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Tookalook Sales and Service v. McGahan (2/12/93), 846 P 2d 127
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Notice: This is subject to formal
correction before publication in the Pacific
Reporter. Readers are requested to bring
typographical or other formal errors to the
attention of the Clerk of the Appellate
Courts, 303 K Street, Anchorage, Alaska
99501, in order that corrections may be made
prior to permanent publication.
THE SUPREME COURT OF THE STATE OF ALASKA
TOOKALOOK SALES AND SERVICE, )
SPORTSCOACH CORPORATION OF ) Supreme Court File No. S-4487
AMERICA, a division of ) Superior Court File No.
COACHMEN INDUSTRIES, INC., ) 3KN-89-401 Civil
)
Appellant, )
) O P I N I O N
v. )
)
MERRILL McGAHAN and )
CARMEN McGAHAN, ) [No. 3931 - February 12, 1993]
)
Appellees. )
______________________________)
Appeal from the Superior Court of the
State of Alaska, Third Judicial District,
Kenai, Jonathan Link, Judge.
Appearances: Blaine D. Gilman, Law
Office of Blaine D. Gilman, Kenai, for
Appellant. Joseph L. Kashi, Soldotna, for
Appellees.
Before: Rabinowitz, Chief Justice,
Burke, Matthews, Compton and Moore, Justices.
MOORE, Justice.
I. FACTS AND PROCEEDINGS
Merrill and Carmen McGahan purchased a motorhome from
Tookalook Sales and Service on August 28, 1985 for $39,950. They
borrowed $28,100 from Chemical Finance, at an annual interest
rate of 13.5%, to help finance their purchase.
Due to their dissatisfaction with the motorhome, the
McGahans filed suit in 1989 against Tookalook and the
manufacturer of the motorhome, Sportscoach Corporation of
America. After a trial conducted by Judge Jonathan Link, the
jury found in favor of the McGahans on the theory of "revocation
of acceptance." The jury awarded $44,405.18 in damages to the
McGahans. This award included $28,070 in actual damages, and
$16,335.18 to compensate the McGahans for their interest payments
to Chemical Finance.1
Upon entering judgment in the amount set forth in the
jury verdict, Judge Link requested the McGahans submit a
calculation of the prejudgment interest which should be awarded.
The McGahans requested prejudgment interest upon the entire jury
award at the annual rate of 15.5%. They claimed that a 15.5%
rate was appropriate under AS 09.30.065, which provides for a
five percent increase from the normal statutory rate of 10.5% in
cases where a prevailing plaintiff makes an offer of judgment
which was not accepted and which was more favorable than the
judgment finally entered.
Tookalook and Sportscoach opposed the McGahans' request
for prejudgment interest. They argued that an award of
prejudgment interest would constitute an inappropriate "double
recovery" because the jury award included the finance and
interest charges paid by the McGahans. Tookalook and Sportscoach
also argued that, in the event that prejudgment interest was
awarded, the court should employ the normal statutory rate
because the offer of judgment was invalid since "it did not
specify a definite sum."
Judge Link awarded the McGahans $22,210.61 in
prejudgment interest. This figure includes $15,665.37 as
interest on the jury's actual damage award of $28,070, accruing
at the statutory rate of 10.5% from September 28, 1985, the date
of purchase, to January 22, 1991, the last day of trial. The
prejudgment interest award also included $6,545.24 as interest on
the finance charges which plaintiffs paid Chemical Finance,
calculated at 10.5% from the date of each payment.
Tookalook and Sportscoach appeal Judge Link's decision
to award prejudgment interest.
II. DISCUSSION
Tookalook and Sportscoach argue that awarding
prejudgment interest on the basic damage and third-party finance
charge portions of the jury damage award to the McGahans
constituted a double recovery of interest. They assert that in
cases such as this, where the plaintiff partially financed the
transaction at issue via a third-party loan, the correct measure
of damages should include only one interest award. The
appropriate interest rate should be the greater of the statutory
or contractual interest rates.
An award of prejudgment interest should be denied only
to avoid an injustice. Farnsworth v. Steiner, 638 P.2d 181, 184
(Alaska 1981) (citing State v. Phillips, 470 P.2d 266, 274
(Alaska 1970)). Courts in other jurisdictions have generally
held that the decision to grant prejudgment interest rests within
the discretion of the trial court. In re Glacier Bay, 746 F.
Supp. 1379, 1395 (D. Alaska 1990); Vance v. American Hawaii
Cruises, Inc., 789 F.2d 790, 794-95 (9th Cir. 1986). We have
recognized that when prejudgment interest begins to accrue is a
question of law and subject to the court's independent judgment.
22,257 Sq. Ft., More or Less v. State, 799 P.2d 777, 778 (Alaska
1990).
In State v. Phillips, 470 P.2d 266, 274 (Alaska 1970),
this court held that all damages "should carry interest from the
time the cause of action accrues, unless for some reason peculiar
to an individual case such an award of interest would do an
injustice." Justice Rabinowitz reasoned that prejudgment
interest is necessary to compensate the prevailing party for the
loss of use of money received as damages, as well as to eliminate
the "substantial financial incentive for defendants to litigate
even where liability is so clear and the jury award so
predictable that they should settle." Id. Later cases have
further discussed the purposes for which prejudgment interest is
awarded. In Bevins v. Peoples Bank & Trust Co., 671 P.2d 875,
881 (Alaska 1983), this court held:
The purpose of awarding prejudgment
interest is not to penalize the losing party,
but rather to compensate the successful
claimant for losing the use of the money
between the date he or she was entitled to it
and the date of judgment. A corollary
purpose is to prevent the judgment debtor
from being unjustly enriched by the use of
that money. Farnsworth v. Steiner, 638 P.2d
181, 184 (Alaska 1981); Anchorage Asphalt
Paving Co. v. Lewis, 629 P.2d 65, 69 (Alaska
1981). Prejudgment interest should not be
awarded, however, when it is unjust to do so.
Anchorage Asphalt, 629 P.2d at 70.
In Haskins v. Shelden, 558 P.2d 487, 494-95 (Alaska 1976), this
court noted that it is "only in the most unusual cases that
prejudgment interest is not proper,"and that "[o]ne such unusual
case is where the award of such interest would result in a double
recovery." See also ERA Helicopters, Inc. v. Digicon Alaska,
Inc., 518 P.2d 1057, 1063 (Alaska 1974); State v. Stanley, 506
P.2d 1284, 1295 (Alaska 1973) (awarding both prejudgment interest
and damages for lost use constitutes a double recovery).
We have concluded that the superior court's award of
prejudgment interest in the total amount of $22,210.61 was
erroneous because the McGahans were compensated for interest on
the amount they borrowed by the jury's damage award in which the
jury awarded the McGahans damages equivalent to the interest
payments paid on the loan from Chemical Finance. Sebring v.
Colver, 649 P.2d 932, 936 (Alaska 1982) ("Since the financial
impact of the passage of time was thus incorporated into the
judge's damage award, any award of prejudgment interest would
thereafter constitute a double recovery."). In cases where a
party borrows money from a third-party lender to meet its
contractual obligations, and the contract is subsequently
rescinded, the borrowing party may recover interest on the amount
borrowed as calculated by using the higher of the contractual
interest rate and the statutory interest rate. It is improper to
award the borrowing party both the contractual interest which it
paid and prejudgment interest on the amount borrowed, for the
borrower did not actually lose the use of those funds borrowed
from someone else. By awarding the borrower the amount borrowed
plus interest on that amount, the borrower is put in nearly the
same place it would have been in had the parties not entered into
a contract.2
In support of their contention that the prejudgment
interest award was proper, the McGahans cite several cases which
state that third-party finance charges are generally awardable as
consequential damages. See Spreader Specialists v. Monroc, Inc.,
752 P.2d 617, 623 (Idaho App. 1987); Rodrigues v. State, 472 P.2d
509, 517 (Haw. 1970). We do not disagree with these cases. We
do disagree with the McGahans apparent claim that prejudgment
interest must be calculated on all awards of consequential
damages.3 As discussed above, prejudgment interest should not be
awarded when it is unjust to do so, such as where the award would
result in a double recovery. However, the McGahans were entitled
to prejudgment interest on the amount of the purchase price which
they did not borrow, $11,850. Thus the final judgment calculated
as of the January 23, 1991 verdict will consist of the purchase
price, plus $16,335.18 interest on amounts borrowed by the
McGahans, plus interest at the statutory rate on that portion of
the purchase price that was not borrowed, less the value of the
use of the motorhome by the McGahans as determined by the jury,
$11,880.4
Accordingly, this matter is REVERSED and REMANDED for
further proceedings consistent with this opinion. The superior
court's award of $22,210.61 in prejudgment interest is VACATED.
_______________________________
1. During the trial, the parties stipulated that the
McGahans had paid $16,335.18 in interest on the amount borrowed
to finance their purchase of the motorhome. The jury was
instructed to include this amount in its award if it found that
the plaintiffs effectively revoked their acceptance of the
motorhome.
Based upon this jury instruction, the parties have been
able to determine the components of the jury's award:
$44,405.18 Jury Verdict
<16,335.18> Stipulated Consequential Damage Award
$28,070.00 Actual Damage Award After
Deduction for Usage of the Motorhome ($39,950
purchase price, less $28,070 award = $11,880
usage deduction)
2. We realize the borrower is not returned to exactly the
same position because the borrower loses the use of the money
paid as interest. We refuse to allow prejudgment interest on the
interest payments to prevent the borrower from being returned to
a better position than one who purchases using personal funds.
Under Alaska law, prejudgment interest is not compounded. State
v. Doyle, 735 P.2d 733, 742 (Alaska 1987). Allowing prejudgment
interest on the borrower's interest payments is conceptually
similar to compounding interest.
3. Citing 47 C.J.S. Interest & Usury 24 (1982), the
McGahans argue that, "it has generally been held that a judgment
bears interest on the whole amount thereof although such amount
is made up partly of interest on the original obligation." That
section of Corpus Juris Secundum refers to post judgment interest
upon judgments, not prejudgment interest. As such, that section
is not instructive in the present case.
4. The record does not indicate whether the $11,880 usage
charge was the present value, as of the verdict date, of the
McGahans' use of the motorhome, or a composite figure consisting
of a monthly charge multiplied by the number of months of use.
If it is a composite figure, Tookalook and Sportscoach are
entitled to interest on each month's charge at the statutory
rate, thereby decreasing the McGahans' recovery.
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