Meyer v. Hansen

• Decision Date: 15 August 1985
• Docket Number: No. 10841,10841
• Citation: 373 N.W.2d 392
• Court: North Dakota Supreme Court
• Parties: Ivan MEYER, Plaintiff and Appellee, v. Ralph HANSEN, individually, and Lee Carnahan, Thomas V. Slavin, A. Nicholas Rocco and Beverly Rocco, co-partners doing business as Dickinson Associates, Ltd., Lato Supply Corporation, Cloverdale Foods Company, Margaret Slavin, Wallwork Lease and Rental Co., Inc., Liberty National Bank and Trust Company, Electric Sales & Service, Inc., and the United States of America (Internal Revenue Service), Defendants. Lee Carnahan, A. Nicholas Rocco and Beverly Rocco, co-partners doing business as Dickinson Associates, Ltd., Defendants and Appellants. Civ.

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373 N.W.2d 392

Ivan MEYER, Plaintiff and Appellee, v. Ralph HANSEN, individually, and Lee Carnahan, Thomas V Slavin, A. Nicholas Rocco and Beverly Rocco, co-partners doing business as Dickinson Associates, Ltd., Lato Supply Corporation, Cloverdale Foods Company, Margaret Slavin Wallwork Lease and Rental Co., Inc., Liberty National Bank and Trust Company, Electric Sales & Service, Inc., and the United States of America (Internal Revenue Service), Defendants Lee Carnahan, A. Nicholas Rocco and Beverly Rocco co-partners doing business as Dickinson Associates, Ltd., Defendants and Appellants.

Civ. No. 10841.

Supreme Court of North Dakota.

Aug. 15, 1985.

Freed, Dynes, Reichert & Buresh, Dickinson, for defendants and appellants; argued by Ronald A. Reichert, Dickinson.

Mackoff, Kellogg, Kirby & Kloster, Dickinson, for plaintiff and appellee; argued by Ward M. Kirby, Dickinson.

LEVINE, Justice.

Lee Carnahan, Thomas V. Slavin, A. Nicholas Rocco, and Beverly Rocco, partners d.b.a. Dickinson Associates, Ltd. (Dickinson Associates), appeal from a district court judgment awarding Ivan Meyer (Meyer) $100,000 in damages for waste. We affirm.

In 1979 Meyer agreed to sell to Ralph Hansen, by contract for deed, a hotel, including all inventory, operating equipment and supplies, and furnishings. Hansen assigned the contract for deed to Dickinson Associates. In September 1982, after Dickinson Associates defaulted on the installment payments, Meyer took possession of the hotel and brought an action to cancel the contract for deed and to recover for damage to the hotel. A stipulated partial judgment was entered cancelling the contract for deed. ¹ At a subsequent bench trial, the court concluded Dickinson Associates had committed waste to the hotel and awarded Meyer $100,000 in damages.

The initial issue we decide is whether the liquidated damages clause in the contract for deed precluded Meyer's recovery of damages for waste.

The contract contained a liquidated damages provision which provided that upon default in the installment payments, or upon failure to perform any of the contractual covenants, Meyer could terminate the contract and Dickinson Associates would "forfeit all payments theretofore paid under this contract as and for liquidated damages and as compensation for the use and occupation of the premises."

Dickinson Associates asserts that this contractual language limited Meyer's remedy for waste in two ways. First, the forfeited contract payments were full compensation for any injury to the hotel, including waste, arising from Dickinson Associates' "use and occupation of the premises." Second, the liquidated damages constituted Meyer's exclusive remedy for any waste resulting from Dickinson Associates' breach of its contractual covenant to protect the premises. ² Dickinson Associates argues that because the contract limited Meyer's recovery to the forfeited payments the trial court erred in awarding damages for waste. ³

We disagree that Meyer's recovery for waste was limited in either of the two ways asserted by Dickinson Associates.

First, in claiming that its "use and occupation" of the hotel encompassed waste, Dickinson Associates misinterprets the concept of waste. Generally speaking, the doctrine of waste imposes a duty upon a person in possession of land, in the course of its utilization, and in making physical changes thereto, to do so in such a manner as to not unreasonably injure one who has a right or possibility of future possession. A failure to comply with this duty ordinarily constitutes waste. See, 2 Tiffany, Real Property, Sec. 630 (3 ed. 1939). Thus, waste is, functionally, a part of the law which keeps in balance the conflicting desires of persons having interests in the same land. Smith v. Cap Concrete, 133 Cal.App.3d 769, 184 Cal.Rptr. 308 (1982), quoting 5 Powell, Real Property (1974) Sec. 636.

Waste may be defined as an unreasonable or improper use, abuse, mismanagement, or omission of duty touching real estate by one rightfully in possession, which results in a substantial injury. 4 Thompson, Real Property, Sec. 1853. Waste implies neglect or misconduct resulting in material damage to property, but does not include ordinary depreciation of property due to age and normal use. Moore v. Phillips, 6 Kan.App.2d 94, 627 P.2d 831 (1981).

Waste can occur to such items of personal property as furnishings, equipment and inventory when this property is so attached and intertwined with the premises to warrant treating the real and personal property as one. In such circumstances the personal property is treated similarly to fixtures and is regarded as part of the realty. See, Schnaible v. City of Bismarck, 275 N.W.2d 859 (N.D.1979). Here, the furnishings, equipment and inventory were required for the hotel's operation. Furthermore, it is clear from the contract that the parties intended both the real and personal property to be sold as one entity. See, McKee v. Kinev, 160 N.W.2d 97 (N.D.1968).

Thus, in sum, waste occurs when use and occupation of property is unreasonable and unusual: that is, when the property is damaged beyond that expected as a result of normal use, occupancy and depreciation.

Clearly, then, the contract provision providing that Dickinson Associates "forfeit all payments theretofore paid under this contract ... as compensation for the use and occupation" of the hotel does not limit Meyer's recovery for waste because waste transcends "use and occupation."

Nor do we accept Dickinson Associates' second contention that the liquidated damages constituted Meyer's exclusive recovery for waste. A provision for liquidated damages will not prevent recovery for actual damages for events which are not covered by the liquidated damages clause, unless the contract expressly provides that damages other than those enumerated shall not be recovered. Lawson v. Durant, 213 Kan. 772, 518 P.2d 549 (1974); NDCC Sec. 9-07-13; see generally, 25 C.J.S., Damages, Sec. 114; 22 Am.Jur.2d, Damages, Sec. 232. Dickinson Associates' duty not to commit waste was independent of, and consequently not governed by, the covenant to protect the premises. See Lawson, supra; see also, Northern Petrochem Co. v. Thorsen & Thorshov, Inc., 297 Minn. 118, 211 N.W.2d 159 (1973).

Regardless of how expansive the terms of the contract may be, its coverage can only extend to those events which the parties intended. NDCC Sec. 9-07-13. To conclude that the parties intended the liquidated damages provision to cover waste would require an unreasonable interpretation of the contract, which is prohibited by NDCC Sec. 9-07-18.

We therefore conclude Meyer's recovery for waste is not precluded by the liquidated damages clause contained in the contract for deed.

The next issue raised by Dickinson Associates is that Meyer failed to properly plead his cause of action for waste. However, Dickinson Associates did not timely object to Meyer's pleadings. When an issue not properly raised by the pleadings is tried by the express or implied consent of the parties it may be treated as if it had been raised in the pleadings. Harrington v. Harrington, 365 N.W.2d 552 (N.D.1985). Consequently, Dickinson Associates waived any objection to Meyer's pleadings.

Dickinson Associates next asserts that the trial court applied the incorrect measure of damages. Dickinson Associates contends the trial court erroneously measured Meyer's damages by the diminution in value of the hotel, the correct measure being the cost of repair.

In awarding Meyer $100,000 for waste the trial court did not specify what measure of damages it used. Rather, the findings of fact merely state that Meyer had been "damaged in the sum of $100,000, which sum is also the value of the property wasted or removed."

The North Dakota statutory provision relating to waste, Sec. 32-17-02, does not precisely specify that the measure of damages for waste is the difference between the market value of the property before and after the waste. It does mandate that the value of the property wasted and the value of the property aside from the waste shall each be pled with particularity. The general rule is that the measure of damages for waste is the difference between the market value of the property before and after the waste. Lustig v. U.M.C. Industries, Inc., 637 S.W.2d 55 (Mo.App.1982); Hamman v. Ritchie, 547 S.W.2d 698 (Tex.Civ.App.1977); see generally, 93 C.J.S., Waste, Sec. 18; 78 Am.Jur.2d, Waste, 35. However, a number of states allow establishing damages for waste by showing either the difference in the market value of the property before and after injury, or by the cost of repair. See, e.g., Jowdy v. Guerin, 10 Ariz.App. 205, 457 P.2d 745 (1969); Smith v. Cap Concrete, 133 Cal.App.3d 769, 184 Cal.Rptr. 308 (1982); Duckett v. Whorton, 312 N.W.2d 561 (Iowa 1981); Johnson v. Northwest Acceptance Corporation, 259 Or. 1, 485 P.2d 12 (1971).

Given the absence of an express legislative pronouncement, and given that the object of an award of damages is to compensate without unjust enrichment, we believe there should be no exclusive test for measuring property damage for waste. Rather, it is best to adopt the more flexible approach in which the mode and amount of proof must be adapted to the facts of each case. ⁴ See Ferraro v. William Lyles Const. Co., 102 Cal.App.3d 33, 162 Cal.Rptr. 238 (1980); Oregon Mutual Fire Insurance Company v. Mathis, 215 Or. 218, 334 P.2d 186 (1959). We hold that, depending on the facts of each case, either diminution in value or cost of repair is the appropriate measure of damages for waste. Plaintiff has the right to elect the measure deemed more accurate and if the defendant disagrees, he has the burden to prove the alternative measure is more appropriate.

In this instance it is difficult to ascertain from the record what measure of damages was used. However, that uncertainty is not important because it appears that there would be the...