This case was brought in the district court to interpret a note whose prepayment terms were poorly drafied. The note, in the amount of $5.4 million for a рeriod of years, was issued in 1991 by One Needham Place Realty Trust (the “borrower”) to Confederation Life Insurance Company. It is now owned by LaSalle Natiоnal Bank (the “holder”). A loan agreement reflected in a loan commitment letter preceded the note. The note was later modified but only tо extend the term of the loan.
The note permitted prepayment but required the borrower to pay a “prepayment premium” for the privilege of early payment. .In 1998, the borrower sought to refinance the note to take advantage of lower prevailing interest rates, but the parties disаgreed as to how to calculate the prepayment premium. The note set the premium as the greater of one percent of the outstanding principal balance or a “yield maintenance prepayment premium” computed in accordance with a formula. The pеrtinent language follows:
3. Prepayment Privilege. Provided no default exists hereunder or under the Mortgage or any other document securing this Note, the Maker may prepay the full balance any time during term of the loan subject to giving not less than eighty-five (85) days prior written notice and to the payment of “Prepayment *54 Premium” which shall bе the greater of (a) one percent (1%) of the outstanding principal balance of the Note, or (b) a Yield Maintenance Prepayment Premium computed as follows: The Yield Maintenance Prepayment Premium shall be an amount equal to the product of (i) the outstanding principal balаnce due hereunder (including accrued interest) at the time of prepayment multiplied by (ii) the “Monthly Interest Differential” (as hereinafter defined), and (iii) discоunted by the “Treasury Yield” (as hereinafter defined) rate over the number of months then remaining to the end of the fifth Loan Year. The “Monthly Interest Payment Differential” equals one-twelfth OÍ2) of the amount (if any) by which the annual interest rate payable hereunder at such time exceeds the Treasury Yield for the periоd of time commencing on the next following day and ending on the Maturity Date (“Remaining Term”).
Taken literally, this formula could be read to fix the yield maintenance prepayment premium as the product of a single calculation applied to the then outstanding balance (here, $4,140,927). Alternatively, the languаge could be read to suggest a series of calculations determining the present value of what the lender would lose, given current interest rates, as a result of the prepayment. In this ease, the figure produced by the first calculation was so modest ($11,514) that the result would not be greater than one percent of the balance; by contrast, the figure produced by the second was very substantial ($393,852).
Because the borrower urged the first interpretation and the holder advanced the second, the borrower brought this action in the district court to construe the note. The district judge ruled on summary judgment that the second calculation was the proper reading of the note, even without considering the original commitment letter; that the borrower’s reading wоuld render certain of the terms superfluous; and that the commitment letter preceding the loan made clear with an example that the series of monthly calculations was intended. The borrower now appeals.
We affirm essentially for the reasons given by the district judge in his able bench ruling but address briefly thе claims made on this appeal. Since the matter was resolved on summary judgment, our review is de novo. Although the language of the note is confusing, the meaning of thе prepayment terms taken as a whole is not ambiguous once the calculations themselves are fully understood. In our view, the commitment letter mеrely underscores the correctness of the outcome.
The borrower argues at length that its reading is the literal one and it was therefore improper for the district court to adopt any other reading or resort to extrinsic evidence (which is, debatably, what the borrower calls the commitment letter). 1 But readings of documents do not automatically fall into two neat categories-literal and non-literal; often, as here, it is a matter of degree. See Farnsworth, supra, § 7.8, at 498. In this case, the borrower’s reаding is also awkward as to language (e.g., the references to the monthly figure), and the note owner’s reading is not *55 far from literal if one understands “monthly” to entail month-by-month calculations.
It is centrally important that the owner’s reading mаkes sense — that is, it carries out what one might imagine to be a plausible objective of parties so situated and is consistent with the usage of trade.
See Baybank Middlesex v. 1200 Beacon Props., Inc.,
The reason why the holder’s reаding makes sense is that its reading is a simple allocation to the borrower — straightforward once the calculations are understood — of the risk that interest rates will fall. Prepayment might still benefit the borrower: it might get a below market rate on refinancing or simply have the cash to spare; but the lender (fоr whom the holder is the surrogate), having taken the risk that rates would rise, gets the benefit when instead they fall. If the borrower’s alternative reading made practical sense, the case would be more difficult; but it does not.
Lastly, the borrower argues that, if the contract was sufficiently ambiguous to permit extrinsic evidеnce
(e.g.,
the commitment letter), then surely the matter should have gone to a jury. There are here buried questions of some interest. Putting aside interesting choice of law questions as between state and federal law,
2
the usual doctrine is that the judge construes contracts, even in close cases, if only the words need be considered,
Restatement (Second) of Contracts
§ 212 cmt. d (1981), and the jury does the job under instructions if evidentiary issues have to be resolved
(e.g.,
what the parties said orally in making the contract), so long as the outcome is reasonably debatable.
See Bourque v. FDIC,
Ours may be the intermediate case where extrinsic facts permissibly bear on interрretation
but are not themselves disputed .
Here, the borrower has failed to point to any specific issue of raw fact
(e.g.,
what the parties said to each other in negotiations) that is disputed. Although some case law equates any use of extrinsic evidence with a jury trial, arguably the “better” view, which is also followed in Massachusetts, is that the judge should do the construing where extrinsic facts are not in dispute even if the outcome is reasonably debatable.
See, e.g., Baker v. America’s Mortgage Servicing, Inc.,
Affirmed.
Notes
. If the note were deemed a complete integration of the bargain, then formally the commitmеnt letter would be extrinsic and could be considered only to resolve an ambiguity,
Tilo Roofing Co. v. Pellerin,
. The parties here ignore the problem, which is impressively treated in
Coplay Cement Co. v. Willis & Paul Group,