Business Law
student A
Issue: Planned Pethood Plus Inc borrowed $389,000 from KeyBank at 9.3 percent interest rate per year for ten years. In the loan agreement there was a prepayment penalty in which sated if the loan was repaid early then a specific formula would be used to create a prepayment penalty. The veterinarians payed the loan after a year and were penalized $40,525.92. The veterinarians sued stating that the prepayment was unenforceable because it was a penalty ,but the trial court agreed with the banks statement that in actuality the prepayment penalty was a liquidate. The veterinarians appealed. The issue is whether or not the prepayment charge was enforceable.
Rule: Under contract law the nonbreaching party would be compensated for damages for the loss of a bargain. In the case between Planned Pethood Plus Inc and KeyBank; KeyBank had a mitigation of damages set in place so that if they ever had a lose it would not be so great such as their prepayment penalty. Looking at both liquidated damages and penalties the difference between both are liquidated damages are compensated when a future default of breach has occurred within the contract whereas penalty is the amount to be paid if there was a default or breach of a contract.
Analysis: Looking at this case Planned Pethood Plus Inc. believed that KeyBank was penalizing them for paying their loan ahead of time, but KeyBank stated that the prepayment penalty was a liquidate. In order to determine whether or not a damage is a liquidate there are two questions that need to be answered with a yes. The first question is when the contract was first entered was it made aware that the damages if made were difficult to estimate? The second question is was the damage amount set and was it reasonable? The veterinarians from the Planned Pethood Plus Inc company knew what kind of loan they were getting into. They were well aware that there was going to be a prepayment penalty if the loan was paid to early and that the earlier the loan was paid the higher it was going to be.
Conclusion: In my judgement I would say KeyBank was in the right they specifically stated there would be a prepayment penalty if the loan was paid to early. The only thing I am unsure about is how the prepayment penalty was made. KeyBank states that they will use a specific formula to calculate the payment. They never specified a specific number but did say there is a formula for it.
O ther students answer
Issue: Planned Pethood Inc had borrowed a loan from Keybank for $389,000 at an interest rate of 9.3%. As part of the contract with the loan it clearly states that it is supposed to be paid off over the course of ten years and the earlier you pay it off before that amount of time the bigger the penalty fee will be. Planned Pethood decided to pay it off within a year, Keybank calculated how much the prepayment penalty would cost them and it came out to $40,525.92. Planned Pethood took it to court and after the court sided with the bank in this suit Planned Pethood had appealed this decision and still believe they are in the right and want to continue to fight until this prepayment penalty is eliminated.
Rule: In this specific case liquidated damages and penalties which is provision in a contract that specifies a certain dollar amount is to be paid in the event of a future default of breach of contract. So in this case there would be liquidated damages and penalties due to Keybank which has won the case but the decision is now being appealed. Liquidated damages and penalties are applied when a breach of contract has occurred which insures the person giving out the loan that they are paid reparations for betrayal if their deal has not been carried out in the proper fashion.
Analysis: In this case, Planned Pethood has filed to get their prepayment penalty money back and are trying to look to settle this in court. The court believes that they have made the right decision by siding with Keybank in agreeing that Planned Pethood indeed is and should be held accountable for the breach of contract that has occurred. The fact that they paid the loan back so early to KeyBank was a poor mistake on their part because legally they would have to know find a way to win this appeal. Planned Pethood looking to appeal means that KeyBank is in the wrong and should refund them this large penalty they have been faced with due to the fact that they did not obey and carry out their end of the deal in the proper fashion.
Conclusion: Although Planned Pethood is looking to appeal i believe that because they have caused KeyBank these liquidated damages that they should be held accountable for paying them the penalty in order for everything to be straightened out. Even though maybe paying it back so early was an act in good faith or an act of attempting to be responsible it was still not part of the contract and therefore their appeal may not work out in their favor.
Issue:
The legal issue that the court is dealing with is the plaintiff claims that they should not owe the defendant the prepayment penalty because they paid the loan off early and should not owe anything. “The relevant portions of this clause are as follows: At the time and with respect to each partial or total prepayment of the outstanding principal amount of this Note, Borrower shall pay to Lender an amount equal to (a) the principal amount of the prepayment times. (b) the number of years in the original term of the Note minus the number of years the Note has been outstanding. times. 0.0125 (one and one quarter percent)” (Colorado Court of Appeals, Div. I., 2010, para 3).
Rule:
Planned Parenthood Plus position: They filed a lawsuit against the defendant to get recovery for the prepayment penalty plus the interest added on the penalty.
Keybank position: They claim that Planned Parenthood signed the contract acknowledging that they were aware of the prepayment penalty. They stated that Planned Pethood has a penalty fee of $40,525.72 with an interest rate of 10.72%.
Conclusion:
On Pethood’s appeal, they want the prepayment penalty to be viewed as liquidated damages, the prepayment penalty is nevertheless void on equitable grounds because it is unconscionable. The Court disagrees. Prepayment penalties are generally permitted in Colorado except in consumer loans and in certain residential mortgages (Colorado Court of Appeals, Div. I., 2010) The loan’s prepayment charge was reasonable because Pethoood signed a contract stating that they acknowledge their prepayment charge if the loan is paid early.