Opinion ID: 1532058
Heading Depth: 1
Heading Rank: 4

Heading: damages manufacturers loss of building

Text: St. Paul upon the strength of its conception of Hadley v. Baxendale, 9 Exch. 341, 5 Eng. Rul. Cas. 502 (1854), contends most strongly that it is entitled to recover $7,920,000 for its loss of the property and $2,465,000 for its loss of the business, the latter figure being the difference between its valuation of $7,265,000 for the business and the mortgage of $4,800,000. It says that at the time of the contracting Manufacturers had valued the building and land at $7,920,000 and valued the use of the building on an income basis of $7,265,000. It is correct in those statements. The Hadley v. Baxendale rule is succinctly summarized in Brantly on Contracts (2d ed rev. 1922) in the following language: The damages which a plaintiff is entitled to recover for a breach of contract `should be such as may fairly and reasonably be considered as either arising naturally, i.e., according to the usual course of things, from such breach of contract itself, or such as may reasonably be supposed to have been in the contemplation of both parties at the time they made the contract as the probable result of a breach of it.' Id. at 457.    When a contract has been made under special circumstances and these were communicated to the defendant then, in case of a breach, the plaintiff is entitled to recover as damages the amount of the injury which would ordinarily follow from a breach. But whether such special damages may reasonably be supposed to have been in the contemplation of both parties depends upon how much of the real situation was so disclosed. The special circumstances which may render a breach more than ordinarily injurious to the one party must be known by the other party whom it is sought to charge with the loss, at the time the contract was made and not afterwards. Id. at 459. This was a contract to lend money. Restatement of Contracts § 343 (1932) states upon this subject: Damages for breach of a contract to lend money are measured by the cost of obtaining the use of money during the agreed period of credit, less interest at the rate provided in the contract, plus compensation for other unavoidable harm that the defendant had reason to foresee when the contract was made. 5 Corbin on Contracts § 1078 (1964) states the rule: The better rule and the one generally followed is that for breach of a contract to lend money the borrower can get judgment for damages measured by his resulting injury so far as the defendant had reason to foresee such injury when the contract was made. This is the rule applicable to contracts in general, and a lender of money should be subject to it like other contractors. Doubtless, there are many cases in which he has no reason to foresee that the borrower will be unable to secure money elsewhere or that there will be special injuries; but if he has such reason he must make good the loss. There are many well considered cases that have applied this rule. Id. at 447-448. 11 Williston on Contracts § 1411 (3d ed. Jaeger 1968) states: It will frequently happen that the borrower is unable to get money elsewhere, and, if the defendant had notice of the purpose for which the money was desired, he will be liable for damages caused by the plaintiff's inability to carry out his purpose, if the performance of the promise would have enabled him to do so. Id. at 614. In F.B. Collins Inv. Co. v. Sallas, 260 S.W. 261 (Tex. Civ. App. 1924), the loss to which a landowner was entitled in a situation such as this was summarized: It is the landowner's interest in the land, represented by the value of his equity, that he would be entitled to as compensation. For legally the value of the equity is his only `actual loss.' The value of the equity is not measured, as a matter of law, by the amount of the purchase price paid in cash for the land in the first instance. The value of this equity must appear and be established at the time the title is lost. For the value of the equity at the time the title is lost may or may not be the same as at the time of the original purchase by the landowner. The market value of land rises and decreases, according to conditions and circumstances. If the market value of land goes below the original purchase price paid, the value of the equity would consequently be less and, on the other hand, the value of the equity would be greater if the market value of the land should be greater than the original purchase price paid. In either event the landowner could recover the value of his equity, and no more. Id. at 265. See also Avalon Const. Corporation v. Kirch Holding Co., 256 N.Y. 137, 175 N.E. 651 (1931). It does not appear from this record that St. Paul was able to go into the marketplace and obtain a loan elsewhere in the time available to it. The foreclosure sale by Chemical took place on June 1. Fruitless efforts were made by St. Paul to obtain funds elsewhere. As Judge Proctor put it: [T]he next to the last paragraph [of the permanent mortgage loan commitment] clearly contemplated an antecedent construction mortgage loan and the extension of a Buy-Sell Agreement. This is standard procedure in a transaction such as this. In the first instance the funds are obtained from the construction mortgage lender. The permanent mortgage lender agrees to buy the promissory note, secured by the assignment of a Deed of Trust, from the construction mortgage lender upon the completion of the project. It is contemplated that the borrower will use the funds to build the proposed project  to pay direct and indirect construction costs. In such a transaction the parties, of course, anticipate that everything will proceed according to hoyle  that there will be no breach by either party. On the other hand, the would be permanent mortgage lender must contemplate that if, at the last minute, it cancels its commitment such action would be disastrous to the borrower; that in such event obtaining a new permanent mortgage loan would be well-nigh impossible, for the reason that whatever brought about the cancellation would in all likelihood prevent another lender from entering the fray; that one doesn't find someone willing and able to lend $4,800,000 at a moment's notice; that, under such circumstances, foreclosure under the construction mortgage would not only be a probability, it would be almost inevitable. Accordingly, St. Paul under the circumstances here was entitled to more than nominal damages. The trial judge here determined that at the time of the loss St. Paul had no equity in the property. In other words he determined the value of the complete building to be not greater than the mortgage. There was ample evidence to sustain this conclusion upon his part. Under Maryland Rule 886, this finding would not be disturbed by us if this were one of the issues specifically argued on appeal. The position of St. Paul is that because a tentative value of the building was assigned by Manufacturers in making its loan that this becomes the criteria for determining damages. St. Paul misunderstands the application of the rule. It would have been the loss of the building which the parties would have foreseen at the time of entering into the contract. It does not follow that the value of the building and, therefore, the amount of the loss is established by the parties at that time. Judge Proctor was entirely correct in determining that the loss was the equity, if any, in the building. There was no equity. Therefore, he was correct in allowing nothing for loss of the building. St. Paul would also place a valuation on the business and claim the loss of that. On the issue of lost profits, which was but another way of claiming the loss of the value of the business, the trial judge said: (1) Alleged Loss of Profits. In Lawson v. Price, 45 Md. 123, 139, appellee brought an action against appellant for obstructing the mill race leading to his distillery. It was held that lost profits could be recovered as an element of damage because they could be ascertained with reasonable certainty. In doing so the Court cited, with approval, Sedgewick on Damages, 89, as follows: `It may now be assumed to be the general rule that in actions of tort, where the amount of profits of which the injured party is deprived, as a legitimate result of the trespass, can be shown with reasonable certainty, such profits constitute to that extent a safe measure of damages. In these cases, the rule adopted with reference to certain breaches of contract which makes the offending party liable for the loss of profits, so far only as he foresaw, or should have foreseen that particular consequence of his act, does not apply. He who commits a trespass must be held to contemplate all the damages which may legitimately follow from his illegal act, whether he might have foreseen it or not; and so far as it is plainly traceable, he should make compensation for it. To this extent, the recovery of a sum equal to the profits lost, while fairly within the principle of compensation, is also within the limits which exclude remote consequences, from the scale in which the wrong is weighed.' In Winslow Elevator Co. v. Hoffman, 107 Md. 621, 640-1, the owner of a building (recently constructed) had brought suit against the elevator contractor for, among other things, loss of rents from the building allegedly attributable to the defective elevator. The Court held as follows: `   In Wolcott v. Mount, 36 N.J.L. 269, the Court said: It must not be supposed that, under the principle of Hadley v. Baxendale , mere speculative profits, such as might be conjectured to have been the probable results of an adventure which was defeated by the breach of the contract sued on, the gains from which are entirely conjectural, with respect to which no means exist of ascertaining, even approximately, the probable results, can, under any circumstances, be brought within the range of damages recoverable. The cardinal principle in relation to the damages to be compensated for on the breach of a contract, that the plaintiff must establish the quantum of his loss by evidence from which the jury will be able to estimate the extent of his injury, will exclude all such elements of injury as incapable of being ascertained by the usual rules of evidence to a reasonable certainty. `When the claim of the plaintiffs for the recovery of lost rent is considered in the light of these rules it certainly must be denied. What rent they might have received from the building was not only dependent upon collateral engagements with persons who might rent the rooms, but upon many other considerations, such as location, desirability of rooms, the amount of rent asked, light and air, competition of other buildings, the number of tenants, the ability of the owners to keep the rooms occupied, and the general character of the management of the building. There are so many elements of uncertainty which enter into and affect the question that any estimate of loss could be little short of a guess. The special damages sued for in this case are so uncertain and incapable of reasonable ascertainment that they cannot be recovered.' In Evergreen Amusement Corp. v. Milstead, 206 Md. 610, 618, the operator of a new drive-in movie theatre, in a suit by a contractor, counterclaimed for alleged loss of profits attributable to the delay in the work. The Court of Appeals held that because the venture was new profits were too uncertain to form a basis for recovery, saying: `   on the other hand, loss of profits from a business which has not gone into operation may not be recovered because they are merely speculative and incapable of being ascertained with the requisite degree of certainty. Restatement, Contracts, Sec. 331, states the law to be that damages are recoverable for profits prevented by breach of contract only to the extent that the evidence affords a sufficient basis for estimating their amount in money with reasonable certainty   .' See also: M & R. Builders v. Michael, 215 Md. 340, 352, where the Court of Appeals cited a number of cases in which plaintiffs were not allowed to recover `collateral, estimated and probable profits claimed to have been lost.'; Abbott v. Gatch, 13 Md. 314, 332-4; Lanahan v. Heaver, 79 Md. 413, 418-23. Reference to the hypothetical question put to the witness Hoffman by Plaintiff's attorney (objection to which, incidentally, should have been sustained by the Court) is sufficient to demonstrate that the alleged loss of profits from this venture were completely speculative. Realization of profits from a new untried venture such as this depends on so many uncertainties that they cannot form a proper element of damages in a contract action, and I so hold. We adopt that opinion.