Memorandum of Decision Re: Postpetition Interest
Creditor Resolution Trust Corporation, as a successor to a failed savings and loan, holds a note secured by the debtor's real property. In an incredible drafting gaff, the note and security documents provide for interest only up to August 1, 1991. Thereafter, the creditor was entitled to 18% interest, but only after it did certain acts which were never done. The RTC filed a claim demanding the 18% interest since August 1, 1991, but has dropped this demand and now seeks interest at the rate of 9% pursuant to controlling Missouri law. The issues here addressed are whether RTC is entitled to interest under Missouri law from August 1, 1991, to the date of the bankruptcy filing (July 17, 1992) and whether RTC is entitled to postpetition interest under federal bankruptcy law.
II. Interest From Date of Default to Date of Bankruptcy
Both sides concede that Missouri law applies, and that Missouri has a statute providing for 9% interest on any obligation where the parties have not agreed to an interest rate. The debtor takes the position that the parties agreed to a rate of zero after maturity, and therefore the statute is inapplicable. The court does not buy this argument. The agreement does not specify a zero rate of interest; a drafting error makes it silent as to interest after maturity and before a default is formally declared. Thus, the court finds that RTC is entitled to 9% interest from August 1, 1991, to July 17, 1992.
III. Postpetition Interest
Pursuant to section 502(b)(2) of the Bankruptcy Code, postpetition interest is generally not allowed. The relevant section creating an exception is 506(b), which provides for oversecured claims to accrue "interest on such claim, and any reasonable fees, costs, or charges provided for under the agreement under which the claim arose." While its reasoning was no doubt tortured to reach the desired result of allowing interest on a tax lien, the Supreme Court has held that the phrase "provided for under the agreement" does not apply to interest. United States v. Ron Pair Enterprises, Inc., 489 U.S. 235 (1989). Accordingly, the court is compelled to find that the 9% interest rate continued after the bankruptcy filing, so long as RTC is oversecured.
The Ninth Circuit decision in In re Anderson, 833 F.2d 834 (9th Cir.1987) is of questionable value in light of Ron Pair Enterprises and United Sav. Asso. v. Timbers of Inwood Forest Asso., Ltd., 484 U.S. 365 (1988). Nonetheless, it may still stand for the proposition that an award of postpetition interest is governed generally by the equities of the case. If this is indeed an equitable issue, the court feels that 9% is an equitable rate, being exactly half-way between the 18% RTC could have had with better drafting and the zero rate urged by the debtor.
RTC is entitled to 9% simple interest in the unpaid principal amount of the loan from August 1, 1991, to such time as RTC may no longer be oversecured. In all further litigation over RTC's claim this shall be deemed established and not subject to further controversy, except as provided by FRBP 3008.
Dated: November 8, 1992 _______________________ Alan Jaroslovsky U.S. Bankruptcy