FOR THE NORTHERN DISTRICT OF CALIFORNIA
SONOMA VALLEY INN, No. 92-11877
Memorandum of Decision
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
, 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 _______________________