      Case: 14-10635             Document: 00512911975   Page: 1   Date Filed: 01/22/2015




           IN THE UNITED STATES COURT OF APPEALS
                    FOR THE FIFTH CIRCUIT


                                         No. 14-10635                   United States Court of Appeals
                                       Summary Calendar                          Fifth Circuit

                                                                               FILED
                                                                         January 22, 2015
In the Matter of: TCI COURTYARD, INCORPORATED,                            Lyle W. Cayce
                                                                               Clerk
                 Debtor

------------------------------

TCI COURTYARD, INCORPORATED,

                 Appellant

v.

WELLS FARGO BANK, N.A., formerly known as Wells Fargo Bank
Minnesota, N.A., as trustee for the registered Holders of JP Morgan Chase
Commercial Mortgage Securities Corp, Commercial Mortgage pass-through
certificates, series 2001-C1,

                 Appellee




                      Appeal from the United States District Court
                           for the Northern District of Texas
                                USDC No. 3:13-CV-3465


Before PRADO, OWEN, and GRAVES, Circuit Judges.
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                                         No. 14-10635
PER CURIAM:*
       This appeal arises from the bankruptcy proceedings of TCI Courtyard,
Inc. (“TCI”). We affirm.
       TCI is the obligor on a promissory note secured by a mortgage on a 200-
unit apartment complex in Holland, Ohio. The note and mortgage are held in
trust by Wells Fargo Bank, N.A.
       After TCI filed a voluntary bankruptcy petition, Wells Fargo asserted a
proof of claim in the amount of $15,064,672.83, which included $4,905,246.82
in compound interest. TCI argued that the promissory note only permits the
accrual of simple interest, but the bankruptcy court found Wells Fargo’s
calculations of its claim to be credible and rejected TCI’s simple-interest
argument as untimely. After the bankruptcy court accepted Wells Fargo’s
claim, TCI’s plan of reorganization was no longer adequate; the bankruptcy
court thus dismissed it with prejudice.
       TCI appealed to the district court. The district court affirmed because it
interpreted the promissory note to compel the imposition of compound interest.
It was therefore unnecessary for the district court to address whether the
bankruptcy court erred when it found TCI’s argument to be untimely. TCI now
appeals to this court. Because we agree with the district court’s interpretation
of the promissory note, we affirm.
       In bankruptcy proceedings, we review findings of fact for clear error and
conclusions of law de novo. 1 Matters of contract interpretation are questions
of law. 2


       * Pursuant to 5TH CIR. R. 47.5, the court has determined that this opinion should not
be published and is not precedent except under the limited circumstances set forth in 5TH
CIR. R. 47.5.4.
       1   In re Crager, 691 F.3d 671, 675 (5th Cir. 2012).
       2   First Am. Bank v. First Am. Transp. Title Ins. Co., 759 F.3d 427, 432 (5th Cir. 2014).
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                                      No. 14-10635
       The promissory note, by its terms, is governed by Illinois law. Under
Illinois law compound interest is disfavored: “Only when no statutory bar is
present and the parties specifically agree to compound interest may such
interest be applied.” 3 Because there is no relevant statutory bar under Illinois
law, we must determine whether the parties specifically agreed to the accrual
of compound interest.
       Compound interest is “[i]nterest paid on both the principal and the
previously accumulated interest.” 4 The relevant portion of the promissory
note, § 4.2, reads: “So long as an Event of Default remains outstanding:
(a) interest shall accrue at the Default Rate and, to the extent not paid when
due, shall be added to the Principal Amount . . . .” The note also sets forth an
interest rate of twelve percent in the event of TCI’s default. The promissory
note thus describes compound interest because it stipulates that after a default
by TCI, the unpaid accrued interest would be added to the “Principal Amount,”
and therefore, the subsequently accruing interest at twelve percent would
accrue on a principal including previously accumulated interest. Therefore,
the parties explicitly agreed, without using the term “compound interest,” to
the accrual of compound interest by describing how such interest would be
calculated.
       TCI, however, interprets the language of the promissory note differently.
It asserts that § 4.2 “merely indicates that any unpaid interest will be added
to the principal amount as the total debt due,” and that agreements to
compound interest must explicitly state that interest added to principal



       3Helland v. Helland, 573 N.E.2d 357, 359 (Ill. App. Ct. 1991) (emphasis added); see
also Harrington v. Kay, 483 N.E.2d 560, 570 (Ill. App. Ct. 1985) (“The law does not favor
compound interest (interest on interest) although the parties may specifically agree to such
a computation in the absence of a statutory bar.”).
       4   BLACK’S LAW DICTIONARY 935 (10th ed. 2014).
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                                       No. 14-10635
becomes interest bearing.          But, TCI’s interpretation would render § 4.2
superfluous. Before it defaulted, TCI owed Wells Fargo both the principal and
unpaid accrued interest. If we accepted TCI’s interpretation, § 4.2 would have
no actual effect because it would operate only to label the accrued interest as
money owed by TCI to Wells Fargo, and the interest was already owed.
Additionally, even without the words “becomes interest bearing” in the
contract, there is no further significance to adding interest to principal other
than to render that interest interest-bearing. Under Illinois law, and general
rules of contract interpretation, courts should avoid interpreting contract
terms as redundant. 5 Accordingly, § 4.2’s remedy of adding accrued interest to
the principal amount must be read as a description of compounding interest,
rather than a reaffirmation of TCI’s obligation to pay accrued interest.
       We therefore AFFIRM the judgment of the district court.




       5 Dowd & Dowd, Ltd. v. Gleason, 693 N.E.2d 358, 368 (Ill. 1998) (“Courts will generally
avoid interpretations that render contract terms surplusage . . . .”); Outboard Marine Corp.
v. Liberty Mut. Ins. Co., 607 N.E.2d 1204, 1219 (Ill. 1992) (“A court must strive to give each
term in the policy meaning unless to do so would render the clause or policy inconsistent or
inherently contradictory.”); see also Restatement (Second) of Contracts § 203(a) (“[A]n
interpretation which gives a reasonable, lawful, and effective meaning to all the terms is
preferred to an interpretation which leaves a part unreasonable, unlawful, or of no effect.”
(emphasis added)).
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