M & R Contractors & Builders, Inc. v. Michael

• Decision Date: 21 January 1958
• Docket Number: No. 122,122
• Citation: 138 A.2d 350,215 Md. 340
• Parties: M & R CONTRACTORS & BUILDERS, Inc. v. Melvin M. MICHAEL et al.
• Court: Maryland Court of Appeals

Page 340

215 Md. 340

138 A.2d 350

M & R CONTRACTORS & BUILDERS, Inc. v. Melvin M. MICHAEL et al.

No. 122.

Court of Appeals of Maryland.

Jan. 21, 1958.

Richard Paul Gilbert, Baltimore (Gilbert & Rocklin and Henry L. Rocklin, Jr., Baltimore, on the brief), for appellant.

No appearance for appellees.

Before BRUNE, C. J., and HENDERSON, HAMMOND, PRESCOTT and HORNEY, JJ.

HORNEY, Judge.

This is an appeal from a judgment for costs entered by the Circuit Court for Baltimore County (Raine, J., sitting without a jury) against M & R Contractors & Builders, Inc., (M & R or the builder), in favor of Melvin M. Michael and Dorothy H. Michael, his wife (the Michaels or the owners), upon the owners' demurrer to the evidence at the close of the evidence offered by the builder. M & R appealed.

On June 10, 1955, M & R and the Michaels executed a building agreement wherein M & R agreed to erect and build a dwelling on the lot of the Michaels situated in Golf Park Acres in Baltimore County in accordance with the plans and specifications attached to the contract. The contract price was $23,420. There was no dispute as to the execution or existence of the contract.

Apparently, when the contract was executed, the owners were financially independent and able to pay the cost of erecting the dwelling without financing. Subsequently, the builder was advised by the owners that there had been some family difficulty involving money, which made it necessary for them to obtain financing in order to proceed with the building. The builder voluntarily undertook to assist the owners to obtain financing.

Finally, in late July or early August, the owners advised the builder that they did not desire to build at that time, and asked to be released from the contract. The builder informed the owners that it preferred to wait awhile, that it did not want to cancel the contract after the preliminary work that had been done, and that it would contact the owners later. When the builder did call sometime later, it was again advised that the owners did not want to proceed with the contract, whereupon M & R filed suit against the Michaels for the contract price. Of this amount $20,020 represented the cost and $3,400 was the anticipated profit.

The builder admitted that the only work it had done consisted of preparing the contract, studying the plans, obtaining estimates from sub-contractors, submitting an estimate of the contract price, and assisting the surveyor in clearing the lot on which the dwelling was to be built. The aid to the surveyor was considered to be a gratuity. The builder never began excavating or laid out any money for building materials, and had not signed any contracts with sub-contractors. And it made no claim for any of the services it had rendered. At the trial of the case M & R abandoned the attempt to recover the estimated cost of the building and sought to recover only the anticipated profit. Only two witnesses were produced, the president and secretary-treasurer of the corporation. There was no direct evidence describing the method by which the anticipated profits were arrived at other than what was described as the standard procedure of totaling the estimates of the sub-contractors and deducting such total from the quoted contract price, and thereby arrive at the estimated profit. There was no evidence of how the contract price was arrived at after the total cost had been assembled.

At the close of the evidence offered by M & R the Michaels moved for a directed verdict. What they should have done was to have moved 'for a dismissal on the ground that upon the facts and the law * * * [M & R had] * * * shown no right to relief', pursuant to Maryland Rule 565 (Demurrer to Evidence). However, the error was not fatal. Judge Raine properly treated the motion as a demurrer to the evidence, which it was, instead of as a motion for a directed verdict.

After the motion for a dismissal had been made, the trial judge made the following significant comment: '* * * I think you have * * * shown a contract and a breach of contract. What worries me is the question of damages * * *.' Obviously, he based his decision to grant the motion for dismissal and enter a judgment for costs in favor of the owners on his belief that the builder failed to prove 'any loss of profits with reasonable certainty'. He then went on to explain what he understood 'reasonable certainty' to mean. Previously in his colloquy with counsel for the parties, the trial judge had stated that in his opinion the 'loss of profits * * * [was] so highly speculative that the court cannot predicate a verdict on that'. For this reason he concluded that he should find for the owners by granting their motion for a dismissal.

The appeal presents two questions: (i) Was it error to grant the motion for dismissal?; and (ii) If the builder is entitled to anything more than nominal damages for the breach of its contract, what is the measure of such recoverable damages?

There is no doubt that the granting of the motion for a dismissal was reversible error. We think it is clear that the trial court should have overruled the motion, and required the owners, if they desired to defend, to offer evidence (i) of such defenses fenses as they may have had to the alleged breach of the contract, and (ii) such as they may have had in mitigation of such damages as may have been proven. We think it is also clear, from the evidence produced at the partial trial of the case, that the damages proven are not so speculative as to be wholly non-compensatory, and further, that the trial court must assess some damages, nominal or substantial, as it shall find to be proper on the law and all of the evidence when it shall have been produced at a retrial. Therefore, we will reverse the judgment for costs and remand the case for a new trial.

Ordinarily we would conclude our opinion at this point, but in some instances it is appropriate that we proceed further. Maryland Rule 885 (Scope of Review--Limited to Questions Decided by Lower Court) provides in part that: '* * * where a point or equestion of law is presented to the lower court and a decision of such point or question of law by this Court is necessary or desirable for the guidance of the lower court or to avoid the expense and delay of another appeal to this Court, such point or question of law may be decided by this Court even though not decided by the lower court. * * *.' We believe it is desirable in this case to review the point or question of law pertaining to the measure of damages when a claim therefor is based on loss of profits. ¹ Such review will include a brief analysis of the comments on and discussions of the questions found in (i) the law reviews, journals and textbooks on the subject of contracts and damages for the breach thereof; (ii) the authorities on damages for the breach of construction contracts; (iii) the Maryland decisions; (iv) the decisions directly in point in other jurisdictions; and (v) a brief summary concerning minimization of damages.

(i)

Three specific rules have been developed to limit the recovery of unrealized profits: (i) a plaintiff must show that a breach by a defendant was the cause of the loss; (ii) damages may not be awarded unless, when the contract was executed the defendant could have reasonably foreseen that a loss of profits would be a probable result of a breach; and (iii) lost profits may not be recovered unless they can be proved with 'certainty'. The familiar 'foreseeability' rule, enunciated in Hadley v. Baxendale, 9 Ex. 341, 156 Eng.Rep. 145 (1854), was adopted in Maryland in United States Telegraph Co. v. Gildersleve, 1868, 29 Md. 232. See also Baltimore & O. R. Co. v. Pumphrey, 1883, 59 Md. 390, and McCormick, Damages, Sec. 138 (1935) Depending on the factual situation presented, courts have applied the aforementioned rules with varying degrees of strictness.

Ordinarily cases involving this subject fall into two distinct factual categories: (i) cases where the injured party is a seller of something--he may be a farmer selling produce, a manufacturer selling a product, a merchant selling goods, wares and merchandise, or a building contractor selling both materials and services--and the defendant has breached his contract to buy and (ii) cases where the injured party is a buyer of something which he plans to resell, either directly, as a middleman, or as a manufacturer, in a transaction collateral to his contract with a supplicr. In the second category a plaintiff seeks recovery of collateral profits which he had lost. In such cases a failure to deliver, delivering late or delivering unusable goods, if the plaintiff is unable to obtain substitutions promptly from another supplier, might delay the collateral transaction, frustrate it, or increase its cost, and may indeed cause the loss of a customer. However, in such instances the loss of profits is collateral, not direct, and more stringent proof of loss by the buyer is required than is demanded of a seller. To meet the demands of the 'certainty' rule, a buyer for resale must introduce detailed evidence of the number of sales lost, the prices which might have been obtained, and the costs of reselling. In the first category, into which the case at bar falls, the plaintiff seeks recovery of direct profits which it has lost. In such cases the loss of profits is generally measured by the difference between the contract price and the actual or estimated costs of full performance. In such instances the proof requirements are not as strict, and courts have universally held that a defendant bargaining with a businessman should necessarily foresee that the prospect of the seller making a profit was the reason he entered into the contract, thus satisfying the 'foreseeability' rule.

As Corbin points out a plaintiff must lay a basis for a 'reasonable estimate' of the extent of his harm, measured in money, but the application of a test such...