- -- F.3d -- (5th Cir. 2014)
- Affirmed judgment disallowing a $1.8 million portion of the lender's secured claim for a "Prepayment Consideration" under Colorado law because "[a]bsent a clear contractual provision to the contrary or evidence of the borrower’s bad faith in defaulting to avoid a penalty, the lender’s decision to accelerate acts as a waiver of a prepayment penalty." In this case, the lender accelerated the note when the debtor defaulted. Moreover, there was no evidence that the debtor actually paid off the note before maturity (in fact, the evidence was to the contrary). Under the facts and law, the Fifth Circuit affirmed, holding that the "prepayment consideration" was unenforceable under Colorado law and, thus, could not be allowed as part of the lender's secured claim.
- Procedural context:
- Appeal from judgment of the U.S. District Court for the Northern District of Texas, which affirmed the judgment of the Bankruptcy Court in the same District.
- Debtor executed a promissory note for $25 million. Article 4 of the note required regular monthly payments until the maturity date. Separately, Article 6 of the note required the debtor to pay $1.8 million as a "Prepayment Consideration" if the debtor paid the note balance before maturity. The importance of Article 6 came to light when the debtor fell into arrears, and the lender accelerated the maturity date. The lender tried to include the $1.8 million "Prepayment Consideration" as part of its secured claim, despite having accelerated the maturity date and despite the fact that the debtor never actually paid the balance of the note. The bankruptcy court granted an allowed claim for the lender's principal and interest, but denied the $1.8 million "Prepayment Consideration" portion of the lender's claim because (a) there was no evidence that the note was, in fact, paid as contemplated by Article 6 of the note; and (b) in general, a lender is deemed to waive the right to collect a prepayment penalty when it accelerates the maturity date of a note. The District Court affirmed.
- REAVLEY, DAVIS, and HIGGINSON (opinion from W. EUGENE DAVID)
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