Court Opinion

ID: 9542978
Source: CourtListenerOpinion
Date Created: 2023-08-07 16:40:52.856207+00
Date Added: 2024-06-11T15:09:23.625350
License: Public Domain

ADDENDUM BIVINS, Judge (dissenting). I am unable to agree with the majority as to the instruction issue. Because that issue is dispositive and, in my opinion, requires reversal and remand for dismissal, I do not reach the second issue, sufficiency of the evidence to support a verdict of negligent misrepresentation. The trial court instructed the jury, if it found defendant liable, to award plaintiffs the value of the certificate of deposit and the value of the loss of interest on the certificate of deposit. The trial court’s instruction No. 19 is identical to plaintiffs’ requested instruction No. 1, except for the substitution of “negligent misrepresentation” for “fraudulent misrepresentation.” While I agree with the majority as to the proper measure of damages for negligent misrepresentation, as set forth in 3 Restatement (Second) of Torts, Section 552B (1977), I disagree the trial court’s instruction No. 19 corresponds to that measure, or that plaintiffs’ proof establishes any out-of-pocket loss. See Pittard v. Four Seasons Motor Inn, Inc., 101 N.M. 723, 688 P.2d 333 (Ct.App.1984) (instructions must correctly state the law and be based on the evidence). For clarity, I will set out the full text of Restatement, supra, Section 552B followed by the trial court’s instruction No. 19: Section 552B provides: Damages for Negligent Misrepresentation (1) The damages recoverable for a negligent misrepresentation are those necessary to compensate the plaintiff for the pecuniary loss to him of which the misrepresentation is a legal cause, including (a) the difference between the value of what he has received in the transaction and its purchase price or other value given for it; and (b) pecuniary loss suffered otherwise as a consequence of the plaintiff’s reliance upon the misrepresentation. . (2) the damages recoverable for a negligent misrepresentation do not include the benefit of the plaintiffs contract with the defendant. [Emphasis added.] Instruction No. 19 provides in pertinent part: If you should decide in favor of the Plaintiff [sic] on the question of liability, you must then fix the amount of money which will reasonably and fairly compensate them for any of the following elements of damages proved by the Plaintiffs to have resulted from the negligent misrepresentation as claimed: The value of the loss of the Certificates [sic] of Deposit. The value of the loss of interest on the Certificates [sic] of Deposit. As the comments to Restatement, supra, Section 552B indicate, out-of-pocket loss is the proper measure, not benefit of the contract as allowed for fraudulent misrepresentation. This court contrasted the two causes of action in State ex rel. Nichols v. Safeco Insurance Co., 100 N.M. 440, 443, 671 P.2d 1151, 1154 (CtApp.1988), and, in a footnote, pointed out that the liability for negligent misrepresentation is more restricted than for fraudulent misrepresentation. As stated in pertinent part in Restatement, supra, comment b to Section 552B: The considerations of policy that have led the courts to compensate the plaintiff for the loss of his bargain in order to make the deception of a deliberate defrauder unprofitable to him, do not apply when the defendant has had honest intentions but has merely failed to exercise reasonable care in what he says or does. Thus, the correct measure of damages is the difference between what plaintiffs gave and what they received. See Williams v. Spazier, 21 P.2d 470 (Cal.App.1933), subsequent opinion, 134 Cal.App. 340, 25 P.2d 851 (1933); Chapman v. Marketing Unlimited, Inc., 14 Wash.App. 34, 539 P.2d 107 (1975). The trial court’s instruction No. 19 can be considered a correct statement of this measure only if we accept plaintiffs’ argument that what they gave in the transaction was the $100,000 certificate of deposit, otherwise, it instructs on the benefit of the bargain, a measure of damages not applicable in negligent misrepresentation cases. The majority assert that since plaintiffs gave the $100,000 certificate of deposit and received nothing, the value of the certificate of deposit, plus interest, represents their “out-of-pocket loss,” and, thus, conclude that the trial court’s instruction No. 19 correctly states the measure of damages. First, the majority misconstrue the transaction and what plaintiffs had to give. Before the three-way transaction occurred, all plaintiffs had was a $100,000 unsecured promissory note from Bemi that was past due and on which they had received only $3,400 interest. Funding for the $100,000 certificate of deposit given to plaintiffs by Berni to retire the promissory note came from the bank as a direct result óf the bank refinancing Berni. The bank advanced the additional $100,000 used to purchase the certificate of deposit. In exchange for the certificate of deposit, plaintiffs agreed to hypothecate that certificate of deposit as security for the Berni loan and also to sign a continuing guaranty up to $150,000. Thus, by holding that plaintiffs gave up the $100,000 and got nothing, the majority have erroneously ignored the true nature of the transaction. Second, given the fact that plaintiffs only had the promissory note, instruction No. 19 does not correctly state the measure of damages. Had there been proof of damages, the trial court should have instructed that if plaintiffs prevailed, their damages would be the difference between the value of their $100,000 promissory note as of the •date of the transaction and its value when Berni defaulted to the bank, plus any pecuniary loss otherwise suffered as a consequence of plaintiffs’ reliance on defendant’s misrepresentation. Defendant requested an instruction along these lines but it was refused. Because no such evidence was offered as to out-of-pocket damages, the case should be remanded for dismissal. In order to accept the majority’s reasoning, it is necessary to separate the transaction into its components, isolate each component and then deny the relationship of each component to the others. When this is done, one might say that plaintiffs gave up the $100,000 certificate of deposit because at one point in time they had that certificate of deposit. This approach, however, ignores the fact that plaintiffs would not have had the certificate of deposit had defendant not advanced the additional $100,000 to Berni necessary to purchase that certificate of deposit. One would have to believe that defendant, with $63,703 in delinquent loans from Berni, simply decided to advance Berni an additional $100,000 so he could pay off plaintiffs’ promissory note, with no expectation of further security in return. Incredulously, this is what plaintiffs argue on appeal. Plaintiffs cite to nothing in the record to support their position. In fact, plaintiffs suggest that since defendant believed Berni had $300,-000 in assets, it .probably would have loaned him the additional $100,000 without the continuing guaranty or hypothecation. The issues framed will not support plaintiffs’ argument. The jury only decided whether defendant negligently misrepresented Berni’s assets. The nature of the transaction was not even an issue. Plaintiffs also confuse the nature of the case as presented to the jury. They argue in their brief that instruction No. 19 properly restored plaintiffs to the “status quo ante,” that is, their status before the transaction giving rise to their suit. This is incorrect. First, plaintiffs’ claim for rescission based on fraudulent misrepresentation was dismissed at the end of their casein-chief. The trial court instructed the jury only as to one of plaintiffs’ claims for damages based on negligent misrepresentation. Plaintiffs objected to the issue instruction, but have taken no appeal from either the dismissal of their rescission count or the instruction given. Moreover, as the majority correctly note, the case could not have been submitted to a jury on a rescission theory. “Rescission is an equitable remedy, so it is tried by the court without a jury.” Committee Comment to SCRA 1986, 13-814. Second, instruction No. 19 does not in any way attempt to restore the status quo ante. It directs the jury to award plaintiffs the value of the certificate of deposit, plus the value of the loss of interest on the certificate of deposit, if they find in favor of plaintiffs. As a result, plaintiffs recovered $75,000, which represents the certificate of deposit, less 25% fault apportioned to plaintiffs and Berni. The net effect is that there has been no rescission. Plaintiffs have an award of $75,000, but are still liable on the continuing guaranty. Thus, plaintiffs have the benefit of the bargain, not their out-of-pocket loss. Citing to Webb v. Webb, 87 N.M. 353, 533 P.2d 586 (1975), the majority suggest that, when read as a whole, the trial court's instructions adequately and properly instructed the jury on defendant’s theory of the case. This is incorrect. There was only one instruction on the measure of damages and that was instruction No. 19. The majority hint that defendant’s theory of the case, that plaintiffs have not been damaged because they had not been able to collect on the promissory note, as set forth in the statement of issues instruction, can be considered along with instruction No. 19. The issues instruction only contains the parties’ contentions and, surely, does not override the trial court’s instruction on damages. There was only one instruction given on damages, and that was No. 19. And it was incorrect. Further, even if defendant’s contention can be construed as a correct statement of law, still it would not cure the trial court’s conflicting, incorrect statement of the same principle. See Chapin v. Rogers, 80 N.M. 684, 459 P.2d 846 (Ct.App.1969). No. 9235. For the above reasons, I dissent.