508 P.3d 135
Utah Ct. App.2022Background
- In June 2014 Borrowers (Michael Benaroya and BD&P) executed loan documents for $1,000,000 plus $75,000 in loan fees, with a maturity date of September 26, 2014.
- The Loan Documents stated that after maturity a "Default Rate" of 2.75% per month would apply and the Note provided that "interest shall begin to accrue on any outstanding balance at a rate of 2.75% per month."
- Borrowers failed to repay by the maturity date; Lender sued and sought the Repayment Amount plus monthly compound interest on any outstanding balance.
- Borrowers conceded the principal and some interest were owed but argued the Note allowed only simple interest because it did not expressly provide for compounding.
- The district court granted summary judgment for Lender, entered a roughly $7.18 million judgment (principal plus about $6.1 million interest), ordered continued compound interest on the judgment, and awarded attorney fees; the court of appeals reversed.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether the Note unambiguously authorizes compound interest | The plain language "interest shall begin to accrue on any outstanding balance" permits compounding on unpaid interest | The Note contains no express agreement to compound; Utah law requires an express agreement for compound interest and the phrase is ambiguous | Reversed: the Note does not expressly provide for compound interest; only simple interest allowed |
| Whether the fee award should stand | Lender prevailed and Loan Documents allow prevailing-party fees | Borrowers' successful appeal undermines Lender's status as prevailing party | Fee award vacated and remanded for redetermination in light of reversal |
Key Cases Cited
- Brady v. Park, 302 P.3d 1220 (Utah Ct. App. 2013) (contract must expressly provide for compound interest; ambiguity means only simple interest)
- Christensen v. Munns, 812 P.2d 69 (Utah Ct. App. 1991) (compound interest not favored)
- Watkins & Faber v. Whiteley, 592 P.2d 613 (Utah 1979) (compound interest disfavored by law)
- City of Hildale v. Cooke, 28 P.3d 697 (Utah 2001) (same principle regarding compound interest)
- Curry v. Moody, 40 Cal. App. 4th 1547 (Cal. Ct. App. 1995) (an ambiguous contract cannot be construed to provide for compound interest)