WASHINGTON, Circuit Judge.
No. 11450.
This is a controversy between mortgagor and mortgagee. It grows out of the mortgagor’s desire to receive interest on certain of its funds accumulated in the hands of the mortgagee, in accordance with the terms of their financing transaction, to assure the payment of taxes, insurance and the like.
The mortgagor, Manchester Gardens, Inc., contracted in the mortgage deed of trust to make monthly payments into two reserves to cover (1) the annual mortgage insurance premiums assessed by the Federal Housing Commissioner, (2) the sums periodically due on fire and other insurance, ground rents, water rates, taxes, and assessments.
And the mortgagor’s corporate charter in effect calls upon it to make monthly payments into a third reserve to cover the replacement of certain mechanical and other equipment.
After making numerous monthly payments into these three reserves, the mortgagor claimed entitlement to interest on these funds while they are in the hands of the mortgagee. The mortgagee disputed this claim and the mortgagor thereupon filed the present suit for a declaratory judgment, damages, and an injunction against foreclosure in the United States District -Court for the District of Columbia.
The District Court decided that no interest was payable on the sums accumulated in the reserves numbered (1) and (2) above. It thereupon dismissed the mortgagor’s complaint in its entirety, without deciding the question of interest on the third reserve and “without prejudice to the right of the plaintiff to assert claim for interest” on this reserve. The court evidently felt that the principal question before it was whether the plaintiff should be granted equitable relief as to future monthly payments into the reserves, and that the question of law as to plaintiff’s right to interest on the replacement fund already accumulated could be settled in a later suit.
We do not think this was a sufficient reason for not deciding an issue clearly presented by the pleadings. While the granting of declaratory relief is largely within the discretion of the court,
we think that where a court decides some of the issues in a case it should not decline (without good reason) to decide related issues which are ripe for decision and which may otherwise simply give rise to further litigation. Cf. Ward v. Deavers, 1953, 92 U.S.App.D.C.-, 203 F.2d 72. We find no such reason here.
In the circumstances, it would no doubt be proper to remand the case, for determination of this issue, relative to the third fund, by the District Court. But since the question is one of law and has been briefed and argued here on an adequate record, we think it preferable to decide it here. We shall deal with it at the outset.
The reserve for replacements is established in the corporate charter of the mortgagor. By its provisions—
“[SIXTH] (f) Anything to the contrary herein notwithstanding, no dividends shall be paid upon any of the capital stock of the corporation * * * until a reserve fund for replacements is first established and maintained by the allocation to such reserve fund in a separate account with the mortgagee (or in the case of a deed of trust with the beneficiary) or in a safe and responsible depository designated by the mortgagee * * * of an amount equal to One Hundred Twenty-Three Dollars and Sixty-Seven Cents ($123.-67) and a like amount monthly thereafter. Such fund, whether in the form of a cash deposit or invested in obligations of, or [obligations] fully guaranteed as to principal and interest by the United States of America, shall at all times be under the control of the mortgagee. * * * ”
We think that under this language the mortgagor has a clear choice, exclusive of other alternatives: it can make a cash deposit, or it can deposit with the mortgagee obligations issued by the United States or fully guaranteed by it as to principal and interest. It cannot, if it chooses to make a cash deposit, require the mortgagee to pay it interest at the legal rate. There is no showing that any of the parties to this financing transaction contemplated such a possibility. No more does the mortgagor comply with the charter provision if it makes a cash deposit in an institution of its own choosing — a local building association —and hands the passbook over to the mortgagee, as was attempted in this case. The language of the charter simply does not authorize such a procedure.
The passbook is plainly not the exact equivalent of cash. And nothing in the record indicates that it is a substantial equivalent, so as to produce a fund “at all times * * * under the control of the mortgagee.” Nor does a passbook in a building association fall with
in the category of obligations fully guaranteed by the United States as to principal and interest, even if deposits made therein are insured as to principal (only) by the Federal Savings and Loan Insurance Corporation, an agency of the United States.
As to the first two reserves, established by the deed of trust, we agree with the District Court that the mortgagor is not entitled to interest, either on the funds already accumulated or on future monthly payments. The charter provision expressly gives the mortgagor the opportunity to secure interest- on the funds in the replacement reserve by depositing obligations of a described category. In contrast, the deed of trust is altogether silent on the question of interest. The reserves provided for in that deed are small in size and regularly emptied. They were established under the terms of a detailed financial contract,’ entered into as a result of arms-length negotiation. The contract contains full provision for the computation and disposition of these reserves and for the consequences of failure to make the required payments into them. Under the circumstances, it is scarcely credible that the parties understood that the reserves were to carry interest but neglected to express their understanding. More than this, we think the parties’ conspicuous failure to provide expressly that interest should be"'paid is, under the circumstances of this case, equivalent to an agreement that it should not be paid.
In other situations there may perhaps be room for recovery of interest on some nonconsensual basis, such as unjust enrichment of the person holding the funds or the other party’s deprivation of their use.
But no such basis of liability for in-rerest can exist in a case like the present, where the- parties must be held to have agreed that interest shall not be paid.
Another grievance stated in the complaint related to the mortgagee’s failure to protest certain taxes paid by it from the reserves'. - This will be dealt with in the concluding portions of this opinion.
No. 11,451.
In a cross-appeal, the mortgagee seeks attorney’s fees in respect of the present litigation.
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WASHINGTON, Circuit Judge.
No. 11450.
This is a controversy between mortgagor and mortgagee. It grows out of the mortgagor’s desire to receive interest on certain of its funds accumulated in the hands of the mortgagee, in accordance with the terms of their financing transaction, to assure the payment of taxes, insurance and the like.
The mortgagor, Manchester Gardens, Inc., contracted in the mortgage deed of trust to make monthly payments into two reserves to cover (1) the annual mortgage insurance premiums assessed by the Federal Housing Commissioner, (2) the sums periodically due on fire and other insurance, ground rents, water rates, taxes, and assessments.
And the mortgagor’s corporate charter in effect calls upon it to make monthly payments into a third reserve to cover the replacement of certain mechanical and other equipment.
After making numerous monthly payments into these three reserves, the mortgagor claimed entitlement to interest on these funds while they are in the hands of the mortgagee. The mortgagee disputed this claim and the mortgagor thereupon filed the present suit for a declaratory judgment, damages, and an injunction against foreclosure in the United States District -Court for the District of Columbia.
The District Court decided that no interest was payable on the sums accumulated in the reserves numbered (1) and (2) above. It thereupon dismissed the mortgagor’s complaint in its entirety, without deciding the question of interest on the third reserve and “without prejudice to the right of the plaintiff to assert claim for interest” on this reserve. The court evidently felt that the principal question before it was whether the plaintiff should be granted equitable relief as to future monthly payments into the reserves, and that the question of law as to plaintiff’s right to interest on the replacement fund already accumulated could be settled in a later suit.
We do not think this was a sufficient reason for not deciding an issue clearly presented by the pleadings. While the granting of declaratory relief is largely within the discretion of the court,
we think that where a court decides some of the issues in a case it should not decline (without good reason) to decide related issues which are ripe for decision and which may otherwise simply give rise to further litigation. Cf. Ward v. Deavers, 1953, 92 U.S.App.D.C.-, 203 F.2d 72. We find no such reason here.
In the circumstances, it would no doubt be proper to remand the case, for determination of this issue, relative to the third fund, by the District Court. But since the question is one of law and has been briefed and argued here on an adequate record, we think it preferable to decide it here. We shall deal with it at the outset.
The reserve for replacements is established in the corporate charter of the mortgagor. By its provisions—
“[SIXTH] (f) Anything to the contrary herein notwithstanding, no dividends shall be paid upon any of the capital stock of the corporation * * * until a reserve fund for replacements is first established and maintained by the allocation to such reserve fund in a separate account with the mortgagee (or in the case of a deed of trust with the beneficiary) or in a safe and responsible depository designated by the mortgagee * * * of an amount equal to One Hundred Twenty-Three Dollars and Sixty-Seven Cents ($123.-67) and a like amount monthly thereafter. Such fund, whether in the form of a cash deposit or invested in obligations of, or [obligations] fully guaranteed as to principal and interest by the United States of America, shall at all times be under the control of the mortgagee. * * * ”
We think that under this language the mortgagor has a clear choice, exclusive of other alternatives: it can make a cash deposit, or it can deposit with the mortgagee obligations issued by the United States or fully guaranteed by it as to principal and interest. It cannot, if it chooses to make a cash deposit, require the mortgagee to pay it interest at the legal rate. There is no showing that any of the parties to this financing transaction contemplated such a possibility. No more does the mortgagor comply with the charter provision if it makes a cash deposit in an institution of its own choosing — a local building association —and hands the passbook over to the mortgagee, as was attempted in this case. The language of the charter simply does not authorize such a procedure.
The passbook is plainly not the exact equivalent of cash. And nothing in the record indicates that it is a substantial equivalent, so as to produce a fund “at all times * * * under the control of the mortgagee.” Nor does a passbook in a building association fall with
in the category of obligations fully guaranteed by the United States as to principal and interest, even if deposits made therein are insured as to principal (only) by the Federal Savings and Loan Insurance Corporation, an agency of the United States.
As to the first two reserves, established by the deed of trust, we agree with the District Court that the mortgagor is not entitled to interest, either on the funds already accumulated or on future monthly payments. The charter provision expressly gives the mortgagor the opportunity to secure interest- on the funds in the replacement reserve by depositing obligations of a described category. In contrast, the deed of trust is altogether silent on the question of interest. The reserves provided for in that deed are small in size and regularly emptied. They were established under the terms of a detailed financial contract,’ entered into as a result of arms-length negotiation. The contract contains full provision for the computation and disposition of these reserves and for the consequences of failure to make the required payments into them. Under the circumstances, it is scarcely credible that the parties understood that the reserves were to carry interest but neglected to express their understanding. More than this, we think the parties’ conspicuous failure to provide expressly that interest should be"'paid is, under the circumstances of this case, equivalent to an agreement that it should not be paid.
In other situations there may perhaps be room for recovery of interest on some nonconsensual basis, such as unjust enrichment of the person holding the funds or the other party’s deprivation of their use.
But no such basis of liability for in-rerest can exist in a case like the present, where the- parties must be held to have agreed that interest shall not be paid.
Another grievance stated in the complaint related to the mortgagee’s failure to protest certain taxes paid by it from the reserves'. - This will be dealt with in the concluding portions of this opinion.
No. 11,451.
In a cross-appeal, the mortgagee seeks attorney’s fees in respect of the present litigation. It relies on a covenant of the deed of trust that the mortgagor is to pay “all costs and expenses and attorney’s fees * * * of the Trustee and of the Beneficiary .[mortgagee] in case of any litigation involving this property * *. as well as on a recital in the preamble that the deed was designed, inter alia, to secure the reimbursement to the Trustee and Beneficiary of “any and all costs and expenses (including reasonable attorney’s fees) incurred or paid on account of any litigation at law or in equity which may arise in respect to this Trust, or to the indebtedness oi to the property herein mentioned * * *".
The claim for attorney’s fees was not raised on the pleadings. After the District Court had announced its intention to dismiss the complaint, the defendant mortgagee submitted a proposed order to that effect which included a clause directing tlie plaintiff to pay defendants’ attorney’s fees. After extended argument on the point, the District Court entered an order which dismissed the complaint, “without prejudice to the right of the defendants’ attorneys to assert claim for attorneys fees as provided for in the deed of trust.” J.A.
44.
We think the court should have ruled on the claim for fees. The issue appears to have been as fully tried as possible, with the implied consent of tlie parties,
despite the fact that it was not raised by the pleadings; under the circumstances, the fact that it was not so raised is immaterial. Fed.R.Civ.P. rule 15(b), 28 U.S.C.A. Here again we think it appropriate to express our views on the question of law presented,, as it has been fully briefed in this court.
The instant litigation seems clearly covered by the literal language of the covenant: it obviously “involved” the property mortgaged, insofar as plaintiff sought to restrain foreclosure on the property, and asked “That the court require defendant mortgagee to pay taxes on [it] under protest * * And plaintiff’s demands that defendant be ordered to pay it interest, and that it be permitted to deposit reserve funds in interest-bearing account's, must also be taken to “involve” the property, in the light of the purpose stated in the preamble to reimburse the Trustee and Beneficiary on account of “all costs and expenses (including reasonable attorney’s fees) incurred” in litigation “in respect to this Trust.”
Nor docs the fact that this litigation was initiated by the mortgagor remove it from these contractual provisions: the language of the covenant covers
“all
costs and expenses and attorney’s fees * * * in case of
any
litigation.”
No doubt the parties may have contemplated that the most likely use of the provisions would be in connection with foreclosure proceedings initiated by the Trustee at the behest of the Beneficiary. But this probability cannot be taken to constrict the sweeping coverage of the language used, especially in view of the modern availability of declaratory relief to all parties to a contract.
It appears then that plaintiff is liable for defendant’s attorney’s fees under the pro
visions of the deed of trust, unless these provisions are for some reason unenforceable in whole or in part. There can be no doubt of the general validity of such provisions in most jurisdictions, at least so long as they do not require more than indemnification of the lender for attorney’s fees reasonably and actually incurred in connection with the debt.
We are prepared to adopt that general rule.
On the other hand, sound policy does not permit, nor precedent require, that such provisions be enforced according to their tenor in every case. Thus, in the case of stipulations for a specific sum, or a specific percentage of the remaining debt, courts customarily do not feel themselves concluded as to the amount due, but allow only such fees as are reasonable in amount and have been actually incurred.
Similarly, where the merit or necessity of the creditor’s claim or defense is successfully challenged, courts may decline to enforce attorney’s fee provisions.
When contractual provisions for payment by a debtor of his creditor’s attorney’s fees and costs are invoked, such payment should not be enforced in the full amount of the creditor’s legal expenses (even though actually incurred, and reasonable in amount) where his claims or defenses giving rise to such expenses lack substantial merit. In no event should the sum allowed be so large as to amount to an undue penalty for taking one’s grievance to the courts. And if the creditor has benefitted by having a doubtful question of law resolved, thus reducing the area of potential future dispute, the debtor should bear only a fair portion of the burden.
In the case at bar, the issues have all been resolved in the creditor’s favor. It is true that plaintiff asked that defendant-mortgagee be required, in the disbursement of moneys paid into the reserve fund by the mortgagor, to pay certain taxes under protest. It appears that this demand may in fact be meritorious: the amount assessed may have been incorrect.
But plaintiff failed to plead or prove that defendant’s failure to pay the taxes under protest in any way harms it; it did not state a claim upon which relief might be granted. Under the circumstances, it can
not be said that the mortgagee’s defenses to any of plaintiff’s claims lacked substantial merit. The mortgagee is therefore entitled, subject to what has been said above, to its reasonable attorney’s fees actually incurred in defense of plaintiff’s action. The case must be remanded to the District Court for a determination of the proper amount, consistent with this opinion.
So ordered