Opinion ID: 2054163
Heading Depth: 2
Heading Rank: 2

Heading: Whether the Jury's Award of Damages Is Supported by Substantial Evidence

Text: We must now determine whether the jury's calculation of damages is supported by substantial evidence utilizing the principles of contract damages set forth above. This entails a consideration of whether the amount of damages awarded by the jury places Midland in the same position as if the contract had been performed, in which case the award of damages must stand, or places Midland in a better position than if the contract had been performed, in which case the award of damages is excessive as a matter of law. The parties stipulated at trial that the maximum amount of damages suffered by Midland as a result of Mercy's breach of the estoppel certificate was $154,150.71. This amount represents the total amount of rent, CAM charges, real estate taxes and insurance owed by Mercy under the lease agreement from May 1, 1992, through the end of the lease term, January 31, 1994. The jury awarded Midland $100,000. The main consideration in evaluating the jury's award of damages is determining the amount of damages caused by Mercy's breach of the estoppel certificate. This consideration involves the examination of not only Mercy's actions, but also the actions of FDC. This is so because Mercy did not directly owe Midland any money until the assignment clause was activated on August 25, 1993. Prior to that time, Mercy's obligation under the lease was to FDC, who in turn owed money to Midland under the loan agreement and promissory note.
Although Mercy breached the estoppel certificate in May 1992, FDC continued to make regular payments on its restructured loan with Midland through July 1993. Therefore, even though the breach occurred much earlier, Midland did not sustain any damages from the breach until August 1993, when Midland declared FDC to be in default and activated the assignment clause effective for the tenants' October rent payments. This conclusion flows from a consideration of the purpose and intent of the estoppel certificate. See 22 Am.Jur.2d Damages § 44 (1988). Ron Folian, a representative of Midland, testified at trial as to the purpose of the estoppel certificate. Folian testified that one purpose of the provision in the estoppel certificate prohibiting prepayment of rent was to guarantee[] the lender that there will be money in place [for the borrower] to make a monthly ... debt service payment. Thus, the estoppel certificate was intended to ensure that FDC would receive regular monthly payments from its tenants with which to make its loan payments to Midland. Even though Mercy breached the estoppel certificate in May 1992, FDC continued to make payments under the modification agreement until Midland declared a default in August 1993. Thus, despite Mercy's breach, the underlying purpose of the estoppel certificate, to ensure FDC could make its monthly loan payments, although present, was not needed by Midland for legal effect until September 1993, because FDC continued to make monthly payments until August 1993 when Midland declared a default and activated the assignment clause. We conclude that no damages could have arisen from Mercy's breach of the estoppel certificate until Midland declared a default in August 1993 and exercised its rights under the assignment clause. Until that time, FDC made all payments required under the modification agreement and Midland did not suffer damages as a result of Mercy's breach. Therefore, the maximum amount of damages for which Mercy is liable is the amount of rent and other payments Mercy owed under the original lease for the five-month period from September 1993 through January 1994. (Although the last regular monthly payment made by FDC occurred in July 1993, Midland received a loan payment for August in October 1993.) This amount totals $37,773.35. (Monthly rent ($6,739.89), CAM charges ($336.47), insurance ($44.80) and taxes ($433.51) totaled $7,554.67.) Thus, the jury's verdict of $100,000 is excessive and not supported by substantial evidence.
Mercy argues that the damages caused by its breach of the estoppel certificate cannot include the other charges in addition to rent which were included in its monthly payment to FDC. Mercy's claim is based on the language of the estoppel certificate, which prohibits rent from being paid more than one month in advance. Mercy reads this language literally to mean that prepayment of other charges was not prohibited by the estoppel certificate and therefore no breach occurred from the prepayment of those amounts. The estoppel certificate provides: The undersigned [Mercy] agrees that neither you [Midland] as the holder of the mortgage ... nor any purchaser pursuant to a foreclosure proceeding shall be bound by any prepayment by us of more than one month's installment of rent or other change or modification of the Lease ... without your written consent. Midland contends that the language of the estoppel certificate does prohibit Mercy's prepayment of CAM charges, insurance and taxes. The original lease agreement provided that payment of these items would be made on a monthly (CAM charges and insurance) or yearly (real estate taxes) basis. Midland argues that Mercy breached the estoppel certificate by paying these amounts in advance because the estoppel certificate prohibits any change or modification of the Lease ... without [Midland's] written consent. Midland maintains that changing the timing of these payments constituted a modification of the lease which was specifically prohibited by the estoppel certificate. We agree with Midland that Mercy's prepayment of CAM charges, insurance and taxes constituted a modification of the lease and concomitantly a breach of the estoppel certificate. Thus, Midland is owed any damages which were caused by that breach. As established in the previous section, Midland did not sustain damages until FDC stopped paying its monthly payments under the modification agreement in September 1993. Therefore, any CAM charges, insurance and taxes which accrued during the period of September 1993 through January 1994 are damages which must be paid by Mercy. We conclude that Mercy is not entitled to a further reduction in the amount of damages it owes Midland. The amount of damages stands at $37,773.35, the total of all payments Mercy owed under the lease agreement from September 1993 through January 1994.
The expansion agreement was part of the original agreement between Mercy and West Roads. Under the expansion agreement, West Roads was required to construct an addition to the shopping center to provide additional space for Mercy's clinic. The agreement provided that if West Roads did not begin construction on the addition within twenty-four months, it was required to pay the negative cash flow on a building in Indianola owned by Mercy. West Roads never constructed the addition and thus the terms of the expansion agreement were already activated when FDC purchased the shopping center in 1990 and assumed this obligation. Mercy contends that it should receive a credit against the damages it owes Midland for the amount due under the expansion agreement. As part of the loan agreement between FDC and Midland in January 1990, FDC was required to execute an assignment of rents and leases. This document assigned all of FDC's interest in leases with its various tenants to Midland. As long as no default had occurred, FDC was granted a revocable license to collect and receive all rents, revenues, profits and income. In the event of a default, the license would be automatically revoked by Midland. We begin our analysis with the general principles of assignment and delegation. An assignment is a transfer of rights. See 6A C.J.S. Assignments § 2 (1975). By an assignment, the obligee as assignor ... transfers to an assignee ... a right that the assignor has against an obligor.  E. Allan Farnsworth, Farnsworth on Contracts § 11.1, at 58 (1990). In such transfers, the assignee assumes the rights, remedies and benefits of the assignor. Red Giant Oil Co. v. Lawlor, 528 N.W.2d 524, 533 (Iowa 1995). Duties or liabilities under a contract, however, are not assigned, they are delegated, a concept distinct from assignment. An obligor's empowering of another to perform the obligor's duty is known as a delegation of the performance of that duty. Farnsworth § 11.1, at 58-59. Often, parties do not distinguish between these words of art. Barker Dev. Co. v. Unibank & Trust Co., 314 N.W.2d 175, 178 (Iowa App.1981). The effect of the failure to distinguish between these terms is addressed by the Restatement: Unless the language or the circumstances indicate the contrary, ... an assignment of the contract or of all my rights under the contract or an assignment in similar general terms is an assignment of the assignor's rights and a delegation of his unperformed duties under the contract. Restatement (Second) of Contracts § 328(1) (1979). In the assignment agreement between Midland and FDC, FDC assigned its right, title and interest in, to and under all leases,... together with all rights, powers, privileges, options and other benefits ... and all the rents, revenues, profits and income. Unlike many parties, FDC and Midland did distinguish between the concepts of assignment and delegation in the assignment agreement. A clause at the end of the agreement provides: The assignment made hereby is an absolute and unconditional assignment of rights only, and not a delegation of duties. The execution and delivery hereof shall not in any way impair or diminish the obligations of [FDC] under the provisions of each and every Lease nor shall any of the obligations contained in the Leases be imposed upon [Midland]. (Emphasis added.) Mercy contends that FDC's assignment of rents and leases to Midland was also a delegation of FDC's duties and obligations under the expansion agreement. We conclude that Mercy's argument cannot prevail for two reasons. First, even if the language of the assignment agreement could be construed as a delegation as well, this would only operate to delegate FDC's duties under the lease agreement with Mercy. Any alleged delegation found in the assignment of rents and leases would not affect the rights and obligations as between Mercy and FDC contained in the expansion agreement. The lease agreement and expansion agreement were two separate and distinct contracts. Therefore, we find that even if the assignment of rents could be construed as a delegation of duties as well, that delegation would not apply to the duties established between the parties in the expansion agreement. Second, the language in the assignment of rents and leases indicates that the parties did not intend for the document to constitute a delegation of duties. This is evidenced clearly by the language of the agreement, which states: The assignment made hereby is an absolute and unconditional assignment of rights only, and not a delegation of duties. The language of the assignment agreement indicates that no delegation of duties was to occur. See Farnsworth § 11.10, at 126. Furthermore, the assignment is not written in general terms such as all rights under the contract, which could generate confusion as to the intent of the parties. Mercy also argues the principle that an assignee takes precisely what the assignor had, and assumes not onlythe advantages, but is subject to the same defenses that would be available against the assignor. While we have previously recognized this principle, see Smith v. Brown, 513 N.W.2d 732, 733-34 (Iowa 1994), it is not applicable to Mercy's argument that Midland is liable for FDC's duties under the expansion agreement. This principle means that the assignee is vulnerable to defenses of the obligor that affect the enforceability of the obligor's agreement with the assignor. These include unenforceability for lack of consideration, reasons of public policy, or failure to satisfy the statute of frauds. Farnsworth § 11.8, at 106 (emphasis added). The claim Mercy is raising does not affect the enforceability of the expansion agreement between Mercy and FDC. Rather, Mercy is contending that Midland assumed FDC's duties and obligations, an entirely different claim to which the principle advanced by Mercy does not apply.
Midland, in its resistance to Mercy's application for further review, suggests that it should receive further damages for Mercy's obligations under the finish agreement between Mercy and FDC. This contention was not raised at the district court level. Furthermore, the parties stipulated as to the maximum amount of damages and this amount included only rent, CAM charges, taxes and insurance, not amounts due under the finish agreement. Thus, Midland's argument comes too late for our consideration.
As a final argument, Mercy contends that Midland failed to prove any damages were caused by its breach of the estoppel certificate. We conclude that there was substantial evidence presented by which the jury could conclude that some damages were caused by Mercy's breach of the estoppel certificate. If Mercy had complied with the terms of the estoppel certificate and obtained consent from Midland before modifying the lease agreement, Midland would likely have taken steps to ensure it would receive all money paid to FDC under any sort of settlement. Thus, Midland did sustain damages as a result of Mercy's breach of the estoppel certificate to the extent that it did not receive payment from FDC for the lease payments FDC received in advance from Mercy via the lease termination agreement. Mercy's contention that Midland may have approved the termination agreement in exchange for a lump sum payment of $82,673 is purely speculative and the jury could have concluded as such.