the defendant from taking any steps in furtherance of the foreclosure and sale of the property which secures the note. Plaintiffs contend that, when the defendant sought authorization to foreclose pursuant to a complaint filed in Bristol County Superior Court, the defendant incorrectly asserted that the plaintiffs were in default. The complaint alleges that the defendant misapplied funds that should have been credited to the mortgage toward the satisfaction of a separate and independent loan. For the reasons set forth below, the plaintiffs are not entitled to the relief requested.
FINDINGS OF FACT
Based on all the credible evidence and reasonable inferences drawn from that evidence, the court finds the following facts:
The plaintiffs, Maria C. Oliveira ("Oliveira") and her daughter and son-in-law Maria Machado and Antonio Machado, are the joint owners of a parcel of real estate at 32 Quequechan Street in Fall River. That parcel includes a three family and two family residence. Compass Bank for Savings is the holder of a mortgage given to it by the plaintiffs on February 14, 1989, secured by the land, building, and improvements at 32 Quequechan Street. The defendant Maria C. Rego ("Rego") is the holder of a subsequent mortgage given to her and her husband, Manuel B. Rego, on or about February 18, 1989; it is secured by the same land, building, and improvements at 32 Quequechan Street. This subsequent mortgage was granted by the plaintiffs to secure payment of a promissory note, dated February 18, 1989, in the amount of forty thousand dollars.
Mr. Rego died in 1990. The mortgage and note were in favor of the Regos "as joint tenants and to the survivor or them."
The Regos were the sellers of the parcel at 32 Quequechan Street. Prior to the sale, they occupied one of the five units of housing located at that site. The plaintiffs were the buyers of the property. The sales price was $185,000. To enable the plaintiffs to purchase the real estate, the Regos agreed to lend the plaintiffs $40,000. The promissory note calls for payments to be made annually in the sum of $6969.60. It permits the makers of the note to pay the whole or any portion of the principal before maturity. The promissory note also provides that, in the event of any default in making the required payments, the entire balance of the note shall become immediately due and payable unless excused by the holder.
The note provides that the forty thousand shall be payable over ten years "in installments as follows: FOUR THOUSAND . . . DOLLARS per year plus interest at the rate of Twelve . . . percent per annum . . . Payments shall be made annually in the amount of $6969.60."
The makers also agree to pay all costs or expenses incurred in the collection of any sum due under the note, including reasonable attorney's fees.
In connection with execution of the promissory note and second mortgage, on February 19, 1989 and February 24, 1989, Oliveira received four checks totaling $49,000. The extra nine thousand was paid because Oliveira, who was aware that the Regos would be going to Portugal, orally had requested that the Regos provide her with nine thousand dollars in Massachusetts and, in return, she agreed to repay the equivalent amount in escudos to them in Portugal in May of that same year. The Regos orally agreed to this business transaction. No note or written agreement was executed, but Oliveira gave Rego a personal check, payable in escudos, drawn on Oliveira's account in a bank in Portugal as security for the currency exchange agreement.
The plaintiff's testimony to the effect that the deal was to make an exchange with Portuguese money because the Regos were going to Portugal, but that there was no time frame for the payment and the Regos never asked when they would be repaid strains credulity. Rego does not appear to be a stupid person.
On May 12, 1989, in Portugal, Oliveira's agent paid Manuel Rego the sum of $8,967.79, in Portuguese currency, which Manuel Rego accepted in full satisfaction of the nine thousand dollars that had been provided to Oliveira in the United States. At the time he received the funds, Manuel Rego gave Oliveira's agent the check that the Regos had been given by Oliveira as security. I do not credit Oliveira's testimony that she intended the May payment to be an advance payment on the promissory note. I infer from all the circumstances — the oral agreement made when the nine thousand dollars was given, the timing of the payment, the amount of the payment, the failure of Oliveira or her agent to tell Mr. or Mrs. Rego that the 1989 payment ought to be allocated to the second mortgage, and the very different due dates and amounts set forth in the promissory note — that Oliveira intended the money paid in Portugal in 1989 to constitute her execution of the second half of the foreign exchange agreement.
Indeed, referring to the nine thousand dollars, the plaintiff herself testified that the Regos gave her dollars in America "and they got the money in Portugal because at that time I had money there." Other than the 1990 and 1991 mortgage payments, the only other money the Regos "got" in Portugal was the money paid to them in May. Similarly, in response to her attorney asking whether she did anything other than exchange money to assist them, Oliveira stated "No." The suggestion that the Regos did not want the exchange carried out in May because they were engaged in some unspecified nefarious scheme to defraud the Internal Revenue Service is totally lacking in evidentiary support. Oliveira's similar suggestion that the Regos committed tax fraud by not disclosing the entire sales price to the Internal Revenue Service is contradicted by their return which discloses the full amount of the sales price, albeit on two separate schedules because the aggregate sum was properly allocated between sale of a personal residence and sale of business property.
Under the terms of the promissory note, the first payment of $6969.60 was due on February 18, 1990. On February 14, 1990, in Portugal, Oliveira's agent paid Rego the equivalent of $6,970 in Portuguese currency. Later that year, when Rego was in Fall River, Oliveira met with her at Rego's sister-in-law's house. At that time, she said that wanted to see the mortgage papers because, for some unspecified reason, she thought that they were not right. Rego told her that her papers were in Portugal, but that she should contact Rego's attorney. Neither during their meeting, nor at any other time in 1990, did Oliveira offer to prepay the total amount outstanding on the note plus nine thousand dollars; she did not offer to pay what was owed on the mortgage; she did not offer to pay $20,000 to pay off the second mortgage; she did not attempt to hand money or a check to Rego. The plaintiffs did not offer to prepay anything in 1990. At the time of the alleged offer to prepay, the plaintiffs lacked the ability to reduce their indebtedness to Rego on the promissory note to zero.
Oliveira testified that she believed that she owed Rego $23,000 on the second mortgage in 1990 when she allegedly offered to prepay the note, but that she "would give her $20,000 and that would be it."
I do not believe Oliveira's testimony that, in 1990, she offered to pay everything owed on the second mortgage plus the unrelated nine thousand dollars to Rego or that Rego told her that she did not have to repay the nine thousand dollars.
Under the terms of the promissory note, the second payment of $6969.60 was due on February 18, 1991. Oliveira met with Rego at Rego's sister-in-law's house and offered to give her the 1991 payment in cash. Rego declined to accept the cash and told her that she wanted the 1991 payment to be paid in Portugal. When they met, Oliveira did not offer to prepay the total amount outstanding on the second mortgage; she was prepared to pay only the February 1991 payment. The plaintiffs did not offer to prepay anything in 1991. Other than funds for the 1991 payment, Oliveira did not attempt to hand currency to Rego; she did not attempt to hand a check to Rego. On February 27, 1991, in Portugal, Oliveira's agent paid Rego the equivalent of $6,970 in Portuguese currency.
Under the terms of the promissory note, the third payment of $6969.60 was due on February 18, 1992. It was not paid. I do not believe that it was not paid under the belief that such omission was permissible due to Oliveira's having paid approximately nine thousand dollars to Manuel Rego on May 12, 1989.
When she did not receive the February 1992 payment, Rego, who was in Portugal, telephoned Oliveira and told her that she needed the money. Oliveira stated that she did not have the money, but expected to receive funds from a pending lawsuit which she would use to make the payment. In a subsequent conversation in 1992, she requested an additional two to three months to come up with the money; Rego consented; when that time was up and still no money had been paid, Rego again called Oliveira and told her that she needed the money and could not wait any longer. Rego did not intend to waive her right to accelerate and said nothing that would lead Oliveira to believe that acceleration was waived. She did not excuse the plaintiffs' default.
Upon Rego's return to the United States in February of 1993, she spoke with Oliveira in person. Rego told her that she needed the money and Oliveira responded that she did not have the money but was trying to come up with the money for 1992. When asked about the February 1993 payment, Oliveira said that she would give Rego seven thousand dollars, but no more, because she had no more money to give. Rego's response was to advise Oliveira that she intended to contact her lawyer. She did not express willingness to accept $7000 in full payment of the amount then owing. She did not intend to waive her right to accelerate. She did not excuse the default. Oliveira and Rego did not meet again. On or about March 5, 1993, Maria Machado delivered a check in the amount of seven thousand dollars to Rego, which Rego accepted without comment. She took the check to her attorney. She did not intend to waive her right to accelerate. At no time did she advise Oliveira, Maria Machado, or Antonio Machado that any default under the promissory note had been excused or that she was relinquishing her right to accelerate. No further payments were made by the plaintiffs to the defendant. There is no credible evidence that the plaintiffs have ever offered to prepay the full amount outstanding under the promissory note. At no time has Oliveira, Antonio Machado or Maria Machado proffered currency or a check to Rego for the full amount outstanding under the promissory note.
Pursuant to an order of this court, the sum of $13,939.20 has been put in escrow.
On August 30, 1993, Rego commenced an action against the makers of the note; that complaint alleged that the mortgage was in the default and sought an order permitting the foreclosure of the mortgage by entry and possession and by the exercise of the power of sale. When Rego commenced the foreclosure action, the mortgage was in default as to the payment of principal and interest. Assuming that the payment made in 1993 was allocated to 1992, the 1993 payment was in default. The default had not been excused. Rego had not waived her right to accelerate. No answer or other response was filed by Oliveira, Antonio Machado, or Maria Machado. The court ordered that they be defaulted and, on April 6, 1995, the court issued an order authorizing foreclosure. When the order authorizing foreclosure was entered, the mortgage remained in default as to the payment of principal and interest. This suit followed. The mortgage is still in default as to the payment of principal and interest.
RULINGS OF LAW Application of the May 12, 1989 payment
Plaintiffs' argument that the May 12, 1989 payment of $8967.79 was required to have been applied to the $40,000 loan is not supported by the facts or the law. The parties mutually intended that the May 12, 1989 payment be performance of Oliveira's obligation under the $9000 foreign exchance agreement. There was no agreement that it be applied to the note secured by the mortgage. Furthermore, Oliveira communicated no desire that the $8967.79 be applied to the $40,000 loan when the funds were passed in 1989. When a borrower has multiple debts, she maintains the right to direct the application of a payment. Warren Bros. Co. v. Sentry Insurance, 13 Mass. App. Ct. 431, 433 (1982). If no direction is made by the debtor before or at the time of payment, a creditor is free to allocate the money "as he chooses and without concern for the debtor's interests." Id. See also Carlson v. Lawrence H. Oppenheim Co., 334 Mass. 462, 464 (1956) (creditor may elect to apply funds to an unsecured debt over one secured by a mortgage). Once the May payment was applied by the creditor to satisfy the debt owing on the $9000 foreign exchange agreement, it had the same effect on that debt as it would have had if it had been made by Oliveira expressly on account of it. Ramsay v. Warner, 97 Mass. 8, 14 (1867) (where several debts exist and debtor fails to direct payment, debtor must be held to have intended payment as applied by creditor).
Waiver
Plaintiffs claim that the defendant waived her right to accelerate the note by acceptance of $7000 in March of 1993 and by failing to commence foreclosure proceedings in a timely manner. The plaintiffs have the burden of proving waiver by a preponderance of the evidence. "Waiver is the intentional relinquishment of a known right." Niagara Fire Ins. Co. v. Lowell Trucking Corp., 316 Mass. 652, 657 (1944). "Unless the evidence is clear, unequivocal, and undisputed, waiver is ordinarily a question of fact and not of law." Metropolitan Transit Authority v. Railway Express Agency, 323 Mass. 707, 709 (1949). This court has found that the defendant did not intend to relinquish any known right and did not relinquish her right to accelerate. Neither did she excuse the plaintiffs' failure to make payments required under the loan agreement.
Acceptance of the amount in default prior to election of acceleration operates to waive the right to accelerate because "[p]ayment of the overdue installment prior to the time the option [to accelerate the note] is exercised removes the conditions upon which the exercise may be based." Wilshire Enterprises, Inc. v. Taunton Pearl Works, Inc., 356 Mass. 675, 678 (1970). That principle is not applicable here because the $7000 accepted in March of 1993 did not equal the amount then in default. At that point, both the February 1992 payment of $6970.60 and the 1993 February payment of $6970.60 were overdue. Rego was not obligated to reject the partial payment of the amount then in default. Faced with a debtor offering some, but not all, of the amount in default, Rego did nothing more than take the amount proffered without excusing nonpayment of the balance in default or waiving her right to accelerate as a result of the amount still in default. No additional funds were received before the foreclosure proceeding was instituted. Commencement of the foreclosure proceeding in August of 1993, prior to receipt of the full amount in default, constituted an effective election of Rego's option to accelerate the $40,000 loan. Strong v. Stoneham Co-operative Bank, 357 Mass. 662 667 (1970). Cf. Petti v. Putignano, 8 Mass. App. Ct. 293, 296 (1979) (acceptance of payment of arrearages does not constitute waiver of right to foreclose if payment is made after initiation of foreclosure proceeding).
Plaintiffs do not contend that acceptance of the $7000 constituted accord and satisfaction.
Plaintiffs' argument that acceleration should be deemed optional under the terms of the note is not relevant. The note provides that "[i]n case of any default in payments as herein agreed, unless excused by the holder hereof, the entire balance of this note shall be become immediately due and payable." To the extent acceleration was optional, the option was exercised by commencement of the foreclosure action.
Plaintiffs argue that failure to protest late payment may amount to excuse of default and waiver of the right to accelerate a debt. The facts of this case would not support such a theory of waiver or excuse. When the February 1996 payment was not made, Rego demanded payment, agreeing only to a two or three month extension, and reiterating her demand for payment after that period of time went by with no payment being made. When Rego and Oliveira met in February of 1993, Rego again demanded payment and, when told that Oliveira did not intend to make both the 1992 and 1993 payments then due, Rego warned Oliveira of her intent to consult a lawyer. Oliveira also contends that Rego waived her right to accelerate the loan based on an unreasonable delay in exercising the option to accelerate. "The prevailing rule is that . . . the obligee has a reasonable time after the event which gives rise to the right to accelerate in which to declare the indebtedness due." Dunham v. Ware Savings Bank, 384 Mass. 63, 65 (1981) (three months not unreasonable). Given the circumstances, a delay of approximately six months in commencing the foreclosure proceeding after the February 1993 payment was not made is not unreasonable. In sum, Rego did not waive her right to accelerate the loan.
Tender
Finally, the plaintiffs argue that full payment of the entire indebtedness was tendered, that Rego refused the tendered payment, and that, by refusing the tender, Rego forfeited any right to interest subsequent to the date of the tender and to any collection costs and attorneys' fees incurred in connection with collection. "Any party making tender of full payment to a holder when or after it is due is discharged to the extend of all subsequent liability for interest, costs, and attorney's fees." G.L.c. 106, § 3-604.
The plaintiffs did not establish that a tender was, in fact, made. "The only tender that can be made effectual under a contract is a tender of the whole amount due." American Surety Co. Of New York v. Venner, 183 Mass. 329, 332 (1903). The full amount due must actually be produced and offered to the person who is entitled to receive it. Mondello v. Hanover Trust Co., 252 Mass. 563, 567 (1925). "A mere offer to pay or a statement that the party has the money and is ready and willing to pay, without actual production of it, is not sufficient to constitute a valid tender." Id.
See also Weld v. Eliot Five Cent Savings Bank, 158 Mass. 339, 341 (1893) (where payment is fifteen days overdue, tender is bad where it did not include interest for those 15 days); Boyden v. Moore, 5 Mass. 365, 370 (1809) (a miscalculation of forty-one cents is sufficient deficiency to nullify tender).
ORDER
For the foregoing reasons, it is hereby ORDERED that the plaintiffs' request for a declaration that the promissory note that they executed on February 18, 1989 is not in default is DENIED, and the plaintiffs' request for a permanent injunction enjoining the defendant Maria C. Rego or any agent or attorney in her behalf from taking any steps in furtherance of the foreclosure and sale of the parcel at 32 Quequechan Street based upon acts or omissions of the plaintiffs prior to the issuance of said injunction is DENIED. It is further ORDERED that judgement shall enter in favor of the defendant dismissing the complaint.
_____________________________ E. Susan Garsh Justice of the Superior Court
Dated: July, 1997.