Cedar Point Apartments, Ltd. v. Cedar Point Inv. Corp.
| Decision Date | 09 April 1985 |
| Docket Number | Nos. 84-1294,84-1342,s. 84-1294 |
| Citation | 756 F.2d 629 |
| Parties | CEDAR POINT APARTMENTS, LTD., Appellee and Cross-Appellant, v. CEDAR POINT INVESTMENT CORPORATION, William Bruce, and Donald Ham, Appellants and Cross-Appellees. WELLINGTON GREEN APARTMENTS, LTD., Appellee and Cross-Appellant, v. B & D INVESTMENT CORPORATION, William Bruce, and Donald Ham, Appellants and Cross-Appellees. |
| Court | U.S. Court of Appeals — Eighth Circuit |
F. William McCalpin (argued), Daniel P. Card, II, Chester A. Love and Richard Ahrens, St. Louis, Mo., for appellants and cross-appellee.
Burton H. Shostak, St. Louis, Mo., for appellee and cross-appellant.
Before ARNOLD, Circuit Judge, HENLEY, Senior Circuit Judge, and JOHN R. GIBSON, Circuit Judge.
This is an action for breach of a contract to sell two apartment complexes in St. Louis County, Missouri, known as the Cedar Point Apartments and the Wellington Green Apartments. The action was brought by the buyers, Cedar Point Apartments, Ltd., and Wellington Green Apartments, Ltd., as assignees of the original parties to the contract. The sellers, defendants in the District Court, are Cedar Point Investment Corp., B & D Investment Corp., William Bruce, and Donald Ham. On a prior appeal, Cedar Point Apts., Ltd. v. Cedar Point Inv. Corp., 693 F.2d 748 (8th Cir.1982), reversing Ariko v. Cedar Point Inv. Corp., 527 F.Supp. 602 (E.D.Mo.1981), we held that the sellers had broken the contract and remanded for further proceedings. On remand, the District Court 1 awarded to the buyers damages of $978,175 for breach of contract. It found, however, that sellers had not been guilty of malice, so as to justify an award of punitive damages for tortious interference with contract, and it also held that buyers were not entitled to prejudgment interest.
Defendants-sellers appeal, contesting the amount of damages awarded. We agree with their position in part and hold that one element used by the District Court in computing damages, a so-called "interest-rate differential," should not have been used. We therefore reduce the damage judgment to $271,110. As so modified, the judgment will be affirmed. Plaintiffs-buyers cross-appeal, claiming they should have received punitive damages and prejudgment interest. We also affirm on these issues. The District Court's findings of fact are not clearly erroneous, and the arguments against its application of the law of Missouri, its own State, are not sufficiently cogent to override the deference we customarily give the district courts on such questions.
Everyone agrees on the legal standard for measuring damages for breach of a contract to sell land. The damages are the difference between the fair market value of the land on the date fixed for the sale, and the price agreed to in the contract, the price for which the buyers could have had the land if the sellers had kept their promise to sell. It is also agreed that the price for which the land was actually sold in December 1979, six months after the contract in suit should have been carried out, is a fair proxy for the fair market value of the land in June 1979. It is not claimed that the lapse of six months' time was material for valuation purposes. In order to determine the damages, therefore, it is necessary only to ascertain the contract price agreed to by the parties and the price at which the sellers later actually sold the land to third persons, and subtract the former number from the latter. The computation must be made separately for the Cedar Point Apartments and the Wellington Green Apartments. For convenience we shall refer to the contract in suit as the Nicholson contract, using the name of one of the original buyers (whose interests were later assigned to the named plaintiffs), and we shall refer to the December 1979 contract, which actually led to a completed sale, as the Lipton contract, using the name of one of the persons who actually acquired the property from the defendants.
In order to frame the issue intelligibly, we shall describe at some length the District Court's findings and computations with respect to each of the two apartment complexes. There is no dispute about the validity of the Court's findings of historical fact. The issue is rather one of logic and method. In each case, the contract price is composed of several elements. Some of the price is designated as cash, paid directly by the buyers to the sellers at closing. Some of it is designated as a "HUD mortgage," that is, a mortgage to be placed on the property by the buyers, the proceeds of which are to be paid over in cash to the sellers at closing. And some of the price is designated as "cash-surplus notes," promissory notes to be delivered by the buyers to the sellers at closing, payable over a certain period of time at a certain rate of interest, but apparently payable only if the property produces sufficient profit or cash surplus to cover the payments. The HUD mortgages, of course, are also payable over a certain period of time at a certain rate of interest, but the mortgages, called "HUD mortgages" because their payment is insured by the Department of Housing and Urban Development, are payable not to the sellers but to a lender, DRG Financial Corporation, a HUD-approved mortgagee. 2 The debt that the mortgages secure, in other words, is held by the lender, DRG, and the proceeds of the mortgages go entirely to the sellers at closing in cash. We are not dealing with a seller-financed transaction, in which the sellers themselves could expect to receive periodic payments of principal and interest over an agreed period of time.
With respect to the Nicholson contract to buy the Wellington Green Apartments, the District Court made the following findings as to contract price. The total purchase price was $3,275,000, composed of the following elements: (1) cash, $327,500; (2) a cash-surplus note in the principal amount of $178,000, with a term of 35 years and bearing interest at zero per cent. (0%); and a HUD- or FHA-insured note in the principal sum of $2,769,500, with interest at eight and one-half per cent. (8 1/2%) per year for a term of 35 years, the note being secured by a first deed of trust on the property. The HUD- or FHA-insured note provided for 420 level monthly payments of principal and interest to the HUD-approved mortgagee, DRG.
When amounts to be paid to the sellers in the future are commuted to present value (and there is no dispute among the parties as to the method for doing this), the value of the Nicholson contract for Wellington Green, as found by the District Court, may be expressed as follows:
HUD Mortgage $2,769,500
Cash Paid 327,500
Capital-Surplus Note 7,429
-------------------- ----------
TOTAL PRESENT VALUE $3,104,429
Using this same approach, the present value of the Lipton contract for purchase of Wellington Green can be expressed in tabular form as follows:
HUD Mortgage $2,890,000
Cash Paid 253,803
Capital-Surplus Notes 85,797
--------------------- ----------
TOTAL PRESENT VALUE $3,229,600
The difference between these two figures representing present value, $3,229,600 for the Lipton contract on Wellington Green, and $3,104,429 for the Nicholson contract on Wellington Green, is $125,171, and the District Court found, Findings and Conclusions at 13-14, that this figure was the difference between the present values of the two contracts. To this figure, however, the District Court added an additional element, and it is here that the positions of the parties diverge. The HUD mortgage contemplated by the Lipton contract was payable over a period of 35 years in level monthly payments of principal and interest, just as was the mortgage contemplated by the Nicholson contract, but the interest rate in the Lipton mortgage was nine and one-half per cent. (9 1/2%), as opposed to the eight and one-half per cent. (8 1/2%) loan called for by the Nicholson contract. This difference in interest rates, of course, produces a corresponding difference in monthly payments under the two mortgages.Under the Nicholson contract for Wellington Green, the monthly payments would have been $21,837.51, while under the Lipton contract, the monthly payments are to be $24,947.93. The difference is $3,110.42, an additional sum that the mortgagee under the Lipton contract will receive each month, over and above what the mortgagee under the Nicholson contract would have received. According to plaintiffs' expert witness, whose testimony on this point is undisputed, the present value of this $3,110.42 monthly difference over a period of 35 years is $378,575.47. (The discount rate used in computing this present value was nine and one-half per cent. (9 1/2%), and again there is no dispute about this rate).
This fourth element, the so-called interest-rate differential, was then added to the first three elements already described, so that the total damages for breach of the Wellington Green contracts was computed by the District Court substantially as follows:
(1) Difference in present value
of the two contracts $125,171
(2) Present value of difference
in HUD-insured
loan payments, otherwise
known as "interest-
rate differential" $378,575
--------
TOTAL $503,746
Thus, the damage computation includes not only the difference between the full face amounts of the two HUD mortgages, but also the difference between monthly payments of principal and interest to be made under those mortgages to the lenders.
The same approach was employed to determine damages for the breach of the contract to sell the Cedar Point Apartments. Here, the District Court found, Findings and Conclusions at 14, that the difference in present value between the...
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