Opinion ID: 3064793
Heading Depth: 3
Heading Rank: 1

Heading: Schroeder’s Attempted Payment Constituted a

Text: Prepayment. Schroeder argues that the Loans’ maturity dates are the dates by which the total loan balances would be paid based on the loan documents’ monthly installment schedules (the installment dates). Using this approach, she maintains, her 1975 and 1984 loans matured in 1995 and 1993, respectively, and thus, her 2004 attempted payment was not a “prepayment” under ELIHPA and should have been allowed.2 The government contends that the maturity dates are instead the dates the loan documents identify as the “due and payable” dates, i.e., 2015 and 2034, respectively (the horizon dates). [1] Schroeder’s novel argument fails. In interpreting contractual terms under federal common law, we give effect to the parties’ intentions as ascertained from the terms themselves. Flores v. Am. Seafoods Co., 335 F.3d 904, 910 (9th Cir. 2003) (quoting Klamath Water Users Protective Ass’n v. Patterson, 204 F.3d 1206, 1210 (9th Cir. 1999)). In this case, a review of the relevant loan documents reveals that the parties intended the horizon dates, not the installment dates, to constitute the maturity dates. 2 The government argues that Schroeder is making this argument for the first time on appeal and, therefore, she has waived it. See O’Rourke v. Seaboard Sur. Co. (In re E.R. Fegert, Inc.), 887 F.2d 955, 957 (9th Cir. 1989) (“[A]ppellate courts will not consider arguments that are not ‘properly raise[d]’ in the trial courts. . . . [T]he argument must be raised sufficiently for the trial court to rule on it.” (citations omitted) (second alteration in original)). Schroeder, however, argued generally before the district court that she had not tendered a prepayment. We therefore consider the merits of her argument. SCHROEDER v. UNITED STATES 7403 [2] First, at the time of the notes’ execution, the horizon dates were the only dates certain. At that point, the parties could not have known the exact date by which the monthly installments would ultimately satisfy the principals because the dates were subject to unpredictable factors (e.g., the total rent received from tenants, which in turn determined the interest rate applied to the principal). Therefore, the parties could not have intended to establish the 1993 and 1995 installment dates as the maturity dates, because they could not have known that the principals would be satisfied on those dates. [3] Second, Schroeder’s interpretation linking the installment dates to the maturity dates would effectively nullify the prepayment clause. The promissory notes’ clauses explicitly permit prepayments at the borrower’s option. Therefore, under Schroeder’s theory, the final payments would necessarily coincide with—indeed, they would establish—the maturity dates. Under this reading, no final payment could constitute a prepayment, and the language permitting prepayments would essentially be a nullity. Consistent with common law principles of contract interpretation, we assume that the agreement’s drafters did not intend such a result. Cf. Matsuo Yoshida v. Liberty Mut. Ins. Co., 240 F.2d 824, 827 (9th Cir. 1957) (declining to interpret agreement so as to render clause a nullity); 17A C.J.S. Contracts § 303. [4] Third and finally, under common law property standards, a mortgage instrument’s prepayment clause generally accompanies, and is distinct from, the specified loan maturity date. See, e.g., Trident Ctr. v. Conn. Gen. Life Ins. Co., 847 F.2d 564, 566 (9th Cir. 1988); 55 Am. Jur. 2d Mortgages § 345. To read the notes to equate the maturity dates with the final payments under the prepayment clause, as Schroeder urges, would violate this principle. Thus, common law further supports our conclusion that the parties intended the loan documents’ horizon dates, not their installment dates, to constitute the loans’ maturity dates. 7404 SCHROEDER v. UNITED STATES [5] Having determined as much, it is apparent that Schroeder’s 2004 payment tender constituted a “prepayment” under ELIHPA. The regulations interpreting ELIHPA define a loan “prepayment” as “[p]ayment in full of the outstanding balance on an Agency loan prior to the note’s originally scheduled maturity date.” 7 C.F.R. § 3560.11. Schroeder cites no authority contrary to this reasonable regulatory interpretation, to which we must defer, see Chevron U.S.A., Inc. v. Natural Res. Def. Council, 467 U.S. 837 (1984). Therefore, because the “note[s’] originally scheduled maturity date[s]” were in 2015 and 2034, respectively, Schroeder’s 2004 attempted payment constituted a prepayment under the applicable regulations. The Eighth Circuit recently confronted a similar scenario and came to the same conclusion. See Charleston Hous. Auth. v. U.S. Dep’t of Agric., 419 F.3d 729, 739 (8th Cir. 2005) (reasoning that “[p]ermitting a Section 515 debtor who has made substantial prepayments to label a final payment thirty years prior to the original maturity date as anything other than a prepayment would be to elevate technical form over substance”). To hold otherwise, the Charleston Housing Authority court concluded, “would create a loophole in [ELIHPA’s] prepayment restrictions large enough [to] swallow all of Congress’s clearly expressed intent.” Id.3 [6] We therefore conclude that Schroeder’s final payment tender in 2004 was not a final payment, but a prepayment. As 3 Charleston Housing Authority’s interpretation of the “unmistakability doctrine” differed from our approach in Kimberly. See DBSI/TRI, 465 F.3d at 1041 n.7 (noting that, contrary to our conclusion in Kimberly, Charleston Housing Authority held that the “unmistakability doctrine did bar the owners’ attempts to circumvent ELIHPA in prepaying Section 515 loans); Kimberly, 261 F.3d at 869 (noting that the doctrine allows “the Government to make agreements that bind future Congresses, but only if those contracts contain an unmistakable promise” (internal quotation marks omitted)). However, we have never taken issue with Charleston Housing Authority’s view on the meaning of prepayment under ELIHPA. SCHROEDER v. UNITED STATES 7405 a result, it was subject to the terms—including the elaborate procedural requirements—of ELIHPA that govern prepayments.