Flanagan v. Fidelity Bank

OLSZEWSKI, Judge:

In June 1968, Joseph Flanagan purchased a $9,900 certificate of deposit from Fidelity Bank. This two-year CD paid five percent interest. Flanagan was soon called for a tour of duty in Vietnam, and gave the CD to his father for safekeeping. Flanagan returned in 1971, but forgot about the CD. The Bank never sent Flanagan anything regarding the CD: no notice of maturity, no tax forms, no inquiry as to why Flanagan had not yet redeemed it.

In January of 1990, Flanagan found the CD and brought it to Fidelity Bank for redemption. The Bank had no records of the 1968 purchase, and refused payment.¹ The Bank later sent a letter to Flanagan confirming that the funds were not escheated to the Commonwealth.

Flanagan sued the Bank for payment. After a brief bench trial in 1993, the trial court found for the bank, but then changed its mind and granted judgment notwithstanding the verdict for Flanagan.² The court determined that Flanagan had carried his burden of proof, the CD was a valid instrument, and the Bank would have to honor it. This decision has not been appealed. Rather, the question before us concerns the trial court’s valuation of the CD.

The trial court found that the only evidence before it was the CD itself, and its value would be determined by its terms. Trial court opinion 7/1/94 at 3-4. The terms of the CD are stated on the face of the certificate. See R.R. at 8a (photocopy of the CD). The CD states:

This Certificate is not transferable or assignable except on the books of the Bank. Bank will pay on the maturity date or on any three (3) month anniversary of the date of issue the principal amount shown above, together with interest for each full three (3) month period from the date of issue at the rate of five percent (5%) per annum, compounded daily. If not surrendered at maturity, this Certificate shall be renewed at its principal amount and accrued interest for similar successive periods unless Bank shall have mailed to payee notice that it will not be renewed thirty (30) days or more prior to maturity. No interest will accrue after final maturity....

Id.; opinion at 3.

The trial court decided that under these terms, the present value of the CD was its $9,900 principal plus five percent interest for two years. The court awarded prejudgment interest at the legal rate of six percent from the date Flanagan attempted to redeem the CD (January of 1990), but the court held that no interest accumulated between 1970 and 1990. Flanagan appeals this part of the trial court’s decision.

The trial court reached this conclusion by interpreting the CD’s contractual language. The court stated:

The terms of the certificate do not specify what interest rate -will apply when the certificate is renewed. The first part of the afore-mentioned terms specifically provides that a five (5%) percent interest rate is to be applied for each three month period from the date of issue until the maturity date. Once the maturity date passes without the certificate being presented for payment, the certificate was to renew. However, unlike the above provision, this portion of the terms does not state a specific interest rate. The statement “[tjhis Certificate shall be renewed at its principal amount and accrued interest for similar successive periods” tells the holder at what amount the principal will be worth. It does not indicate the interest rate. Since no applicable interest rate was assigned under the terms of the certificate, and no evidence was presented at trial about the relevant interest rates for the time period at issue, no interest could be awarded by the Court and the failure to do so for the period of 1970 until 1990 was not in error.

Opinion at 4.

The interpretation of a contract is a question of law, so our review is plenary. Meeting House Lane, Ltd. v. Melso, 427 Pa.Super. 118, 628 A.2d 854 (1993). The CD is not a particularly well-drafted instrument, and reasonable people might differ over the meaning some of its terms.³ We think the trial court’s interpretation is untenable, however, because it ignores the plain and accepted meaning of the word “renew.”

The trial court acknowledged that if not redeemed in 1970, the CD would not sit dormant without earning interest, but would “renew.” “To ‘renew’ a contract means to begin again or continue in force the old contract.” Black’s Law Dictionary, 5th ed. The old contract (that is, the CD itself) paid five percent interest per year, compounded daily and posted quarterly. By using the term “renew,” the CD does indicate the applicable interest rate: the originally stated rate of five percent. We see no reason to consider prevailing market rates, or read in a rate of zero percent, as the trial court did.

Not only is this the plain and obvious interpretation, but it best comports with the rest of the contract. In 1968, the Bank was willing to pay five percent on a two-year CD. If interest rates went up, the Bank would be delighted to keep paying the low rate of five percent for however long the CD holder would accept it. If interest rates went down, the Bank could call the CD by giving notice that it would no longer renew it. That, presumably, is when the CD would reach final maturity, and no further interest would accrue.

Here, the Bank never called the CD or escheated the money to the Commonwealth, but continued to enjoy the use of Flanagan’s $10,941.11.⁴ Doubtless the Bank was able to make more than $18,000 on this principal between 1970 and 1990 by employing sound banking practices and making prudent loans.⁵ To deny Flanagan the time value of his investment would thus not only be arbitrary and contrary to the plain language of the CD, it would unjustly enrich the Bank as well. We therefore vacate the trial court’s order and remand with instructions that Flanagan be awarded the full value of his CD, plus prejudgment interest from the date Flanagan presented it.

Vacated and remanded; jurisdiction relinquished.

Concurring and dissenting opinion by JOHNSON, J.

1 . My colleague, Judge Johnson, hypothesizes that the Bank might have sent notice of maturity to Flanagan's parents, who in turn might not have received it because they moved to Florida in 1969. Of course, if the Bank had sent any such notice and retained some record of it, then this appeal would probably not be before us. The Bank failed to prove that it sent notice and created this unusual situation by destroying its own records before twenty years had passed. We must now view the evidence in the light most favorable to the de facto verdict winner, and accept Flanagan’s contention that the Bank never sent him any notice of maturity.

2 . Pennsylvania caselaw presumes that debts more than twenty years old have been paid, rebuttable only by clear and convincing evidence which must consist of more than the instrument sued upon itself. See Rosenbaum v. Newhoff, 396 Pa. 500, 152 A.2d 763 (1959). The trial court originally reasoned that twenty years had passed since Flanagan purchased the CD, so the presumption would operate against him. Flanagan pointed out at post-trial motions that the CD was not redeemable until June of 1970, and he took it to the Bank in January of 1990. The trial court apparently agreed with Flanagan that the debt was less than twenty years old, so the Bank had to prove payment, which it could not do. The court thus found for Flanagan.

3 . For instance, it is not perfectly clear when the CD reaches "final maturity.”

4 . This is what the CD would have been worth on its maturity date of June 6, 1970.

5 . $10,941.11 earning 5% interest compounded daily for 7,123 days (which is 19 years and 6 months from June 6, 1970) would become $29,007.15. The difference of $18,066.04 is the amount at stake in this appeal.