Zareas v. Smith

• Decision Date: 11 July 1979
• Docket Number: No. 78-266,78-266
• Citation: 404 A.2d 599,119 N.H. 534
• Parties: John P. ZAREAS v. Alfred D. SMITH.
• Court: New Hampshire Supreme Court

Page 599

404 A.2d 599

119 N.H. 534

John P. ZAREAS v. Alfred D. SMITH.

No. 78-266.

Supreme Court of New Hampshire.

July 11, 1979.

Cullity & Kelley, Manchester (George Roussos, Manchester, orally), for plaintiff.

Peter H. Fauver, North Conway, by brief and orally, for defendant.

BROCK, Justice.

This is an action brought by the seller of real estate for damages allegedly suffered as the result of defendant-purchaser's breach of an executory real estate contract. At trial, defendant disputed both the validity of the purchase-sale agreement and the amount of damages claimed by the plaintiff. Trial to the Court (Johnson, J.) resulted in a ruling that the purchase-sale agreement was enforceable and in an award of $14,500 damages to the plaintiff. Defendant's exceptions were reserved and transferred. On this appeal, the defendant contests only the measure of damages adopted by the trial court.

On April 30, 1976, the plaintiff agreed to sell and the defendant agreed to buy a restaurant building known as the "Fraulein" or "Country Belle" and two acres of land on which it was located for $47,000. The trial court found that the contract "can hardly be called a masterpiece of legal writing," although it technically satisfies the statute of frauds, RSA 506:1. The contract did not specify a date for closing. It contained no provisions allocating risks or apportioning expenses such as taxes and insurance, and did not provide for liquidated damages or forfeiture in case of a breach. Shortly thereafter, a personal check for $8,000 that the defendant had given the plaintiff was dishonored for insufficient funds, and on May 12, 1976, plaintiff received notice that the defendant did not intend to purchase the property. The plaintiff elected not to seek specific performance, but commenced this action for damages in June 1976. In February 1977, prior to trial, the restaurant building that was the subject of the purchase-sale agreement was totally destroyed by fire. The building was insured for $35,000 and the plaintiff received that amount from his fire insurance carrier. In August 1977, the plaintiff sold an eighteen-acre tract, including the two acres on which the restaurant had been located, for $35,000.

At trial, the plaintiff presented the following computation of damages which the court adopted and used as the basis for the award made to the plaintiff:

                Sale of the Fraulein and 2 acres
                  of land to Smith                    $47,000.00
                Fair Market Value of remaining
                  sixteen (16) acres                   32,000.00
                                                      ----------
                                                                  $79,000.00
                LESS
                Insurance proceeds from sale
                  of the Fraulein following
                  fire                                $35,000.00
                Sale of eighteen (18) acres of
                  land to a third party                35,000.00  -70,000.00
                                                      ----------  ----------
                                                                  $ 9,000.00
                PLUS
                Cost to Plaintiff to remove remnants
                  of burned building from
                  land prior to sale                  $ 1,200.00
                Interest on mortgage on
                  Fraulein from April 30
                  1976 through August, 1977             2,900.00
                Real Estate taxes and insurance
                  during said period                    1,400.00
                                                      ----------
                                    Total                         $ 5,500.00
                                                                  ----------
                       Total Damages Claimed by Plaintiff         $14,500.00
                

The issue before us is the proper measure of the seller's damages when the purchaser refuses to perform under an executory real estate contract. The proper measure of damages is the seller's "loss of bargain," the difference between the contract price and the actual value of the real estate at the time of the breach. Griswold v. Sabin, 51 N.H. 167, 170 (1871); See Annot., 52 A.L.R. 1511 (1928). If the market value of the real estate at the time of the breach is equal to or greater than the contract price, the plaintiff can recover only nominal damages. Hurd v. Dunsmore, 63 N.H. 171, 173 (1884). The burden of establishing that the contract price exceeded the actual value of the real estate at the time of breach is, in this case, upon the plaintiff-seller. Lupien v. Rousseau, 98 N.H. 459, 102 A.2d 502 (1954).

The trial court granted plaintiff's requests that his expert "testified that the sum of $47,000 was a fair and reasonable price for the sale of 2 acres of land and 'The Fraulein,' " and that the "Purchase and Sale Agreement was fair and reasonable as to its terms and conditions." On cross-examination the plaintiff's expert agreed that $47,000 was a fair price for the building plus two acres in May 1976, at the time of the breach. Instead of using the $47,000 figure, however, the trial court based its computation of market value on the insurance proceeds following the fire, which reflected the amount of insurance coverage that the plaintiff had chosen to purchase, plus the proceeds of the sale of a different quantity of vacant land more than a year after the breach. Neither factor is relevant in establishing the loss in bargain attributable to the breach. See Griswold v. Sabin, 51 N.H. 167 (1871); Accord, MacRitchie v. Plumb, 70 Mich.App. 242, 245 N.W.2d 582 (1976). We hold that the plaintiff has failed to sustain his burden of proving that the contract price for the sale of the real estate in question exceeded the actual value of the property on the date of defendant's breach. Upon remand, plaintiff is entitled to only nominal damages. Hurd v. Dunsmore, 63 N.H. 171 (1884).

The trial court also awarded, as consequential damages, $4,300 for insurance, real estate taxes, and mortgage interest on the property from April 30, 1976, through the resale in August 1977, plus $1,200 for removing debris after the fire. These expenses were not specifically attributable to the second sale, nor were they incurred prior to the breach in preparation for performance. See Annot., 17 A.L.R.2d 1300 (1951). The insurance, taxes, and mortgage interest were normal expenses associated with ownership and maintenance of the property after the breach.

In addition to any loss in value, the seller may be permitted to recover specific consequential damages that "could have been reasonably anticipated by the parties as likely to be caused by the defendant's breach." Hurd v. Dunsmore, 63 N.H. 171, 174 (1884); See Lawton v. Great Southwest Fire Ins. Co., 118 N.H. 607, 392 A.2d 576 (1978). The scope of "foreseeable," and therefore recoverable, damages is narrower in a contract case than in tort. D. Dobbs, Remedies 804 (1973).

The contract here did not specify a closing date, and even without the defendant's breach the plaintiff might have retained ownership for part or all of the time period for which he now seeks reimbursement. The record here is clear that the defendant never had physical possession or any other beneficial use of the property. At all times prior to the resale, the plaintiff-seller retained the exclusive right to possession and to the beneficial use, occupation and enjoyment of the property, including the right to rents and profits. See Cote v. Chesley, 577 F.2d 71, 74 (8th Cir. 1978) (Minn. law); Laurin v. DeCarolis Constr. Co., 372 Mass. 688, 363 N.E.2d 675 (1977); Lischak v. Kotzer, 96 Misc.2d 114, 408 N.Y.S.2d 996 (Sup.Ct.1978); 92 C.J.S. Vendor & Purchaser, §§ 284(a), 288(c) (1955). Because the contract did not provide for any apportionment of expenses such as taxes and interest, the seller as owner remained responsible for them until the date of conveyance. See Dana v. Colby, 63 N.H. 169, 171 (1884); Howells v. Albert, 37 Misc.2d 856, 236 N.Y.S.2d 654 (Sup.Ct.1962). He also bore the risk of loss, Lampesis v. Travelers Ins. Co., 101 N.H. 323, 326, 143 A.2d 104, 106 (1958), and was therefore responsible for procuring insurance.

In determining the damage allegedly suffered by the plaintiff because he was forced to continue holding the property, the trial court failed to take into account the offsetting income and benefits, including tax benefits, that were or could have been derived from the property. Accord, Sutter v. Madrin, 269 Cal.App.2d 161, 168, 74 Cal.Rptr. 627, 631-32 (1969). At most, the seller's actual damage would be his net loss, the difference between the expenses of ownership and the benefit that one would reasonably expect to derive from the property under prudent management. Cf. New Hampshire Highway Hotel v. City of Concord, 119 N.H. ---, 399 A.2d 290 (1979). The plaintiff cannot shift to the defendant any loss resulting from his own failure to make the most productive possible use of the property. "The law requires reasonable efforts by a plaintiff to curtail his loss. Recovery will not be permitted of damages which could have been 'avoided by reasonable effort without undue risk, expense, or...