Hector, Inc. v. United Sav. and Loan Ass'n, 19524

• Court: Supreme Court of Utah
• Writing for the Court: STEWART; HALL
• Citation: 741 P.2d 542
• Parties: HECTOR, INC., a corporation, Plaintiff, Respondent and Cross-Appellant, v. UNITED SAVINGS AND LOAN ASSOCIATION, a corporation; and Land Title Company, a corporation, Defendants, Appellants and Cross-Respondents.
• Docket Number: No. 19524,19524
• Decision Date: 05 August 1987

Page 542

741 P.2d 542 HECTOR, INC., a corporation, Plaintiff, Respondent and Cross-Appellant,
v.
UNITED SAVINGS AND LOAN ASSOCIATION, a corporation; and
Land Title Company, a corporation, Defendants,
Appellants and Cross-Respondents. No. 19524. Supreme Court of Utah. Aug. 5, 1987.

Page 543

Lester A. Perry, Salt Lake City, for Hector, Inc.

Richard L. Bird, Salt Lake City, for United Sav. & Loan, et al.

STEWART, Associate Chief Justice:

Hector, Inc., a construction company, executed a trust deed as trustor to secure an $800,000 loan from United Savings and Loan Association (United), the beneficiary of the trust deed. United appeals a judgment holding it liable for double damages and attorney fees for breaching its duty to request a reconveyance from the trustee to Hector of the real property which secured the loan under the trust deed, as required by Utah Code Ann. § 57-1-33 (1986). ¹ Hector cross-appeals from the award of damages.

On this appeal, United argues that the trial court erred in holding that (1) United breached its statutory duty to request a reconveyance; (2) Hector did not have a duty to mitigate damages; (3) § 57-1-33 allows double damages and attorney fees; and (4) each of the three lots wrongly withheld by United had a value of $20,000. Hector cross-appeals on the ground that the trial court erred in refusing to award additional damages. We affirm in part, reverse in part, and remand for a recalculation of damages.

Page 544

I.

On January 10, 1978, Hector entered into a land development agreement with United and executed a promissory note and a deed of trust in favor of United to secure a loan of $800,000 to finance the development of a residential subdivision in Farmington, Utah. At approximately the same time, Hector obtained an improvement bond from Western Mortgage Loan Corporation (Western Mortgage) in favor of Farmington City to guarantee Hector's workmanlike construction of the off-site improvements in the subdivision. None of the documents executed by Hector with respect to the Western Mortgage bond provided security for the bond, although it was Western Mortgage's practice to require security on such bonds. United and Western Mortgage are separate corporations owned by the same shareholders. Both have the same directors and principal operating officers, one of whom is Mrs. LaVerne Neilson. Mrs. Neilson represented both United and Western Mortgage in the transactions with Hector.

By April 30, 1981, Hector had paid United all amounts owed under the promissory note. However, when Mrs. Neilson accepted Hector's final payment, she told Hector that the reconveyance of the property subject to the trust deed was conditioned on Farmington City's release of the Western Mortgage improvement bond.

Shortly thereafter, Farmington City released all but $17,900 of the improvement bond. That amount was to be released at the expiration of a routine six-month waiting period used by Farmington City to ensure that the off-site improvements had been installed in a workmanlike manner. All except ten lots were then released and reconveyed by the trustee to Hector. United refused to direct the trustee to release the ten lots and, instead, retained them to secure Western Mortgage's remaining $17,900 obligation on the improvement bond.

On May 27, 1981, Hector made a written request for the release and reconveyance of the remaining ten lots. When United refused to request a reconveyance, Hector filed suit, seeking the release and reconveyance of the lots and damages as provided by § 57-1-33.

The trial court found that United unconditionally offered on September 11, 1981, to request the trustee to reconvey to Hector seven of the ten lots and that Hector refused to accept the offer. On January 28, 1982, the improvement bond was finally released by Farmington City, and the same day, all ten lots were released and reconveyed to Hector.

Sometime between May 27, 1981, and September 11, 1981, Hector's president, Jim Pappas, telephoned Valley Bank & Trust Company to discuss the possibility of substituting a bond underwritten by Valley Bank for the bond underwritten by Western Mortgage. Mr. Pappas testified that Valley Bank would "gladly take the bond" for $125, but Mr. Pappas did not substitute the Valley Bank bond for the Western Mortgage bond. Mr. Pappas took no further action to minimize Hector's losses. Later, during the summer of 1981, Mr. Pappas had the opportunity to trade the ten lots for real property in West Valley City. He claimed at trial that Hector stood to make at least $200,000 profit on the swap.

The trial court ruled that United breached its duty to request a reconveyance from the trustee of all the lots when Hector had fully repaid the United promissory note. The court also held, however, that Hector should have accepted United's September 11, 1981 offer and that the profits Hector claimed it lost were too speculative to be recoverable. The court valued each lot at $20,000 and awarded Hector damages based on ten percent per annum interest on the value of all ten lots for the period June 27, 1981 (i.e., thirty days after the written notice required by § 57-1-33), to September 11, 1981, plus ten percent interest per annum on the value of the three lots for the period September 11, 1981, to January 28, 1982. Those two figures total $6,432.87, and that was doubled pursuant to the statute. Hector was also awarded $2,000 in attorney fees.

Page 545

II.

We address first whether United breached its statutory duty to request a reconveyance of all the lots when Hector paid off the loan in full. Although § 57-1-33 appears to impose an absolute duty on a trust deed beneficiary to request a reconveyance from the trustee on written demand of the trustor, see supra note 1, United argues that a beneficiary's good faith in not requesting a reconveyance by the trustee of the security to the trustor should be an affirmative defense to an action brought under that section. United's argument is based on Shibata v. Bear River State Bank, 115 Utah 395, 205 P.2d 251 (1949), which held that good faith is an affirmative defense to an action brought under the predecessor to § 57-3-8, which governed the release of mortgages and was similar in wording and purpose to § 57-1-33. ²

The mortgage release statute and the trust deed reconveyance statutes are in pari materia; they serve the exact same purpose of protecting borrowers who secure their debt by an interest in real estate from lenders who refuse to return the security when the debt is discharged. The statutes hold lenders to a high degree of care and promptness in clearing title to a borrower's property when the debt is paid since the lender no longer has a legitimate interest in the security and the borrower has a great interest in freeing the...