Avalon Const. Corp. v. Kirch Holding Co.

• Decision Date: 31 March 1931
• Parties: AVALON CONST. CORPORATION v. KIRCH HOLDING CO., Inc.
• Court: New York Court of Appeals Court of Appeals

256 N.Y. 137

175 N.E. 651

AVALON CONST. CORPORATION

v.KIRCH HOLDING CO., Inc.

Court of Appeals of New York.

March 31, 1931.

Suit by the Avalon Construction Corporation against the Kirch Holding Company, Incorporated, wherein defendant filed a counterclaim. Judgment for defendant was affirmed by the Appellate Division (230 App. Div. 865, 245 N. Y. S. 735), and plaintiff appeals.

Reversed, and a new trial granted.

Appeal from Supreme Court, Appellate Division, Second Department.

Joseph J. Schwartz and Herman Schwartz, both of Brooklyn, for appellant.

Arthur Morris, of Jamaica, for respondent.

KELLOGG, J.

Pursuant to the terms of a written contract, the plaintiff, on April 26, 1928, conveyed certain premises to the defendant. The conveyancewas expressly made subject to a first mortgage lien of $103,400, and a second mortgage lien of $23,750. The defendant conveyed and transferred to the plaintiff other premises and securities, in part consideration for the conveyance to it, so that, at valuations agreed upon, there remained unpaid upon the purchase price the sum of $7,048. It was agreed that the payment of this sum should be secured by a third mortgage upon the premises conveyed. Accordingly, a bond was executed and delivered by the defendant to the plaintiff, conditioned upon the payment by the former to the latter, not of $7,048, but of $27,048. This is explained by the mortgage securing the bond, which, in compliance with the contract of sale, contained a provision, whereby it was agreed that on April 11, 1929, after the second mortgage became due, and the defendant had reduced the same by paying $3,750, the plaintiff would pay off the balance of $20,000, and cancel the mortgage. The purchase-money mortgage, given to secure a bond of $27,048, would then secure the payment to the plaintiff, not only of the balance of the purchase price, but of the loan made to take up the second mortgage. Interest to become payable was to be reckoned on $7,048 until April 11, 1929. Fifteen hundred dollars was to be paid upon the principal on that date. Thereafter, the $20,000 having been advanced, interest was to be reckoned on $25,548, the new principal thus to be created. This principal was to be paid off, at the rate of $1,500 quarter-annually, until April 11, 1934, arrived, when the balance should become payable. The transaction thus agreed upon, if carried out, would have secured to the defendant the privilege of paying off $20,000 in installments during a period of six years rather than the whole sum within a year.

On the 11th of April, 1929, the defendant had reduced the second mortgage to the principal sum of $20,000 as agreed. Nevertheless, the plaintiff neglected and refused to advance that sum to take up the mortgage and cancel it. Foreclosure of that mortgage was then begun, and the defendant was compelled to borrow money at various banking houses, on short-term credits. With money so obtained, it paid off the second mortgage. Default having been made upon the plaintiff's mortgage, this suit was begun to foreclose it and recover the sum of $5,548, at which sum the principal then stood. The defendant counterclaimed for damages accruing through the breach of the plaintiff's promise to advance the sum of $20,000. In support of its reply thereto the plaintiff reasoned that the obligation to make the payment never matured, owing to the fact that the defendant had not reduced the first mortgage by paying installments of principal thereon of $2,200, falling due during the year 1928. It was a sufficient answer thereto that neither the mortgage nor the contract contained a term conditioning the plaintiff's obligation to advance $20,000 upon a prior payment by the defendant of installments due on the first mortgage, and the trial court properly so found. The trial court proceeded to find further that the defendant's damage through the plaintiff's breach was $10,587.50; that after deducting from this sum with interest added the amount due on the plaintiff's mortgage for principal and interest, there was a balance due the defendant of $5,321.12. Accordingly, it decreed a cancellation of the plaintiff's mortgage and granted judgment for the defendant in the last-named amount.

When money is loaned, or goods sold on credit, and the debt is not paid when due, obviously the delay occasions the creditor nothing more than a temporary loss of the use of his money. For this loss, the law compensates the creditor with an award of no greater or other sum than legal interest. Sedgwick on Damages, § 622-b; Williston on Contracts, § 1410. Logically, a prospective borrower, whose contract for a loan has been breached, should stand in no better case. His money loss is likewise nothing else than the loss of its use for a limited period. However, the interest charge which would measure that loss merely cancels the interest charge which would measure the loss of the lender, had the loan been made, so that, if a balance be struck, no loss is found. Consequently, reason compels, and all authority supports, the conclusion that a breach of contract to make a loan, standing by itself, involves no legal damage. Williston on Contracts, § 1411; Sedgwick on Damages, § 622; Mayne on Damages, [256 N.Y. 142]p. 175; Sutherland on Damages, § 76; Western Wagon & Property Co. v. West, L. R. [1892] 1 Ch. 271; South African Territories, Ltd., v. Wallington, L. R. [1897] 1 Q. B. 692, 695; Manchester & Oldham Bank, Limited v. W. A. Cook & Co., 49 L. T. (N. S.) 674; Prehn v. Royal Bank of Liverpool, L. R. [1869-1870] 5 Exch. 92; Gooden v. Moses Bros., 99 Ala. 230, 13 So. 765;Turpie v. Lowe, 114 Ind. 37, 15 N. E. 834;Bixby-Theirson Lumber Co. v. Evans, 167 Ala. 431, 52 So. 843,29 L. R. A. (N. S.) 194, 140 Am. St. Rep. 47;New York Life Ins. Co. v. Pope, 139 Ky. 567, 68 S. W. 851;Thorp v. Bradley, 75 Iowa, 50, 39 N. W. 177.

‘Upon breach of a contract to loan money, if no special damage is shown, the recovery is only nominal, for though by the contractthe plaintiff would receive the amount of the loan, it would be saddled with an obligation of exactly equal amount, so that the profit of the contract would be nothing.’ Sedgwick on Damages, supra. ‘Breach of a contract to lend money for whatever period at the current rate of interest, or at whatever rate of interest for no definite term, involves no legal damage, unless consequential damages are recoverable.’ Williston on Contracts, supra. ‘The utmost liability of a person who breaches his contract to loan money, in the absence of notice of special circumstances, is for the increased interest the other person was obliged to pay.’ Sutherland on Damages, supra. As will be seen from these quotations, the law is kinder to a borrower than to a lender. The latter, for the loss of use of his money, through a delayed payment by his debtor, must content himself with interest. The prospective borrower, however, may recover the special damage which an inability to obtain the money, under the peculiar circumstance of his case, has actually caused him. South African Territories, Ltd., v. Wallington, supra; Western Wagon &...