Dispute over ownership of a loan agreement and promissory note did not alleviate Borrower’s obligations, but creditors could not recover delinquency charges on lump sum of principal due to conflicting disclosures. Turner v. Shared Towers VA, LLC 2014 N.H. LEXIS 144 (N.H. 2014)
At issue was a commercial construction loan agreement and promissory note, pursuant to which Joseph Turner (the “Borrower”) obtained $450,000 at 13% interest to construct a home. Securing the loan was a mortgage and assignment of rents and leases, and the loan agreement required (I) repayment of the principal in full, within one year, and (II) monthly interest payments of $4,875.00. The note allowed the lender to impose “a delinquency charge at a rate of five percent (5%) on each installment of principal and/or interest not paid on or before fifteen (15) calendar days after such installment is due.” The mortgage and note were assigned three times, between four different parties, over the course of their life.
The Borrower made the required interest payment for each of the first five months of the loan term, but then ceased to make the required monthly installments. During the time the Borrower failed to make the required interest rate payments, he received demands for payment from three different parties claiming ownership of the loan agreement. Approximately 19 months later, a trustee of Shared Towers VA, LLC and NH Note Investment, LLC (together, the “Creditors”) took ownership of the loan agreement, mortgage, and promissory note pursuant to a settlement. The Creditors notified the Borrower of his default under the note, demanding payment of (i) the principal in full, (ii) interest payments for the previous 19 months, and (iii) delinquency charges on both the overdue principal and interest.
The New Hampshire Supreme Court held that although ownership of the loan was in dispute for approximately 19 months, such flux did not alleviate the Borrower’s payment obligations under the loan agreement. The dispute over who would receive the payments did not entail a dispute over Borrower’s obligation to make fixed monthly payments. The court rejected the argument that payments of amounts that came due during the ownership dispute would unjustly enrich the Creditors. The court noted, “One general limitation is that unjust enrichment may not supplant the terms of an agreement” and “the benefit the [Creditors] were entitled to receive – the petitioner’s interest-only payments – is the very subject of the promissory note.” Even though the loan agreement and note were silent with respect to course of action upon an ownership dispute, it did “not open the door for a quasi-contract remedy.” The loan agreement and note remained viable throughout the ownership dispute and thus the Borrower was not entitled to an unjust enrichment remedy.
The Borrower, however, did not have to pay a 5% delinquency charge on the overdue principal amount. The 5% delinquency charge was insufficiently disclosed to satisfy RSA 399-B:2, which requires “a clear statement in writing setting forth the finance charges . . . to be borne by [the person to whom credit is extended] in connection with such extension of credit as originally scheduled.” The court first found that the delinquency charge was, indeed, a “finance charge” under RSA 399-B:1, because it was a charge associated with the extension of credit to the Borrower. The court then concluded that due to conflicting disclosures — the loan agreement providing for delinquency charges on principal and/or interest payments, a statement of finance charges providing for delinquency charge only on installments of interest — the requirements of RSA 399 B:2 were unmet. The court held, “[C]onflicting disclosures cannot satisfy RSA 399 B:2’s stated requirement of providing ‘a clear statement’ because conflicting information is by its very nature unclear. . . . [the information provided to the Borrower] did not make clear that the charge would also apply to his lump sum payment of principal.” Without this clear requirement to pay delinquency charges on the overdue lump sum, the Creditors could not recover the $22,500 delinquency charge they sought.