Tender of Payment

A seldom-used tactic in litigation is the “tender” of payment by a defendant of an amount which is believed to be due to the plaintiff. If the proper amount is tendered, and the plaintiff does not accept that amount, then the defendant will not be found liable for interest and court costs.

This legal tactic was successfully used by the author in a case involving the building of a large boys’ yeshiva. The yeshiva purchased a building to tear it down and construct a new school. The prior owner took back a mortgage from the yeshiva for $900,000, with interest-only payments for 15 years and no prepayments allowed. Shortly after the purchase, the yeshiva obtained work permits to demolish the existing structure to build the new school building.

The mortgagee/prior owner brought an injunction action, claiming that the demolition of the existing structure violated the terms of the mortgage (a common clause in the form of mortgage states that the mortgagee’s consent is needed before alteration of the structure on the mortgaged premises in order to protect the value of the collateral). During the course of ongoing court conferences, the yeshiva offered to pay off the mortgage in full, but the mortgagee was insistent on obtaining not only the principal amount of $900,000 but also the future 14 1/2 years’ worth of interest (a windfall of about $1.2 million).

The mortgagee then decided to unilaterally declare a default under the mortgage, alleging that the disconnection of the water and electric lines amounted to an alteration of the structure; her attorney served an “acceleration notice,” demanding the payment of the mortgage in full plus accrued interest.

From an initial review of the situation, it looked bleak for the yeshiva. But, upon further examination, the concept of “tender” saved the day! The yeshiva collected pledges totaling $911,000 (the principal amount plus accrued interest to the date of tender) and deposited that amount with the Clerk of Kings County as a “tender.” A motion was then made to dismiss both the injunction and foreclosure actions based upon the tender.

The court held that there was a valid tender, since the mortgagee accelerated the mortgage note, seeking the unpaid principal amount with “accrued” interest. Based upon the ambiguity of the language of the mortgage note, “accrued interest” may have meant interest accrued only to the date of default or future interest past the date of default.

Tender can be effectively utilized in situations where the defendant expects to owe something to the plaintiff but nowhere near the amount claimed. A tender can place a greater onus on the plaintiff to substantiate additional damages. Further, it can be a good method of settling a case by offering the plaintiff an amount which it may be willing to accept to terminate the litigation.

— by Richard A. Klass, Esq.

R. A. Klass
Your Court Street Lawyer

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