## In the



# U n ited S ta tes Co urt o f Ap p ea ls

F o rth eS e v e n th C ir cu it
N os. 08

- 3239 & 08

- 4038 BKCA P, LLC , GRA YCA P, LLC , AN D S W CA P, LLC , P laint if fs -App el lants , v.
CAPT EC F RANCHIS E T RUS T 2000

- 1, D efend a nt-A pp ellee.

Appeals from the United St ates District Court fo r the N o rthernDi stricto f Indian a, S outh Bend D ivisi on. No . 3:0 7-cv-00 63 7-CAN

— Ch ri st oph er A. N uec hterlei n, Magistrate Judg e.

A RG UE D A PRI L 6, 2009

— D ECI DE D J UL Y 13, 2009

Befo re B AUER, S YKES, a nd T INDER, C ircu it Judges. T INDER, C ircu it Judge. Th i s c a s e de mon s t r a t e s that ev en exper i enced, so phist i cate d busi ness enti ti es can encounterdi ffi cul ty w hen drafti ng ca re full y neg oti ate d l o ando cument s. S i nc e J ul y 2 00 7, the pl aint i ff s an d the defe nda ntha ve b ee n a t l o g g erhe ads o ve r the mean i ng of jus t a h a n d fu l o f line s o u t o f se ve ra l hu n d re d in t h eir fi ve- page, singl e- spaced N ote
. U nfo rtunatel y, thi s a pp eal2 N os. 08

- 3239 & 08

- 4038 cannot bring the i r sta l em ate to an e n d , a nd m or e l i ti gati o n l i es a he ad. H ow ever, whi l e di spu te s o ve r the m eani ng o fl anguage i n l oan docum ents c an be so m ew hat dry, thi s o ne i s m or e i nter est i ng than m ost such cas es. The pla i nti ff s, speci alpurpose enti ti es that w e r eferto as “Borr owers, ” o b ta in ed se ver al$1 to 2 m i l l i on m or tg ag e fin an c e loa n s fro m t h e d efe n d an t, or “ L en d er .” Each ofthe l oans re quir ed Borr owers to p ay offthe debt at arou nd 10% i nt erest over 15 to 20 years
. Borrow ers had the r i ght t o p ay offthe l oans ear l y, but subj ect to a “P repaym ent Pr em i um ” i ftheypre pai d bef or e t en ye a r s i nt o the l o a n t e r ms. W he n Bo r r o we r s t r i e d t o prepay the l oans aftero nl y e i ght y ear s, the p ar ti es disa g r e e d o n h o w t o c a l c u l a t e th e P r e p a y me n tP r e mi u m. The i r di spu te l ed to thi s di ve r si tya ct i o n, in whi chthe par t i e s s e e ka de c l a r a t o r y j ud g men ta s t o the co rr ect i nter preta ti on o fthe Prepay m ent P re m i um . The di str i ct cou rt grante d sum m ary jud gm en t in f avor of Len d er, concl ud i ng tha t the unam bi guous contr act l anguage s u p p o r t e d L e n d e r ’ s i n t e r p r e t a t i o n . We c o n c l u d e , h o weve r, thatthe contr act i s a m bi guous, m aki ng i t inapp ro p r i a t e t o r e s o l v e th e me a n i n go fth e c o n t r a c ta tth e s u mm ar y j u d gm ent s tag e. W e there f or e r em and fo r a t ri alo n th e que st i o n o fthe pa r ties ’ i nt en ded m ea ni ngo fthe P r e p a y me n tP r e mi u m.

I . B a c kg r o und Borr owers ar e whol l y o w ned subsi diaries of“Qual i ty Dini ng, I nc. , ” which o w ns se ver alfra nc hi se re sta urants , m ost l y “ Ch i l i ’ s” and “Bu rg erKing, ” i n sev er alst ate s thatN os. 08

- 3239 & 08

- 4038 3 i ncl ud e Ind i ana, M i chi ga n, and Pennsyl vani a. I n 199 9, Qu al i ty Dini ng deci ded to r efi nance a si gni fi cant por ti on o fthe b an kde bt as so ci at ed wi tho per at i ngthe se r es ta ur an ts
. Bo r r o wer s ne g o ti at ed wi th“ Capt ecF i na nc i al ” an d “G E C ap ita l” t o ob ta in ap p ro x im a t e l y $ 49 m illion in m o r tg ag e fi na nc i ngt o pa y do wn Qual i tyDi ni ng ’ s ba nk deb t. The t o ta l $4 9 m i l l i o n c o ns i st ed o f3 4 se par at e l o an s ofabo ut $1 to 2 m i l l i on, ea ch se cured byo n e o fQual i ty Dini ng’ s r est aurant s. The i nter estr ate was 9. 79% f or the “Bu rg erK i ng” l oans and 9. 94% forthe “Chil i ’ s” l oans, and the va ri ous l oans had ter m s o fei ther15 o r 20 yea rs . Du ring the co urse o fnego ti ati ons, Bor ro w er s r ecei ved Cap tec Fi nanci al ’ s s tandard- f or m Pro m i sso ryN ote f or i t s “ F r a n c h i s e L o a n P r o g r a m. ” T h e No t e a l l o we d B o r r o we r s t o p a y o ffthe i r l o a ns e a r l y, b uto nl y i fthe y p a i d a “P re p ay m en t P re m iu m ,” d efin ed as : equa l to th e pr es en t va l ue ( co m put ed at th e Rei nvest m ent Rat e) of the differ ence between a str eam o fmonthl y pa ym ent s ne ce ss ar y t o a m o r ti ze the o ut st an di ngpr i nc i palb al an ce o fthi s N o te a t th e St a t e d R a t e a nd a s t r e a m o fmo nthl y p a ym ents necess ar y t o am or ti ze the o utsta nd i ng pri nci pal ba l an ce o fthi s N o te a t th e Re i nv es tment Ra te ( th e “Differ enti al ”)
. In the e vent the Di ffer enti ali s l ess than ze ro , the Prepay m ent Pr em i um shal l be d ee m ed ze ro . . . . Pu t ano th er w ay, ifi nt erest r a t e s fel l an d Borrow ers deci ded to pre pa y the N ote , theywould have to pay a pen al tye qua l t o the di ffer en ce b etwee n: (1) t h e p re se n t v alu e o f th e s tr ea m of m on th ly paym ents provi ded by the l oan’ s a m or ti zati on4 N os. 08

- 3239 & 08

- 4038

s c h e d u l e f r o m th e d a t e o fp r e p a y me n t, c o mpu ted atthe “Rei nvest m ent Rat e”

— i
. e. , the U
. S. T r e a s ur y r a t e a tthe da t e o fp r e pa y ment; a nd ( 2 ) the prese nt val ue of the sam e str eam of m onthl y pay m en ts com pu ted atthe “St ate d Rate”

— i
. e. , the s ta te d int er es t r at e o fthe l o an . B orrow ers w ere un satisfi ed w ith th e stan d ard -f orm Prepay m ent Pr em i um . They wanted the right t o prepay w i thout pena lty a fter the fi rs t t en ye ar s o fthe l oan te r m s. Ca pte c F i na nc i ala g r ee d t o thi s m o di fi cat i o n a nd re drafted the N ote to defi ne the Pre paym ent Pr em i um as : equal to the posi ti ve differ en ce b etween the present v al ue ( com pu ted at t h e Reinve stm ent Rat e) o f th e st r ea m o fm onthl y pa y m en ts o fpr i nc i pala nd i nter estunder thi s Note fro m the d at e o fthe prepaym ent thro ugh the tenth ( 10 ) anni ve rsaryo f th th e F irs t F u ll Pa ym en t D at e a t t h e St a t e d R a t e . . . an d th e o u ts ta n d in g p rin c ip al b ala n c e o f th is N ote as of th e d ate of the p rep aym en t (the “D ifferenti al ”) . In t h e e vent the Di ffer enti ali s l ess than zer o , the P r e pa y men tP r e mi um s ha l l b e de e m ed to be ze ro . . . . Th e r e v i s e d No t e a l s o r e qu i r e d Borr o we r s t o p r o v i de a “P r epa y m en t N o ti ce ” atl ea stthirty day s be f o r e ex er ci si ng the i r ri ght t o prepay. I n A ugust 1 999 , B or ro w er s e xecuted thi rty- f our of th es e N o te s, r epr es en tinge i g ht ee n l o an s o r i g i na ting wi th Ca pt e c F i na nc i a l a nd s i xt e e n o r i g i na t i ngwi th GEN os. 08

- 3239 & 08

- 4038 5 Cap i tal

. A l l o fthe N ote s co n ta ined i denti call anguage , i ncl ud i ng the re vi sed defini ti on of the Prepay m en t P re m i um quote d a b ov e. Captec Financi alas si gned fi ve ofi ts N otes to “Capm ar k” and the r em ai ni ng thi rt een Notes to “ Capt ecTr us t, ” whi chi s “Le nde r ” i n thi s ac ti o n. A r o un d J un e 2 0 0 7, Bo r r o we r s p r e pa i d the s i xteen N ote s hel d by GE C api taland the five N ote s hel d by Ca pma r k

. I n a c c e pt i ngBo r r o we r s ’ p r e pa y m e nt, b o th GE Capi ta l an d C a p ma r kc a l c u l a t e d th e Pr epa y m en t Prem i um as the differ ence between the prese nt valu e o f the s tr eam o fm onthl y pay m ents f ro m the date o fpre paym en t th r o ug h y ea r 10 co m put ed at th e Rei nv es tment R a t e a n d a tth e S t a t e d R a t e . T h i s c a l c u l a t i o n, w h i c h c o mp ar es the pr ese nt va l ue o fthe str eam o fm onthl y pay m en ts c o m put ed atthe t wo di ffer en t r at es , is co ns i st en t wi ththe de fi ni ti o n o fthe Pr epa y m en t Prem i um p rovide d by C ap tec Fina nc ial ’s origi na l, stan d ard -f orm N ote
. B or ro w er s then se nt Lender a Pre paym ent Noti ce for the t we l v e r e mai ningNo t e s . ( Bo r r o we r s h a d a l r e a dy pr epa i d the thi r te en thNot e he l d b y Le nde r wi th o ut p e n a l t y a ft e r th e r e s t a u r a n ts e c u r i n gth a tNo t e w a s d a mage d b y fi re . ) H owever, Bor ro w er s m ade thei r noti ce contingent on Len d er ’ s a cceptance o fthe f or m ula used byGE Ca pi ta l a nd Ca pm ar kt o c o m put e th e Pr epa y m en t Pr emi um . Le nde r r ej ec te d tha t f o r m ul a as i nc o ns i st en t w ith th e lan gu age of the N otes, w hich Le nd er i nt erpr et ed to pr o vi de a si g ni fi ca nt l y hi g he r Pr epa y m en t Prem i um . By w ay ofi l l ustr ati on, f oro ne o fthe $1. 4 m i l l i on l o a ns h e l d b y Le nd e r, B or r o we r s ’ f o r mul a y i e l de d a6 N os. 08

- 3239 & 08

- 4038 Prep aym en t Prem ium of a r o u n d $17,000, w hile Len d er’s f o r m ul a y iel ded a Pr epa y m en t Pr emi um o fa r o und $1 00 , 00 0. The di ffer ence b etwee n the pa r ti es ’ c al cul at i o ns f orthe tot alPre p aym ent Pr em i um due on a l l twel ve N ote s i s about $800 , 000, an a m ount worthyo fthe l i ti gati on e ff or t e xpend ed her e. Borr owers did notpro vi de another P re paym ent Noti ce or tend er any p rep aym en t am ou nt
. I ns tead , Borrow ers fi led su it in Ind iana sta te cou rt seeking a d eclaratory j udg m en t th atthe i r i nt er pr et at i o n o fthe Pr epa y m en t Pr emi um was c o r r ec t. Bo r r o wer s’ c o m pl ai nt a l so c o ntai ned a br each o fco ntra ct c l ai m f or L ender’ s r efusal to accept a p re paym ent c om pu ted under Bor ro w er s’ form ul a. Le nde r r emov ed th e ca se t o fede r alc o urt base d on di ver si ty j uri sdic ti on, and the parti es consented to conduct the proce edi ngs bef or e a m agi str ate j u d ge. S ee2 8 U. S
. C. § 6 36 ( c)
. The di st r i ctc o ur t g r an te d Le nde r’s m oti on f orsum m ar y j ud gm ent a s t o Borr owers’ decl ar ato r y j udg m en t cl ai m , c o nc l udi ngtha t th e una m bi g uo us contr act l anguage supporte d Lend er ’ s inter preta ti on o f th e P re p ay m en t P re m iu m . B or ro w er s a p p ea l.

II . A n alysis A . Ap pell at e J uri sdict i on W e be gi n by ensuring tha t we have j uri sdic ti on o ver th is a p p eal. Ge ne rall y, fede ral cou rts of ap p eals are l i m i ted to re vi ew i ng the “fi nal deci si ons” ofdi str i ct c ourt s. 28 U
. S. C. § 1 291. A decision i s “ fi nal ” f orpurposes o f § 1 291 i fthe dist ri ct c ourt ’ s o rd er “e nd s the l i ti gat i onN os. 08

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o n the mer i ts a nd l ea ve s no th i ngf o r the c o ur t to do b ut ex ecu te the j ud gm ent. ” S t a rIn s . C o . v . R i s kMktg . G r oup Inc. , 561 F.3d 656 , 659 (7th C ir. 2009) (q u o t a tion om itted ). Inco n tr as t, an ord er th at d isp os e s of on ly on e c laim in a m ult i

- count com pla i nt i s typi cal l y non- fi nal and th er ef or e n on -ap p ea lab le. Oh i o - S e a l y M a t t r e s s M f g . Co
. v. D unc an , 714 F.2d 740 , 743 (7th C ir. 1983). A pote nti alj uri sd icti onalsnagar i ses i n thi s ca se because , al though the di str i ct c ourtentere d a fi nal j ud gm en ti n f a v o r o fL e n d e r a n d a g a i n s tB o r r o we r s , t he c o u r tp u r p o r t e d t o r e s o l v e o n l y o n e o fB o r r o we r s ’ t wo cl ai m s. I n i ts opi ni on a nd o rderacc om panyi ng the j ud gm en t, th e c o u r ts t a t e d th a ti twa s o n l y c o n s i d e r i ng Len der ’ s m o ti o n f o r s um m ar y j udg m en t “a s it pe r ta i ns to the Bo r r o wer ’ s [ si c] declar at o r y j udg m en t ac ti o n. ” The cour t decl i ned to re sol ve Borr owers’ br each ofco ntra ct c laim “b ec au se th er e a re iss u e s a s t o w h et h er th at cla im is rip e.” Al th o u g h th e d i s t r i c tc o u r t ’ s f a i l u r e t o a d d r e s s B o r r o wer s’ b r ea cho fc o nt r ac t cl ai m g i ve s us pa us e, we co ncl ude tha t the c o ur t’ s o r der“ effec ti ve l y e nd[ ed] the l i ti g at i o n a nd thus c o ns ti tu te [ d] a fi na l o r derf o r the pu rpos es o fappel l ate r evi ew . ” M os t l y M e m or i e s , Inc . v. For Yo ur E ase O nly, Inc. , 52 6 F
. 3d 1093, 1097 (7th C ir. 200 8 )
. Th e c o ur t e nt e r e d a fi na l j ud g men t i n f a v o r o f Lend erthatdrew n o dist i ncti on be tw een Bor ro w er s’ t wo c l a i ms , a n d a d o c k e t e n t r y a c c o mpa n y i ng t he c ou rt ’ s o rderst ate d, “Civ i l Case Term i nated. ” This r ec o r d s ug g es ts tha t th e co ur t ha d “ fi nish ed wi ththe case , ” H ill v. P o tter, 3 52 F
. 3d 11 42 , 1 14 4 ( 7th Ci r . 2 00 3) , a nd8 N os. 08

- 3239 & 08

- 4038 did not“co ntem pla te[ ] fu rt her acti vi ty” o n Borr owers’ b r ea c h of co n tr ac t c laim , St arIns . Co. , 5 6 1 F
. 3 d a t65 9 (qu otation om itted ). Ad di ti o na l l y, a n e xa m i na ti o n o fBo r r o wer s’ c o m p l aint i l l us t r a t e s tha tthe i r b r e a c h o fc o nt r a c tc l a i m ca nn ot su rvive the d istri ct cou rt’s j ud gm en t on th eir d eclaratory j ud gm ent c l ai m . Bor ro w er s’ co m pla i nt al l ege d a br each ofco ntra ct b ase d on Lender’ s “ dem anding a pre paym en t pr emi um i n e xc es s o ftha t co nt empl at ed bythe ter m s o fthe

. . . N ote s, . . . and/o r by rej ecting Bor ro w er s’ Prepay m ent Noti ce a nd /o r i ts proffer ed com pu tat i on o f the pr epaym ent pr em i um . ” These al l ega tio n s e stabl i sh that Borr owers’ Pre paym ent Noti ce c ou l d be e ffecti ve, an d L e nd e r ’ s r ej e c t i o n o ftha tn o t i c e c o ul d b e a b r e ach ofc o nt r a c t, o nl y i fBo r r o we r s ’ i nt e r pr e t a t i o n o fthe Pre

p aym en t Prem ium w as cor r e c t . Ye t the district cou rt r ej ec te d th at i nt er pr et at i o n as uns uppo r te d by th e c on tr ac t lan gu ag e. In d oin g so, th e cou rtn ec es sa rily rej ec te d Bo r r o wer s’ b r ea cho fc o nt r ac t cl ai m , l ea vingno su gg es ti on that Bor ro w er s m i ght r eas ser t that cl ai m “a t som e future date. ” A m . Nat’l Ba nk & Trust C o. v. E quit able Li f eAs s ur . So c’y of

U
. S. , 406 F.3d 867, 875 (7th C ir. 2005). F i na ll y, we no te tha t bo thpa r ti es a g r ee d a t o r ala r g um ent that Bor ro w er s’ breach ofco ntra ct c l ai m hi nged on th e su cc es s o fthe i r de cl ar at o r y j udg m en t cl aim , mean i ng that th e d i str i ct c ourt ’ s r ej ecti on o fthe l att erended th e e n tir e s u it. W e d o n ot , of c ou rs e, sim p ly a c c ep t t h is sti pu l atio n that appell ate j uri sdic ti on e xi sts , since j uri sd ict ion al d efe c ts a r e n on -w aiv ab le. Stev ens v. Turn er, 222 F. 2d 352, 35 4 ( 7th Ci r. 19 55)
. S ti l l, th e parti es’ ag re e-N os. 08

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- 4038 9

m ent o n thi s poi nt supp or ts our own co ncl usi on that, i n ente ring j ud gm ent a gai nst Bor ro w er s o n thei r declar ato ry j u d gm en t c laim , th e d is tr ict co u rteffe c tiv ely d isp os ed of B or ro w er s’ b re ac h ofc o n t ra c t c laim

. S e eA m. Fa m ilyM ut. Ins. C o . v. Jones , 7 3 9 F
. 2 d 1 2 5 9 , 1 2 6 1 n. 1 ( 7th Cir
. 1984 ) ( noti ng the defe nd ants’ agr eem ent at or al ar g um en t th atthe i r c o unt er cl ai m c o ul d no t su r viv e th e j udg m en t i n f av o r o fthe pl aint i ff’ s clai m , s uchtha t th e d ist ric t c ou rt ’s fa i lu re to res olv e t h e c ou n te rc laim d id n otd efe at ap p ella te j u ris d ict ion ); cf
. La b ore rs ’Pe ns i on Fund v
. A & C E nvtl. , Inc. , 301 F.3d 768 , 774 n.4 (7th C ir. 2002 ) ( concl ud i ng tha t a j ud gm ent that f ai l ed to m en ti o n o ne o ft wo de fen dan ts e ffec ti ve l y e nde d the l i ti gat i on o n the m er i ts, wh er e the pl ai nti ff s s tat ed at or al ar gum ent that thei r pri orvo l untary d ism i ssa l o fthat d efend an t w as w ith p rej ud ice). Th e d istri ct cou rt’s dec i si o n was fin alwi th i n the mean i ngo f§ 1 29 1, a nd our appell ate j uri sdic ti on i s s ecure .

B. Cont r actI nterpret at i on W e r evi ew de nov o the di str i c t cour t’ s inter preta ti on o f a co nt r ac t, i nc l udi ngthe c o ur t’ s co nc l us i o n tha t th e c o n tr ac t la n gu ag e w as u n am b igu ou s. S he l b y Cou n ty S t at e Bank v. Van D i e s tSu pply Co. , 303 F.3d 8 3 2 , 8 35 (7th C ir. 20 02 )
. I n thi s di ve r si tya ct i o n, s ta te l aw p rovi des the substan tive co ntra ct pr i nci ple s that guide our anal ysi s. U nd erthe N ote s’ choi c e-o f- l aw pro vi si on, ea ch N ote i s g o ve r ne d b y the l aw o fthe S ta te i n w hi chthe re sta urant secur i ng the N ote i s l oca ted. Of the tw el ve N otes th at are th e sub j ect o f t h is app eal, seven are10 N os. 08

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- 4038

secur ed by re sta urants i n M i c h iga n , f our by re sta urants i n I nd i ana, and one by a r est auranti n Pennsyl vani a. Underg en er alpr i nc i pl es o fc o nt r ac t i nt er pr et at i o n, w hi ch applyi n each ofthe thre e c ontrol l i ng j uri sdic

ti o ns , co ur ts i nt er pr et co nt r ac ts wi ththe g o alo fa sc er ta i nin g t h e p ar tie s’ in te n t. M PA CTCons t r . Gr oup, LL C v. Superi or Con crete C onstr uctors, Inc. , 80 2 N
. E.2 d 901, 90 6 (In d . 200 4); C ityof G rosse P o inte P a rk v. M ich . M un . Liab . & Prop
. Pool , 70 2 N
. W
. 2d 106, 11 3 ( M i ch. 200 5); In s. Adjustm e ntBure au v. Al l s t at eIns . Co. , 90 5 A.2 d 462, 46 8 ( Pa. 2006 ). I n t h e c a s e of a w ritten con tract, the cou rt de term in es th e p ar tie s’ in te n t b y lo ok in g firs t t o t h e p lain an d ord in ar y m ea n in g of t h e c on tr ac t la n gu ag e. U SA LifeO ne Ins
. Co
. v. N uckolls , 6 8 2 N. E. 2d 5 3 4 , 5 3 8 ( I nd

. 19 97 ); C ityof G rosse P o inte P a rk, 70 2 N .W .2d at 1 1 3 ; Kripp v. Kripp , 8 4 9 A. 2 d 1 1 5 9 , 1 1 6 3 ( Pa
. 2 0 0 4 )
. I fthe c ontr act l anguage i s cl ear an d unam bi guous, the cour t inter prets the docum ent a s a m att ero fl aw witho ut looking to ex tr in sic ev id en c e. Aut om at i on b y Des ign, Inc . v. Rayb e s t os Prod s . Co. , 4 63 F
. 3d 74 9, 753-5 4 ( 7th Ci r . 2 00 6) ( appl y i ng In d ian a la w ); K lapp v. U nite d Ins
. Grou p A g en cy, Inc. , 66 3 N .W .2d 44 7, 45 4 (M ich . 200 3); Ins . A dju stm e ntBure au , 90 5 A
. 2d at 468- 69. I f, however, the contr act language i s ambi g uo us , th e tr i er o f f ac t m us t ex ami ne rel ev an t extr i nsi c ev i de nce i n or der t o asce rt ai n the parti es’ in te n t. A uto m a tio n by D esign , 46 3 F.3 d at75 3-5 4; Klap p , 66 3 N .W .2 d at45 3-5 4; Ins . Adj us t m e ntBure au , 90 5 A.2 d at 468- 69. B eg in n in g w ith th e p lain lan gu ag e of th e c on tr ac t in th is c a s e , the N o t e s d e fi n e th e P r e p a y me n tP r e mi u m in t e r ms ofa “Differ enti al

. ” That Differ enti alequal s:N os. 08

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- 4038 11 th e po si ti ve di ffer en ce b etwee n the pr es en t va l ue ( com pu ted atthe Rei nvest m ent Rate) ofthe str eam ofm onthl y p ay m ents ofprinci pal and i nter est unde r thi s N o te fr o m the da te o fthe pr epa y m en t thro ugh the tenth ( 10 ) anni ver sary ofthe Fi rs t th F ul l Pay m en t Dat e atthe S ta te d Ra te
. . . a nd the o ut s t a nd i ng pr i nc i pa l b a l a nc e o f thi s No t e a s of t h e d at e o f th e p re p ay m en t . .
. . T h i s l a n g u a g e i s c l e a r i n th a t i t p l a i n l y i d e n t i fi e s t he tw o v ar iab les u se d to ca lcu lat e t h e D iffer en tia l: (1) th e p re se n t v alu e o f th e s tr ea m of m on th ly paym ents that Borr owers w er e s cheduled t o m ake fr om the date o fpre paym ent thro ugh y e a r 1 0 o fthe l o a n; a nd ( 2) the o utsta nd i ng pri nci pal bal ance at the date of p re p ay m en t. U nfo rtunatel y, we cannot adopt thi s pl ain-l an guage re adingo fthe Prepay m en t Prem i um bec ause doi ng so “w oul d produce abs urd re sul ts. ” Bean s t a lk Gr oup , Inc . v. AM Ge n. Corp
. , 28 3 F
. 3d 856, 86 0 ( 7th Ci r. 20 02)
. A s i l l ustr a t e d b y c a l c ul a t i o ns tha tLe nd e r s ub mi t t e d wi th i ts m o ti o n f o r s um m ar y j ud g m en t, e ve n i fthe Re i nv es tment Ra te ( i
. e. , the U. S
. Tr ea su r y r at e) dr o ps su bs ta nt i al l y, the fi rs t “ str eam o f m onthl y pay m ents” var i abl e i s a l w ays sm al l erthan the s eco nd “o utsta nd i ng pri nci pal bal ance” v a r i a b l e. He nc e , s ub t r a c t i ngthe t wo v a r i a b l e s y i e l ds a Pr epa y m en t Pr emi um tha t i s al way s ne g at i ve a nd ther ef or e “ deem ed to be zer o” und erthe contrac t. That w as not the inten t ofthe parti es, wh o, as r ati onal b u sin es s e n tit ies , s e ei d. , ag r ee tha t th e pur po se o fthe12 N os. 08

- 3239 & 08

- 4038 Prepay m ent Prem i um i s to p rovi de s o mepe na l tyi n the eve nt thatBor ro w er s pre pay. So wh i l e the co ntra ct l anguage d efini ng the Pre paym en t Pr emi um i s cl ea r, i t i s no ne th el es s ambi g uo us because it m ake s no eco nom i c se nse. S i nce the l i ter al appli cation o fthe text “ ‘ w oul d l ead to abs urd re

sul ts’ ” and “ ‘ thw ar t the o bvi ous intenti ons ofi ts drafter s, ’ ” we cannot re l y on the pla i n l anguage o fthe contr act. Fu nera l Fin . Sy s . v. U nited Sta tes , 23 4 F
. 3d 1015 , 10 18 ( 7th Ci r. 20 00) ( quoti ng Gru n v . Pneum o A be x Corp. , 16 3 F. 3d 411, 42 0 ( 7th Ci r. 19 98) )
. I nstea d, the inter pretati on of t h es e N ot es req u ire s a n ex am in at ion of ex tr in sic ev id en c e. Se ei d. Lend ersugg est s that we m ay avo id fi nd i ng an am bi gui ty by re adingthe “st re am o fm onthl y pay m ents” va r i ab l e to i nc l ude a fi na l “ ba l l o o n paym en t” o fthe enti re o utsta nd i ng pri nci palbal ance a t y ear10
. U nd er th i s r ea di ng, the Pr epa y m en t Pr emi um b ecom es the di ffer en ce b etwee n: (1) th e pr es en t v a l u e o ft h e s t r e a m o f m on th ly pay m en ts fr o m the da te o fpr epa y m en t t h r o u g h ye ar 10 , pl us th e o ut st an di ng pr i nc i pa l b a l a nc e a ty e a r 1 0 ; a nd ( 2) the o utsta nd i ng pri nci pal bal ance a t the date of p re p ay m en t. L en d er arg u es th at inc lu d in g t h is b allo on p ay m en t is ne ce ss ar y i n o r dert o pr o duce a po si ti ve Pr epa y m en t Prem i um and avo i d an absur d res ult

. Altho ug h Le nde r ’ s f o r m ula ha s th e vi r tu e o fpr o ducing a p ositi ve Pre p aym en t Prem ium , Le nd er’s conc ep t of aN os. 08

- 3239 & 08

- 4038 13 “bal l oo n paym ent” fi nd s no sup p or t in the contr act l anguage . The N ote s’ pla i n l anguage defines th e first var i abl e o fthe Differenti alas si m plythe str eam o f mon thl y p a y men t s fr o m t he da t e o fp r e pa y men tthr ough y e a r 1 0 , wi th no i nd i c a t i o n tha t thi s s t r e a m c o nt ai ns a fi nal paym ent o fthe outst anding pri nci pal

. A s di scusse d abov e, thi s l anguage i s a m bi guous because i t m ake s no e co no m i c se ns e, a nd we ca nno t s i m pl y i g no r e th e am bi gui ty by patchi ng up the c ontr act lan guage with L en d er ’s s u gg es te d ba lloon p ay m en t t er m . Cf. Kl app , 663 N
. W
. 2d at 453 (“[C ]o u rts can not sim p ly ignore p ortio n s o fa contr act i n or der t o avo i d a fi nd i ng o f am biguity .

. . . ”). W e a l so thi nk tha t L en d er ’ s r el i ance o n the rul e o f i nter preting co ntra cts to avo i d absurd r esul ts i s m i spl a c e d. Co ur t s a pp l y thi s r ul e t o r ej e c to ne p a r t y ’ s s t r a i ne d, l i ter alr eadi ng o fco nt ra c t l anguage i n f avo r ofthe othe r p ar ty ’s re as on ab le, c o m m on se n se rea d in g. See B eanst alk, 28 3 F
. 3d at8 59

- 60 ( g r an tingj udg m en t f o r the de fen dan t eve n th ough the pl ai nti ff’ s br oad r eadi ng o fa re prese ntatio n ag re em en t’s te rm s w as liter ally co rre c t); D is patch Aut om at i on, Inc
. v. Ri ch ar ds , 280 F.3d 111 6, 1118 -19 (7th C ir. 2002 ) ( rej ecting the pl ai nti ff’ s co ntra ctuali nter preta ti on that m ade no eco nom i c se nse and gra nti ng j ud gm ent for t h e d efe n d an t); M e rhe b v. Il l
. St at eTol l H ighway Auth. , 26 7 F.3 d 71 0, 71 3 (7 th C ir. 20 01 ) (rejec tin g an em p loy ee ’s lite ra l, “ins an e” r ea di ng o f a wor k pl ac e di sc i pl i ne m an ua l an d gr an tin g jud gm en t fo r th e e m p loy er ); N uckolls , 68 2 N
. E.2 d at 539- 40 ( concl ud i ng tha t a n i nsurer ’ s br oad, l i ter al re ading o fa cove ra ge excl usi on would pro du ce a n ab su r d r es ul t an d c o ns tr ui ngthe c o nt r ac t in fav o r o fthe14 N os. 08

- 3239 & 08

- 4038 i nsured)

. But here , L ender i s try i ng to a voi d the ab surdi ty of its ow n l i ter alr eadi ng o fthe contr act. Lender ca nnot fi rs t a rgue thatthe pla i n l anguage o fthe contr act supp or ts i ts i nter preta ti on o fthe Prepay m en t P rem i um , but then ar gue that the abs u rd ity o fthatsa m e pl ai n-l anguage i nter preta ti on nece ssitate s a n additi onalbal l oo n payme n tt e r m. Lik e L en der, Bor ro w er s a rgue thattheyar e e nti tl ed to sum m ar y j ud gm ent without furtherco nsi d erati on o f ex tr i ns i c ev i den ce . Bo r r o wer s ac kno wl edge tha t th e N ote s a re am bi guous but ci te the r ule thatco urts const rue am bi gui ti es aga i nst the drafter, wh o i n thi s ca se w as L en d er ’s p re d ec es so r in int er es t. M P A C TC o nstr. Grou p , 802 N .E .2d at91 0; Kl a pp , 6 6 3 N .W .2d at45 4; Ins. Adju s t m e ntBure au , 9 05 A. 2d at 46 8. Bo r r o wer s co nt en d that thi s ru le perm i ts us to co ncl ud e a s a m att ero fl aw th at th ei r i nt er pr et at i o n o fthe Pr epa y m en t Pr emi um i s co rr ect. W e que stio n Bo r r o wer s’ pr emi se tha t th e r ul e o fc o nstr uingam bi gui ti es aga i nst the draftergi ves c ou rt s a l i cense to bypass relev an t, extr i nsi c ev i dence i n f avo r of si m p ly d eclaring j ud gm en t for t h e non -drafter. Borr o we r s ’ a r g u me n tu n d o u b t e d l y f a i l s wi th r e s p e c tt o the se ve n Not es i n thi s case go ve r ne d b y M i ch i g anl aw. The M i chi gan Suprem e Court has described the rul e a s a “t i ebre ake r” to b e ap pli ed onl y “ i fal l co nventi onalm eans of contr act i nter preta ti on, i ncl ud i ng the co nsi derat i on o f re l evantextr i nsi c ev i dence, have l eft th e j ury unabl e t o deter m i ne wh at the par ti es i nten d ed thei r contr act to m ean. ” Klap p , 66 3 N
. W
. 2d at 455. Si m i l ar l y, with r especttoN os. 08

- 3239 & 08

- 4038 15 th e sing l e N o te g o ve r ne d b y Penn sy l va ni a l aw, the Pe nnsy lva ni a co urts do notco nstr ue am bi guous contr acts aga i nst the d ra fte r as a m att ero fl aw befor e l oo ki ng to extr i nsi c ev i dence. Rather, “i nquir y s h ou ld al w ays be m ade i nto th e ci rcum sta nces surr ounding the e xecuti on of the d ocu m en t,” and “only w he n su ch an inq uiry f ai l s” s ho ul d c o ur ts “ co nc l ude the matt era g ains t th e par ty r es po ns ibl e f o r th e ambi g ui ty, th e dr afte r o fthe docum ent. ” Bur ns M

f g. Co. v. Boe hm , 35 6 A.2 d 763, 76 7 n .3 (P a. 19 76 ) (cit at ion s o m itt ed ); s e e al s o Kr ipp , 84 9 A.2 d at 1165 ( concl ud i ng tha t the tr i alco urt proper l y r eso l ved ana m bi g uo us a g r ee m en t th r o ug h pa r o l e vi den ce ofthe parti es’ i ntent ra therthan “a const ructi on o fco ntra ctual ter m s”); H ut ch i s on v. Su nb e am Coal Corp. , 51 9 A.2 d 385, 39 0 n. 5 ( Pa
. 1 98 6) ( “Ou r f irst obl i g at i o n i s to e xa m i ne the e xtrinsi c ev i dence a n d res or t t o rul es ofco nstr ucti on only sh ou ld th at ex am ination p rove fruitl ess.”). I ndi an a ar g uabl y appl i es th e r ul e o f co ns tr ui nga m bi g ui ti es a g ains t th e dr afte r mor e l ibe r al l y, a nd the I ndi an a S upr em e C our t ha s o cc as i o na l l y a ppl i ed th e r ul e wi th o ut co ns i der i ngwhethe r e xt r i ns i c ev i den ce w oul d c l ar i fy the p ar tie s’ in te n t. S e eM PACT , 802 N
. E
. 2d at 910 (“W he n th ere i s a m bi gui ty in a contr act, i t i s co nstr ued against its d ra fte r.”); N uckolls , 68 2 N .E
. 2d at 538 ( “W hen an i nsurance contr act conta i ns an a m bi gui ty, i t s hou l d be st ric tly co n st ru ed a ga in st th e in su ra n c e c om p an y.” ); E li Li l l y & Co. v. Hom eIns . Co. , 4 8 2 N. E.2 d 4 6 7, 4 7 0 ( I nd

. 1985 ) ( hol ding that i nsurer s’ extrins i c ev i dence w as inad m issible to cl arify an am biguou s coverag e prov isi on). So a t l e a s t wi th r e s pe c t t o the f o ur No t e s g o v e r ne d by I nd iana l aw , Bor ro w er s’ ar gum ent that they a re enti tl ed16 N os. 08

- 3239 & 08

- 4038 to sum m ar y j ud gm ent o n an am bi guous contr act car ri es som e for ce. S ti l l, we thi nk tha t Bor row er s ca n preva i l under the r ule o fco nstr uingam bi gui ti es aga i nst th e dr afte r o nl y i fthe y o ffera n inter pr et at i o n o fthe N ote s tha t is re aso nabl y c onsi ste nt with the c ontr act lan gu ag e. S e eM PACT , 8 02 N
. E
. 2d at9 10 ( co nc l udi ng th at certa in con tractu al provisions “su p p ort both [ p arti es ’ ] a r g um en ts ” an d the r efo r e co ns tr ui nga g ains t th e d ra fte r); Showb oatM a r i na Casi no P’s hip v . Tonn & Bla nk C o nstr. , 79 0 N
. E.2 d 595, 59 8- 99 ( I nd

. Ct. A pp . 20 03) ( re cog ni z i ngthe n o n- dr a ft e r ’ s r i g htt o s ue o n a c o ntra ct that conta i ned l anguage co nsi ste nt with both t he r i ght t o s u e a n d ma n d at o r y a rb i t r a t i o n )
. Un f o r t u n a t e l y, B o r r o wer s’ i nter preta ti on i s inconsi ste nt w ith the pl ai n l anguage ofthe N ote s. A s m enti oned abo ve, Bor ro w er s’ i nter preta ti on defi nes th e Pr epa y m en t Pr emi um a s th e di ffer en ce b etwee n: (1) th e p re se n t v alu e o f th e s tr ea m of m on t h ly pa y me n t s fr o m th e d a t e o fp r e p a y me nt th r o ug h y ea r 10 c o m put ed atthe Re i nv es tment Ra t e ; a nd ( 2 ) the prese nt val ue of the sam e s tream of m onthl y pay m ents com pu ted a t the S tat ed Rate ofthe N ote
. To a r r i ve a t th i s f o r m ul a, Bo r r o wer s m us t m ak e swe eping changes to the co ntra ct l anguage defi ni ng the Pre paym ent Pr em i um , illus trate d as f ol l ows w i th the added w or d i n i tal i cs a nd the del ete d l anguage st ri cken out:

. . . e q u a l t o th e p o s i t i v e d i ffe r e n c e b e t we e n t he prese nt va l ue ( com pu ted atthe Rei nv e s t m ent Rat e)N os. 08

- 3239 & 08

- 4038 17 oft h e strea m o fm onthl y pay m ents ofpri nci pal an d i nt er es t unde r thi s N o te fr o m the da te o fthe prepaym ent thro ugh the tenth ( 10 ) anni ver sar y o f th the F i rs t F ullPaym ent Date [and] a tthe S t a t ed Rate
. . . and the outst anding pri nci pal bal ance of th i s N o te a s o fthe date of the pr epa y m en t ( th e “D iffer en tia l”). .

. . Borr owers’ i nser ti on o fan “ and” bef or e the “at the S tat ed Rate” cl ause com ple tel y c hanges the s eco nd var i abl e use d to c al cul at e th e Di ffer en ti al, r epl ac i ngthe “ o ut st an di ng p rin c ip al ba lan c e” va ria b le w ith a ne w “s tr ea m of m on th ly paym ents” var i able. Equall y pr obl em ati c, Bor ro w er s’ i nter preta ti on o m i ts the “ outst anding pri nci pal bal ance” claus e from the con tract, rend ering tha t term m ere s u r p lu sa ge . Se eKl app , 6 6 3 N. W
. 2 d a t4 5 3 ( “ [ C] o ur ts m ust . . . giv e effect to eve ryword, phrase , and cl ause in a c on t ra c t a n d av oid an int er p re ta tio n th atw ou ld re n d er an y p ar t o f th e c on tr ac t s u rp lu sa ge or n u ga to ry .” ( quotati on o m i tte d))

. I n shor t, Bor ro w er s’ i nter preta ti on i s unr ea so nabl e be ca us e i t i s co m pl etel y i nc o ns i st en t w ith t h e c on tr ac t la n gu ag e, an d w e c an n otad op t t h is i nter preta ti on und er the rul e of const rui n g am bi gui ti es aga i nst the drafter
. I nstea d, the m eani ng o fthe Prepay

m ent Pr em i um i s a questi on o ff act th at r eq uir es an ex am in at ion of r e l e va n t e x tr in sic ev id en c e. SeeFres h C ut, Inc. v. Fazli, 650 N
. E
. 2d 1126, 1133 (Ind

. 1995).

I I I . Concl usio n Bec au se the c o nt r ac t l an g ua g e defi ni ngthe Pr epa y m en t Pr emi um i s ambi g uo us , r es o l vingthe mean i ngo fthe18 N os. 08

- 3239 & 08

- 4038

c o n t r a c to n s u mma r y j u d g me n tw a s i n a p p r o p r i a t e . We R EMA ND for a t ri alo n the questi on o fthe parti es’ in te n d ed m ea n in g of t h e P re p a ym en t P re m iu m . C irc u it Ru l e 3 6 s ha l l a pp l y o n r e man d.

7- 13- 09