Court Opinion

ID: 6699352
Source: CourtListenerOpinion
Date Created: 2022-07-20 22:04:48.030131+00
Date Added: 2024-06-11T16:01:21.903266
License: Public Domain

Harsha, Judge,
concurring.
{¶ 15} When examining a contract, our primary purpose is to ascertain and give effect to the intent of the parties. Aultman Hosp. Assn. v. Community Mut. Ins. Co. (1989), 46 Ohio St.3d 51, 53, 544 N.E.2d 920. We presume that intent is reflected in the language of the agreement. Kelly v. Med. Life Ins. Co. (1987), 31 Ohio St.3d 130, 31 OBR 289, 509 N.E.2d 411, paragraph one of the syllabus. The language employed in the promissory note does not mention a prepayment penalty or in any way limit the application of the 16 percent penalty to principal payments made before maturity. Although the parties ultimately, though mistakenly, agreed on a” clause that made it impossible for Davis to ever pay the $45,000 principal balance without incurring a penalty unless he obtained *33the McClures’ prior consent, that fact does alter the clear language of the note, which does not place any time constraint on the penalty clause.
{¶ 16} Moreover, even if we could look beyond the clear and unambiguous language of the note, the record does not support a finding that this was a prepayment penalty clause. In his answer, Davis stated that “the purpose of the limitation was for the benefit of the Plaintiffs in order for them to reduce the amount of capital gains tax they would have to pay, and therefore was a limitation on the amount the Defendant could pay without penalty. The penalty set forth in the note was the amount the Plaintiffs believed would increase their capital gain[s] tax if the additional amount was paid on the principal.” And while Davis attempted to argue at the trial level that the McClures were not in fact financially harmed by his lump-sum payment, he presented no evidence to this effect. Moreover, the record contains no evidence that any risk that the parties anticipated of increased capital gains taxes due to high annual principal payments would dissipate after maturity. Thus, I agree with the principal opinion that the clause is an excess-payment clause rather than a prepayment penalty.
{¶ 17} However, because of the mutual mistake concerning the impossibility of performance of the contract without either obtaining consent or imposing a penalty, I would reform the contract. The obvious intent of the parties was to allow the borrower to annually pay up to 10 percent of the original principal balance without incurring a penalty and without causing the lenders to incur tax consequences. Thus, I would allow the first $4,500 of the payment to be made without penalty but would impose the penalty on the remaining balance of $40,500. Sixteen percent of this amount would be $6,480, which is the sum the lenders seek.