United States Court of Appeals

FOR THE EIGHTH CIRCUIT

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No. 96-3695

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Society National Bank, a National *

Banking Association, *

*

Appellee, *

* Appeal from the United States

v. * District Court for the

* District of Nebraska.

Parsow Partnership, Ltd., a Nebraska *

limited partnership; Alan S. Parsow, *

*

Appellants. *

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Submitted: May 22, 1997

Filed: August 11, 1997

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Before RICHARD S. ARNOLD, Chief Judge, BOWMAN and MORRIS SHEPPARD

ARNOLD, Circuit Judges.

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BOWMAN, Circuit Judge.

Society National Bank ("Society") served as the subscription and distribution

agent in connection with a securities offering. In the course of the offering, Society

mistakenly issued 28,750 shares and warrants to Alan Parsow and his investment

partnership, Parsow Partnership, Ltd. (collectively "Parsow"), who, in turn, paid the

subscription price of $230,000 for these securities. Based on a determination of mutual
The Honorable Thomas M. Shanahan, United States District Judge for the

1

District of Nebraska.

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mistake, the District Court rescinded the transaction and ordered Parsow to return the 1

securities and Society to refund the purchase price. Additionally, Parsow was awarded

interest at the statutory rate of six percent per annum for the period beginning on the

date the offering closed and ending on the date Society first advised Parsow of the

mistake and offered to rescind the transaction. On appeal, Parsow challenges only the

interest component of the District Court's decision. We affirm. 

Because the District Court's determination that the purchase and sale of the

securities in question resulted from the parties' mutual mistake has not been appealed,

we forego a detailed recitation of the circumstances in which the mutual mistake

occurred. Instead, we turn directly to Parsow's arguments that he has been

undercompensated by the District Court's award of interest.

As part of its remedy, the District Court awarded Parsow interest, pursuant to

Neb. Rev. Stat. § 45-102 (1993), at the rate of six percent per annum on the principal

sum of $230,000 for the period from January 27, 1993 (the date the rights offering

closed) to June 9, 1993 (the date of a letter whereby Society first informed Parsow of

the mistake and offered to rescind the transaction). The court reasoned that from

June 9, 1993 forward, any loss in interest resulting from the $230,000 outlay should

rest with Parsow and not with Society. If Parsow had accepted Society's June 9, 1993

offer of rescission, then Parsow would have had the $230,000 back and could have

invested it as he saw fit, while still retaining the option to seek to recover from Society

any additional amount he believed he was owed. 

Parsow argues that the District Court erred in failing to award him interest on the

$230,000 from June 9, 1993 through the date of the court's judgment. Moreover, 
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Parsow argues that he is entitled to statutory interest at the rate of twelve percent per

annum pursuant to Neb. Rev. Stat. § 45-104 (1993).

In a federal diversity action, the law of the state where the cause of action arises

governs the award of prejudgment interest. See Fremont Nat'l Bank & Trust Co. v.

Collateral Control Corp., 724 F.2d 1410, 1415 (8th Cir. 1983). Under Nebraska law,

a trial court's decision to award interest as part of an equitable remedy is reviewed for

abuse of discretion. See Newton v. Brown, 386 N.W.2d 424, 432 (Neb. 1986).

"'[I]nterest is sometimes allowed by courts of equity, in the exercise of a

sound discretion, when it would not be recoverable at law. These courts,

it has been said, will, in their discretion, allow or withhold interest as,

under all the circumstances of the case, seems equitable and just, except

in cases where interest is recoverable as a matter of right.'"

Id. (quoting Mid-States Equip. Co. v. Poehling, 285 N.W.2d 689, 691-92 (Neb. 1979)

(further citation omitted)). Parsow argues that because a rescission, such as was sought

in this case, does not become effective until a court so decrees, the June 9, 1993 letter

from Society did not act to rescind the securities transaction; therefore, the letter should

not mark the point at which interest on the $230,000 ceases to accrue. Additionally,

he argues, notice, such as that provided to Parsow by Society's letter, is of no legal

significance in a case in equity where rescission is the remedy sought.

Parsow's arguments concerning the unique nature of equitable claims for

rescission miss the point. While rescission in such cases is not effective until a court

so decrees, see Kracl v. Loseke, 461 N.W.2d 67, 73 (Neb. 1990), Parsow's focus on

the timing of the rescission fails to consider adequately the broader notions of fairness

and equity that the District Court considered. "'Interest is not recovered according to

a rigid theory of compensation for money withheld, but is given in response to

considerations of fairness; it is denied when its exaction would be inequitable.'" 
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Newton, 386 N.W.2d at 432 (quoting 47 C.J.S. Interest & Usury § 6, at 28 (1982)); see

also Welch v. Welch, 519 N.W.2d 262, 274 (Neb. 1994) (stating that court of equity

has discretion to award interest when it is "reasonable and just"). As Parsow's counsel

conceded at oral argument, June 9, 1993 marked the time at which both Society and

Parsow realized that a mistake had been made. Although Parsow took the position that

the mistake was Society's alone, the District Court rejected that position. Given the

unappealed determination of mutual mistake, we cannot say that the District Court

abused its discretion by treating Parsow's decision to withhold the shares after learning

of the mistake as shifting the equities against an award of interest on the $230,000 from

June 9, 1993 forward. In evaluating the equities of the situation, the appreciation of the

securities while Parsow held them is of no moment, because he was never entitled to

ownership. Similarly misplaced is Parsow's argument that notice of putative grounds

for rescission before suit is unnecessary and thus that Society's letter is of no legal

consequence. While such prior notice is neither a prerequisite to a suit nor sufficient

to effectuate a rescission, see Haumont v. Security State Bank, 374 N.W.2d 2, 7 (Neb.

1985), notice such as that provided by Society's letter, carefully explaining the

existence of a perceived mutual mistake, surely qualifies as one of the "'circumstances

of the case'" that determines whether an award of interest "'seems equitable and just.'"

Newton, 386 N.W.2d at 432 (quoting Mid-States Equip. Co., 285 N.W.2d at 692).

Parsow also challenges the rate of the interest awarded. The District Court

awarded interest at the rate of six percent per annum pursuant to Neb. Rev. Stat. § 45-

102 (1993). Parsow argues that he is entitled to interest at the rate of twelve percent

per annum pursuant to Neb. Rev. Stat. § 45-104 (1993). Determination of the

appropriate statutory rate of interest is purely a question of law, which we review de

novo. See Peterson v. Abbott (In re Estate of Peterson), 433 N.W.2d 500, 501 (Neb.

1988). Section 45-102, entitled "Interest; legal rate; exception," provides: "Interest

upon the loan or forbearance of money, goods or things in action shall be at the rate of

. . . six percent per annum . . . on the unpaid principal balance, unless a greater rate . . .
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be contracted for by the parties." Section 45-104, entitled "Interest; other contract

obligations," provides: 

Unless otherwise agreed, interest shall be allowed at the rate of twelve

percent per annum on money due on any instrument in writing, or on

settlement of the account from the day the balance shall be agreed upon,

on money received to the use of another and retained without the owner's

consent, express or implied, from the receipt thereof, and on money

loaned or due and withheld by unreasonable delay of payment.

We are not convinced that either statute is applicable to the case at hand. Cf.

Lienemann v. State Farm Mut. Auto Fire & Cas. Co., 540 F.2d 333, 343 (8th Cir.

1976) (holding § 45-104 inapplicable where "the action lies in tort rather than in

contract"); In re Estate of Peterson, 433 N.W.2d at 502 (holding § 45-102 inapplicable

because "[a] devise under a will is neither a loan nor a forbearance"); I.P. Homeowners,

Inc. v. Radtke, 558 N.W.2d 582, 593 (Neb. Ct. App. 1997) (noting that § 45-104

"allows for interest on certain contractual obligations," but does not provide for interest

on property held in constructive trust). Because this case more closely fits within the

parameters of § 45-102, however, we agree with the District Court's decision to apply

an interest rate of six percent per annum. Cf. Priest v. Priest, 554 N.W.2d 792, 797

(Neb. 1996) (upholding decision to award husband eight percent interest on a deferred

marital property distribution, even though no statute provided for payment of interest

in such a case).

The judgment of the District Court is affirmed.

A true copy.

Attest:

CLERK, U.S. COURT OF APPEALS, EIGHTH CIRCUIT.