Hi all — I’m looking for some general interpretation insight on how an interest clause would typically be read.
This relates to a co-op (not a standard corporation) governed by a constitution. Members are required to pay a share amount and certain loans/assessments, and unpaid amounts accrue interest.
The relevant clause reads:
“If a call is not paid before or/on the day appointed for payment, the person from whom the call is due shall pay interest at the rate of 12% per year from the day appointed for the payment to the time of the actual payment, but the Directors shall be at liberty to waive payment of that interest wholly or in part. As of April 1990 each share shall cost $750. Also to be paid is the members’ advance loan of $650 plus any previous years’ assessments paid by members. All loans paid by Members will increase by 12% each year.”
There’s no explicit mention of compounding, no frequency (monthly/annually), and no wording about interest being added to principal.
However, the co-op has been interpreting this as 12% compounded annually over decades, which results in relatively small original amounts growing very large.
A few additional contextual points that may or may not matter legally:
The co-op has taken the position that until the share is fully paid, the person is not yet a member, and therefore they do not owe the same duties of fairness. At the same time, interest is still being charged over that entire period, even though the person does not have use of the parking space. The co-op has also been renting out the parking space for decades (approx. 40+ years) and collecting revenue from it, but that revenue does not appear to be applied in any way to offset the outstanding balance.
This raises a couple of questions for me beyond just the math:
If someone is not considered a member yet, on what basis are they being charged interest under the constitution? Is that typically tied to the property/share obligation rather than membership? Is it relevant that the co-op is generating income from the same asset while also charging significant interest on the unpaid amount? Does the fact that this is a co-op (generally intended to operate at or near cost for members) affect how something like this might be interpreted?
And more broadly:
Based on the wording of the clause, would this typically be interpreted as simple interest or compound interest? Does the final sentence (“All loans paid by Members will increase by 12% each year”) suggest compounding, or could that still be read as a simple annual increase? Are there general legal principles around how ambiguous financial terms like this are interpreted in governing documents?
Not looking for formal legal advice—just trying to understand how this kind of clause is usually read in practice.
Thanks in advance for any insight.