Title: FLORIDA NAT. BANK OF MIAMI v. Bankatlantic
Citation: 589 So. 2d 255
Docket Number: 75965
State: Florida
Issuer: Florida Supreme Court
Date: October 24, 1991

589 So. 2d 255 (1991)
FLORIDA NATIONAL BANK OF MIAMI, etc., et al., Petitioners,
v.
BANKATLANTIC, etc., Respondent.
No. 75965.

Supreme Court of Florida.
October 24, 1991.
Rehearing Denied December 9, 1991.
David D. Welch of Welch &amp; Korthals, Pompano Beach, for petitioners.
Eugene E. Stearns, Lisa K. Bennett and Richard E. Douglas of Stearns, Weaver, Miller, Weissler, Alhadeff &amp; Sitterson, P.A., Miami, for respondent.
OVERTON, Justice.
We have for review Florida National Bank v. Bankatlantic, 557 So. 2d 596 (Fla. 4th DCA 1990), in which the district court *256 held that the mortgagee's exercise of an option to accelerate payments owing under a mortgage note following the mortgagor's intentional default did not preclude the mortgagee from collecting a prepayment penalty fee. Because this is a case of first impression that establishes an exception to an accepted legal principle, the district court certified the following question as one of great public importance:
Id. at 599. We have jurisdiction,[1] answer the question in the affirmative, and approve the district court's decision.
Florida National Bank of Miami is nominally involved in this litigation as trustee of a land trust and as mortgagor of the subject property. Edwin F. Gordon is the sole beneficiary and real party in interest. For the purposes of clarity, the petitioner-mortgagor will be referred to as Gordon and the respondent-mortgagee as Bankatlantic.
Gordon built an apartment project as a tax shelter and, after completion of construction in 1976, executed a note and mortgage turning the construction loan into a permanent twenty-five-year loan due June 1, 2001. The note and mortgage contained both a prepayment clause and a default acceleration clause. The prepayment clause read as follows:
The acceleration clause read as follows:
As noted, this apartment complex was built as a tax shelter device to shelter substantial income Gordon received from his business. In 1980, Gordon began experiencing financial difficulties with his business, and, in 1982, he made a business decision to sell the apartment complex for condominium conversion. To carry out this plan, Gordon stopped leasing the apartments as rentals and renewing existing leases. From 1982 on, Gordon pursued and negotiated with several prospective buyers for the property.
In April, 1984, Gordon's check for the monthly mortgage payment bounced and, as a result, the mortgage went into default on May 1, 1984. On May 11, 1984, Gordon inquired as to the possibility of the bank's waiving the prepayment penalty fee if he brought a prospective buyer to the bank and assured the bank that it would receive the end loans. Bankatlantic declined to waive the prepayment penalty and Gordon made no further monthly payments.
*257 On June 6 and 20, 1984, Bankatlantic sent default letters to Gordon. On September 7, 1984, Gordon entered into a purchase and sale agreement to sell the apartment complex. Four days later, on September 11, 1984, Bankatlantic filed a foreclosure action against Gordon, including the customary notice of its election to accelerate the maturity date under the loan agreement. Nothing in this record indicates that the bank knew of the purchase agreement at the time it initiated the foreclosure proceeding.
On December 18, 1984, while the foreclosure proceeding was pending, Gordon sold the mortgaged property and tendered payment of the entire principal balance, default rate interest, attorney's fees, and costs to Bankatlantic. At that point, Gordon again requested that the bank waive the prepayment penalty. In order to allow the sale of the property to close and preserve the issue for a later judicial determination, Bankatlantic agreed to satisfy the mortgage in exchange for payment of all outstanding principal, default interest, advances, attorney's fees, and costs after obtaining Gordon's agreement to escrow an amount equal to the prepayment penalty and anticipated attorney's fees. The mortgage was then satisfied and the sale was closed.
The only issue before the trial court was whether a provision in the mortgage note imposing a penalty for prepayment was applicable after Bankatlantic elected to declare the note due and payable in full, pursuant to a separate optional default-acceleration clause. After a nonjury trial, the trial judge held that Gordon intentionally defaulted on the mortgage loan and that it would be inequitable for him to escape liability for the prepayment clause. In his extensive order, the trial judge made the following pertinent findings of fact:
In his conclusions of law, the trial judge determined that he had the discretion to require prepayment where there was an intentional default and explained his holding by stating:
In affirming, the district court of appeal stated:
557 So. 2d  at 598 (citations omitted). We fully agree.
Gordon asserts that "prepayment" is payment before maturity and once a lender accelerates maturity, "prepayment" is, by definition, not possible. He argues that we should follow the decision of a recent case decided by the Supreme Court of Washington in Rodgers v. Rainier National Bank, 111 Wash. 2d 232, 757 P.2d 976 (1988), in which it rejected the claim for prepayment where the default was deliberate and intentional to avoid the prepayment obligations. Gordon also asserts that the decision by the United States Court of Appeals for the Seventh Circuit in In re LHD Realty Corporation, 726 F.2d 327 (7th Cir.1984), supports his position.
We reject these arguments and agree fully with the trial and district courts that Gordon should not be able to profit from his own intentional default under the circumstances of this cause. We note, as did those courts, that LHD Realty acknowledged that there could be an exception to the general rule where there was a finding of an intentional default. Foreclosure actions are litigated in a court of equity, and chancellors of those courts traditionally have been granted the discretion and authority to do justice between the parties, particularly in circumstances where one party is attempting to profit from his own intentional misconduct. This was not a sale under duress but a sale planned in advance beginning within Gordon's decision in 1982 to convert the property from rental apartments to condominiums. That decision also included a decision later not to lease or renew leases on the apartments in the property. This latter decision made the property more salable but also substantially reduced the income from the property. Gordon's conduct and his conversations with the bank officers clearly justify the factual finding of the trial court that his conduct was intentional with the purpose of avoiding the prepayment penalty.
We find that the limited exception created by this decision to the general rule that a mortgagee cannot both accelerate and receive a prepayment penalty is clearly appropriate under the special circumstances in this case.
Accordingly, we answer the certified question in the affirmative and approve the decision of the district court of appeal.
It is so ordered.
McDONALD, BARKETT and KOGAN, JJ., concur.
GRIMES, J., dissents with an opinion, in which SHAW, C.J., concurs.
GRIMES, Justice, dissenting.
While I agree with the Court's resolution of the certified question in cases of intentional default, there is insufficient evidence in this record to support the court's conclusion that Gordon's default was intentional.
Gordon executed the mortgage note in 1976, at a time when he was the chairman of the board and president of a successful manufacturing business in Wisconsin. At the outset of its operation as the Landmark Apartments, the property was not intended to nor did it at any time generate sufficient rental income to fully cover the mortgage payments and operating expenses. The project was conceived and implemented as a tax-shelter device which would generate negative cash flow as a means of sheltering the high income Gordon was then receiving from his manufacturing business.
In 1980 and 1981 there was a labor strike in Gordon's business that led to the bankruptcy of his company. As a result of the bankruptcy and other investment losses, Gordon lost approximately ten million dollars in 1981 and 1982. Faced with worsening financial problems, Gordon realized by 1982 that he would no longer be in a position to use personal funds to supplement the rental income from the Landmark Apartments in order to meet the mortgage *260 payments and operating expenses. Thus, it was evident that he would ultimately lose the apartments unless he could sell them. By April of 1984, Gordon was insolvent and had numerous judgments entered against him. After the assets of the Wisconsin company were sold to the trustee in bankruptcy in May of 1984, Gordon owed over six million dollars to Harris Trust and Savings Bank under personal guaranties of the bankrupt company's loan. Gordon's precarious financial situation ultimately led to the default on the mortgage when his check for the April 1, 1984, mortgage payment to First Atlantic was returned for insufficient funds. Gordon thought he had a refinancing arrangement worked out with Harris Trust and Savings Bank, but Harris refused to honor the check.
In support of the finding of an intentional default, First Atlantic relies upon Gordon's intent to sell the apartments as a condominium complex and his request for a waiver of the prepayment penalty. However, the decision to sell Landmark as a condominium complex rather than as apartments was dictated by the market. In addition, notwithstanding the fact that Gordon ultimately stopped seeking to lease the apartments in order to carry out his plan to sell, the rental income from the apartments remained steady in 1982 and 1983. The rental income only began to drop after Gordon actually signed a contract to sell the apartments to Frank Imprescia on February 25, 1984. Furthermore, the rental income was never at any time sufficient to pay the mortgage payments and operating expenses, and by the time of the sale Gordon had no money of his own to contribute to keep the apartments afloat.
The finding by the trial judge that Gordon did not default on the loan until after the bank officials refused to waive the prepayment penalty reflects a basic misunderstanding of the evidence. Gordon defaulted on the payment due on April 1, 1984. It was not until May 11, 1984, that Gordon first asked the bank if it would forego prepayment penalties if the pending sale to Imprescia were consummated. According to the allegations of the bank's complaint, the bank did not refuse to waive the prepayment penalty until May 29, 1984. The fact that Gordon discussed with bank officials the possibility of waiving the prepayment penalty in the event the Imprescia sale went through did not mean that he intentionally failed to pay the mortgage that was already in default. As it turned out, the Imprescia sale was not consummated, but Gordon was finally able to sell the apartments to another party. In the meantime, he continued to miss the mortgage payments because he was broke. The bank officials' testimony that in retrospect they believed that Gordon intentionally defaulted in order to avoid the prepayment penalty was irrelevant, if not inadmissible.
I agree that an intentional default on the payment of a loan constitutes an exception to the general rule that a lender cannot collect a prepayment penalty upon acceleration. However, if evidence such as this is sufficient to prove an intentional default, the exception will swallow the rule.
I respectfully dissent.
SHAW, C.J., concurs.
[1]  Art. V, § 3(b)(4), Fla. Const.