DOMINION SAVINGS BANK, FSB
February 26, 1999
Record No. 980758
DOMINION SAVINGS BANK, FSB
C. JOHN COSTELLO
FROM THE CIRCUIT COURT OF WARREN COUNTY
John E. Wetsel, Jr., Judge
Present: All the Justices
OPINION BY JUSTICE CYNTHIA D. KINSER
In this appeal, we consider whether two notes,
which document the terms of repayment for two first mortgage real
estate loans, provide for payment of interest in advance or on
arrears each month. Because we conclude that the unambiguous
terms of the notes provide for interest to be charged in advance,
we will reverse the judgment of the circuit court finding that
interest is to be paid on arrears.
Dominion Savings Bank, FSB, (the Bank) made two first mortgage real estate
loans to C. John Costello (Costello). The loans are evidenced by
two promissory notes, each dated December 12, 1986. One note is
for the principal amount of $42,000, and the other note is for
the principal amount of $133,000.
The notes contain several provisions pertinent
to this appeal. In the terms regarding payments, the notes
require Costello to "pay principal and interest by making
payments . . . on the 1st day of each month
beginning on January 1, 1987[,]" and continuing until
December 1, 2016, at which time any remaining amounts are to be
paid in full. The notes also specify that "monthly payments
will be applied to interest before principal." The only
difference between the notes is the amount of the monthly
payments. Under the $42,000 note, Costello’s monthly payment
is $376.38; whereas, the monthly payment on the $133,000 note is
At the closing on both loans, Costello paid
interest for the period from December 12 through December 31,
1986. He then began to make his scheduled monthly payments.
 Thus, when he made the initial payments on January 1,
1987, no interest had accrued on the loans. The Bank applied
those payments first to the interest that would accrue during the
month of January 1987, and then to the outstanding principal
balances. The Bank applied each of Costello’s subsequent
payments in this manner. In other words, the Bank always
collected interest in advance on the principal balances of the
loans rather than on arrears.
On September 9, 1996, Costello filed a motion
for judgment in which he alleged that the Bank had misallocated
his payments between interest and principal and thus overcharged
him in the amount of $2,243.82 on the two loans. According to
Costello, the notes require that the Bank charge interest on
arrears rather than in advance. In response, the Bank asserted, inter
alia, that the notes do provide for interest to be
collected in advance. Costello later amended his motion for
judgment by adding a claim for fraud against the Bank.
On December 17, 1997, the circuit court, after
hearing argument from both parties, found
that the terms of the notes are "clear and unambiguous"
and that "[t]here is no provision in the payment provisions
that would make this an interest in advance note." In a
final order dated January 20, 1998, the circuit court awarded
judgment in favor of Costello in the amount of $105.98 for the
overpayment of interest on the paid-off $133,000 note. The court
also reduced the outstanding principal balance on the $42,000
note to $36,627.38 in order to adjust for portions of payments
that the Bank previously had credited to interest in advance
rather than on arrears. Finally, the court directed that
"interest shall be charged in arrears and not in
advance" thereafter on the $42,000 note. The Bank appeals.
The dispositive issue in this appeal is whether
the circuit court erred by finding that the two notes do not
provide for interest to be paid in advance each month on the
outstanding principal balances of the two loans. Like the circuit
court, we find that the terms of the two notes are clear and
unambiguous. "[T]he question whether a contract is ambiguous
is one of law," and "[a] contract is not deemed
ambiguous merely because the parties disagree as to the meaning
of the language they used to express their agreement." Ross
v. Craw, 231 Va. 206, 212-13, 343 S.E.2d 312, 316 (1986).
Furthermore, because this Court has "the same opportunity as
the trial court to consider the words within the four
corners" of an unambiguous contract, we are not bound on
review by the trial court’s construction of that contract. Christopher
Assocs., L.P. v. Sessoms, 245 Va. 18, 22, 425 S.E.2d 795, 797
"The guiding light in the construction of
a contract is the intention of the parties as expressed by them
in the words they have used, and courts are bound to say that the
parties intended what the written instrument plainly
declares." W. F. Magann Corp. v. Virginia-Carolina Elec.
Works, Inc., 203 Va. 259, 264, 123 S.E.2d 377, 381 (1962). It
is well-settled in contract law that "‘where an
agreement is complete on its face, is plain and unambiguous in
its terms, the court is not at liberty to search for its meaning
beyond the instrument itself.’" Ross, 231 Va. at
212, 343 S.E.2d at 316 (quoting Globe Iron Constr. Co. v.
First Nat’l Bank of Boston, 205 Va. 841, 848, 140 S.E.2d
629, 633 (1965)). We shall, therefore, look no further than the
plain terms of the two promissory notes in order to determine
whether the notes provide for payment of interest in advance or
Although neither of the two notes expressly
uses the terminology "interest in advance," the
unambiguous terms of the notes reveal that the parties intended
for the Bank to collect interest in advance each month. The notes
require Costello to "pay principal and interest by
making payments every month." (Emphasis added). He is
further obligated to "make [his] monthly payments on the 1st
day of each month beginning on January 1, 1987," and his
"monthly payments [are to] be applied to interest before
At the loan closings, Costello paid interest
through the end of December 1986. Therefore, when his first
scheduled monthly payments were due on January 1, 1987, no
interest had accrued. Yet, according to the terms of the notes,
Costello was required to pay "principal and interest"
every month, and his payments were to "be applied to
interest before principal." Construing the terms of the
notes as a whole, as this Court must do, Westmoreland-LG&E
Partners v. Virginia Elec. & Power Co., 254 Va. 1, 10-11,
486 S.E.2d 289, 294 (1997), we conclude that the parties intended
that interest would be paid in advance each month. A contrary
decision would render meaningless the provisions of the notes
requiring Costello to pay interest and principal every month
beginning on January 1, 1987, and directing that the payments be
applied first to interest and then to principal. "No word or
clause in the contract will be treated as meaningless if a
reasonable meaning can be given to it, and there is a presumption
that the parties have not used words needlessly." D.C.
McClain, Inc. v. Arlington County, 249 Va. 131, 135-36, 452
S.E.2d 659, 662 (1995).
For these reasons, we will reverse the judgment
of the circuit court.
Reversed and final judgment.
 First Federal Savings Bank of
Shenandoah Valley, now known as Dominion Savings Bank, FSB, was
the successor-in-interest to First Federal Savings and Loan
Association of Front Royal, the institution designated as
"Lender" in the two notes.
 Costello executed the $42,000 note
personally and as trustee of the Druid Hill Land Trust. Costello
and his wife, J. Braidwood Costello, executed the $133,000 note.
At the closing for the $133,000 loan, Costello also executed a
federal Truth-in-Lending Disclosures statement, but there was no
contemporaneous execution of such a document at the closing for
the other loan.
 On May 10, 1994, Costello paid off the
$133,000 note in full. According to the record in this case, he
continues to make monthly payments on the $42,000 note.
 The circuit court resolved the fraud
claim in favor of the Bank. It is not an issue in this appeal.
 The circuit court also allowed the
Bank to proffer evidence to show the business custom and trade
with regard to charging interest in advance and to establish that
certain documents at the loan closings also demonstrate that
these notes provide for interest to be paid in advance rather
than on arrears.
 Because of our decision on this issue, we will not
address the Bank’s remaining assignment of error.