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Smith v. Najafi

Court of Appeals of Missouri, Western District, First Division

October 1, 2019

JAMES SMITH, Appellant-Respondent,


          Before: Cynthia L. Martin, Presiding Judge, Victor C. Howard, Judge and Alok Ahuja, Judge.


         James Smith (plaintiff) and Mohammad and Homa Najafi (defendants) appeal the judgment of the Buchanan County Circuit Court. The court determined that Smith was entitled to specific performance of a contract for the sale of real property and damages. Smith claims on appeal that he was entitled to damages due to the increase in interest rates available to complete the sale of the real property. We agree and modify the judgment pursuant to Rule 84.14. The Najafis claim in two points on appeal that the trial court erred in finding a contract between the parties. Those points are denied. The judgment is affirmed as modified. Further, the case is remanded to the trial court for determination of reasonable attorneys' fees on appeal.

         Facts [1]

         On October 16, 2017, James Smith filed a petition in Buchanan County Circuit Court against Mohammad and Homa Najafi. It alleged that Smith and the Najafis entered into a contract for Smith to purchase real property from the Najafis and that the Najafis failed to convey the real property. The petition sought specific performance and damages for breach of contract. ReMax Professionals of St. Joseph ("ReMax") filed a motion for joinder. ReMax had filed suit against the Najafis on October 18, 2017, for the real estate commissions earned pursuant to the contract between Smith and the Najafis and pursuant to a prior contract. The cases were joined for trial on February 16, 2018.

         The matter proceeded to a bench trial. The trial court found the following: The Najafis entered into an Exclusive Right to Sell Listing Contract with ReMax for certain real property ("the Property") on April 22, 2017. This contract provided that the listing agent would be entitled to a real estate commission of 6%. On April 30, 2017, Curtis Walker made an offer to purchase the Property. This offer was rejected by the Najafis by way of a counter-offer. The counter-offer included a sale price of $138, 000. Walker accepted the counter-offer on May 3, 2017. The Najafis refused to close on the sale.

         On August 25, 2017, James Smith[2] made an offer to purchase the Property. Again, the Najafis rejected Smith's offer by way of counter-offer. The counter-offer, which included a sale price of $138, 000, was accepted by Smith on August 31, 2017, and closing was set for September 27, 2017. The Najafis were informed of the closing date. At no time did they inform their agent or anyone else they did not believe a contract for sale had been agreed upon. The only mention was Mrs. Najafi's concern that "this price is too low."

         Smith and his wife obtained the necessary financing and had the funds delivered to the closing company on the closing date. The Najafis indicated they would execute the documents and have them delivered via FedEx to the title company. The Najafis failed to do so. The Najafis later agreed to come to St. Joseph personally on a weekend to close the sale. They again failed to do so.

         Relying on the Najafis' representations, Smith gained access to the Property to begin making improvements. At the time of the original closing date, the interest rate Smith had locked in was 4.375%. The best interest rate available to Smith as of the date of trial was 5%. Smith incurred costs and legal fees associated with the purchase of the Property in the amount of $19, 247.00. ReMax incurred costs and fees in the amount of $6, 011.25.

         The trial court found that ReMax was entitled to two commissions for $8, 280.00 each for a total of $16, 560.00 for commissions earned upon procurement of a buyer on two separate occasions. The court also awarded ReMax attorneys' fees and costs in the respective amounts of $5, 860 and $151.25. The court found in favor of Smith and ordered specific performance of the contract for the sale of the Property. It further found that Smith incurred damages in the amount of $450.00 for a new appraisal and attorneys' fees pursuant to the contract in the amount of $10, 247 for a total of $10, 697.

         These appeals follow.[3]

         Standard of Review

         "On review of a court-tried case, an appellate court will affirm the circuit court's judgment unless there is no substantial evidence to support it, it is against the weight of the evidence, or it erroneously declares or applies the law." ROH Farms, LLC v. Cook, 572 S.W.3d 121, 125 (Mo. App. W.D. 2019) (internal quotation marks omitted). "Appellate courts accept as true the evidence and inferences ... favorable to the trial court's decree and disregard all contrary evidence." Id. (internal quotation marks omitted). "Circuit courts are free to believe any, all, or none of the evidence presented at trial." Id. (internal quotation marks omitted). "Deference is ... given to the trial court's findings of fact." Id. (internal quotation marks omitted).

         "Specific performance is purely an equitable remedy and must be governed by equitable principles." Id. "The equitable remedy of specific performance is not a matter of right but is a remedy applied by courts of equity, depending upon the facts in the particular case; and the trial court has judicial discretion within the established doctrines and principles of equity to award or withhold the remedy." Id. (internal quotation marks omitted). "Specific performance is purely an equitable remedy which is invoked primarily that complete justice may be done between the parties, and courts of equity will not decree specific performance where it will result in injustices." Id. (internal quotation marks omitted).

         Smith Point I

         In his sole point on appeal, Smith claims the trial court erred in not awarding damages due to increased interest rates. He argues that an increase in interest rate was directly related to the Najafis failure to perform. Smith states that the best interest rate available to Smith for the purchase loan on the original closing date was 4.375%, and the best interest rate available to Smith at the time of trial was 5.000%.

         "Where a trial court awards a decree of specific performance to a purchaser of land, inevitably a period of time elapses between the date when the land should have been conveyed in fulfillment of the contract and the date of the decree ordering the performance." McDermott v. Burpo, 663 S.W.2d 256, 263 (Mo. App. W.D. 1983). "As incident to its decree, the trial court has the discretion to relate performance to the original date of the agreement through an additional award of any costs caused by the delay." Id. "This award does not arise as legal damages from the breach of the contract; rather, it is more in the nature of an equitable accounting between the parties in affirmance of the contract." Id. This includes compensating a non-breaching buyer for the increase in interest rates in addition to granting specific performance. Id. (citing Cal-Val Construction Co., Inc. v. Mazur, 636 S.W.2d 391 (Mo. App. E.D. 1982)).

         In addition to ordering specific performance, the trial court awarded Smith the cost of a new appraisal to complete the purchase of the Property. Further, the trial court specifically found that the interest rate Smith had locked in at the time of closing was 4.375%. It also found that the best interest rate available to Smith as of the date of trial was 5%. It did not award Smith damages stemming from the change in interest rate, however.

         In their respondent's brief, the Najafis argue that the witness who testified about interest rates at the time of the scheduled closing and the time of trial should not have been allowed to testify about those things. They claim the testimony was received into evidence without a sufficient foundation for an expert opinion, that the witness could not identify his methods, and that the witness relied on documents prepared by a company rather than by himself.

         Dennis Lichens testified at trial. He worked for the mortgage company Smith went through to obtain a mortgage to buy the Property. At the time of trial he worked for a different lending partner. He testified Smith was fully approved for a loan to facilitate the purchase of the Property. Exhibit 6, a conditional commitment from the mortgage company, was introduced into evidence at trial without objection. The loan had a fixed interest rate of 4.375%.

         Lichens generally works in home loans. He testified that since the closing date of the property interest rated have increased steadily. The Federal Reserve Bank has raised rates twice since then and people projected a couple more raises by the end of the year during which trial was occurring. Lichens stated that if Smith entered into a loan commitment at the time of trial his interest rate "would be in the high 4's to 5, again paralleling a 95 percent loan to value and the profile we had at the time for no points, no extra fees." He further testified they would need a new appraisal at a cost of $450 to $500.

         Exhibit 5 was a mortgage calculation for the Property with an interest rate of 4.375%. The second page was a similar calculation only with an interest rate of 5%. The total amount paid over the 30 year life of the mortgage under the 5% calculation was $17, 700 more than the total amount paid under the 4.375% calculation. The monthly payment was almost $50 more per month under the 5% calculation.

         Lichens testified that if a person took out a loan at the time of trial for $9, 166.95 with a 30 year loan life and interest rate of 5% that the total amount paid under the loan would be $17, 715.66. Further, the initial loan was for $131, 100. If $9, 166.95 was deducted from the initial principal amount then the loan would be for $121, 933.05. If a 30 year loan for $121, 933.05 was taken out at a 5% interest rate then the total amount paid under the loan would be $235, 642.67. Under the original loan commitment, Smith was to borrow $131, 100 at 4.375% over 30 years; the total paid would have been $235, 642.67. Thus, an initial payment of $9, 166.95 applied to the principal of Smith's loan at a 5% interest rate would put Smith in exactly the same position as if the loan had been at 4.375%.

          After all of this testimony was heard, Smith's attorney sought to admit Exhibit 5 into evidence. For the first time, counsel for the Najafis objected:

Counsel for Najafis: I'm going to object, Your Honor. This actually calls for speculation. All of these scenarios, what ifs, are based on assumptions about future interest rates, terms of loan, the absence of refinancing in future years. So this is all speculative and not sufficiently precise to be admitted into evidence. And I would submit, with respect to that, a decision__ I have copies here somewhere. Catroppa vs. Metal Buildings Supply, Inc., Missouri Court of Appeals Southern District, 267 S.W.3rd 812, which discusses the insufficient foundation and speculative nature of evidence not specifically admissible to prove damages in this type of contract controversy.
Counsel for Smith: Well, I believe he testified of the knowledge of what the term __ what the rate was, what the rate would be currently. He has that knowledge from his - we've laid the foundation of his knowledge based on his experience as a loan underwriter. As far as being speculative in nature, it is what the best interest rate available is to the Smiths at this time compared to what the interest rate was at the time of closing. As far as any speculative nature interest rates going up or down, that's defendant's - ...

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