IN THE COURT OF APPEALS OF OHIO
TENTH APPELLATE DISTRICT
Allan K. Vrable, :
Plaintiff-Appellee, : No. 04AP-160
(C.P.C. No. 02CVH-10-10911)
v. :
(REGULAR CALENDAR)
Extendicare Health Services, Inc., :
Defendant-Appellant. :
O P I N I O N
Rendered on February 8, 2005
Hahn Loeser & Parks, LLP, Stephen E. Chappelear
and
Anthony J. Miller
, for appellee.
Gamble Hartshorn Johnson, LLC
, and
Joel H. Mirman
, for
appellant.
APPEAL from the Franklin County Court of Common Ple
as.
McCORMAC, J.
{¶1}
Allan K. Vrable, plaintiff-appellee, commenced an a
ction against
Extendicare Health Services, Inc. ("Extendicare"),
defendant-appellant, alleging that
Extendicare, the successor in interest to Arbor Hea
lth Care Company, owes $155,976.19
for interest on a promissory note entered into betw
een appellee and appellant on
June 30, 1995. Extendicare denies owning anything
on the promissory note alleging that
the principal and interest had been paid in full.
{¶2}
Both parties filed motions for summary judgment. T
he trial court granted
summary judgment to appellee and rendered judgment
against appellant in the sum of
$155,976.19.
No. 04AP-160
2
{¶3}
Extendicare appeals, asserting the following assignment of error:
The trial court erred in finding that interest shou
ld be
compounded on a promissory note that called for pay
ment of
simple interest on principal and made no reference
to
compounding.
{¶4}
There are no disputed facts. A promissory note in
the original sum of
$4,750,000 and all payments made thereon are stipul
ated by the parties. The only issue
in dispute is the interpretation of the provision i
n the promissory note relating to the
calculation of interest on the note.
{¶5}
The promissory note as pertains to this determinati on reads as follows:
1
PROMISSORY NOTE
$4,750,000 Lima, Ohio
June 30, 1995
For value received, the receipt and sufficiency of
which are
hereby acknowledged, the undersigned, Arbor Health
Care
Company, a Delaware corporation ("Payor"), hereby p romises
to pay to the order of Allan K. Vrable ("Payee") or
his heirs,
personal representatives and assigns, at 6211 Sun B
lvd.,
108E, St. Petersburg, FL 33715, or at such other pl
ace as the
holder hereof may, from time to time, designate in
writing, the
outstanding principal balance of Four Million Seven
Hundred
Fifty Thousand and No/100 Dollars ($4,750,000), wit
h simple
interest on the unpaid principal sum hereof at a ra
te of eight
percent (8%) per year, payable at the times and on
the terms
as hereinafter provided in this promissory note (th e "Note"):
1. Interest hereon and the principal sum shall be p
aid in lawful
money of the United States of America.
2. Payor shall make nine (9) equal semi-annual paym
ents of
principal and interest to Payee, which payments sha
ll be
based on a ten (10) year amortization period. Each
payment
shall be made in immediately available funds. At t
he end of
the fifth year after the execution of this Note, Pa
yor shall pay
to Payee all remaining principal then outstanding u
nder this
1
The entire promissory note and schedule of payment
s are contained on pages 13-19 in appellant's brief
.
No. 04AP-160
3
Note, together with all interest accrued to date, a
nd this Note
shall be cancelled. The schedule of such payments
is
attached hereto as Exhibit A.
SCHEDULE OF PAYMENTS
NO.
DUE
DATE
PAYMENT
AMOUNT
INTEREST
PRINCIPAL
BALANCE
1. 01/01/96 $349,513.31 $190,000.00
$159,513.31 $4,590,486.69
2. 07/01/96 349,513.31 183,619.47
165,893.84 4,424,592.85
3. 01/01/97 349,513.31 176,983.71
172,529.60 4,252,063.25
4. 07/01/97 349,513.31 170,082.53
179,430.78 4,072,632.47
5. 01/01/98 349,513.31 162,905.30
186,608.01 3,886,024.46
6. 07/01/98 349,513.31 155,440.98
194,072.33 3,691,952.13
7. 01/01/99 349,513.31 147,678.09
201,835.22 3,490,116.91
8. 07/01/99 349,513.31 139,604.68
209,908.63 3,280,208.28
9. 01/01/00 349,513.31 131,208.33
218,304.98 3,061,903.30
10. 07/01/00 3,184,379.43
122,476.13
3,061,903.30
0.00
{¶6}
As previously stated, it is undisputed that appella
nt paid the principal
payments due under the note. At issue is the metho
d by which interest was to be
computed. Appellant contends that all interest wa
s paid calculating interest on the
unpaid principal sum at the rate of eight percent p
er year as provided unambiguously by
the terms of the note. Appellee contends that inte
rest should have been compounded by
recalculating interest every six months including i
nterest unpaid because appellant had
missed payments.
{¶7}
From the payment schedule, it is apparent that the
loan was intended to be
simple interest on a declining balance principal wi
th the principal being recalculated every
six months until the final balloon payment was made
. Mathematically, it is clear that the
interest each six months for the six payments which
were made was based on simple
interest at eight percent per annum (four percent f
or six months). The effect of the
No. 04AP-160
4
unanticipated delay in payments was that the final
balloon payment of principal and
accrued interest was made on February 26, 2002, rat
her than July 1, 2000, and that the
final three six-month payments were eliminated from
the calculation of the balloon
payment.
{¶8}
The interest problem arose because, due to no fault
of appellant, or its
predecessor, only the first six required payments a
s provided in the payment schedule
were regularly made, those being made from January
1, 1996 to July 1, 1998. For
reasons not pertinent to this determination, which
were not attributable to either party, no
further payments were made until final payment of t
he principal and accrued interest by
appellant's calculation was made to appellee on Feb
ruary 26, 2002, in the amount of
$4,770,822.59. Appellant's accountant used the sch
edule, including the missed six-
month payments, in adding interest of $1,078,870.16
obtained by simple interest
calculations to the conceded principal still due of
$3,691,952.18 for its final payment of
$4,770,822.59.
{¶9}
On the other hand, appellee asserted that interest
should be charged on
interest during the missed payment times and the in
terest due at time of payment equaled
an additional $155,976.19.
{¶10}
The dispute turns on how the interest should be cal
culated from the period
of July 1, 1998, until the final payment was made o
n February 26, 2002. As noted by the
schedule, interest due was adjusted every six month
s and paid at the rate of four percent
on the new recalculated and lower balance. Obvious
ly, there was no change in the
balance of the principal from July 1, 1998, until p
ayment time of February 26, 2002,
because no payments had been made to reduce the bal
ance.
No. 04AP-160
5
{¶11}
The trial court agreed with appellee's calculations
, construing the payment
schedule in the note as compounding, and came to th
e conclusion that, since appellant
received an advantage of recalculation of the eight
percent interest, based on the four
percent semi-annual recalculation of the principal,
appellant received the advantage of
compounding. The trial court concluded that, durin
g the non-payment times, the deferred
interest should be added to the principal every six
months for a recalculation of the
interest finally due.
{¶12}
We disagree with the trial court that the note prov
ided compounding in favor
of appellant. The note contained a provision for s
imple interest of eight percent per
annum with the principal to be recalculated every s
ix months after subtracting the
payment on the principal for the previous six month
s. It clearly provided for payment of
eight percent interest on the unpaid principal and
was based on a declining principal
basis. Simple interest means that interest will no
t be charged on interest, but only on
principal.
{¶13}
To summarize, the intent of the parties was clearly
to charge simple interest
at the rate of eight percent per annum on the unpai
d principal which was to be
recalculated every six months until final payment.
Semi-annual payments were made
until July 1, 1998, when the principal balance of $
3,691,952.13 existed.
{¶14}
That balance, upon which the parties intended that
eight percent per annum
simple interest be paid, remained unchanged until t
he final payment was made on
February 26, 2002. That final payment was to inclu
de principal plus accrued interest.
{¶15}
The remaining parts of the schedule of payments wer
e rendered defunct
because those payments could not be made through no
fault of either party. It is contrary
to the intent of the loan agreement to impose compo
und interest because of these non-
No. 04AP-160
6
payments. Appellee obtained the agreed eight perce
nt interest upon the unpaid principal
during this time. The time of the balloon payment
became February 26, 2002. At this
time, the principal of $3,691,952.13 was due toget
her with interest of eight percent per
annum from July 1, 1998 until February 26, 2002. (
The same result would be reached if
calculated every six months at four percent per ann
um because the principal did not
decline.)
{¶16}
An easier calculation of interest is obtained by mu
ltiplying the principal of
July 1, 1998 by .08 (eight percent). That would re
sult in one year's interest.
($3,691,952.13 x .08 = $295,356.17). There are thr
ee years and 240 days from July 1,
1998, until the payment date of February 26, 2002.
Thus, the annual interest of
$295,365.17 must be multiplied by three and 240/365
or 3.657. That results in accrued
interest as calculated by appellant's accountant.
{¶17}
In using those calculations, we find that appellant
correctly calculated the
interest due at the date of the final payment and m
ade payment in full accordingly.
{¶18}
Appellant's assignment of error is sustained, the j
udgment of the Franklin
County Court of Common Pleas is reversed, and this
case is remanded to that court to
render final judgment for appellant.
Judgment reversed and cause remanded.
BRYANT and KLATT, JJ., concur.
McCORMAC, J., retired of the Tenth Appellate Distri
ct,
assigned to active duty under authority of Section
6(C), Article
IV, Ohio Constitution.
________________________