Opinion ID: 880774
Heading Depth: 1
Heading Rank: 7

Heading: 4(b Whether the Clinic Inflated its Damages.

Text: Under the offer for the proposed IRB from Security Mortgage Company, the Clinic would have been committed to make regular monthly interest payments to the bond holders during the time the bonds were outstanding. When the bond issue failed, the Clinic obtained a private loan from Security Mortgage which also required such monthly payments. It appears, however, that the Clinic did not make regular monthly payments for the first two years, but instead allowed the amount of accruing interest to be added to the principal balance of its loan. This had the result of increasing its loan balance, and increasing the damages claimed by the Clinic. The amount of the financed interest was $957,775, which was added to the loan balance carried over to the Travelers loan. The Clinic claimed damages for the additional balance and for the increased interest attributable to it in the approximate sum of $500,000. Peat Marwick claims that by so handling its loan payments, the Clinic inflated the damages when it had a duty to mitigate damages, relying on Brown v. First Federal Savings & Loan Association (1969), 154 Mont. 79, 460 P.2d 97, where this Court held that there could be no recovery for damages which might have been prevented by the reasonable efforts of the claimants. The Clinic counters that under the evidence, the Clinic did not elect not to make regular monthly interest payments. It points to the testimony given by Peat Marwick's damages expert, David Johnson, that whether the IRB financing had been completed or the actual Security Mortgage loan were in effect, in each case there would have been a two-year period in which the loan proceeds would have been used to pay interest expense. If an IRB had been used, the interest earned on the bond proceeds during the construction period would be used to pay both construction costs and the accruing interest expense owed to the bond holder. The Security Mortgage loan on the other hand was a construction loan in which the lender provided the Clinic with a line of credit out of which construction costs, including interest expense, as they were incurred, were to be paid. Because the Clinic did not receive the full $7.5 million at the outset from Security Mortgage as it would have received under the bond financing plan, the Clinic did not receive interest income on the loan proceeds during the construction. It was immediately obligated to pay interest on the loan on amounts as received up to $7.5 million. Moreover the difference in interest rates under the two procedures (prime plus 1 percent versus 75 percent of prime) entered into the equation. That the Security Mortgage loan was reasonable, and the best loan available at the time, as were the Travelers and First Bank replacement loans, was testified to by the experts presented by the Clinic. No evidence in the record shows that substitute conventional loans other than IRBs would have provided the Clinic with funds where interest could have been earned during the construction, or that the terms of the Security Mortgage loan permitting the financing of interest expense by the Clinic were improper or unreasonable. Mitigation of damages is an affirmative defense for which the burden of proof falls on the party opposing the damages. A.T. Klemens and Son v. Reber Plumbing and Heating Company (1961), 139 Mont. 115, 360 P.2d 1005, 1010. The question was one for determination by the jury which awarded the damages. The District Court upheld the jury in denying Peat Marwick's motion for a new trial. We find no basis on which to reverse or modify the judgment on this item.