2022 UT App 31

THE UTAH COURT OF APPEALS

BRETT ERROR,

Appellee,

v.

MICHAEL J. BENAROYA AND BD&P COMPANY LLC,

Appellants.

Opinion

No. 20200688-CA

Filed March 10, 2022

Fourth District Court, Provo Department

The Honorable James R. Taylor

No. 200400136

Jordan K. Cameron and David L. Arrington, 

Attorneys for Appellants

Barry N. Johnson and Joshua L. Lee, 

Attorneys for Appellee

JUDGE MICHELE M. CHRISTIANSEN FORSTER authored this Opinion, 

in which JUDGES DAVID N. MORTENSEN and RYAN M. HARRIS

concurred.

CHRISTIANSEN FORSTER, Judge:

¶1 Michael J. Benaroya and BD&P Company LLC 

(collectively, Borrowers) borrowed money from Brett Error 

(Lender). When Borrowers failed to repay the loan, Lender filed 

an action to collect. Thereafter, Lender filed a motion for 

summary judgment, seeking repayment of the loan plus 

compound interest on the outstanding balance. In response,

Borrowers agreed that Lender was owed the principal balance of 

the loan and some interest. However, they argued Lender was 

entitled to simple interest only. Under the terms of the loan, the 

difference between the two interest calculations is nearly $4 

million. The district court agreed with Lender and granted his 
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motion. We reverse and conclude that Lender is entitled to 

recover only simple interest.

BACKGROUND

¶2 On June 18, 2014, Lender and Borrowers entered into a 

Memorandum Loan Agreement (the Memorandum), Secured 

Promissory Note (the Note), and Security Agreement 

(collectively, the Loan Documents). Under the Loan Documents, 

Lender provided $1 million to Borrowers. Borrowers agreed to 

repay the loan principal, together with loan fees totaling $75,000

(collectively, the Repayment Amount), no later than September 

26, 2014 (the Maturity Date). The Memorandum further 

provided, “After the Maturity Date, the ‘Default Rate’ shall be 

2.75% per month on the principal plus Loan Fee, pro rata for any 

partial months.” Likewise, the Note provided that in the event 

Borrowers failed to repay the entire Repayment Amount by the 

Maturity Date, “interest shall begin to accrue on any outstanding 

balance at a rate of 2.75% per month, pro rata for any partial 

months.”

¶3 Borrowers did not pay any of the Repayment Amount by 

the Maturity Date. Consequently, Lender filed suit against

Borrowers for breach of contract, seeking damages for the 

Repayment Amount plus 2.75% monthly compounding interest

on any outstanding balance. Borrowers responded with a 

Motion to Dismiss or Alternatively to Strike, arguing Lender’s 

claims were based “on an improper interest calculation.”

Specifically, Borrowers argued the interest provisions in the 

Loan Documents provided for only simple interest, rather than 

compound interest, and that Lender’s interpretation “contradicts 

the plain terms” of the Loan Documents. Thereafter, Lender 

moved for summary judgment on the grounds there was no 

dispute that Borrowers had not repaid the Repayment Amount.

In addition, Lender again asserted that per the “plain language” 
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20200688-CA 3 2022 UT App 31

of the Note, he was entitled to the Repayment Amount plus

monthly compound interest on any outstanding balance.

¶4 The district court heard argument on all pending motions. 

At the close of argument, the court granted Lender’s motion, 

reasoning the Note was not ambiguous and that it called for 

compound interest. The court’s ruling was later reduced to a 

written order, and judgment was entered against Borrowers in 

the amount of $7,180,201.01. Of that, $1,075,000 was the 

Repayment Amount and $6,105,201.01 was interest accruing 

from the Maturity Date through July 26, 2020. In addition, the 

court ordered that compound interest shall accrue on any 

outstanding balance of the judgment at a rate of 2.75% per 

month. Thereafter, the court issued a separate order awarding 

Lender attorney fees and costs on the grounds that Lender 

“prevailed on his claims against [Borrowers]” and that the Loan 

Documents “specifically provided for the award of attorney’s 

fees to the prevailing party in the event of litigation.”

ISSUE AND STANDARD OF REVIEW

¶5 Borrowers now appeal and argue the district court erred 

in granting summary judgment in favor of Lender, asserting the 

court incorrectly determined the Note calls for compound 

interest.

1 We review a district court’s ruling on summary 

judgment for correctness. See Orvis v. Johnson, 2008 UT 2, ¶ 6, 177 

P.3d 600; see also Mind & Motion Utah Invs., LLC v. Celtic Bank 

Corp., 2016 UT 6, ¶ 15, 367 P.3d 994 (“The interpretation of a

 

1. Alternatively, Borrowers argue the district court erred (1) by 

failing to conclude the interest provision in the Note was

ambiguous and (2) by failing to consider extrinsic evidence to 

resolve the ambiguity. Due to our resolution of Borrowers’ main 

argument, we need not address either of these alternative 

arguments.
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20200688-CA 4 2022 UT App 31

contract is [a] legal question, which we . . . review for 

correctness.”).

ANALYSIS

¶6 Borrowers and Lender both agree that Lender is entitled 

to the Repayment Amount. The parties disagree, however, as to 

the calculation of interest on that amount. In relevant part, the 

disputed provision of the Note states, “Should [Borrowers] fail 

to fully pay the Repayment Amount by the Maturity Date, 

interest shall begin to accrue on any outstanding balance at a 

rate of 2.75% per month . . . .” Interpreting this provision 

according to its “plain and ordinary meaning,” the district court 

concluded the Note “unambiguously calls for compound 

interest.” Borrowers challenge that conclusion, contending it was 

in error because the Note does not contain terms creating an 

“express agreement” for compound interest and that in Utah, 

“[w]ithout an express agreement, interest can only be simple.”

¶7 Simple interest is “[i]nterest paid on the principal only 

and not on accumulated interest.” Simple interest, Black’s Law 

Dictionary (11th ed. 2019). Put differently, simple interest does

not merge with the principal, and thus “[i]nterest accrues only 

on the principal balance.” Id. In contrast, “compound interest 

means interest on interest, in that accrued interest is added 

periodically to the principal, and interest is computed upon the 

new principal thus formed.” Brady v. Park, 2013 UT App 97, ¶ 16, 

302 P.3d 1220 (quotation simplified).

¶8 “The issue of compound interest is well settled in Utah.” 

Christensen v. Munns, 812 P.2d 69, 71 (Utah Ct. App. 1991). 

“Compound interest is not favored by the law.” Brady, 2013 UT 

App 97, ¶ 17 (quoting Watkins & Faber v. Whiteley, 592 P.2d 613, 

616 (Utah 1979) (per curiam)); see also City of Hildale v. Cooke, 2001 

UT 56, ¶ 36, 28 P.3d 697; Christensen, 812 P.2d at 71; Mountain 

States Broad. Co. v. Neale, 783 P.2d 551, 555 (Utah Ct. App. 1989). 
Error v. Benaroya

20200688-CA 5 2022 UT App 31

Accordingly, an award of compound interest will be upheld 

“only where the parties expressly agreed to compound interest” 

by the terms of the contract. Brady, 2013 UT App 97, ¶ 17 

(quotation simplified). Moreover, when the terms of the contract 

are ambiguous about the application of compound interest, such 

ambiguity necessarily “falls short of an express agreement,” see 

id. ¶ 20, and necessarily means, as a matter of law, that the 

contract provides for only simple interest, see Curry v. Moody, 40 

Cal. App. 4th 1547, 1553–54 (1995) (“[A]s a matter of law an 

ambiguous contract cannot be construed to provide for 

compound interest.”).

¶9 In Brady v. Park, 2013 UT App 97, 302 P.3d 1220, this court 

addressed whether the terms of a contract expressly called for 

compound interest. There, the district court ruled the contract 

“unambiguously” provided for compound interest, reasoning 

that the clause requiring interest on “the entire balance” 

“includ[ed] principal and accrued interest.” Id. ¶¶ 3, 7 (quotation 

simplified). But this court disagreed, holding that the plain 

language of the contract did “not expressly call for compound 

interest.” Id. ¶ 19. It explained,

[T]he [contract] does not employ the term 

compound interest, a settled term of art. 

Furthermore, it does not describe compound 

interest. It does not refer to the payment of interest 

on both the principal and the previously 

accumulated interest; it does not provide that 

accrued interest is added periodically to the 

principal and that interest is computed upon the 

new principal thus formed; and it does not indicate 

that unpaid interest is itself subject to an interest 

charge.

Id. (quotation simplified). The court also reasoned that 

compound interest was not proper because the contract was 
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20200688-CA 6 2022 UT App 31

ambiguous. The court explained the phrase “entire balance” 

could reasonably mean “both principal and unpaid accrued 

interest” or simply “the entire principal balance.” Id. ¶ 20 

(quotation simplified). Thus, the meaning of the phrase was left 

“to inference and implication,” which caused the contract to 

“fall[] short of an express agreement for compound interest.” Id.

¶10 Here, the district court’s conclusion that the Note calls for 

compound interest is at odds with Brady and contrary to the 

general rule that compound interest is disfavored by the law. As 

in Brady, the Note does not expressly provide for compound 

interest. First, the Note does not “employ the term compound 

interest,” nor does it use terms that clearly describe compound 

interest. See id. ¶ 19 (quotation simplified). Second, the Note is 

ambiguous because the phrase “any outstanding balance” is 

capable of more than one reasonable interpretation.

2 See id. ¶ 20.

We need not apply the well-settled rules of contract 

construction—i.e. looking to extrinsic evidence to determine the 

intentions of the parties, see WebBank v. American Gen. Annuity 

Service Corp., 2002 UT 88, ¶ 19, 54 P.3d 1139—to the Note, 

because an agreement that does not unambiguously provide for 

compound interest can provide only for simple interest, see 

Brady, 2013 UT App 97, ¶ 20.

¶11 In sum, we agree with Borrowers that the Note 

contemplates simple interest only.3

 

2. Indeed, during oral argument Lender’s counsel conceded the 

phrase could be reasonably interpreted in more than one way.

3. Because we reverse the court’s grant of summary judgment, 

we also vacate the court’s fee award to Lender as the “prevailing 

party.” We remand for the court to redetermine which party is 

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Error v. Benaroya

20200688-CA 7 2022 UT App 31

CONCLUSION

¶12 Because the Note did not expressly provide for 

compound interest, Lender is entitled to recover only simple 

interest on the Repayment Amount. We therefore reverse the 

district court’s grant of summary judgment in favor of Lender

and vacate the district court’s $7 million judgment in Lender’s 

favor. We also vacate the district court’s award of attorney fees 

to Lender as the prevailing party. We remand with instructions 

for the district court to enter judgment in Lender’s favor in an 

amount reflecting recovery of only simple interest and for the 

court to reassess its fee award in light of our opinion.

 

(...continued)

the prevailing party and to allocate an award of attorney fees 

consistent with that determination.