will next become due and payable on policies of fire and other hazard insurance covering the mortgaged property, plus taxes and assessments next due on the mortgaged property . . . less all sums already paid therefor divided by the number of months to elapse before one month prior to the date when such ground rents, premiums, taxes and assessments will become delinquent, such sums to be held by Mortgagee in trust to pay said ground rents, premiums, taxes and assessments.
(b) The aggregate of the amounts payable pursuant to subparagraph (a) and those payable on the note secured hereby shall be paid in a single payment each month . . .
Any deficiency in the amount of any such aggregate monthly payment shall, unless made good prior to the due date of the next payment, constitute an event of default under this Mortgage. At Mortgagee's option, Mortgagor will pay a "late charge" not exceeding four per centum (4%) of any installment when paid more than fifteen (15) days after the due date thereof to cover the extra expense involved in handling delinquent payments, but such "late charge" shall not be payable out of the proceeds of any sale made to satisfy the indebtedness secured hereby . . .
A. Interpretation Of Mortgage Contract
1. The Mortgage Contract
This dispute centers around the meaning of the term "installment," as it is used in the Washingtons' mortgage and note. Plaintiffs assert that the loan documents define the word "installment" as the amount of principal and interest only. They observe that in both the mortgage and note, the first use of "installment" is in reference to the monthly payment of principal and interest. In contrast, plaintiffs continue, the sum of principal, interest, taxes and insurance, or PITI, is referred to in the mortgage as the "aggregate monthly payment." Plaintiffs conclude, therefore, that since "installment" appears initially in reference to the monthly principal and interest payment--$ 165.21--the reference to 4% of any installment in the late charge provision means 4% of $ 165.21, not 4% of the aggregate monthly payment.
Lomas rejects plaintiffs' suggestion that the first usage of the term "installment" in the mortgage contract and note defines the term's meaning throughout the mortgage. Noting that there is no definition section in the mortgage or note, Lomas contends that "installment" must be understood by reference to the context in which it appears and any modifying language accompanying the term. For example, in the context of the "whereas" clause, the term "installment" defines the method of payment (monthly) and amount of principal and interest payments ($ 165.21). But in the late charge provision, installment is not modified by reference to payment of principal and interest. Rather, Lomas argues, the term's meaning is defined in the late charge clause by the discussion of deficiencies in the amount of "aggregate monthly payments," or PITI.
To resolve this dispute, the Court looks first to the contract itself. "If the language of the contract unambiguously provides an answer to the question at hand, the inquiry is over." LaSalle Nat'l Bank v. Service Merchandise Co., 827 F.2d 74, 78 (7th Cir. 1987). If, on the other hand, the Court determines that the contract is ambiguous, the Court may employ rules of construction to determine the parties' intention. In re Estate of Chaitlen, 179 Ill. App. 3d 287, 291, 128 Ill. Dec. 300, 534 N.E.2d 482 (1st Dist. 1989). In addition, the Court may consider extrinsic evidence to interpret an ambiguous contract. See La Throp v. Bell Federal Savings & Loan Assoc., 68 Ill. 2d 375, 383, 12 Ill. Dec. 565, 370 N.E.2d 188 (1977), cert. denied, 436 U.S. 925, 98 S. Ct. 2818, 56 L. Ed. 2d 768 (1978); City of Clinton v. Moffitt, 812 F.2d 341, 344 (7th Cir. 1987). An ambiguous contract's interpretation "is still an issue of law rather than one of fact if any extrinsic evidence . . . bearing on that interpretation is undisputed." City of Clinton, 812 F.2d at 34. Thus, even when a contract is ambiguous, a case can be decided on summary judgment if no material facts are in dispute. LaSalle Nat'l Bank v. General Mills Restaurant Group, Inc., 854 F.2d 1050, 1052 (7th Cir. 1988); City of Clinton, 812 F.2d at 344.
The meaning of the term "installment" in the late charge clause of the Washingtons' mortgage contract is ambiguous. The parties' respective arguments demonstrate that, when the contract is construed as a whole, the late charge provision is "reasonably and fairly susceptible to more than one meaning." Lenzi v. Morkin, 116 Ill. App. 3d 1014, 1016, 72 Ill. Dec. 414, 452 N.E.2d 667 (1st Dist. 1983), aff'd, 103 Ill. 2d 290, 82 Ill. Dec. 644, 469 N.E.2d 178 (1984).
Therefore, the Court will look to the uncontroverted extrinsic evidence and applicable rules of contract construction to determine the meaning of the ambiguous late charge clause.
2. Extrinsic Evidence
The Washingtons' mortgage is guaranteed by the VA pursuant to 38 U.S.C. § 1810. The mortgage contract specifically incorporates Title 38 and the regulations promulgated thereunder. The mortgage provides:
If the indebtedness secured hereby be guaranteed or insured under Title 38, United States Code, such Title and Regulations issued thereunder and in effect on the date hereof shall govern the rights, duties and liabilities of the parties hereto, and any provisions of this or other instruments executed in connection with said indebtedness which are inconsistent with said Title or Regulations are hereby amended to conform thereto.
One such regulation, § 36.4311(d) of the Code of Federal Regulations, authorizes lenders to assess late charges on VA mortgages.
But, like the Washingtons' mortgage contract, § 36.4311(d) does not specifically define the term "installment." Thus, reference to the applicable federal regulations fails to elucidate the meaning of "installment," as it is used in the late charge clause of plaintiffs' mortgage contract.
To bolster its interpretation of "installment," Lomas has presented several VA Solicitor opinion letters and a VA manual outlining loan guaranty policies and procedures. Like Lomas, the VA Solicitor opinion letters and the manual construe the term "installment" as authorizing the calculation of late charges on PITI. Citing authority for the proposition that an agency's interpretation of its own regulations is entitled great weight, see First Bank of Oak Park v. Avenue Bank & Trust Co. of Oak Park, 605 F.2d 372, 376 (7th Cir. 1979); Homemakers N. Shore, Inc. v. Bowen, 673 F. Supp. 238, 240 (N.D. Ill. 1987), aff'd, 832 F.2d 408 (1987), Lomas argues that the VA "Solicitor's letter should be deemed 'dispositive.'" Defendant's initial brief at 14-15.
La Throp v. Bell Federal Savings & Loan Assoc., 68 Ill. 2d 375, 12 Ill. Dec. 565, 370 N.E.2d 188 (1977), cert. denied, 436 U.S. 925, 98 S. Ct. 2818, 56 L. Ed. 2d 768 (1978), counsels against placing controlling weight on the VA Solicitor's letter or the VA manual. The plaintiffs in La Throp filed a class action on behalf of mortgagors whose mortgages were insured by either the Federal Housing Authority ("FHA") or the VA. 68 Ill. App.2d at 379. The plaintiffs claimed that their mortgage contracts, which were on FHA- or VA-prescribed forms, created an express trust for their benefit in which the mortgagee would hold funds to pay their tax and insurance obligations. Id. They argued that certain FHA regulations, when construed in light of the FHA's interpretation of those regulations, supported a finding of an express trust. Id. at 384-85, 12 Ill. Dec. 565, 370 N.E.2d 188.
The La Throp court rejected the plaintiffs' contention that the regulations "must be construed in light of the FHA's own applicable interpretations." Id. at 387, 12 Ill. Dec. 565, 370 N.E. 188. Refusing to rely on several sections of the FHA's Mortgagee's Guide, the court noted that "it is undisputed that administrative interpretations (as distinguished from administrative regulations) do not have the force and effect of law." Id. at 387.
Because "the Mortgagee's Guide was published after the formation of the contract in question, and as the applicable FHA regulations do not clearly require the creation of a trust, we believe the plaintiff's reliance upon the FHA regulations and interpretations in the construction of this contract is misplaced." Id. at 388.
For reasons similar to those in La Throp, this Court declines to resolve the ambiguity in plaintiffs' mortgage contract solely on the basis of the VA's interpretation of the applicable regulations. As in La Throp, the applicable administrative regulations fail to resolve the ambiguity in the subject contract. It is only by resort to VA counsel opinions and the VA manual that Lomas finds support for its interpretation of what "installment" means in the late charge clause. Since, under La Throp, 68 Ill. App. 2d at 387-88, opinions of agency counsel and agency manuals "do not have the force and effect of law," defendant's contention that the VA's interpretation is "dispositive" is erroneous.
The Court will, therefore, look to applicable principles of contract construction for further guidance in resolving this dispute. Not surprisingly, the parties cite different rules of construction as controlling under the circumstances. Plaintiffs rely on contra proferentum, which holds that "when the words of a contract have been chosen by one party and another merely assents to those words, that fact alone may tip the balance against the party drafting the contract." Franklin Life Ins. Co. v. Commonwealth Edison Co., 451 F. Supp. 602, 616 (N.D. Ill. 1978), aff'd, 598 F.2d 1109 (7th Cir. 1979) (per curiam), cert. denied, 444 U.S. 900, 100 S. Ct. 210, 62 L. Ed. 2d 136 (1979). Plaintiffs argue that under contra proferentum "ambiguity in a standard form contract of adhesion, such as the printed form mortgage involved in this case," is resolved against the party who drafted the contract. Plaintiffs' answer brief at 5-6. Therefore, plaintiffs contend, if the Washingtons' mortgage can reasonably be construed in one of two ways, the interpretation favoring the borrower must be followed.
Reliance on the rule of contra proferentum is not appropriate in this case. It is widely held that this principle of construction is one of "last resort," properly invoked only "when other canons of interpretation leave a significant area of doubt . . ." Lippo v. Mobil Oil Corp., 776 F.2d 706, 714-15 n.15 (7th Cir. 1985); Franklin Life Ins., 451 F. Supp. at 616; Hurd v. Illinois Bell Tel. Co., 136 F. Supp. 125, 134 (N.D. Ill. 1955), aff'd, 234 F.2d 942 (7th Cir. 1956).
Stating that it is "a rule which provides an answer when all other methods of construction and interpretation still leave the contract ambiguous . . .," the court in Franklin Life Ins., 451 F. Supp. at 616, declined to rely on contra proferentum. Instead, the court relied on the rule that "an interpretation which gives reasonable meaning to all its terms is preferred to an interpretation which leaves some terms to no effect." Id. at 614 (citations omitted); see also Lukasik v. Riddell, Inc., 116 Ill. App. 3d 339, 347, 72 Ill. Dec. 123, 452 N.E.2d 55 (1st Dist. 1983) (court must avoid construction of contract that renders some provisions superfluous). That same rule establishes the controlling interpretation of the Washingtons' mortgage contract.
The term "installment" is modified by the words "principal and interest" at one place in the mortgage documents, yet stands alone in the late charge provision. Defendant correctly notes that if "installment" meant principal and interest throughout the mortgage documents, as plaintiffs insist, then the modifying language "of principal and interest" would be superfluous. It follows, therefore, that the modifying language is necessary only if "installment" means PITI in the late charge clause. This reading of the mortgage documents comports with the rule that a court should adopt an interpretation that gives effect to as much of the contract's language as possible. It is also in accord with the rule that a contract should be construed "by viewing each part in light of the others." Chicago Board of Trade v. Dow Jones& Co., 98 Ill. 2d 109, 74 Ill. Dec. 582, 588, 456 N.E.2d 84 (Ill. 1983). Accordingly, we conclude that plaintiffs' contract authorizes the calculation of late charges on PITI.
B. Illinois Consumer Fraud Act
Lomas moves the Court to declare that its practice of calculating late charges on PITI does not violate the Illinois Consumer Fraud and Deceptive Business Practice's Act, Ill. Rev. Stat. ch. 121-1/2, para. 262 (the "Illinois Consumer Fraud Act"). The Act prohibits "unfair or deceptive acts or practices . . . in the conduct of any trade or commerce . . ." Ill. Rev. Stat. ch. 121-1/2 para. 262. Section 2 of the Act provides that in determining whether a practice is unlawful as unfair or deceptive, "consideration shall be given to the interpretations of the Federal Trade Commission and the federal courts relating to Section 5(a) of the Federal Trade Commission Act." Ill. Rev. Stat. ch. 121-1/2 para. 262, § 2. In the context of section 5(a) of the Federal Trade Commission Act, the Seventh Circuit has interpreted the meaning of "unfair practice" as a practice that "offends established public policy and . . . is immoral, unethical, oppressive, unscrupulous, or substantially injurious to consumers." Spiegel v. F.T.C., 540 F.2d 287, 293 (7th Cir. 1976).
The Court has no difficulty concluding that Lomas' practice of calculating late charges on PITI does not run afoul of the Illinois Consumer Fraud Act. Plaintiffs' opposition to defendant's motion presumes that Lomas' late charge practices violate the Washingtons' mortgage contract and thus result in the imposition of unwarranted charges. But we have not concluded, as the court did in Andrews v. Fleet Real Estate Funding Corp., 78 Bankr. 78, 83 (Bankr. E.D. Pa. 1987), that "late charges were imposed contrary to the terms of the underlying mortgage contract . . ." On the contrary, we hold that defendant's method of calculating late charges is authorized under the subject mortgage contract. Moreover, "section 10(a) of the Act requires that one must be damaged in order to bring a private action." Heastie v. Community Bank of Greater Peoria, 690 F. Supp. 716, 718 (N.D. Ill. 1988). Since no excessive late charges exist here plaintiffs have not been damaged.
Defendant's motion for summary judgment is granted. The Court will issue a declaratory judgment order stating that (1) counterplaintiff (Lomas) is entitled, under the standard VA mortgage forms of counterdefendants and the class members, to impose a 4% late charge for delinquent payments calculated on the entire past due amount, including principal, interest, taxes and insurance; and (2) that Lomas' practice in so calculating late charges on delinquent payments on VA mortgages does not violate the Illinois Consumer Fraud Act.
James B. Zagel
United States District Judge