The opinion of the court was delivered by: POLLAK
This commercial law case, in which plaintiff claims that he was coerced into paying defendant $ 363,875.62 in excess interest, is before the Court on cross-motions for summary judgment.
On December 12, 1969, plaintiff Charles R. Peterson, a citizen of Nevada, entered into a security agreement with defendant Crown Financial Corporation, a Pennsylvania corporation, pursuant to which Crown agreed to lend Peterson up to $ 1,450,000 within 180 days. That same day, Peterson borrowed $ 1,150,000 from Crown, executing a note payable in two years with interest at two and one-half percent above the prime commercial rate. On December 29, 1969, Peterson borrowed the remaining $ 300,000, executing a second note payable in two years at the same interest rate.
On July 6, 1970, Crown and Peterson expanded their agreement: Peterson (1) took an additional loan of $ 3,000,000, (2) pledged 1,100,000 shares of common stock of National Alfalfa Dehydrating and Milling Company as collateral, and (3) executed a third note in the amount of $ 4,450,000 given in exchange for the notes of December 12, 1969 and December 29, 1969. The interest rate was again set at two and one-half percent above the prime rate, with the first payment due on July 6, 1971, the second payment one year later, and the third payment on July 6, 1973, the date of the note's maturity. On December 29, 1970, before any interest was paid, a fourth note was executed. This note, also for $ 4,450,000, was given in exchange for the July 6, 1970 note; it was due on December 29, 1972, with payment of interest, at the same rate as before but, this time, with no interest due until maturity.
In October 1972, Henry S. Faus, Crown's president, wrote Peterson advising him that as matters stood "there (was) no recourse other than full payment of interest" when the note reached maturity at the end of December. The interest due was calculated at $ 860,837.57.
What transpired between October 1972 and December 1972 is unclear. In December, however, Peterson received a single-page Crown document captioned "Peterson Loan Interest Due December 29, 1972," which showed $ 499,658.95 as the total of a column entitled "interest amount." This sum was $ 363,875.62 less than the $ 860,837.57 shown in the calculation which accompanied Faus' October 1972 letter. (It apparently was calculated by applying the prime rate to the Peterson loan.) Peterson was unable to pay this reduced sum from his own resources and, on December 21, 1972, with Crown's assistance, Peterson borrowed $ 500,000 from the First Pennsylvania Bank, which he then remitted to Crown to meet his interest obligation. That same day, F. X. Dalton, Crown's vice-president, wrote Peterson to report:
We have received in our account $ 500,000.00 which represents payment of interest due December 29, 1972 on your Note. The $ 341.15 will be applied to interest after the above date.
Wishing you and your family a very Merry Christmas and a Happy New Year.
The $ 341.15 mentioned in the Dalton letter is the difference between $ 500,000 and the $ 499,658.95 set forth as "Peterson Loan Interest Due December 29, 1972."
Also on December 21, 1972, Peterson executed a fifth note, again in the amount of $ 4,450,000, this one due in December 1975, with interest, at the same rate as before, and payable at maturity. Simultaneously, there was returned to Peterson the fourth note the note of December 29, 1970 with the word "cancelled" written across its face.
In late 1975, as the December 21, 1972 note approached maturity, Peterson received from Crown a new computation of interest due. It totalled $ 1,899,312.05 and included, to Peterson's apparent dismay, $ 363,875.62 as interest still owed for the period prior to December 31, 1972 under the "cancelled" December 29, 1970 note. When no payment was received, Faus on December 22, 1975, sent Peterson a notice of default:
Under the terms of a loan and pledge agreement dated July 6, 1970 between you and us (as amended) and your note to us dated December 21, 1972 in the principal amount of $ 4,450,000, we hereby notify you that as a result of your failure to make the payments required under the note on December 21, 1975 you are in default under the agreement and the note. Accordingly, unless we receive the entire amount due us by January 11, 1976 we will on or after January 12, 1976 pursue all remedies available to us including without limitation (a) private sale of the collateral held under the agreement (terms of sale not yet fixed) and (b) confession of judgment against you and execution thereon.
After that date, events proceeded rapidly. On December 29, 1975, Peterson entered into an agreement with Bass Brothers Enterprises, pursuant to which Peterson agreed to sell 1,304,350 shares of National Alfalfa Dehydrating and Milling Company stock (including the 1,100,000 shares held by Crown) for some eight million dollars. The closing was held on January 7, 1976. At that time Peterson paid off the December 29, 1972 note, including the full $ 1,899,312.05 in interest demanded on Crown's behalf, and the collateral held by Crown was released. Peterson, however, presented Faus the following letter of protest:
In connection with the closing of a sale of my shares of National Alfalfa Dehydrating and Milling Company, you have requested that I pay you, in addition to the amount of principal and interest due on the December 21, 1972 Note which the aforementioned stock secures, interest from the period prior to December 21, 1972 in the amount of $ 363,875.62 which I believe and contend is not due Crown Financial Corporation. However, you have advised me that the pledged stock will not be released until said amount is paid to you. I have advised you and hereby confirm that if the stock is not released at ...