Court: Nebraska Court of Appeals; November 11, 1996; Nebraska; State Appellate Court
Bradley L. Poppen and Laurie L. Poppen filed a lawsuit against Residential Mortgage Services, Inc. (RMS) for breach of contract, claiming RMS provided an 8-percent interest rate on their mortgage instead of the agreed 7-percent rate. The court ruled in favor of the Poppens, awarding them $18,966, prompting RMS to appeal.
RMS, a mortgage broker, entered into a written agreement with the Poppens on August 31, 1993, to provide a 30-year fixed interest loan at a 7-percent rate, guaranteed for 180 days. After this period, the rate was to float until three days before closing, with a provision for a one-time re-lock within 60 days for an additional fee. Bradley alleged that Nachman, RMS's president, orally agreed to extend the rate guarantee by an additional 10 days, a claim Nachman denied.
In November 1993, Bradley sought confirmation of the alleged extension, receiving a message from loan processor Donna Jorgensen indicating that Nachman was amenable to the 10-day extension. In January 1994, due to construction delays, Bradley requested another extension, which Nachman granted for 30 days for $330. Laurie provided payment with a notation indicating the extended lock.
The loan amount was increased from $132,000 to $135,200 in February 1994. In March 1994, Nachman allegedly proposed an 8-percent rate along with a concession of $5,000, which Bradley rejected. On March 30, the Poppens were informed they could not close due to a lack of permanent power, and Nachman claimed his attempts to resolve this were unsuccessful. Despite this, he also communicated that the lock would expire and that an 8-percent loan could be offered without additional costs.
The Poppens closed their loan on April 8, 1994, only to discover the loan was at an 8-percent rate, leading to their surprise and anger, as testified by the escrow closer.
Tippery contacted RMS regarding a loan interest rate, believing she spoke with Jorgensen, who does not recall the conversation. Tippery claims she was told the 7 percent lock-in rate was valid until April 10, 1994, a detail noted on a fax cover sheet that was entered into evidence. Tippery also stated the 8 percent rate was due to the Poppens' failure to meet a 48-hour notice requirement, which was actually waived by Commercial Federal. Despite this, the Poppens closed their loan at 8 percent on April 8, 1994, under protest. They filed suit on May 10, 1994, with a second amended petition asserting RMS breached its contract by not honoring the 7 percent rate and alleging deceptive trade practices. The Poppens sought $18,966 in damages and attorney fees.
After a trial on April 25-26, 1995, the court ruled in favor of the Poppens on their breach of contract claim, finding the lock-in period had been extended by phone calls made on November 24, 1993, and January 11, 1994. RMS appealed, arguing the trial court erred in three respects: (1) finding the 10-day oral extension was supported by consideration, (2) deeming the memorandum on the Poppens’ January 11 check binding on RMS, and (3) that the Poppens met their burden of proof regarding damages. The appellate review standard indicates that factual findings in a bench trial are upheld unless clearly erroneous, while legal questions are reviewed independently. RMS contends that the oral extension lacked consideration, thus invalidating it and claiming the Poppens' lock-in period ended before April 8, 1994. However, the trial court seemed to view the consideration as applicable only for the 30-day extension, not for the total of 40 days as argued by the Poppens.
An oral agreement was established between the parties to extend the lock-in period of their written contract by 10 days, which constitutes a valid modification without the necessity of additional consideration. It is recognized that an executory written contract can be modified by mutual consent at any time prior to a breach. The November 1993 phone call, which occurred while the original August 1993 agreement was still executory, effectively modified the prior contract. The case of McGrath v. Paul Logan Motor Co. is distinguished because it involved an alleged extension post-breach, whereas the current case did not involve a breach at the time of modification. RMS does not dispute the capacity of the Poppens to orally modify the contract, though it challenges the intent behind the modification. The trial court found the testimony regarding the modification credible, particularly noting that specific terms were used during the call. The court's factual findings, treated like a jury verdict, are upheld unless shown to be clearly erroneous. Issues of oral modification and mutual assent are factual questions, which the trial court resolved affirmatively in favor of the Poppens.
Evidence indicated that on November 24, 1993, the original agreement was modified, extending the lock-in period by 10 days. It is undisputed that the Poppens and Nachman agreed to a further extension of 30 days for $330 in January 1994, with the commencement date of this period being March 10, 1994. RMS's challenge regarding the court’s finding on the binding nature of the memorandum on the Poppens’ check was deemed unnecessary since the 30-day extension was not contested.
RMS contested the determination of damages amounting to $18,966, arguing that the trial court used an incorrect calculation method. The calculations showed that an 8-percent mortgage over 30 years costs $357,137, while a 7-percent mortgage costs $323,816, resulting in a difference of $33,321, or an additional $92 per month. The trial court reached the damage award by discounting $33,321 at 4.5 percent, yielding $17,862 and adding $1,104.92 already paid by the Poppens to this figure.
RMS contended that the damages should be limited to the cost difference of approximately $5,000, based on Nachman’s testimony. RMS also raised a mitigation of damages defense, suggesting that the Poppens could have obtained a 7-percent loan for about $5,000 at the time of closing. However, the Poppens denied any conversation regarding this option and there was no evidence that a 7-percent loan was available at trial.
The trial court found against RMS on the mitigation issue, a determination supported by evidence and given deference on appeal. RMS argued that the Poppens’ proof of damages was speculative, as their obligation to pay the additional monthly amount could end due to various unforeseen circumstances. Despite this, the trial court’s damage award was supported by the record and not deemed clearly erroneous.
RMS contests the trial court's application of a 4.5 percent interest rate, citing the Poppens' intent to reside in the house indefinitely. The court was presented with various investment alternatives, and the burden of proof for damages lies with the party seeking recovery, as established in Sesostris Temple Golden Dunes v. Schuman. The Poppens demonstrated damages with sufficient certainty, allowing the court to estimate them reasonably. RMS also claims that the trial court employed an incorrect calculation method in the breach of contract case, arguing that damages should restore the injured party to their original position. Both parties concur that damages for a breach concerning a loan typically reflect the difference between the contracted interest rate and the new rate the borrower faces. The court referenced previous cases, including Rubin v. Pioneer Fed. S. L. Assn., to determine that while a jury instruction in Rubin was found erroneous for specifying a substitute loan rate, the method of calculating damages was not criticized. In this case, the trial court similarly calculated damages and adjusted them to present value for RMS's benefit, which was deemed acceptable. RMS contends that the precedent is not applicable since it functions as a mortgage broker, not a lender, and that its obligations are contingent on external factors. However, the court maintained that RMS's obligations are time-bound and that it cannot evade liability due to uncontrollable circumstances. The decision affirmed the trial court's damage award and clarified that an oral modification to an executory contract does not necessitate additional consideration; hence, the award will not be disturbed on appeal.
