Court Opinion

ID: 9784540
Source: CourtListenerOpinion
Date Created: 2023-08-30 20:47:53.449626+00
Date Added: 2024-06-11T07:35:56.029345
License: Public Domain

RICHARD B. TEITELMAN, Chief Justice,
dissenting.
I respectfully dissent. The purpose of a damage award is to make the injured party whole without creating a windfall. Accordingly, in nearly every context in which a party sustains damage to or the loss of a *225property or business interest, Missouri law measures damages by reference to fair market value. Yet in the foreclosure context, Missouri law ignores the fair market value of the foreclosed property and, instead, measures the lender’s damages with reference to the foreclosure sale price. Rather than making the injured party whole, this anomaly in the law of damages, in many cases, will require the defaulting party to subsidize a substantial windfall to the lender. Aside from the fact that this anomaly long has been a part of Missouri law, there is no other compelling reason for continued adherence to a measure of damages that too often enriches one party at the expense of another. Consequently, I would hold that damages in a deficiency action should be measured by reference to the fair market value of the foreclosed property.
The underlying deficiency judgment is nothing more than a means of calculating First Bank’s damages for Fischer & Frit-chel’s breach of a contract that was secured by the foreclosed property. The issue is simply assigning a value to the foreclosed property to calculate First Bank’s actual damages fairly. Missouri law recognizes that “[t]he goal of awarding damages is to compensate a party for a legally recognized loss ... [and a] party should be fully compensated for its loss, but not recover a windfall.” Ameristar Jet Charter, Inc. v. Dodson Int’l Parts, Inc., 155 S.W.3d 50, 54 (Mo. banc 2005). In other words, the fundamental purpose underlying the law of damages is to make the injured party whole by monetary compensation. BMK Corp. v. Clayton Corp., 226 S.W.3d 179, 197 (Mo.App.2007).
When a party sustains loss of or damage to a marketable interest, the surest way to make the injured party whole and avoid a windfall is to simply include fair market value in the damages calculation. Presumably, this is the reason that, when possible, most common law damages calculations use fair market value as a baseline for awarding damages. For instance, when the seller of real estate brings suit for breach of contract against the buyer, the “appropriate measure of damages is the difference between the contract price and the market value of the property on the date the sale should have been completed.” Shirley’s Realty, Inc. v. Hunt, 160 S.W.3d 804, 807 (Mo.App.2005). Similarly, a seller’s measure of damages for a buyer’s breach of a contract for the sale of land with a structure on it is the difference between the purchase price and the fair market value of the property on the date of breach. Wooten v. DeMean, 788 S.W.2d 522, 527-28 (Mo.App.1990). There are numerous other examples in which damages are calculated with reference to the fair market value of the property or interest that is lost or damaged.1 Unless the facts *226of the case clearly dictate otherwise, fair market value is the touchstone.2
In contrast, Missouri’s current common law rule for calculating damages in a deficiency proceeding is inconsistent with the underlying purpose of awarding damages. Consistent with common knowledge, Missouri case law long has recognized that “[t]he conditions of a foreclosure sale are not conducive to achieving a price that reflects the fair market value of property.” Shirley’s Realty, Inc., 160 S.W.3d at 808. Fair market value presupposes a willing seller who is free to accept or reject offers as he or she sees fit. A foreclosure sale usually does not involve a willing seller, and the conditions for purchase are subject to time and financing constraints not present in a sale on the open market. Furthermore, in most cases, the purchaser and sole bidder at a foreclosure sale is the foreclosing lender.3 For these reasons, “it is well known that property, when sold at a forced sale, usually does not bring its full value” and, instead, “has the potential of bringing only a fraction of the fair market value.” Id. (quoting Smith v. Snodgrass, 747 S.W.2d 743, 747 (Mo.App.1988)). It is plainly evident that the practical effect of calculating a foreclosure deficiency by reference to the foreclosure sale means that the secured lender benefits from an often substantial windfall by purchasing the property at a discount from fair market value while also obtaining an inflated deficiency judgment. This windfall is subsidized by the already financially distressed debtor.
The principal opinion posits two primary justifications for continued adherence to the current common law rule. First, the principal opinion notes correctly that Missouri common law has, for decades, provided that a foreclosure deficiency is measured by reference to the foreclosure sale price. While the passage of time can confirm the validity and wisdom of a common law rule, it can also demonstrate its shortcomings. The test of time is a double-edged sword. Therefore, when the common law is demonstrably inconsistent with common knowledge and experience, this Court has exercised its constitutional authority to modify the common law accordingly. For instance, this Court abolished interspousal tort immunity because it “belies reality and fact to say there is no tort when the husband either intentionally or negligently injures his wife” or vice versa. Townsend v. Townsend, 708 S.W.2d 646 (Mo. banc 1986) (quoting Brawner v. Brawner, 327 S.W.2d 808, 819-820 (Mo. banc 1959) (Hollingsworth, J., dissenting)).4 Similarly, continuing to measure a *227foreclosure deficiency by reference to the foreclosure sale price also “belies reality and fact” because it ignores common knowledge, common experience and the underlying purpose of the law of damages. In this ease, the passage of time does not confirm the common law rule; it fully illustrates its shortcomings.
Second, the principal opinion asserts that each jurisdiction cited by Fischer & Fritchel that has changed from basing the deficiency on the foreclosure sale price to the fair market value made the change by statute. However, as this Court has noted, “[I]t is neither realistic nor consistent with the common law tradition to wait upon the legislature to correct an outmoded rule of case law.” Abernathy v. Sisters of St. Mary’s, 446 S.W.2d 599, 605 (Mo. banc 1969). The issue before this Court is not whether our legislature will or will not pass a statute. The issue is whether this Court should continue to adhere to a rule that it established and that is demonstrably inconsistent with the goal of fully compensating the injured party and avoiding a windfall. By using the fact that other states made the change legislatively as a reason for this Court to avoid the change, the principal opinion implicitly frames the issue in this case as one of process. This case is not about the process of change; it is about the justification for change. The case is about whether this Court’s common law rule is consistent with common knowledge, common experience and the general precepts of the common law of damages. It is not. Because this issue is squarely before this Court as a matter of common law, the fact that numerous states have legislatively adopted a fair market valuation is relevant and further buttresses the conclusion that the current common law rule is deficient.
In sum, there is no reason, except for tradition, to perpetuate this anomaly in Missouri law and continue measuring the deficiency with reference to the foreclosure sale price. Instead, this Court should adopt the valuation method recommended by section 8.4 of the Restatement (Third) of Property (1997), which requires debtors to pay the difference between the principal balance and the fair market value at the time of the foreclosure sale if the debtor challenges the foreclosure price.5 If the legislature disagrees, it can act accordingly and pass a statute for the governor’s approval. It is through this process that the judicial, legislative and executive branches *228of our government resolve legal issues.6 In the meantime, this Court should alter the common law measure of damages in a deficiency action so that our common law reflects our common knowledge, common experience and the common law of damages, which, when possible, defines damages with reference to fair market value.
I would reverse the judgment sustaining First Bank’s motion for a new trial and order the trial court to enter judgment consistent with the jury’s finding that the fair market value of the foreclosed property was $918,000 and that Fischer & Frit-chel therefore owed First Bank a deficiency of $215,875.

. Groves v. State Farm Mut. Auto. Ins. Co., 540 S.W.2d 39, 43 (Mo. banc 1976) (the general measure of damages for injury to personal property is the difference between its reasonable market value before and after the damage); Coffman v. Powell, 929 S.W.2d 309, 312 (Mo.App.1996) (“[t]he proper measure of damages for the conversion of personal property is the fair market value at the time and place of the conversion”); Heberer v. Shell Oil Co., 744 S.W.2d 441, 443 (Mo. banc 1988) (appropriate measure for damages in a fraudulent misrepresentation case is the difference between the fair market value of the property received and the value if the property had been as represented); King v. City of Independence, 64 S.W.3d 335, 340 (Mo.App.2002), overruled on other grounds, (damages for a permanent nuisance are measured by the change in the property’s fair market value as a result of the injury); Concordia Lumber Company, Inc. v. Davis, 696 S.W.2d 851, 852-53 (Mo.App.l985)(proper measure of damages for breach of warranty is generally the difference between the fair market value of the property before and after the breach).

.For instance, some categories of property are rarely, if ever, bought and sold on the open market. In those cases, cost of replacement is the appropriate measure of damages because it places the injured party in as good • a position as if its property had not been taken or destroyed. Leonard Missionary Baptist Church v. Sears, Roebuck and Co., 42 S.W.3d 833, 837 (Mo.App.2001), citing Reorganized School Dist. No. 2 v. Missouri Pac. R. Co., 503 S.W.2d 153, 159 (Mo.App.1973). See, e.g., State ex rel. State Highway Comm’n v. Mount Moriah Cemetery Ass'n, 434 S.W.2d 470 (Mo.1968) (fair market value not proper measure of damages for cemetery land).

. First Bank concedes the fact that the foreclosing lender is often the purchaser.

. There are numerous other examples in which this Court has modified or abolished flawed common law rules. See, Rodriguez v. Suzuki Motor Corp., 936 S.W.2d 104, 111 (Mo. banc 1996) (adopting a "change in the common law” by requiring that punitive damage claims must be supported by a clear and convincing standard of proof); Helsel v. Noellsch, 107 S.W.3d 231, 233 (Mo. banc 2003) (abolishing the tort of alienation of affection because there was no plausible reason to retain the' cause of action); Thomas v. Siddiqui, 869 S.W.2d at 743 (Mo. banc 1994) (Robertson, J., dissenting) (abolishing the tort *227of criminal conversation); Abernathy v. Sisters of St. Mary’s, 446 S.W.2d 599 (Mo. banc 1969) (abrogating the rule of charitable immunity); O'Grady v. Brown, 654 S.W.2d 904 (Mo. banc 1983) (overruling State ex rel. Hardin v. Sanders, 538 S.W.2d 336 (Mo. banc 1976), and establishing the standing of a parent to sue for the death of a viable fetus); Steggall v. Morris, 363 Mo. 1224, 258 S.W.2d 577, 581 (1953) (overruling Buel v. United Rys. Co., 248 Mo. 126, 154 S.W. 71 (1913), and holding that a child can recover for prenatal injuries).

. First Bank argues that changing to the fair market value approach will place all the risk in the foreclosure process onto the lender. This argument is not persuasive. By focusing only on the foreclosure process, First Bank deflects consideration of the risk management techniques available to lenders when the loan is made. A lender compensates for risk by charging an interest rate that is set both by the financial markets and by the lender’s assessment of the borrower’s creditworthiness. The lender also manages risk by appraising the fair market value of the property to ensure that the loan is adequately secured. Changing to a fair market value approach certainly would lessen the lender's chance of a large windfall and would mean only that First Bank, like the borrower, is losing or gaining money based on fair market value of property. The risk of loss is part of the risk of lending. That risk of loss should not be borne solely by the borrower and then amplified by measuring the deficiency by reference to the foreclosure sale price.

. For instance, in Firestone v. Crown Center Redevelopment Corp., 693 S.W.2d 99 (Mo. banc 1985), the Court abolished common law remittitur. In Jones v. State Highway Commission, 557 S.W.2d 225, 228 (Mo. banc 1977), the Court abrogated sovereign immunity. The legislature re-established both doctrines by statute.