Court Opinion

ID: 9548980
Source: CourtListenerOpinion
Date Created: 2023-08-07 18:11:33.671064+00
Date Added: 2024-06-11T15:19:41.945660
License: Public Domain

STEWART, Justice,
dissenting:
I dissent because I think the damage award of over $23,000 is highly speculative, based on a formula that is inappropriate, and, in all events, will provide the plaintiff with a windfall of more than double his legitimate damages.1
Defendants agreed to construct a home for plaintiffs in Kearns. The purchase price was set at $42,000 and construction was to be completed by September 9, 1979. Plaintiffs obtained a $33,600 construction loan from Valley Mortgage and gave defendant permission “to withdraw funds from [the] undisbursed account.” The difference between the $33,600 and the $42,000 purchase price was to be paid in cash and/or labor. The home was completed on time, but plaintiffs could not close a loan because various materialmen’s liens were outstanding. Defendants had apparently used some of the $33,600 on other projects. In November, 1980, the home was sold to a secured party (Style Realty) at a trustee’s sale. Plaintiffs then purchased the home from Style Realty, with Valley Mortgage providing the financing at 13% interest. If the purchase had gone through as contracted on September 9, 1979, the financing would have been 10%. The trial court found that over the 30-year term of the loan, the difference in interest rates would result in an increased cost to plaintiffs of $48,700, or $135.28 per month. Using a sinking fund model, the court held that a lump sum damage award of $23,825.75 invested at 5½% interest (compounded annually) “will allow for a draw each month of $135.28 and will be at a zero balance in 30 years.” Appellant apparently does not dispute the use of this model.2
In sustaining the damage award, the majority makes two speculative assumptions. The first is that the plaintiff-buyers will pay off the entire 30-year mortgage at a 13 percent interest rate. That assumption ignores the probability that interest rates would subsequently fall and that plaintiffs will no doubt subsequently be able to refinance at a lower rate of interest. That assumption also wholly ignores the likelihood that the buyers will sell the home, and the new buyers will be able to obtain a new loan at a lower rate.
*446Most mortgages are not held for their full term. “Residential real property typically is held for only seven to ten years.” Stratton v. Tejani, 139 Cal.App.3d 204, 187 Cal.Rptr. 231, 238 (1982), citing 1 Miller & Starr, Current Law of California Real Estate, § 5:18 at 54 (1982 Supp.).
The second speculative assumption is the trial court’s theory that plaintiffs will put the damage award in a sinking fund at a 5½% rate of return. That rate of return is, I submit, unrealistic. Plaintiffs could safely invest their damage award of $23,825 at double the rate of return assumed in the damage calculation. For example, plaintiffs could have bought long-term government bonds3 selling at or near par with a coupon rate in excess of 10% in November, 1980. Even if plaintiffs obtain only a 10% rate of return on the damage award, they will earn more than $2,300 per year from the interest coupons. That would more than pay the increase on the mortgage payments, which total only $1,623.36 per year ($135.28 X 12 = $1,623.36), and leave an annual windfall of some $670. Thus, at the end of the 30-year amortization period, plaintiffs would receive a total of $20,100 interest more than is necessary to cover their own increased interest costs plus the principle amount of $23,825.75, or a grand total (not including interest of the excess interest income) of $43,925 beyond what is necessary to pay the legitimate damage amount.
Damages for breach of contract should be compensatory only and may not be based on mere speculation or conjecture. Robinson v. Hreinson, 17 Utah 2d 261, 409 P.2d 121 (1965). Accord Bastian v. King, Utah, 661 P.2d 953 (1983); Dunn v. McKay, Burton, McMurray & Thurman, Utah, 584 P.2d 894 (1978); Monter v. Kratzers Specialty Bread Co., 29 Utah 2d 18, 504 P.2d 40 (1972).
The majority rejects the damage theories used by other courts under similar circumstances. Where a plaintiff has been awarded damages for an increase in mortgage interest payments caused by defendant’s breach of contract, the damage award is almost always the present value of the increase in mortgage payments. See Hutton v. Gliksberg, 128 Cal.App.3d 240, 180 Cal.Rptr. 141 (1982); Godwin v. Lindbert, 101 Mich.App. 754, 300 N.W.2d 514 (1980) (per curiam); Reis v. Sparks, 547 F.2d 236 (4th Cir.1976).4 But see Foust v. Hanson, Tex.Civ.App., 612 S.W.2d 251 (1981) (present value approach not employed).
The majority asserts that Godwin, supra, and Reis, supra, are distinguishable, but I see no basis for the distinction. In those cases, as in this case, the buyers were obligated to make increased mortgage payments because of seller’s delay. That the buyer was also granted a decree of specific performance is wholly irrelevant.
Although a damage award based on a present value theory would be less than the amount necessary for a “sinking fund” sufficient to pay damages for a theoretical 30-year period at 5½%, a present value award would provide reasonable damages. This approach, although perhaps not ideal,5 at least avoids a guaranteed double recovery.
In any event, no damage award should be made at all in the absence of some evidence *447bearing on the length of time that defendants are likely to remain in the home. A number of factors can be considered which would increase the likelihood of moving before the mortgage term is up. Defendant may, for example, have an occupation which will require him to move. Surely a soldier, or a salesman for a national corporation such as IBM, or a young physician is not likely to remain in the home for thirty years. The plaintiff had the burden of proof on the issue. Without a finding on that point, I think no award should be made at all.
HOWE, J., having disqualified himself, does not participate herein.
PETER F. LEARY, District Judge, sat.

. This is a pro se appeal.

. Appellant’s “argument” in its brief consists of one sentence: “Appellant attaches hereto as exhibits the correct tables to compute the present value of 48,700.00 dollars, at 5.5% interest over 30 years, as ordered by the trial court.” In my view, the error in the computation of damages constitutes manifest error and should be addressed even though not raised on appeal.

. This figure is not in the record but I think it not inappropriate to take judicial notice of a fact relating to United States government bonds that appears in the Wall Street Journal.

. In a number of cases, the issue of damages was decided in favor of the plaintiff-buyer, but the exact amount of damages was not determined, or the basis for the amount is unclear. See Stratton v. Tejani, 139 Cal.App.3d 204, 187 Cal.Rptr. 231 (1982); Cal-Val Construction Co. v. Mazur, 636 S.W.2d 391 (Mo.App.1982); Walker v. Benton, Fla.App., 407 So.2d 305 (1981); Home America, Inc. v. Atkinson, 392 So.2d 268 (Fla.App.1980); Regan v. Lanze, 47 A.D.2d 378, 366 N.Y.S.2d 512 (1975), rev’d on other grounds, 40 N.Y.2d 475, 387 N.Y.S.2d 79, 354 N.E.2d 818 (1976). But see Donovan v. Bachstadt, 91 N.J. 434, 453 A.2d 160 (1982) (damage issue decided against plaintiff-buyer).

.For an alternative approach to the problem, see Stratton v. Tejani, 139 Cal.App.3d 204, 187 Cal.Rptr. 231 (App.1982).