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P is an architect and property developer. P purchased a parcel in order to build a luxury custom home for speculation and sale. As of late 1990, the construction was almost complete, and the home was on the market for sale. The construction loan was coming due, and P was looking for a bridge loan. After negotiation, P and D agreed on the terms of a loan in the amount of $2.3 million. P executed a promissory note, assignment of rents, and deeds of trust in connection with this transaction. Repayment of the principal was due December 21, 1992. Interest payments, at a variable rate of interest, were due monthly on the 21st day of the month. The Note was on a preprinted form supplied by D. The preprinted text contained provision for a prepayment charge of six (6) months' interest on the amount prepaid. Such a prepayment charge will be made whether such prepayments are made voluntarily, involuntarily, or upon acceleration. No such prepayment charge will be made on prepayments made five (5) or more years after the date of the Note. P objected to the five-year prepayment charge provision. D inserted a typewritten addendum stating: 'Provided All Scheduled Payments Have Been Received Not More Than 15 Days After Their Scheduled Due Date, and Further Provided That There Have Been No Other Defaults Under the Terms of This Note or Any Other Now Existing or Future Obligation of Borrower to Topa, Then No Prepayment Charge Will Be Assessed If This Loan Is Paid in Full After June 21, 1991.' In late 1991, P contacted D to renegotiate the loan for easier payments. D agreed to change the due date from the 21st to the 1st of each subsequent month. P made the first payment due but was late on the next one. By February, the Property was in escrow and scheduled to close in April. D confirmed an agreement to a modification that included the escrow instructions on the close of the property. D made a payment demand to the escrow officer for $2,365,502, which included a prepayment charge of $113,046, as well as a demand fee and a late charge purportedly for the March payment; these charges and fees together totaled $114,622. P objected to these assessments. D release the deed of trust on the Property and maintained the $114,622 balance and Ps ultimately paid off this balance, plus accrued interest, when they refinanced their house. P sued D Topa for breach of contract, money paid by mistake, and fraud. The court concluded that the prepayment clause was a late charge and a penalty in the nature of an unenforceable forfeiture. P got the judgment for $114,622.42 plus interest paid. D appealed. The Court of Appeal reversed the judgment, concluding the prepayment charge was not made invalid by conditioning a waiver upon a lack of default. P appealed.

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