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La. Civ. Code Ann. art. 1780 provides that the party for whose exclusive benefit a payment term has been established may renounce it.
The note makers and the payee entered into an agreement for the sale of real property. The note makers signed a promissory note that provided that they would pay 180 monthly installments to the payee. The note did not contain a prepayment penalty. The note makers subsequently attempted to pay the note off early, but the payee demanded a prepayment penalty. The note makers paid the penalty with the balance of the loan and then they sued the payee to recover the penalty. The district court denied the note makers’ claim for return of the prepayment penalty and also denied the payee’s demand for attorney’s fees. Both parties appealed.
The court held that a contract term was presumed to benefit an obligor unless the agreement or the circumstances showed that it was intended to benefit the obligee or both parties. It found that was no evidence showing that the extended term of the promissory note was intended to benefit anyone but the note makers. The court further held that pursuant to La. Civ. Code Ann. art. 1780, the party for whose exclusive benefit a contract term had been established could renounce. Thus, the note makers were entitled to renounce the 180-month term of the note and the payee could not require them to pay a prepayment penalty. Because she could require a prepayment penalty, the payee was not entitled to attorney's fees.