Appendix — St. Paul At Chase Corp. v. Manufacturers Life Insurance

* Tt Se ae ORE

In THE | ‘haem

Supreme Court of the United States :

Octoser TERM, 1971

ST. PAUL AT CHASE CORPORATION,

A MARYLAND CORPORATION,

- Petitioner,

Vv.

MANUFACTURERS LIFE INSURAN CE COMPANY OF |

TORONTO, A CANADIAN CORPORATION,

Respondent.

®,

APPENDIX TO |

PETITION FOR A WRIT. OF CERTIORARI TO THE

| * COURT OF APPEALS OF MARYLAND

W. HaMILTon WHITEFORD,

Sun Life Building, .

Baltimore, Maryland 21201,

-: Counsel for Petitioner.

Of Counsel :

. David FREISHTAT

‘Tower Building, .

Baltimore, Maryland.

_ The Daily Record Co., Baltimore, Md. 21203

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Comments | OF APPENDIX

“Opinion and Judgment below filed May 17, 1971 . ie :

Motion for Rehearing filed May 25, 1971 Re esr os ;

Supplemental Motion for — ‘Bled June 14,

1971 . ;

banal to Stay of Mandate filed Ju une 214, 1971

- Orders of Court Below on above Motions | : ve ‘a aes

el

~_

.- -

In The’

at Court of Appeals of Maryland

— No. 400 ied

September Term, 1970 _

St. Paul at Chase Corporation, et al.

-— |

The estates Life Insurance Company et al.

_ Hammond, C. J. ia. McWilliams, Finan, ry

Smith, and ee. JJ.

,

Opinion by Smith, J.

Filed May 17, 1971 |

The trial judge in this case . (Proctor, J.) prefaced his

findings of fact (the delivery of which consumed a full. -

-..court day and which took up over 50 | Pages of the record

_ extract) with the comment:

_. “In the past,.I have looked upon St. Paul as a great

Christian apostle. However; from here on I’m very

much afraid that to me it will mean a high-rise apart-

ment building at the corner of St. Paul at Chase.”

The apartment house was the dream of appellant Charles

W. Williams. ‘As his literature put it, he conceived of it as.

a “prestige. address” intended for “Gracious In-Town Liv- . _

ing.” Appellant St. Paul at Chasé Corporation was formed

for the purpose of erecting and operating the building.

‘This litigation was produced when Manufacturers. Life |

Insurance Co. of Tannen, Canada, cancelled.a commitment

2a

it had made for siniinies apes of the apartment |

building.

The situation <a can perhaps best be understood by

reference to the cast of charaeters:

St. Paul at Chase Corporation (St. Paul). — plaintiff

below, and appellant and cross-appellee here; re-

ee os bee wre

ceived judgment of $1,935,955.60 at trial below; this . .

is the company which ‘was developing the apart-

ment project'in question.

Charles W. Williams (Williams) — presigent and

principal stockholder of St. Paul.

W. Hamilton. Whiteford (Whiteford) and Edward.

A. Johnston (Johnsten}-— attorneys for St. ‘Paul.

The Manufacturers Life Insurance Company (Manu-

_ facturers) — defendant below, and appellee and

cross-appellant here; Canadian Insurance Company

which was to provide a $4,800,000 permanent mort-

gage to St. Paul:

Thomas R. Lamon (Lamon) — mortgage superi#-

tendent for Manufactures. ~

Donald W. Lambert (Lambert) —-assistant mort-

gage superintendent for the United States for

Manufactures.

Weaver Brothers, Inc.. (Weaver Bros. or Weaver) —

defendant below and appellee and cross-appellant

here; retained by Sst Paul to procure a for

the ‘project. :

‘“Sidney H. Tinley, Jr. (Tinley) — senior vice-presi-

dent of Weaver Bros.

E. Catherine Byrne Doehler (Miss: levee) — enetbiie

vice-president. ‘ *

The Mulian Contracting Company (Mullan Contract-

ing) — general contractor for the project. .

Charles A. Mullen (Mullan )- _ serosa of Mullan

‘Contracting. -

T » MET RRO Lee

_Chemical Bank New York Trust Company (Chemical)

_ — New York bank which eventually made $4,800,000

construction loari (not the permanent mortgage) for

the project; not a party to this suit, but party to

federal suit now —— and reset i “outcome of

this suit. °

Merchants Mertanss Company (Merchants) — another .

mortgage broker, which eventually SEP the

construction. loan from Chemical.

Ralph Lubow (Lubow) — loan officer of Micthiaate

Daniel A. Neumayer (Neumayer) —architett f for Ge

project.

Corbin C. Cogswell. (Cogswell) of The Cogswell Con-

struction Company — inspector for Weaver Bros.

' and Manufacturers. .

_ Merritt & Harris — inspector for Chemical.

Williams and St. Paul sued Manufacturers and Weaver

Bros. As. Williams put it in his brief:

“Upon Defendants’ Motion to. Dismiss, ‘Williams’ in-

dividual claims against Manufacturers: and Weaver

~ Were dismissed. However, as Williams is personally ©

liable to Chemical for Chemical’s Deficiency Decree,

until this entire matter is resolved, Williams is an “

Interested party and as such is a Party Plaintiff, see

_. Newark Trust Co. v. Talbot Bank, 217 Md. 141 (1958).”

“The exact breakdown of the judgments against Weaver,

Bros. and Manufacturers will be set forth later. St. Paul

’ believes these judgments to be inadequate while Weaver

Bros. and Manufacturers; are convinced. they had no. lia-

bility. Therefore, they’ have’ all appealed. We shall affirm

as to liability, eliminate punitive damages, and remand the

case for entry of judgments which increase somewhat —

but not to the extent as ees by St. Paul a the compensa-

tory damages. - Ne +

Mullah Contracting snd Real Estate Management Co.,

Inc., are use plaintiffs in the ne and appear mane as

*

|

- &

4a

cross-appellees, being — in excess of $300, 000 by St.

- Paul. :

The six counts in the declaration were summarized by the

trial judge as follows:

“Count 1 of the Declaration

“Although it is long and verbose, the gravamen of

this count is that Weaver breached its contract of

December 6, 1963, with the Plaintiff. * * * [(Probably-

the gist of this count is contained in paragraphs 40

and 41 of the declaration which stated:

“40. The Plaintiffs allege that having avntea

the above modifications of Weaver’s offer, they

then waited for more than a reasonable time for

Defendant Weaver to provide them with a con-

struction loan, as Defendant Weaver had promised

to do. The Plaintiffs allege that it was ohly after

Defendant Weaver had attempted to secure their

property for another client and only after Tinley,

as Executive Vice-President of Defendant Weaver,

had advised Plaintiffs’ ‘counsel, .that Defendant

Weaver had spent entirely too much time, that the

' Plaintiffs with their entire project then in jeop-

edy, advised Defendant Weaver on December 6,

1963, that the Plaintiffs were placing their con-

struction loan elsewhere. .The Plaintiffs allege that

. with their entire project then in jeopardy, under

the time limitation set by Defendant Manufacturers

in their Letter of Commitment of June 7, 1963, the

Plaintiffs were required to do all in their power

and regardless of the expense involved. to obtain

_ a construction loan from. another source in an —

attempt to. avoid the heavy losses arid damages

_ with which they were faced.

“41. The Plaintiffs allege that in spite of Mo

modifications to Defendant Weaver’s original offer

-and contract agreed to by Plaintiffs in an effort to

assist Defendant Weaver, Deferidant Weaver did

not secure a construction loan for the Plaintiffs

5a

by September 1, 1963, as they had promised and

bargained to do, did not secure a construction

loan for.the Plaintiffs within a reasonable time

thereafter, and in fact never did secure a construc-

.» tion loan for the Plaintiffs. The Plaintiffs allege

_ that the failure of Defendant Weaver to secure a

construction loan for the Plaintiffs as they had

promised and bargained to do delayed the’ start

and: hence the completion of the Plaintiffs project

_ by many months. The Plaintiffs allege that this

failure on the part of Weaver to furnish the Plain-

tiffs a construction loan by September 1, 1963, and .

thereafter within a reasonable time, contributed to

and: set in motion those causes which caused the

Plaintiffs their heavy losses and damage including

the loss of their entire project.” - .

It thus will be seen that the declaration itself did not

_ refer to the December 6 agreement. This agreement

‘supplanted the earlier agreement.) ]

* * * Ss

“Count 2 of the Declaration

“This count sounds in tort and is based upon ‘two

alleged tortious actions by Weaver. .

“First, Plaintiff contends that Weaver failed to proc-

ess the Plans and Specifications promptly, and thus

committed a tort. I have already found for Defendant

Weaver on this point.

- “Second, Plaintiff alleges negligent and deceitful

conduct on the part of Weaver in failing to button up

. Manufacturers’ offer of a construction mortgage loan,

including Tinley’s advice to Williams, when he ac-

cepted such offer, that it had been withdrawn. * * *

* * *

“Count 3 of the Declaration ee?

“In this count Plaintiff contends that Manufacturers |

is responsible to it for breach of contract — Manufac-

' 6a

turers’ offer of June 7, 1963, and Plaintiff's acceptatice

of: June 21, 1963. * * *

* 8.

“Count 4 of the Desharetion

“This is an action against Manufacturers in tort. ‘It

is based upon three contentions: (1) Alleged failure

of Manufacturers -to exercise good faith and alleged

negligence in the processing and approval of plans and

specifications. I.have already rendered a verdict in

favor of Manufacturers on this count. (2) Its alleged

failure to exercise good faith in breaching the contract.

(3) Alleged constructive fraud on a its part in breaching

the contract. ’

**

“Count 5 of the Declaration

“This is a contract action against Weaver to recover

the $48,000 paid by Plaintiff to Weaver on May 11,

1964, as a finder’s fee for obtaining the permanent

mortgage loan commitment from Manufacturers.

“es * &

“Count 6 of the Declaration

“This is a tort action against Weaver and Manu-

facturers. It merely combines the allegations of Counts

2 an 4, and alleges that Defendants were joint tort-

feasors.* * *”

St. Paul and Williams have summarized the reque&t for

a and the actual award by the court as feflows: a

“St. Paul requested the following in damages:

A. Direct Damages — loss

of property $7,920,000

B. Special Damages — loss

_of business

Value of Business $7,265,000

Less Amount of Mort-

gage 4,800,000 2,465,000

7a

C. Consequential Dam-

ages—

1. Chemical Bank —

Deficiency. Decree —

2/27/67

Extension fee paid

Manufacturers on

9/7/65

..Fee paid Weaver

9/18/63 on their loan

of $480,000

Interest. on Weaver’s

loan of $480,000 from

9/18/63 to 1/1/65;

paid 5/1/64

Merchants Mort-

gage Co. fees and

legal expenses

6. Dr. G. C. Merrill con-

tract covering mov- .

ing, interruption and |

dislocation of busi-

‘ness, due .over a 4

year period com-

. mencing with 4/1/66

. Interest from’. 5/15/66

to 2/15/70

Total Compensatory

Damages

1,297,952

24.000

9,600 .

18,160

85,500

50,000 1,485,212

11,870,212

* 2.716.300

$14,586,512

“Under Cont V, St. Paul claimed the return of the

fee it paid to Weaver.

coon wd

Ba

“The Court Awarded:

| Compensatory Punitive

Count I (Plaintiffs v.

Weaver — Contract) "~~ -§.00 _ 50,000

Count II (Plaintiffs v. py

Weaver — Tort) . _—-185,167.40 —_- 100,000

Count III (Plaintiffs v. - |

_° Mfgrs. — Contract) 1,552,783.20 _ -0-

Count IV (Plaintiffsvi———

. ~" Mfgrs. — Tort) | -O- —0-

Count V (Plaintiffsv. ; ;

-- Weaver — Contract) 48,000.00 “Qe:

Count VI (Plaintiffs v.

Mfgrs. & Weaver _ :

jointly . m5 —-0- -0-

$1,785,955.60 $ 150,000

“No prejudgment interest: was awarded except on.

the Chemical Deficiency ‘Decree. The $1,552,783.20

’ above was awarded to cover the deficiency decree and |

included interest at 6%.”

On appeal Williams and St. Paul raise four issues. The

first three all deal with their dissatisfaction with the dam-

ages awarded. The fourth alleges error on the part of the |

‘trial court in denying a motion to amend by interlineation

the damage clause of the declaration so as. to materially

“increase the claim for compensatory damages to approxi--

mately $14,000,000.00. We shall not be obliged to pass upon

that point since the damages awarded.are less than those

claimed in the original declaration. They do not appeal the

issue of the refusal of the trial court to enter: judgment .

against Manufacturers under the fourth count of the declar-

ation which was in tort, nor do they claim error on the

part of the trial ‘judge in not allowing punitive —

against Manufacturers.

Weaver Bros. alleged error in iniling i it liable at all, in

entering judgment for punitive damages against it and in |

Sa, S

the amount ‘of the judgment for compensatory damages.

Manufacturers contests the judgment as to liability and the

amount of damages awarded. . pee,

We shall summarize as briefly as possible the essential

facts, adding some additional summation of facts under

. the points discussed. |

_—Weaver Bros..is a mortgage broker. In Hill v. Benevicz,

224 Md. 79, 167 A. 2d 104 (1961), Chief Judge Brune dis-

cussed the practice of mortgage brokers and mortgage

correspondents, stating: “—

“Rouse’s usual practice appears to be to submit ap- -

plications to the F.H.A. for mortgage insurance in its

own name, but to place the mortgage, when a commit-

ment for insurance -has been obtained, ‘with one or

‘another of the iending institutions for which its acts

as mortgage correspondent, and which are themselves

F.H.A. approved mortgagees. Rouse then takes the-

mortgage in its ‘own name, assigns it to the lending

institution and services the mortgage under a contract

between Rouse and ‘the lender, pursuant to which

Rause: receives compensation. Rouse thus performs

. Several functions in the transaction. It acts partly in

its own interest, partly as agent for the lending institu-

_ tion and partly for the benefit of the prospective mort-

gagor and partly also for the benefit of the would-be

seller, for without the mortgage financing the sale

probably would not produce the cash consideration

_ which he is seeking. All of these functions are well

known in the business; and there is ‘no question of an

agent secretly.serving his own interest or the in-

terest of one principal to the detriment of another.”

Id. at 84.

A chronology of major events is as follows::

August, 1962: Williams contracted the first of nine

purchase options on land on the northeast corner of

St. Paul and Chase Streets in Baltirnore; total pur-

chase price was to be $725,000; the options were °

.

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ae |

to be exercised by June 15, 1963, with payment

apparently to be made by September 1, 1963.

December, 1962: St. Paul was incorporated by White-@

ford, with Williams as the sole stockholder. ~

March, 1963: Tinley heard’ that Williams was contem-

plating erection of a high-rise apartment: and di-

rected one of his subordinates to contact Wiliams

which was done.

March 25, 1963: Williams contacted Tinley ous a

possible $5, 200 000-$5, 400,000 mortgage for the proj-

ect.

April 10, 1963: Whiteford told Tinley that Williams

needed 100% financing because he had no working

capital..

- May 14, 1963: Tinley advised Williams and Whiteford

that Manufacturers was interested in a $4,800,000

permanent mortgage for 25-26 years at 644%. Weaver

Bros.. was to receive $48,000 for securing ‘the perma- |

nent mortgage and another $48,000 for securing a

$4,800,000 construction loan. St. Paul was also to

pay Manufacturers a refundable “standby fee” of

$48,000. Tinley said that Weaver Bros. would give

a $200,000 second mortgage if Manufacturers’ $4.,-

800,000 mortgage was not enough. Williams wanted

to act as his own general contractor on the project

(without bond), with bonded sub-contractors.

‘ May 29, 1963: Weaver Bros. made a written submission

concerning the project to Manufacturers. The appli-

cation was accompanied by Weaver’s evaluation of

the property in the amount of $7,920,000 for land

‘and building and $7,265,000 on the basis of capitaliza-

tion at 742% of the estimated net income of $544,865

per year. ‘These figures, as will later be seen, con-

tribute materially to this controversy. ~

June 5, 1963: Financing and plans for the project were

approved by Manufacturers.

iia

June 7, 1963: Commitment letter written by Manu-

facturers — it was for breach of this contract that

the company was held liable at the trial below. In

addition to interest on the loan, Manufacturers was

to receive 13.31% of all gross rental income in excess

of $721,044 (80% of the forecasted gross. income).

The offer was to be‘accepted by June 24, 1963..

June 14, 1963: -Manufacturers’ letter of commitment , |

was discussed at a meeting, at which Tinley gave-

assurances that he would be able to secure the

necessary construction loan- by September 1, 1963. .

. He also stated that the requirement of “satisfactory .

completion” of the building did not mean that the —

building had to be completed in every detail. Tinley

made ‘an offer of a $200,000 second ‘mortgage for

working capital purposes; ‘the land options on the

nine lots were exercised. ra

June 21, 1963: St. Paul accepted Manufacturers’ offer

and paid the $48,000 standby fee. - ,

Late July or early August, 1963: Tinley telephoned

Whiteford and told him Williams’ poor credit stand-

_ ing (because of business losses in Virginia) and his

insistence upon acting as his own general contractor

without bond were making it difficult to obtain a —

construction loan. .

Early August, 1963: Tinley asked Lamon’ of Manu-

facturers if that company would be interested in:

financing the construction loan..

August 10, 1963: Williams met with Merchants, which

offered a $4,800,000 construction: loan of 6% if they

could have 2-3 weeks for approval of the plans.

' “Williams “tabled” this offer because he needed the

money prior to September 1, 1963, and did not think

that he could afford this time.

August’ 12, 1963: On or about this date, Lamon tele-

phoned Tinley. He said.that Manufacturers. would

make -a construction loan commitment as follows:

-_ .™

interest at 6%; a separate $24,000 fee; approval by

Manufacturers of the final plans and specifications;

_ and a bonded general contractor. Tinley passed this ~

information on to Williams, who indicated he was

upset because it ruled him out as‘his own general

contractor, since he could not get a bond.

Late August, 1963: Tinley called Whiteford in’ Ocean

_ City and told him that Weaver Bros. would procure .

a land mortgage loan for St. Paul in the amount.

of $480,000 so that the company could preserve its

land options while arqning out the construction loan

problems.

August 30, 1963: Letter from Weaver Bros. to St. Paul

was delivered stating that Weaver Bros. was loaning

$480,000 to St. Paul on land mortgage, that a $4,800,- —

000 construction.loan had been arranged, and that

a $4,800,000 permanent mortgage had been arranged.

(There was some indication that this -letter was

written solely for the benefit of the holders of the

nine lots in order to get them to — an extension

on the date of payment.)

@ ohnston (Whiteford’s partner) took this letter

around, and obtained extensions from the _land-

owners until September 18, 1963. -

_ Williams delivered a set of plans for the project

. to Weaver Bros. Weaver Bros.. apparently consid-

ered them to be only preliminary plans; Mullan testi-. .

.fied that they were permanent plans and that they

‘had been used to secure the apceomary building

‘permits from Baltimore City. |

September 5, 1963: Williams had previously asked

Mullan Contracting to become the general con- .

tractor. At a meeting on this date, there was some

discussion relative to Mullan Contracting’s obtain-

ing the construction loan from Maryland National -

Bank. Tinley again said that Weaver Bros. would

advance $200,000 on a second mortgage _— for

working capital.

oe

13a

At another meeting on this same date (or maybe

at the same meeting mentioned above), Tinley

allegedly said that Weaver Bros. would take a $500,- -

000 second mortgage to assure completion of. the

building, if necessary. |

September 18, 1963: Weaver Bros. made the $480,000

land loan to St. Paul. on : ,

October 10, 1963; Mullan said that his application at

. Maryland National for $4,800,000 had been approved,

subject to a $500,000 second mortgage from Weaver

Bros. to be used for land fees and costs. Tinley

denied that he had made an offer of a second mort- :

gage, and an argument ensued. Williams said he

would accept Manufacturers’ offer for a construction

_ loan and asked Tinley to place it: Tinley said Manu-

' facturers’ offer for the construction loan had been

withdrawn. The trial court found that the offer had

_ never been withdrawn and was still good as of this

date, and that Williams’ statement to Tinley acted

.. aS an acceptance of Manufacturers’ offer. Seat,

Shortly thereafter a meeting took place at which

_. Tinley suggested that Williams sell his interest in:

_ St. Paul to make it easier to get the construction

loan;- Williams refused. ° ; :

November 25, 1963: Meeting where Tinley suggested

sale to Messrs. Gottschalk and Grant. Williams left

in a huff. a

November 26, 1963: Tinley said he could still place

the construction loan and asked for two more weeks;

Williams gave him until December 6, 1963. On the

same date, Williams called Lubow of Merchants and

resubmitted his original proposal. - ’

December 6, 1963: The original agreement between

' St. Paul and Weaver Bros. was “finally terminated.”

They entered into a new contract. As the trial judge

put it: ale

a game a

et ee Swe

14a

“Tinley described Weaver’s obligations under

this new Agreement as being, first, to make sure

that the Buy-Sell Agreement between the con-

struction and permanent mortgage lenders was

signed by all of the parties at the construction

mortgage loan settlement; and, second;- if. any

problems arose, to assist in’ ironing them out.

“Under this ‘new contract Plaintiff was obligated

_to pay Weaver $96,000 for its services — $48,000

* in cash and $48,000 at.a later date. Weaver agreed

‘that it would not assert any ‘claim against the fee

of Merchants * * * for placing the construction

mortgage loan.”

The trial -judge found as a fact that Mamutacturcrs

offer to make a construction loan was still open at

- December 6, 1963: St. Paul and Merchants-entered into

a contract under which the latter was to be paid

$72,000 for obtaining a construction mortgage loan

commitment for the project. A-fee of $10,000 was to

be paid to certain persons who’ had introduced Wil-

liams to Merchants.

December. 27, 1963: Commitment issized by Chemical.

March 9, 1964: -Plans-and specifications for the project

were finally approved by Weaver Bros. on behalf

of Manufacturers.

April 8, 1964: ‘Plans and specifications were finally

approved by Manufacturers.

April 27, 1964: St.*Paul executed a contract with

Mullan Contracting, the use plaintiff, for construc-

tion of the building. —

‘May 1, 1964: Closing of Chemicals’ construction mort-

gage loan was held in New York, at which all of the

' mecessary. document& were executed, including -a-

promissory note in the amount of $4,800,000 and the

“Buy-Sell” agreement between Manufacturers and

RYU 0 pga > < . as = e < es a ° ¥ 4

/

- -15a

August 19, 1965: The expiry date under Manufacturers’

permanent mortgage loan commitment was extended

from September 7. 1965, to March 7, 1966, by letter

from Manufacturers to Weaver Bros. Plaintiff paid -

Manufacturers $24,000 for such extension.

March 4, 1966: At a meeting of its executive ‘com-

- mittee. Manufacturers decided not to extend the

. © commitment any further. Lamon was instructed to

advise Chemical.

‘March. 8, 1966: ieilectuvers wrote Weaver Bros.

' eancelling the co itment. -

April 13, 1966: Chemical filed foreclosure action.

June 1, 1966: Foreclosure sale. There was only one

bidder at the sale, and the property was knocked

down to a representative of Chemical.

February 23, 1967: Decrée in personam was entered

in the foreclosure proceedings against St. Pauli in the

* amount of $1,297,952.39.

. The commitment of Manufacturers provided in. perti-

nent part: .

“It is understood that our funds will not be required

until we receive a report from your inspector certify-

ing that construction of the, building has been satis-

factorily completed, and the certificate of an architect,

approved by our Company, certifying that construction

has been completed in accordance with the plans and —

specifications which are to submitted to us for

approval. Engineering and chitectural approval of -°

the project is also required.”

A “Buy-Sell” agreement was entered into between Chem-

ical and Manufacturers.. This“Appears to be the conven-

tional practice in financing of this type. One paragraph of

that agreement, which was in the form. of a letter from

Chemical to Manufacturers; stated:

“1, At any time on or before September 7, 1965. .

(or the last day to which the commitment py be- °

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16a

extended, if any extension ‘thereof has been made as

provided herein), if the conditions of the Commit-

ment have been fulfilled, you agree to purchase and

we agree to sell the Note for $4,800,000.”

Mangfacturers accepted the agreement, Weaver assented

to it, and St. Paul appended its consent to the agreement

and agreed that it would “(i) take or cause to be taken

any action required of the Borrower in order to comply

_ with the terms, covenants and conditions of this Agreement —

and the Commitment, (ii). accept-a loan from [Chemical] |

under the Commitment and (iii) not accept from any other

person or persons a loan secured by.a deed of trust creating

a first lien so long as the Commitment hafd] not expired.”

The trial judge said in his findings of fact relative to

the June 14 meeting to discuss the Manufacturers’ com-

mitment: ;

“Williams’ testimony as to this meeting was that

- Tinley said that satisfactory completion meant the

‘work had to be done in a workmanlike mariner, and

in accordance with the plans and. specifications. Wil-

liams further testified that the degree of completion

was discussed, and that. Tinley said that an inspector

would check the work monthly. Williams further testi-

fied that Whiteford had said that a construction loan

had to be part of the package, and Tinley said we could .

rely on Weaver having a construction mortgage by

September 1, 1963; that Whiteford said that the money |

. had to be available by September 1, 1963. * *.* The

reason for the finding is that it is clear from the testi-

mony of all the parties that at that point, Tinley was

enthused about the project- and its prospects, had.

obtained a permanent loan commitment from Manu-

facturers, and sincerely believed that with the perma-

nent loan commitment on hand, he would have no

difficulty in obtaining a constriction mortgage loan

commitment. Williams further testified that he asked

if the word completed meant that everything had to

be finished and Tinley replied that the einai didn’t

17a

have to be completed in every detail. I find that was

the substance of what Tinley said, primarily because

that’s the substance of the testimony Tinley gave here _

in Court. Tinley stated that Manufacturers’ proposal

had: to be accepted and the standby fee paid by June

24, otherwise the offer was void. ‘Finally, Whiteford

asked Tinley if there was any question about the items -

discussed at the meeting, saying that this was a serious

step, and Tinley said no. Again, I am confident that

that’s the gist of what took place, and so-find. .

.

s * &

“In his version of what transpired at this meeting,

_ Tinley said that everyone was’ delighted with the in-

formation that the permanent loan commitment had

. been obtained, that Williams was interested to know. .

whether there would bé an architect coming from

_ Canada, and that he advised Williams, from his own

experience, that the answer was no; that; however,,

‘inspection by an architect would be necessary, unless

an inspector was appointed to.make monthly inspec-

tions. Tinley said that Williams inquired what the

term satisfactory completion meant, and: he Feplied

that the building had to be finished, that every apart-

ment. had to be ready for occupancy; that Williams

further inquired about the term — satisfactory com-

pletion — and he said it was not absolutely necessary

. that the building be 100 per cent completed: that if.

some completely minor items remained‘ to be done,

roll over would take place. Tinley further testified

there was a discussion about: the last paragraph of the

commitment letter, and that he said it meant what it

said. He further. testified. that Williams. inquired

whether everyone always met the date set forth ‘in

the commitment letter, and he said it had been his

experience, that if an owner-builder got to the point

where an additional thirty days was necessary for

completion, he would ask for an extension and nor-

mally get it. Tinley further testified that there was a

discussion about whose responsibility it was to get the

18a

certificates referred to in the third paragraph of the‘

commitment letter, and that. he told Williams that the

burden would be upon him, I find that that statement

‘was made. It would be a logical statement for Mr. .

Tinley to make in response to that inquiry.

“Asked about the engineering and architectural ‘ap-

proval referred .to in the third paragraph of the com-

mitment letter, Tinley testified that he said it would

have to be received before roll over; that whoever

gave such approval was to send it to Manufacturers,

who had the right of final approval.

“Tinley admitted that, at that meeting, he made an

offer of a $200,000 second mortgage for working capital

purposes; that this is what Williams wanted. Tinley,

on cross examination, testified that he did not remem-

ber Whiteford saying St. Paul couldn’t make an appli-

cation for a permanent loan without assurance of a

construction loan; that, however, Whiteford impressed

on everyone it was very important to get a construction

. loan to pick up the land and go ahead with the project.

Tigley stated that he told those in attendance that he

would undertake to get a construction loan on a best

efforts basis; that Whiteford gave Weaver authority

to go ahead with the permanent loan application, with-

out Weaver’s assurance of a construction mortgage.

However, as I have already stated, I find that there

“was assurance of a construction loan commitment.”

The two top floors of the building, 22nd and 23rd, were

damaged in 1966. On this subject the trial judge said in

his finding of fact: ~—

“Next comes the question of the storm and the al-

leged resulting damage. The weather reports, in my

judgment, are inconclusive. I have examined them. .

There was a bad blizzard. There was.a time after the .

blizzard, a week or ten days later, where the daytime

temperature did rise to a point where there would

have been a thaw. The difficulty with proof of this

phase ‘of the case as far as Plaintiff is concerned is

- 19a

that the time when the leak developed is not pin-

pointed. No witness testified that the leak was dis-

‘covered on February. 13 or 14, the day when quite a

_ bit of thaw took place. Neumayer testified, however,

_ that the terraces had been tested for leaks.~ That tends

to negate the idea of the damage being attributable

to the storm. So that I find that Plaintiff has not met —

for whatever. significance it has in the case — its

burden of proving that the damage to the 22nd and

23rd floor suites was due to ‘an act of God’.”

This damage was a factor in the question of whether the

building had been completed at the time of the March 7

deadline. - .

At one point there was sincere belief on the part of

. Williams that Mullan would not be able at the pace at which

?

he was going to complete the building by March 7.

On the question of completion of the building the trial

judge said:

“Finally, I find as a fact that the high-rise apart-

_ ment building at the northeast corner of St. Paul and

Chase, as of March 7, 1966 was substantially complete.

The reasons for that finding are manifold. Mullan

Says it was substantially complete; Cogswell said it .

was substantially complete and Cogswell was Manu-

facturers’ and Weaver’s representative; Neumayer says

it was substantially complete; the photographs taken

by Tadder are only of the top two floors. You can bet

your bottom dollar if there was substantial evidence

of incompletion of the project on the remaining floors

other than the first floor, there would have been photo-

graphs of that state of incompleteness. He had been |

asked by Weaver, according to his own testimony, to_

_ take photograpjs showing what had not been com-

pleted,

. “Just as significant, in my judgment, is the inspec-

tion by Lambert.’ This was made under circumstances

where Lambert knew that Manufacturers was can-

eos

. ¢élling the commitment letter. He read the hand-

- ‘writing on the wall. He knew that he had been asked

’ to prepare an inspection report which, if called for,

would justify (if possible) the position taken by Manu-

facturers. .I have reviewed his report carefully, and

_ it is, to say the least, not objective. In the first place,

in making the examination, he shows some lack of

familiarity with the plans and specifications. Of 238

apartments in the building, as: I compute it, he found

67 okay; there was nothing that. he could find wrong,.

not even a:scratch on the walls. In other words, there

were at least 67 apartments which tenants could have ~

occupied on March 7. There were three that he said

he couldn’t inspect. There. were approximately 100

apartments in which the items which Lambert said

needed correction, were obviously of the most minor

nature — which could have been corrected in twenty-

four hours — what I consider to be a punch list item.

There were fifteen more apartments where his com-

ment was —*‘Clean out hatch not plastered.’ As

Charles Mullan pointed out, the purpose of the clean

out hatch would be completely nullified if you plas-

tered over it. Obvious nitpicking.

“When I say minor items, I’m talking ocak this:

sort of thing: ‘Room 311, bath, vanity fixture hung

below outlet, wire shows,’ — only one item in that

room. So when I say minor, I mean petty. Where

Lambert’s report showed more than one item to be .

corrected in a room or suite, I have not considered

that as minor. But even in the rooms which had seve-

ral items which allegedly required correction, they .

were items that could have been corrected before a

tenant would want to move in. For example, in Room

1102, ‘Dining room electric light fixture not properly

installed. Bath, ceiling plaster finished splotchy.’ I

dont’ consider that minor, but obviously on the face

of it, it is something that could be taken care of in

_ one morning at most — probably fifteen minutes for

the light fixture and an hour for the plaster job. The

— Ha-

only part of the building that was not in this minor

or comparatively minor category was some of the

exterior work and some-of the suites on the 22nd and

23rd floors. Here we’re dealing with an apartment

house that has 238 apartments, ten of them on the top

two floors. Ten out of 238, and even in those, the

work was finished, according to the testimony before

- me, within a week after March 7, 1966.

_ “So that my finding, so far as'the state of completion

is concerned, is that the building was substantially

completed. Again, the determination of the legal effect

of this finding must await tomorrow’s edition.”

_ There“were suggestions from time to time through the

record that Tinley and Weaver Bros. did not want. Manu-

facturers to know that the loan here was intended to cover

the entire construction cost. There is some intimation

that this was the-reason that Tinley did not proceed with

the closing of a construction loan with Manufacturers.

LIABILITY

At the. conclusion of trial on the issué of liability and

before presentation of.evidence of damages the trial judge

rendered an oral opinion which we adopt: — Se

ta

s

“CoNncLUSIONS OF Law ‘

“We now come to the point in the case where I am

- required to make certain conclusions on the question

_of liability. As is true in most cases, these conclusions

are in some instances exclusively legal, in others, they.

are combinations of fact and law. !

“There are several preliminary questions which

must be considered beforé I get to the ultimate de-

cisions which must be made.

“I. Weaver — Agent for St. Paul and

Manufacturers.

__ “The question. of agency has arisen in this case. I

have found as a fact that Weaver acted as agent for

”

——

22a

both St. Paul and Manufacturers. In Hogan v. Q. T.

Corporation, 230 Md. 69, 75, the Court of Appeals

‘said that ‘the existence of a principal-agent relation-

ship is ordinarily a question of fact. *.* * And since

such relationship may be implied from the words and

conduct of the parties and the surrounding circum-

stances, the question was properly submitted to the

jury, and its verdict should not have been set aside.’

So that such agency has been determined sgh me, —

as a jury, as a matter of fact.

a Weaver's Reaponsibitutes as Agent.

“Next, is the question of the responsibilities of

Weaver as broker-agent. In Hardy v. Davis, 223. Md.

229, 232, the Court of Appeals had this to say on the

subject of a real estate broker acting as agent for both

parties: ‘During the term of the agency, a real estate

broker can not act for both vendor and vendee in

respect of the same transaction because of possible

- conflict between his interest and his duty in such case,

and he must disclose to his principal all facts or in-

formation which may be relevant or material in in-

fluencing the judgment or action of the principal in

the matter. Coppage v. Howard, 127 Md. 512, 523;.

Restatement (Second), Agency, Sec. 381.’ Of course,

Weaver did act as agent for both, and, in my judgment

that dual agency was known both by Manufacturers

and by St. Paul. St. Paul had hired Weaver as its

-agent and broker, and yet it knew through the multi-

tude of letters and phone and face to face negotiations

that Weaver was also acting as agent for Manufac-

turers. Many of the communications were directed

by Manufacturers to Weaver. As I recall it, none in

writing were directed to St. Paul. So that the fact

that Weaver was acting as agent for both parties did |

not, in and of itself, constitute a breach in violation

of the holding in Hardy v. Davis (supra). Neverthe-

less, when.one acts in such a dual capacity, one ‘has

an even } renter responsibility to be sure that he walks

/

|

L-

i

23a

a straight line and acts in a fair manner towards both .

principals, than if he were acting for only one party.

“On the degree of care which an agent must exer- —

cise, 12 Am. Jur. 2d 847, Sec. 96, says: that—

‘As a general rule, a broker who is not a mere

middleman, but is employed by a principal to act

as his agent in a transaction, is bound to exercise

reasonable care and skill, or the care and skill

ordinarily’ possessed’ and used by other persons

employed in a similar undertaking. He must exert

himself with reasonable diligence in his principal’s

behalf, and is bound to obtain for the latter the

most advantageous bargain possible under the

circumstances of the particular situation. * * *

‘* * * A broker is not liable for a mere mistake

in judgment which does not result from a failure

to know or do that which a person of ordinary

prudence under similar circumstances would know

oo *

_ . In the absence of special circumstances giving

the principal a right to rely on the agent’s skill

and care, the principal has been held to be barred

from recovering for the agent’s negligence by his

own contributory negligence.’

“In Nagel v. Todd, 185 Md. 512, at pages 516-517,

the Court of Appeals had this. to say on this subject:

.In DeCrette v. Mohler, 147 Md. 108, 115, this Court,

speaking through Judge Walsh, said: “The principal —

duty of an agent is loyalty to the interest of his prin-

cipal. The very nature of the relationship of principal

and agent demands that the later give to the former

the fullest measure of service in all matters pertaining

to the agency, and that he devote’all his skill and:

ability to securing the greatest legitimate benefit and ©

advantage for his principal. Experience has taught

us that no man can serve two masters, and for this

reason it has long been an established rule of law

24a

that an agent cannot recover from his principal in

any transaction in which the. agent’s interest was

antagonistic to that of, the principal, unless such in-

‘ terest was fully and fairly disclosed to the eanag

citing Mechem on Agency, 2nd Ed., Sec. 1588 et seq.

_ “The responsibilties and duties of an agent are dis-

cussed in some other. Maryland cases. Tn Maryland

‘Credit Finance Corp. v. Hagerty, 216 Md. 83, 90, 92,

-the Court of Appeals, after quoting, as I have just done, ~

from .DeCrette, said: ‘Where the breach of duty by

the employee was. wilful and material; as wwe find it

to. have been in, the case before uS, the Courts have

_ held consistentlythat. the employee has forfeited at

least compensation which has not already been earned.

The rule was recognized, although found inapplicable

on the facts, in Shipley v. Meadowbrook Club, 211

Md. 142, 148. It was there said that: ‘We accept the

general principal that an ‘agent who is guilty of fraud

upon his principal, particularly where there is a con-

flicting interest, concealment, or a wilful and deliberate

breach of his contract, may be denied compensation

for his services.’ There are a number of authorities

cited at that point.

- “In Buffington v. Wentz, 228 Md. 33, 38, the Court

- of Appeals said this: ‘*\* * that the broker was under

a duty to make full lisclosure to his clients of all of.

the relevant facts whic night influence the judgmént

or action of his principals.” \citing several Maryland.

cases, and Restatement, Agency, Second Edition, Secs.

381, 398, 390; also 8 Am. Jur. (Brokers), Secs. 89, 91.

“Again on this subject, Coppage v. Howard, 127 Md.

_ 512, 523, the Court said: ‘* * * A broker employed to

sell real estate occupies a quasi fiduciary relation to

his employer, and in his dealings with him is bound

to act in good faith and to make disclosures of matters

that are material and might .affect the action of his

_. employer in the premises. This principal is fully recog-

nized in this State.’ citing shires earlier Maryland cases.

; nt

25a

v. Schuman, 175 Md. 287, 291-292, the Court said: ‘It

“Finally on this subject, Virginia he Ce Stores, Inc.

appears from the declaration heretofore ‘referred to -

that this action is founded upon negligence in. mis-

representation. No Maryland case has been found di-

rectly upon the subject, but the weight of authority

_in other jurisdictions seems to be that such action is

not necessarily confined to injuries arising from con-

_tractual: relations; that the,action lies for neglfgent

words, recovery being permitted where one relies on.

statements of another, negligently volunteering an

erroneous gpinion, intending that it be action upon,

and knowing that loss or injury are likely to follow if

it is acted upon.’ citing a number of authorities.

“Referring to the argument of day before patents,

Mr. Freishtat contended that Weaver had held itself

out as having, special skill in the subject of obtaining

mortgage fifgncing, such as is involved in this case,

and that St/Paul and“Williams had relied thereon to

their loss. In response, Mr. Case contended that there

was a failure of proof of special skill and reliance

thereon, and also that there ‘was a lack of expert

testimony: as to.the standard of care required in such

a case..In my judgment, this is not a case which

requires the production of expert testimony. - How-

. ever, it appears that in this case, and in. other cases

' like it, it’s not so much a ‘question of some higher

degree of care, but of ‘the degree of care one would

expect of the particular person involved, whether. he

‘is a doctor, or a — or a: “real estate broker or

specialist.

“The case which Mr. ‘Case referred to in : argument

_ is L. B. Laboratories, Inc. v. Mitchell, 235 Pac. 24-253,

257, had this to say: ‘The courts have uniformly based

recovery upon principles of negligence where there is

failure to employ the knowledge, skill and judgment

which is engaged to be rendered in professional em-

ployment, or other employment of a highly specialized

‘nature. A nent of the learned professions, and for

26a

that matter any one who undertakes employment be-

cause of his possession of'exceptional skill, impliedly

represents that he possesses and will employ the de-

gree of learning and skill usually possessed by those |

in good standing practicing their specialties in the same

locality. He impliedly agrees to wSe his best judg-.

_ ment but does not guarantee results. : Roberts v.

Parker, 121 Cal. App. 264, 8 Pac. 2d 908. “In all those

~ employments where peculiar skill is requisite, if one

offers his services, he is understood as holding himself.

out to the public as possessing the degree of skill

' commonly possessed by others in the same employ-

ment, and if his pretentions are unfounded, he com-

mits a species of fraud upon every man who employs

him ‘in reliance on his public profession. But no man,

whether skilled or unskilled, undertakes that the task

he assumes shall be performed successfully, and with-

out fault. or error; he undertakes for good faith and

' integrity, but not for infallibility, and he is liable to

his employer for negligence, bad faith, or dishonesty,

_but- not for losses consequent upon mere errors of

judgment.” (Cooley on Torts (4th Ed. ), -Vol. 3, p. 335).’

“III. Commitment Letter — Time of Essence? |

“Next, one other preliminary question is whether

time was of the essence in this contract, the commit- .

ment letter of June.7, 1963. It is my judgment, and I

so hold, that time was. not of the essence of this con-

tract: My reasons for that holding are several. First,

the language itself negates the idea of time being of

the essence. The last paragraph says: ‘The:commit- .

ment may be cancelled,’ not, as does the paragraph

immediately preceding, that ‘This commitment shall

become void if by June 24, 1963 we have not received

written acceptance of the same, * * *.’ Clearly that

.paragraph was time was of the essence. If the refund- -

_ able standby fee had not been paid and the offer con-

tained in the letter had not been accepted by that date,

that would have beerr the end of — the complete end

- wend

27a ; =

“s .

of the matter. So that you have that very definite

' difference in language. Now the only thing in the last

paragraph that. would make time of the essence is‘that a

date is‘mentioned. However, when you compare the

language of the two paragraphs it becomes obvious

that, so far as the last paragraph is acceeq wuss time

was not considered of the essence. \

“Another reason is that the law is clear that one

who draws a contract can expect. to have that con-

tract construed against him. ‘* * * this Court cannot .

‘disregard the rule of construction of Contracts often,

restated by it, that where an ambiguity exists a con-

tract will be most strongly construed against the one

who prepared it.’ Kelley Construction Co., Inc. v.

Washington Suburban Sanitary Com., 247 Md. ‘241, 250;.

Hughes v. Pioneer, 230 Md. 36, 38; Ebert v. Millers

' Fire Ins. Co., 220-Md. 602; 611; Cadem v. Nanna, 243 -

Md. 536, 544. This rule is particularly applicable to

insurance contracts. Although this is not an insurance

- contract, it is a contract drawn by an insurancé com-

pany; and there is a reasonable inference that they .

were familiar with that rule of law.

. “Another reason for. my holding on this point is

that Manufacturers knew that, if this commitment

were accepted and if it were followed by a construction

mortgage loan so that the ‘project would go forward,

St. Paul would expend large sums of money in reliance

upon commitment, and also knew of the possibility, at

least, that exactly what did occur, ‘might occur.

“Finally, the construction placed upon this contract

| by the actions of the parties. When September 7, 1965,

arrived, what did Manufacturers do? Did it say, stop,

you have not met the date specified in the last para-

graph? No, it not only did not say stop, it gave a six

months extension — six months additional life to the

agreement. So that it is clear not only that time was not

of the essence, msc that the Parties did not consider «.

it to be.

. Ba .

.- “There are two Maryland cases which I have found

that deal generally with this subject, and which throw |

some light upon it. The first of these is Scarlett v.

Stein, 40 Md. 512, 525-526. There, the Court said:

‘Parties may, no doubt, make time an essential part

of a contract, and in such cases, the failure by one of

the parties to perform his part of the obligation within

the time prescribed, discharges the other from all

liability under the contract. Whether time is to be

considered as of the essence of the coritract; must,

of course, depend upon the intention of the parties.

When this intention is expressed in clear and unam-

biguous terms, the contract must speak for itself, and

the liability of the parties must be determined by. the:

. plain and obvious meaning of the language used. If,

_ however, this intention is not expressed in clear and

direct terms, courts may look to the acts and conduct

_ of the parties, in order to find out the meaning which

' they. themselves have put upon the contract.’ And

that is why I haye emphasized the factual phase of

. this problem, because from such facts one can ascertain

_ that the intention of the parties was that time was

“not. of the essence.Also bearing on this subject is

Kasten Constr,Co., Inc. v. Maple Ridge Constr. Co.,.

’ Inc., 245 Md. 373, 377. There, the Court said: “In a

case involving specific performance, where the in-_

tention of the parties is always the controlling factor,

the general rule is that time: is not ‘of the essence of

the contract of sale and purchase of land unless a con-

_ trary purpose is discovered by its terms or is indicated

- by the circumstances and object-of its execution and

the conduct of the parties. * .* * Ordinarily, however,

time is held to:be of the essence only when it is clear

. that the parties have expressly so stipulated or their.

intention is inferrable from the circumstances of the

transaction, the conduct of the parties or the purpose

. for which ‘the sale was made.’ , citing a long list . of

Maryland cases.‘

my

29a

“Now, as I said once before, we come to the nitty

gritty. I have tried to sift from my recollection of ©

the declaration, from all of the facts and from argu-

‘ ment of counsel, what I consider to be the questions

‘which I have to consider and decide. They are. as

follows, without comment, in the first instance:

“First,.the contention that Weaver and/or (I hate

that expression but it applies here) Manufacturers .

alleged delay in approving the plans and specifications

constituted negligence so far as Weaver and/or Manu-

facturers is concerned. Subsidiary to that question,

even if one or both were negligent, was such negligence

the proximate cause of any loss or damage sustained

by St. Paul?

' “Second, the contention. that Weaver was négligent

in its failure te procure a commitment for a constru-

tion mortgage. loan.

“Third, the contention that Weaver’ s teiture to but-

ton up Manufacturers’ offer of a construction mortgage

- loan commitment constituted either a breach of con-

tract or negligence on the part of Weaver.

“Fourth, whether by virtue of some act, or failure

to act, Weaver has forfeited its right to retain the

$48,000 fee paid it for ake the permanent mort-

gage loan commitment.

“Fifth, whether Manufacturers’ cancellation of the

- permanent mortgage loan commitment constituted a

breach of contract on its ‘part.

“First. A great deal of the testimony before me and

many of the exhibits are related to thé question of

delay, vel non, in the approval of the plans and speci-

fications. * * *\{E]ven if there were negligence it-was

not the proximate cause of any damage which has

been sustained by St. Paul.

“Second. It i is coritended that Weaver was negligent

in its efforts to procure a commitment for a -construc- |

30a

tion mortgage loan. At this point, I’m not going to

consider the question’ of Manufacturers’ offer. * * *

I cannot find from the evidence that St. Paul has met

the burden of showing that Weaver was negligent in

its failure to precure a commitment for a construction

mortgage loan. And once again, I’m not referring to

Manfacturers’ offer.

“Third. We come to the allegation that Weaver was.

negligent in its failure to button up Manufacturers’

offer of a construction mortgage loan commitment. If

we bear in mind the authorities. which I cited at the

beginning of this opinion concerning the responsibility

of an agent, particularly his responsibility to make

_ full disclosure to the principal, what Weaver did in |

this case becomes of major significance. This is not

a case of mere failure to disclose. Weaver knowingly

made a misstatement of fact. On October-10, 1963,

- Williams told Tinley that he accepted Manufactureres’

offer of a construction mortgage loan commitment and

.that Tinley should close it immediately. Tinley’s re- .

sponse was that the offer was. no longer open, that it

had not been accepted promptly enough. And yet the

_ evidence is clear beyond a doubt that the offer was

still open on that date (and remained open, as a matter

of fact, down to the very day: that the Chemical con-

struetion mortgage loan was buttoned up) and that

Weaver knew this. This was a clear breach of a duty

‘ which Weaver owed St. Paul, and I so hold.

“Fourth. Is Weaver liable for return of. the $48,000)

fee which it was paid for obtaining the permanent *

mortgage loan commitment? You will recall that in

one or two of the authorities to which I referred in

the beginning of the opinion, it was stated that for

breach of duty an agent could lose a fee otherwise

coming to him unless it had been earned. This poses

a problem in this case because St. Paul agreed to pay

Weaver $48,000 for obtaining a permanent mortgage’

loan commitment, and another $48,000 for obtaining

a construction mortgage loan commitment. Weaver

3la

did obtain the former; so that, from that point of view,

it had earned $48,000. However, when you look at all

the evidence, particularly what transpired at the end,

you have here a concern which, under the facts as I

have found them, was acting as agent for St. Paul on

the one hand and for Manufacturers on the other, and

owed a great responsibility to each because of that dual

relationship. Yet at the very end, it’s all for Manu-

facturers, nothing for St. Paul. Tinley goes to the

; building and inspects it not once but on several occa-

sions without Williams being there. The only reason-

able inference that can be drawn from that is that .

such inspections were to be reported to Lamon.

“Weaver hires a photographer to take pictures. Of

what? If Weaver was, in good faith acting as agent

for both, photographs would have been taken of what

had been completed properly as well as everything

that had not been completed. However, according to

Defendants’ own witness, he was’ instructed to take

photographs of portions of the building — had not

been completed. :

“Lambert’s inspection on March 8th and he 9th

starts out ‘at Weaver’s office, moves from there to

the building.

“The circumstances under witch the letters of March

29 and March 30 were obtained from Cogswell and

Neumayer — Cogswell, Tinley and two representatives

of Manufacturers,-were at Wéaver’s — not Williams

or any representative of Williams. The following day

the same thing happened. A letter was obtained from

Neumayer. Williams was not present. Two repre-

sentatives of Manufacturers were — also Tinley. You

have the Gottschalk and Grant incident, where Tinley

was hopeful of peddling the whole deal to them, being

fearful that Williams could not go: through with it? -

So that you have a series of acts which show that, while

‘they were transpiring, Weaver did not act as it should

have towards one of its two principals. If W eaver had

82a

spoken up, as agent for Williams and St. Paul, .and

said to Lamon, here, this building is for all practical

purposes complete, in a week or ten days or two weeks

we can have tenants moving in and the income stream

will start to flow — who knows but that- Lamon and

Manufacturers might have taken a different view of

canceling the contract. However, Manufacturers did —

cancel the contract. So that the service which Weaver

had rendered, and which under other circumstances

would have earned it its fee, was lost, lost completely

so far as St. Paul was concerned. It is my judgment .

that the conduct of Weaver, which I have jist de-

’ scribed in some detail, requires a finding against it on

that count of the declaration which: seeks the return

of the $48,000 fee, and I so hold.

“Fifth. Finally we come to Manufacturers cancel-

ing the permanent mortgage loan commitment. Mr. .

Case said yesterday, and -I agree with him, that the .

_ words, ‘It is understood’ are synonymous with ‘It is

agreed.’ I read the case to which he referred, the -

Phoenix Iron and Steel Co. v. Wilkoff Co., 253 F. 165, — °

167-172. It is highly persuasive. It is my judgment

that ‘It is understood’ is just the same as ‘It is agreed’,

and that is the agreement ‘which is set forth in the

-third paragraph of Plaintiff’s Exhibit No. 4. Now

what is that agreement? The meat of it is, ‘It is under-— pi

stood that our funds will not be required until we

receive a report from your inspector certifying that

construction of the building has been satisfactorily

. completed’, and then goes on to the part concerning.

the certificates required. What does satisfactory mean?

‘I have just purchased what the New York Times Book

‘Review Section says is the best dictionary ever pub-

lished, edited by The American Heritage. ‘The second

definition there of the word satisfactory is adequate.

Webster’s New International, Second Edition, defines

_ Satisfactory as follows: (None of the first definition

applies here) ‘giving or producing satisfaction; yield-

ing content; as: adequate for the purpose; offering

33a

adequate treatment or fullness of detail; of a kind to

meet all requirments or expectations; explaining fully;

serving to allay the demands of a questioner or chal-

lenger; relieving the mind from doubt or uncertainty;

as a satisfactory pension, report, marriage, provision,

excuse.’ The synonym is stated as adequate, satisfying,

expiatory. The antonym is unsatisfactory or inadequate.

So that satisfactory does not mean perfect. It does not

mean absolute: It does not mean to the last nut and bolt.

- And that is borne out by the construction placed upon

the word by Lamon. He was perfectly candid in his

testimony before me. He said that roll over would not

have been stopped by the fact that the commercial space

on the first floor was not complete; that roll over would

not have been stopped by the fact that a punch list

had to be completed; that roll over would not have - >

been stopped by a combination of those two factors.

It’s obvious to’me from his testimony that he did not

-interpret satisfactory as complete one hundred percent,

down to the last nut and bolt. It necessarily follows,

that, if it’s not absolute, final, complete without any-

‘thing of any kind no matter how minute remaining

to be done, it: is a question of degree. And degree

brings us inevitably to the question of substantial

compliance. ;

“Substantial [Performance], in-17 Am. Jur. 2d (Con-

tracts), page 818, section 375, is described as folldws: : j

‘Although there is some early authority in support of

the rule that a party must strictly or literally perform

‘the stipulations on his part before the other party is

obligated to perform, unless the promises are inde-

pendent, the modern authoritiés support a more liberal

rule. Thus, it’is said that the law looks to the spirit

‘ of a contract and not the letter of it, and that the

' question therefore is not whether a party has literally

complied with it, but whether he has substantially .

done so. This has long been the rule in equity. Ac-.

cordingly, the courts now state that substantial, and

not exact, performance accompanied by good faith is

34a

all the law requires in the case of any contract to

entitle a party to recover on it.’’ And then skipping to

the next page, ‘While the doctrine of substantial per-

formance is applied most frequently in building and

constrution contracts, it is not so limited and may be

‘applied in the case of any kind of contractual obliga-

tion to perform.’ Now in the first quotation it is stated

that ‘performance accompanied by good faith is all the

law requires’, and I don’t think that anyone can say

that St. Paul and Williams did not operate in good:

faith. They did everything possible to. push for the

completion of the project by the 7th of March, 1966.

“There is also a note in 76-A.L.R. 2d 815 et seq.,

which admittedly is related only to construction con-—

tracts, but where cases are cited from almost every

state in the Union. All the leading authorities follow.

this rule of substantial compliance — Illinois, Massa-

chusetts, Michigan, ‘New Jersey, New York, Penn-

sylvania.

“In Maryland, it has been applied. At the time of

the decision on the Motion for Summary Judgment,

I referred to the case of First National Realty Corp.

v. Warren Ehret Co., Inc., 247 Md. 652, 656. There are

several portions of that ‘opinion to which I wish to

refer. It’s just as good law today as it was when we

had the Motion for Summary Judgment. In that case

_ there was a-requirement that the work be approved

by the architect, like we have here. The Court had

this to say: ‘If we were concerned with only the ques-

tion of substantial performance, this case could be

put to rest with the decisions of this Court * * *’ citing’

several cases including Evergreen Amusement Corp.

v. Milstead, 206 Md. 610, 621, opinion by Judge Ham-

mond, which is to the same effect. Then’ it goes on to

say, ‘However, this case -presents the further ques-

tion of the effect to be given the express wording of

the contract set forth in paragraph numbered “Twenty-

fifth” which specifically provides | that the “opinion”

of the contractor will control in deciding whether the

35a

- subcontractor (Warren-Ehret) prosecuted the work |

‘. with promptness and diligence or failed in the per-

formance of any of the oa. contained in the

contract.

- ‘There? area ‘isiliaed of Maryland cases which have -

dealt with the question of the performance of.a con-

tract to the satisfaction of one of the parties, * * *.’

That, in substance; is what we have here. The Court

then proceeded to cite a-number of authorities in and

out of the State, including textbooks, and went on to

say, in quoting from 13 Am. Jur. 2d (Building & Con-

struction Contracts), section 30. page 32, where the

architect or the owner or somebody..has the final ‘say,

‘Nevertheless, even under the latter view, the owner’s

claim of dissatisfaction must be made in good faith,

and this is ordinarily a question of fact for the jury.’

The Court went on to say (page 660), ‘* * * whether

the objective criteria (i.e., reasonable-man rule) or

subjective criteria (i:e., the individual personal satis-

. faction of the owner) must be met, the Courts, with

very few exceptions, have asked the question whether

the action on the part of the owner was capricious or

arbitrary, and if such action was present it vitiated

the quality of the reasonableness of the owner’s action

in the objective criteria gases and his good :faith in

the subjective criteria sales:

“Referring (page 661) to a Pennsylvania decision,

Hood v. Meininger, 377 Pa. 342, 347, the Court said,

‘* * * where the Court in rejecting the “reasonable

man” test and adopting the subjective criteria test,

found in favor of the owner and against the contractor

stating: “* * * (1) that the dissatisfaction.must be

genuine and not prompted by caprice or bad ‘faith,

and (2) that if the work is not sufficiently completed

for a reasonable determination whether it was or

would be satisfactory, then the —— is =

mature”. >’ :

“Interestingly simile. what brought the problem i in

First National v. Warren-Ehret to a head was a tor-

_rential downpour of four to, five inches which in-

undated parts of the building and, as the trial judge

said, snapped the patient of the contractor and trig-

gered the dismissal of the roofer, and triggered the’

termination of the contract. I have no doubt that, in

ty

' - the 22nd and 23rd floors from leakage, Manufacturers:

_ would not have had the gall or the nerve to cancel

the contract 5 it did. — .

- “Now looking at contracts in general, the bw appli-

cable to contracts and what happened i in this case, was

Manufacturers justified in canceling its commitment? -

~“It had agreed with Chemical Bank and New York

_ |. Trust Company that ‘At any time on or before Sep- —

tember 7, 1965 (or the last day to which the commit-

ment may be extended,:if any extension thereof. has

been made as provided herein), if the conditions of the

Commitment have been fulfilled, you agree te pur-

chase and we agree to sell the Note for $4,800,000.’ St.

) Paul was the beneficiary of that contract; Now what

is are the facts and circumstances surrounding the can-

_ cellation? In the first place, I am persuaded from all

of the evidence that the only stated reason for the

cancellation, before the fact, was that the building

was not-complete. I am persuaded, as Lamon de-

scribed Williams’ reference to the cause of the leaks,

viz., a snowstorm — that it was an afterthought to say

that the certificates had not been furnished. Although »

- it is not necessary to hold this, there is some law that.

if one states a reason ‘for cancellation of 4 ‘contract,

they’re stuck with it. They can’t later on try to drag

in some other reason or excuse. That’s the case that

Mr. Freishtat referred to in-his argument yesterday,

. Brush-Swan. Electric Light Co. of New England v.

Brush Electric Co., 41 Fed., 163, at pages 168-169. In

determining the answer to this question, it is necessary

that the Court bear in mind, that basically, the law

frowns on forfeitures. of any kind. That’s what. the

‘effect = this cancellation was — all that had been

« +8

the present case, if there had not been the damage to. -

37a

expended « on that building at the date of cancellation

was lost, so far as St. Paul was concerned. The evi-

-.dence discloses, based upon my ‘findings of fact. that

although Weaver had not told Manufacturers about,

Williams’ poor credit experience in Virginia, had not\

told Manufacturers. that Williams had no money of

his own -to invest in this proiect, had merely told

Manufacturers that the project had to be one hundred

percent financed, I have found that Weaver was Manu-

chargeable to\Manufacturers. We then have the Feb-

ruary 28, 1966, visit to Baltimore by Lamon, when he

learned that Williams. might be on thin ice, that he

was unhappy with his contractor, that he was con-

sideririg-suit against the contractor, that he was threat-

ening not to pay intereSt if there were a roll over,

until he ironed out his problems with Mullan. These

were ‘all matters which*I can understand worried

Lamon tremendously, but- matters which he had no .

legal right to consider,. none at all. He had no right

to speculate, even though it ‘was a reasonably good

speculation, as to what would happen in the event

there was a roll over. Many things might have hap-

pened which could have bailed out Williams after a

~ roll over, which would have enabled him to preserve

the status quo. But, in any event, whether they would

or would not have happened, Lamon had no legal right

to anticipate that they would. He had an obligation —

to live up to his contract, if the other party had lived

up to its. I am persuaded beyond any doubt that the

reason for the cancellation of this contract was, first,

‘a calculation risk taken by Manfacturers that if it

didn’t accept the roll over, and if the construction

mortgage were foreclosed, and if Manufacturers were

sued, that it could weather the storm, either by avoid-

‘ing liability completely, or if subjected to liability,

by minimizing damages. They took that calculated |

risk, and they’re stuck with the result. It is my judg-

ment, — a so hold, that first, this building \ was sub-

, —_,

ra ‘ PANG Boh BES

2 aan AA BTR ME FRY LR ALE POLIT RR PALE FNP EERE LOOT ERE OLILL ILLIA oe ee

ane ‘ 4 TAR ‘ rena e ;

- facturers’ agent, and as such all that information was ~ \

te

38a

stantially completed, and that was all that was re-

quired so far as the contract was concerned; second,

that Manufacturers had more than adequate protec-

tion by escrow of funds sufficient to complete ‘the

building, at which point the necessary certificates

would have been forthcoming. So that, so far as the

roll ‘over was concerned, Manufacturers had every

legal and practical protection it needed, or could have

- arranged for such legal and practical protection and

_/wes obligated to accept the roll over; that in not

accepting the roll over, it breached its obligations

under the loan commitment and under the Buy-Sell:

Agreement of which St. Paul was the beneficiary.

“Now, thus endeth this lesson. We now have to

recess for as miuch time as counsel want to —

for trial of the question of damages.”

.

PREJUDGMENT INTEREST

The trial judge allowed prejudgment interest on the de-

ficiency decree from the date of entry of that decree down -

to the date of his judgment. After quoting extensively

from the opinion of Judge Sobeloff (a former Chief Judge |

of this Court), in Robert C. Herd and Company, Inc. v.

Krawill Machinery Corp., 256 F. - 946 (4th Cir. 1958),

. he said:

. “It is my judgment that the exercise of judicial dis-

cretion requires the award of Bree apngeredhs anger

of the deficiency decree from te of the entry of

. that decree down fo the daté of this judgment. I have

_ considered whether or not interest should be awarded

on any other phases of this case, and have determined

that to allow interest on the other judgments nisi

would constitute an abuse of judicial discretion.”

St. Paul and Williams take issue with this, quoting

further from Herd, asking the Court to take judicial cog-

nizance of the fact that “delay is the best defense”, stating

that St. Paul “was left impoverished and destitute and faced

with huge obligations, on all of which interest was and is

39a = —— =

- accruing, while the Defendants ‘were using the monies

wrongfully withheld from. St. Paul to their advantage,

during a period of spiraling interest rates”, and suggesting:

that the trial judge abused his discretionary powers.

In \Atlantic States v. Drummond & Co.,.251 Md. 77, 246

A. 2d 251 (1968), Judge McWilliams said for the Court:

“Ordinarily~the matter of interest is left to the dis--

cretion of the jury or the court sitting without a jury.

In Affiliated Distillers Brands Corp. v. R.W.L. Wine -

' & Liquor Co., 213 Md. 509, 516, 132 A. 2d 582 (1957),

we said:

‘However, this general rule is subject: to certain

exceptions that are as well established as the rule

itself? Among-the exceptions are cases on bonds,

or on contracts, to. pay money on a day certain, .

and cases where the money has been used. If the

contractual obligation be unilateral and is to pay

a liquidated stim of money at a certain time, in-

terest is almost universally allowed from the time

when its payment was due. [Citing cases.]’ .

To the same effect see Mullan Contracting Co. v, In-

ternational Business Machs. Corp., 220 Md. 248, 151

A. 2d 906 (1959).” Id, at 85..

In City Pass. Ry. v. Sewell, 37 Md. 443 (1873), our prede-

cessors said:

“It ‘must be conceded that interest is Fi an in-

separable and invariable incident of claims for money,

or unliquidated accounts.: ‘It is recoverable as of right,

upon contracts in writing to pay money upon a day~* .

certain; as upon bilis of exchange and promiissory

notes, or on contracts. for the payment of interest,

or where the money tlaimed has been actually used,

and upon bonds, etc., but in other cases, it is a question

entirely for the jury to be decided according to the .

equities of the transaction.’ Newson v. Douglass, 7 .

H: & J. 417; Karthaus v. Owings, 2G. & J. 430.” aca

‘at —_ (emphasis in original).

*

. &

40a

See also A. & A. Masonry v. Polinger, 259 ) Ma. 199, 203-204,

269 A. 2d 566 (1970), which quoted both of the above cases.

. As Brantly on Contracts (2d ed. rev. 1922) puts it?

“Interest is recoverable as of right upon all. con-:

tracts to pay money upon a day certain, as upon bills of . .

exchange, or where goods sold and delivered are to be °

‘paid for at a given time. In other cases the. allowance

. of interest. is —— the discretion of the jury. a

at 460.

“A contract ) to loan ee can not te equated with a

i _ contract to pay money ‘on a day certain. The trial judge

was the trier of fact. His statement ‘relattve to judicial

discretion was entirely in accord with the Maryland author-

ities. | ;

‘Punrnive Dascaces

The trial judge allowed punitive damages on both the

rst and: second counts of the declaration. As previously

- indicated, the first count was a pure contract claim, while

- the second count alleged negligence by Weaver Bros. in

' the performance of its contract with. St. Paul. Judge

Proctor in his award recognized the general ‘rule that in

a contract action punitive or éxemplary damages are not

-recoverable, citing 22 Am. J ur. 2d Damages § 245 (1965)

and 5 Corbin on Contracts § "1077 (1964). A comment to

- the same effect is to be found in Restatement of Contracts —

§ 342 (1932). The award on the first count was made on

the strength of Brown v. Coates, 102 App. D.C. 300, 253

F. 2d 36, 67 A.L.R. 2d 943 (1958). No Maryland authority

_ was cited to = the allowance of punitive damages in

this type ‘of case..

The Maryland rule relative to punitive damages was

most recently summarized for the Court by Chief J udge

- Hammond in Damazo-v; Wahby, 259 Md. 627, 270 A: 2d 814 a

(1970), where he said:

+ Puntiive damages were claimed on all of the tort.counts of the

declaration, but on none of the contract counts including the first:

count.

‘é “

&

4la

“The Maryland ‘rule is that mialice in the serise of

deliberate and improper violation of a known right,

that..is, absence of legal justification, will support an

action and permit recovery of compensatory damages

for deprivation of known contractual rights but that

actual malice must’ be shown to support punitive

damages. Knickerbocker Co. v. Gardiner Co., 107 Md.

556; Stannard v. McCool, 198 Md. ‘609; Heinze _v.

Murphy, 180 Md. 423: There is no’ evidence here to

show more than that Damazo wanted to ‘benefit him-

‘self by receiving the gross purchase price without

diminution for commissions and the various purchasers

wanted to pay a lesser purchase price that the. avoid-

ance of the earned commissions would permit.” Id. at

638-639.

In Damazo a broker claimed commissions on the sale of .

_ apartment properties and damages for tortious interference .

with and conspiracy by the séllers and buyers to deprive

him of contract rights. The trial court found the broker

was the procuring cause of the sale, that the two parties

tried to bypass the broker, and awarded the commissions.

earned, nominal compensatory damages, and punitive dam-

ages. This Court affirmed on liability but. reversed relative

to punitive damages. © .

The classic case in Maryland on punitive damages in-

volving tortious interference with a contract is Knicker--

-bocker Co. v. Gardiner Co.,.107 Md. 556, 69 A. 405 (1908).

There a dairy company had a contract with an ice company ~

by which the ice company was to supply the dairy company

with ice during a-certain season at a designated price. The

ice company procured large quantities of ice from Knicker-

bocker, a company manufacturing ice. ’ Knickerbocker, °

knowing of the existence of the. contract between the

dairy company and the other ice company and intending .

to obtain a benefit for itself, notified the other ice company

that if it sold ice to the dairy company Knickerbocker would

refuse to supply any ice to it: Consequently,. the ice—

company. broke its contract with ‘the dairy company and

that company was compélled to purchase ice ‘from Knicker-

bocker at a price — than that stipulated for in its con-

-

42a°

tract with its original supplier. Punitive damages were

. claimed. Chief Judge Boyd said for our predecessors:

“But the difficulty is that there is no evidence of malice

in this case, unless it be such as some of the cases

speak of — that the intention to benefit the defendant,

or to injure the plaintiff, is to be treated as evidence

_of malice. But we have found no case in which exem- -

plary damages were allowed for malice implied from

such facts. The facts stated in the first prayer are in

. our judgment sufficient to entitle the plaintiff to re-

cover, but we do not think they authorize recoyery of ©

exemplary damages, and there was not sufficient evi-

dence outside of those facts to authorize the submis-

sion of this prayer.. We do not mean to say there may

not be such damages in cases of this character, for if,

. for example, there was evidence tending to show that

the defendant had caused the contract to be broken

for the sole purpose, and with the deliberate intention

of wrongfully injuring the plaintiff, exemplary dam-

ages might be recovered, but when the object was

- merely to benefit itself, although the plaintiff would be

thereby injured, there would be no more reason for -

_ allowing such damages than there would be in a suit

by one party to a contract against the other for breach

of it.” Id. at 569-570. —

. Cf. Rinaldi v. Tdna, 252 Md. 544, 250 A. 2d 533 (1968), as

commented upon in Damazo, 259 Md. at 639.

It is true, as St. Paul urges, that there has been dis-

‘cussion in the Maryland cases of wanton conduct as per-

mitting the recovery of punitive damages. These cases in-

clude Moore v. Schultz, 31 Md. 418 (1869); Sloan v. Ed-

‘wards, 61 Md. 89 (1883); Philadelphia, W. & B. R.R. v.

Hoeflich, 62 Md. 300 (1884): Baltimore Transit Co. v. Faulk-

ner, 179 Md. 598, 20 A. 2d 845 (1941); Heinze v. Murphy,

180 Md. 423, 24 A. 2d 917 (1942); Dennis v. Baltimore Tran-

sit Co., 189 Md. 610, 56-A. 2d 813 (1948); and Vancherie

v. Siperly, 243 Md. 366, 221 A. 2d 356 (1966). -Comfort is ©

derived from such comments as that of Judge Delaplaine

43a

| for the Court in itdineve Transit Co. v. Faulkner, where ~

at page 602 “wanton” was defined as: “Characterized by

extreme recklessness and utter disregard for the rights of

others.” None of these cases arose from contract actions. .

We interpret the language of those cases which speak of

wanton conduct or wantonness as being a basis for award-

ing punitive damages as referring to such conduct as would

' carry an implication of malice or as conduct from which

one would draw a necessary inference of malice; conduct_

from which one might determine the existence of actual

malice. There is no evidenee of malice in this case. The ©

sum total: of the conduct of Weaver Bros. in this case is .

but little different from the conduct in Knickerbocker ,

where Chief Judge Boyd said, “[WJhen the object was |

merely to benefit itself, although the. plaintiff would be -

thereby injured, there would be no more reason for allow-

ing such damages than there’ would be in a suit by one

party to a contract against the other for breach of it.” ©

' Accordingly, upon the basis of the prior Maryland holdings, .

we conclude that the conduct of Weaver Bros. was not such ©

as to warrant ae damages. |

DaMAGES ones MANUFACTURERS — Loss or B ING

St. Paul upon the strength of its conception of Hadley

v. Baxendale, 9 Exch. 341, 5 Eng. Rul: Cas. 502 (1854),

contends most strongly that it is entitled to recover $7,920,- :

‘000 for its loss of the property and $2,465,000 for its loss ©

of the business, the latter figure being the difference be-

tween its valuation of $7,265,000 for the business and the

mortgage of $4,800,000: It says that at the ‘time of the’

contracting | Manufacturers. had valued the building and —

- land at $7,920,000 and valued the use of the building on an

incomé basis of $7,265, 000. It is correct in. those statements. _

The Hadley v. Baxendale rule is succinctly summarized

in Brantly on Contracts (2d - rev. 1922) in the piowing

language: .

“The ‘uaa which a plaintiff : is entitled to re-

cover for a breach of contract ‘should be such as may

.

44a

’ fairly and reasonably be considered as either arising

naturally, ‘i.e., according to the usual course of things,

from such breach. of contract itself, or such as may

reasonably be supposed to have been in the contem-

plation of both parties at the time they made the

contract as the probable result of a breach of it.’” Id.

at 457.

‘“* *

“When a contract tas been made ‘tte special cir-

cumstarices and these were communicated to thé de-

fendant then, in case of a breach, the plaintiff is en-

‘titled to recover as damages the amount of the injury

which would ordinarily follow from a breach. But

whether such special damages may reasonably be sup-

posed to have been in the contemplation of both parties

depends upon how much of the real situation was so

disclosed. ;

_ “The special circumatances which may render a

breach more than ordinarily injurious to the one party

must be known by the other party,whom it is sought

to charge with ‘the loss, at the time the contract was

made and not afterwards.” Id. at 459. .-

: This was ‘a contract to lend money. Restatement of

_ Contracts § 343 (1932) states upon thi. subject:

_ “Damages for breach of a contract to lend money.

are measured by the cost of obtaining the use of money

during the agreed period of credit, less interest at.the

rate provided in the contract, plus compensation for

other unavoidable harm that the defendant had reason

to foresee when the contract was mete. er

5 Corbin on Contracts § 1078 (1964) siakia the abe

“The better rule and the one generally followed is

that for breach of a contract to lend money the. bor-

rower can get judgment for damages measured by

. his resulting injury so far as the defendant had reason

to foresee such iniury when the contract was made.

This is the rule applicable to contracts in general, and

»%

ie

45a: |

3 nay . er

a lenfler 9f money should be subject to it like other

contr s. Doubtless there are many cases in which

he has no reason to foresee that the borrower will be

unable to secure money elsewhere or that there will

be special injuries; but if he has such reason he must

‘make good the loss. There are many well considered

cases that have applied this rule.” Id. at 447-448.

11 Williston on Contracts § 1411 (3d Ed. Jaeger 1968)

states:

“It will frequently. happen that the bencolnrs is un-

- able to get money elsewhere, and, if the defendant had

notice of the purpose for which the money was desired,

he will be liable for damages caused by. the plaintiff’s

inability to carry out his purpose, if fe performance

" of the promise would have enable him to do so.” Id. |

at 614. :

“in -F. B. Collins Inv. Co. v. Sallas, 260 S.W. 261 (‘Tex.

Civ. App. 1924), the loss to which a landowner was entitled

- in a situation such as this‘was summarized: —

“It is the landowner’s interest in the land, repre-

sented by the value of his equity, that he would be

- entitled to as compensation. For legally the value of

the equity is his only ‘actual loss.’ The. value of the

‘ equity.is not measured, as-a matter of law, by the

‘amount of the purchase price paid in cash for the land —

. in.-the first instance.: The value of this equity must

. appear and be established at the time the title is lost. °

For the value of the equity at the time the title is lost —

may or may‘not be the same as at the time of the

original purchase by the landowner: The market value

of the land rises and decreases, ‘according to conditions .

and circumstances. If the market’ value of land goes ©

below the original purchase price paid, the value of the 3

equity would consequently be less and, on the other

hand, the value of the equity would be greater if the:

market value of the land should be greater than the

original purchase price paid. In either event the land-

owner could recover the value wes his equity, and no

more.” Id. at 265.

. See also Avalon Const. Corporation v. Kirch Holding Co.,

256 N.Y. 137, 175 N.E. 651 (1931).

It does not appear from this record that St. Paul was

able to go into the marketplace and obtain a loan else-

where in the time available to jt. The foreclosure sale by

Chemical took place on June 1. Fruitless efforts were made

by St. Paul to obtain funds elsewhere. As Judge Proctor

put it: ©

“(T]he next to the last paragraph [of the permanent

mortgage loan commitment] clearly contemplated an

antecedent construction mortgage loan and the execu-

tion of a Buy-Sell Agreement. This is standard pro-

cedure in a transaction such as this. In the first in-

stance the funds are obtained from the construction

' mortgage lender. The permanent mortgage lender

agrees to buy the promissory note, secured by the

- assignment of a Deed of Trust, from the construction

mortgage lender upon the completion of the project. ‘

It is contemplated that the borrower will use the

funds to build the proposed project — to pay” diréct

and indirect construction costs. In such a transac-

tion the parties, of course, anticipate that everything

will proceed according-to Hoyle — that there will be

no breach by either party. On the other hand, the

' would be permanent mortgage lender must contem-

plate that if, at the last minute, it cancels its com-

mitment such action would be disastrous to the bor-

rower; that in such event obtaining a new permanent

mortgage loan would be well-nigh impossible, for the.

reason that whatever brought about the cancellation

would in all likelihood prevent another: lender from

entering the fray; that one doesn’t find someone will-.

ing and able to lend $4,800,000 at a momient’s notice;

that, under such circumstances, foreclosure under the

construction mortgage would not only be a probabil- —

ity, it would be almost inevitable.” ;

47a

Accordingly, St. ‘Paul under the circumstances here was

entitled to more than nominal damages.

The trial judge here determined that at the time of the

loss St. Paul had no equity. in the property. In other words

he determined the value of the complete building. to be

not greater than the mortgage. There was ample evidence

‘to sustain this conclusion upon his part. Under Maryland.

Rule 886; this finding would not be disturbed by us if. this

were one of the issues specifically argued on appeal: The

position of St.-Paul ‘is that because a tentative value of

the building was assigned by Manufacturers in making its

loan that this becomes the criteria for determining dam-

ages.

St. Paul misunderstands the application of the ule. It

would have been the loss of the building which the parties

would have foresegn.at the time of entering into the con-

tract. It does not/ follow that the value of the building

and, therefore, the amount of.the loss is established by

the parties at that time. Judge Proctor was entirely cor-.

rect in determining that the loss was the equity, if any,

in the building. There was no equity. Therefore, he was

correct in allowing nothing for loss of the building.

St. Paul would also place a valuation on the business

and claim the loss of that. On the issue of lost profits,:

which was but another way of claiming the loss of the

value of the business, the trial judge said:

~“(1). Alleged Loss of Profits.

“In Lawson v. Price, 45 Ma. 123, 139, appellee brought

an action against appellant for obstructing the’ mill

_ race leading to his distillery. It was held that lost.

’ profits could be recovered as an element of damage

because they could be ascertained with reasonable

certainty. In doing so the Court cited, with are.

Sedgewick..on Damages, 89,. as follows:

‘It may now be assumed to be the general rule :

tv1at in actions of tort, where the amount of profits

__’ 4 which the injured party is deprived, as a legiti-

mate result’ of the trespass, can be shown with

48a

reasonable certainty, such profits constitute to

that extent a safe measure of damages. In these -

cases, the rule adopted with reference to certain

breaches of contract which makes the offending ~

party liable far the léss of profits, so far omly as

he. foresaw, or should: have foreseen that par- -

ticular consequence of his act, does not apply.

. He who commits a trespass must be held to con-

template all the damages which may legitimately

follow from his illegal act,-whether he might have

foreseen it'or not; and so far as it is plainly trace-

able, he should make compensation for it. To this

extent, the recovery of a sum equal to the profits

lost, while fairly within the principle of com-

pensation, is also within the limits which exclude

remote consequences, from the scale in Which

the wrong is weighed.’ |

“In Winslow Elevator Co. v. Hoffman, 107 Md. 621,

640-1, the owner of a building (recently constructed) «

had brought suit against’ the elevator contractor for;

among other things, loss of rents from the building

allegedly attributable to the defective elevator. The

Court held as follows:

*.* * In Wolcott v. Mount, 36 NIL, 269, the

Court said: “It must not be supposed that, under

- the principle of Hadley v. Baxendale, mere specu-

lative profits, such as might be conjectured to

have been the probable results of an adventure

which was defeated by the breach of the contract

sued. on, the gains from which are entirely con-

jectural, with respect to which no means exist of

_ ascertaining, even approximately,: the probable

. ‘results, ean, under any circumstances, be brought ~

within :the range of damages recoverable. The

' cardinal.principle in relation to the damages to

be compensated for on the breach of a contract,

that the plaintiff must establish the quantum of his

loss by evidence from which the jury will be able

to estimate the extent of his injury, will exclude

ae

49a

all such elements of injury as incapable of being

ascertained by the: usual rules of evidence to a

. reasonable certainty.”

‘When the claim of the plaintiffs for the recovery

of lost rent is considered in the light of these rules

it certainly must be denied. What rent they might

have received from the building was not only

dependent upon collateral engagements with per-

sons who might rent the rooms, but upon many .

. other considerations, such as location, desirability ~

of rooms, the amount of rent asked, light and

air, competition of other buildings, the number

of tenants, the ability of the: owners to keep the ©

rooms occupied, and the general character of the

management of ‘the building. There are so many

sie elements of uncertainty which enter into and af-

ws fect the question that any estimate of loss could

be little short of a guess. The special damages

sued for in this case-are so uncertain and incapa-

ble of reasonable ascertainment that they cannot

be. recovered.’

“ix Evergreen Amusement — v. Milstead, 206

-Md. 610; 618, the operator of a new drive-in movie |

theatre, in a suit by a contractor, counterclaimed for

alleged loss of profits attributable to the delay in the

work. The Court of Appeals‘ held that because the

venture was new profits were too uncertain to form

a basis for recovery, saying; -

‘* * * on the other hand, loss of profits from .a

_ business which has not -gone into operation may

not be recovered because they are merely specu- <*

lative and incapable of being ascertained with

‘the requisite degree of certainty. Restatement,

Contracts, Sec. 331, states the law to be that dam-

ages are recoverable for profits prevented by

breach of contract “only to the extent that the

evidence affords a sufficient basis for estimating

their amount in money with reasonable certainty”

* * i ’ .

50a

~ .. See also: M. & R. Builders v. Michael, 215 Md. 340,

352, where the Court of Appeals cited 4 number of

cases in which plaintiffs were not allowed to recover |

‘collateral, estimated and probable profits claimed to

have been lost.’; Abbott v. Gatch, 13 Md..314, 332-4;

Lanahan v. Heaver, 79 Md. 413,: 418-23.

“Reference to the hypothetical question put to the

witness Hoffman by Plaintiff’s attorney (objection

to which, incidentally; should have been sustained by

the Court) is. sufficient to demonstrate that the al-

leged loss of profits from this venture were completely ;

speculative. Realization of profits from a new untried.

verlture such as this depends on so many uncertain-

ties that they cannot rat a proper element of dam-

age ina ae action, and I so hold. e

We adopt that opinion. \ -

COMPUTATION OF DAMAGES

In computing damages we start with the .comment. of

this Court in Casualty Ins. Co. v. Messenger, 181 Md. 295,

29 Af2d 653 (1943), involving application of the Hadley -

v. Baxendale rule. "There a«liability insurance policy was

issued covering operatioris of a tractor and trailer within,

a radius of.500 miles of Salisbury. An accident occurred

in South Carolina which the company held not to be within

a radius of 500 miles of Salisbury. Judgment was obtained

against the insured and his tractor and trailer were levied |

upon and sold by the sheriff at auction in South Carolina:

- The insured brought suit in Maryland for the loss of: his

‘tractor and trailer. He. established the point of accident

to have been within a radius of 500 miles of Salisbury.

In sustaining the action -of the trial court and jury in

awarding a verdict to the insured for the loss of his ve-

_hicles, Judge Delaplaine said for the Court:

“The court should endeavor to place the injured per-

son, as far as possible by monetary award, in the posi-

tion in which he would have been, if: the contract had

been properly performed® Chamberlain v. Baltimore

| ; 5la

& Ohio R. Co., 66 Ma. 518, 529, 18 A. 267; United

States v. Behan, 110 U.S. 338, 4 S. Ct. 81, 28 L. Ed.

168.” Id. at 301-02.

(i) First Sea

The trial judge allowed $5.00 compensatory damages

and $50,000 punitive damages. We have already indicated

that he erred in allowing the punitive damages. Under

Rule 886 “the judgment of the lower court will not be set

aside on the evidence unless clearly erroneous and due

regard will be given to the opportunity of the lower court

to judge the credibility. of the witnesses.” ‘Accordingly,

the $5. 00 compensatory damages on that count must stand.

(ii) Second Count | 4

The trial. judge allowed $100,000 punitive damages and

$185,167.40 in compensatory damages, the latter figure

_ being made up of the $175,167.40 which St. Paul was en-

titled to draw from Chemical but which had not been paid

to St. Paul‘and a total of $10,000 paid to Monen and another

in connection with a loan from Merchants.

There is a strong contention on the part of ‘Weaver

Bros. that the item of $175,167.40 should not stand. It

said:

“FTIt represents 1 no true loss on the part of St. Paul...

The Court’s award completely overlooks the fact that |

the funds in question were part of a loan from Chemi-

‘cal, that would ultimately have to be repaid. The

‘final advance would satisfy a. debt owing [Mullan]

. Contracting, and create a debt larger pro tanto with

the .construction iender. -The ‘damage’ being fully |.

offset by a ‘credit’ in another column of the hypo-

) _thetical ledger, St. Paul has lost nothing. The-Court’s |

award is founded on an illusion and clearly should

, not age theirs. ap oats

The “building: Ioan” agreement between. St. Paul and

becca provided:.

2° 0+) 58a

- “16. Trust Fund. Borrower covenants that Bor- .

rower will receive the advances to be. made here-

under and to be secured by the Mortgage, and will

hold the right to receive such advances as a trust fund

to be applied first for the purpose of paying the cost

of improvement and will apply.the same first.to the

payment of the cost of the Improvement before using

any part of the total of the same for any other pur- —

pose, except for payments ecpementd authorized in

Schedule B.” ,

The statement by Weaver Bros: dleiton to‘ bookkeep-

ing is correct, as far-as it ‘goes. One must look to the

end of the line, however. Under the contract with Chemi-.

cal the $175,167.40 item would have been payable to

Mullan Contracting: As this case stands, Mullan Con-

tracting as a. use plaintiff ‘is to be paid substantially

in excess of that amount from any judgments recovered ©

in this proceeding. Therefore, the indebtedness of St.

Paul at the conclusion of this litigation will be $175,-

167.40 greater if this amount is not*allowed as an item of

damage against Waver Bros. than if it is so allowed.

The trial judge’ s basis for ‘charging this item to Weaver

Bros. was summed up in his comment:

“From my findings set forth immediately above, it

is my conclusion that had Manufacturers been the

construction mortgage lender as well as. the perma-

nent mortgage lender, the building would have been

‘completed’, and that such completion would have

been certified by Cogswell and Neumayer, and that, _

therefore, there would have been ng retainer. In any

‘event, I find that Weaver’s tortious conduct deprived

Plaintiff of an opportunity to complete the: building

to the satisfaction of Manufacturers, who would other-

wise have been the construction lender, and to draw

3 down the full amount of the construction mortgage

loan.” ;

The trial judge correctly conthaded that the items total-

ing $10,000 paid by St. Paul as finders’ fees to procure the

pte,

Merchants loan was a proper item does damage sllowslle

- against Weaver Bros. ~

Since there was. error in allowing punitive damages,

the damages allowable under this count are $185,167. a.

compensatory damages.

(dii). Third Count.

Under this count the trial judge allowed as consequen-

tial damages $1,552,783.20, which is the amount of the de-

‘ficiency decree obtained by Chemical in the amount of —

$1,297,952 plus. accrued interést. On that.subject he said: ‘

“B. Alleged Consequential Damages.

“(a) Chemical’s deficiency decree. The deficiency 2

decree held by Chemical is part and parcel of the fore-

closure proceedings which would not have been insti-

tuted had Manufacturers fulfilled its obligation under

its letter. of commitment and under the Buy-Sell

Agreement — Plaintiff would not be saddled with .

this debt which, since February 23, 1967, has been,

bearing interest at 6% per annum. As was said in

Pennsylvania, etc., Casualty Insurance Co. v. Mes-

senger (supra), “The Court should endeavor to place

the injured person, so far as possible, by monetary’

award, in the position he would have been if the con-

- tract had been properly. performed.’ See also: War-

tenbe v. Car-Anth. Mfg. Co., 362 S.W. (2) (Mo.) 54,

56. To do that in this case it is necessary that I re-

quire Manufacturers to pay to Plaintiff such a sum

as will enable it to liquidate its — under the

deficiency decree.”

We adopt that opinion.

On the remaining items the trial. ‘eit said:

“(b) Finder’s Fee paid Manufacturers for exten-

sion. Manufacturers was paid a finder’s fee of $24,000 —

for extending the expiry date from September 7, 1965,

to March 7, 1966. There is no causal relationship of

any kind between Manufacturers’ breach and the

payment of this fee. It was not in any way a conse- .

54a

quence of that breach, and for that reason this claim

-is disallowed.

- “(e@) Weaver’s Finder’s Fee of $9, 600. In order that.

Plaintiff might fulfill its obligations to the landowners.

under the land options, so that the land would not

be lost; Weaver agreed to lend and Plaintiif agreed

to borrow the sum of $480,000. This transaction took

place on September 18, 1963. For placing the mort-

gage Weaver charged a finder’s fee’ of $9,600.. There

is no causal relationship whatsoever. between Manu-

facturers’ breach and his expense, and it is, therefore,

disallowed ¢ as an element of damage. under this con- .

~ tract.

“(d) Interest on the $480,000 mortgage. When the |

Chemical construction mortgage loan was closed in

‘New York on May 1, 1964, the mortgage in-the amount

of $480,000 was raid off, as was accrued interest in

-the amount of $18,160. This ‘is disallowed as an ele-

ment of damage, for the reasons just: stated.

“(e) Merchants’ Finder’s Fee. As I have already

stated, the $72,000. fee paid Merchants for the con-—

struction mortgage loan was exactly what Plaintiff

would have had to pay Weaver and Manufacturers

had the latter’s offer been accepted. There is no evi-

dence to support a claim for $2,500 attorneys’ fee.

_ The $10,000 paid Monen and another has already

been allowed a§ an element of damage in the claim

against Weaver. None of these expenses bear any

causal .relationship whatsoever to Manufacturers’

breach, and for that reason these claims are disal-

lowed.

“(f) Dr. Merrill’s. $50, 000. When the land for the

builcing- site was purchased, Plaintiff agreed to pay

_ Dr. Merrill the sum of $50,000 as ‘moving costs’ over

and above the purchase price of his land. Once again,

there is no causal relationship whatsoever between

this claim and Manufacturers’ breach, and, therefore,

this claim is disallow

——

55a

.

Except as to Dr. Merrill, we disagree.

The attorney’s fee mentioned actually was $3,500. P¥fis

was an oral opinion and the record is complex. . There-

fore, it is. not surprising that there might be an error of

$1,000 in the quotation of figures. The attorney’s fee is

fully set forth on the settlement sheet filed as an exhibit

in this proceeding.

We note that Weaver Bros. said in submitting the origi-

nal proposal to Manufacturers: 7 i

sa CS - “CONSTRUCTION COSTS

“The attached Marshall and Stevens appraisal gives

us a reproduction cost new of the subject building

of $7,245,000. This appraisal service has proven ex-

tremely reliable in estimating construction costs on .

garden-type apartments as it takes into account all

the myriad ‘costs incidental to construction which

become a part of final price. Some of these costs __.. eee

as follows: , | a eae ee

1, Contract extras — can add up to 10% of base

contract.

F ¢ . a B. i >

Arehitect’s fees — usually approximately 3%

of base contract on a building of this size.

to

Engineering fees. :

Financing charges. | |

Interest on construction loan.

Settlement charges.

Off-site utility charges.

SN 8 PP &w

Building permits.

9. Leasing and advertising expenses.” .

It has been determined that St. Paul had no equity in > ae

the building and that, therefore, the value of the build- by.

ing could not be recovered. In that case it then follows. ~

LPIA ORSINI IEE SM A RE OO

Rewer yronteteom e

- 56a

that if St. Paul is to be placed “so far as possible, by

monetary award, in the position [it] would have been if ©

the contract had been properly performed”, it must be

permitted to recover those items which it has been obliged |

to pay out or for which it is liable that are connected with

the erection of the building and which would in the normal

course of circumstances have been paid -from the loan

from Manufacturers. The Manufacturers’ loan was to be

- approximately $1,300,000 more than the contractor’s con-

struction cost. Had there been no breach, St. Paul not

only would have had this fund from which to make, pay-

ment, but it anticipated having a business in being to gen-

erate revenue for repayment of the, loan which would _

have paid these items. ‘Thus, portions of the construction .

costs paid by St. Paul or for which it still remains liable

_are part and parcel of St. Paul’s loss directly chargeable

to the breach by Manufacturers.

-The trial judge correctly excluded the claim for: the

moving costs to be paid Dr. Merrill since that was-not a

part of construction. However, within the contemplation

of the parties under the Hadley v. Baxendale rule would

be the $24, 000 extension fee paid Manufacturers, the $9,600

fee paid Weaver Bros. on its loan of $480,000, the $3,500

attorney fee previously mentioned, the balance due the

architect said to be $108,000, the interest paid on the

- $480,000 mortgage, and: the balance due Mullan Contract- .

ing and Real Estate Management Co., Inc., under the con-

struction contract, said.to have amounted to $270,627.41.

Apparently, from the record this item is drawing interest

from April 2, 1968. It would appear proper to allow interest

from that date. In making computations. allowance must

be made: for the item of $175,167.40 discussed under the

second count which should ke..credited on the. Mullan

claim.

The original charge of Weaver Bros. was to be $48,000.00

for obtaining the permanent mortgage loan and $48,000.00

for obtaining the construction mortgage loan, a. total of

$96,000.00. When the contract with Weaver Bros. was re-

written in December of 1963 to eliminate the exclusive

agreement. with Weaver Bros. for obtention of the con- —

struction loan-so as to permit St. Paul to obtain the con-

Pal

57a ; .

struction loan through Merchants, Weaver Bros. required

that its compensation remain at $96,000.00, $48,000.00 which.

‘had already been paid and $48,000.00 to be paid later. St. .-

- Paul then agreed to pay, and did pay, Merchants $48,000.00 - /

for the construction-loan and was also obliged to pay .. *

Chemical a $24,000.00 fee, the same amount which Lamon

of Manufacturers advised Tinley of Weaver in August,

1963, it would require as a fee for making: a construction <7

loan. It is the sum of these items to which Judge Proctor’ .

referred as “the $72,000 fee paid Merchants for the coh-

struction mortgage loan”: . This $72,000 also is a part of

the damage sustained by St. Paul which should be allowed °

against Manufacturers. a

7 ae: \: ff .

The complexity of this case leads tus to believe the wisest

course of action would be to remand this case‘for entry of —

judgment on these items rather.than attempting to compute:

them ourselves. | | oa Oe

(iv) Fourth Count i

| There was no appeal relative to this count which was

an action against Manufacturers in tort. c

| (v) Fifth°Count

On this item the trial judge said:

~ “This is a contract action against Weaver to re-

cover the $48,000 paid by Plaintiff to Weaver on May

11, 1964, as a finder’s fee for obtaining the permanent |

mortgage loan commitment from Manufacturers. I

have already found against Weaver under this count.

Accordingly, I will enter judgment under this count

against Weaver Bros., Inc.,,in the amount ef. $48,000.”

We adopt that opinion. - - %

(vi) Sixth Count © : |

This was the tort action against Weaver and Manufac-

turers. As the trial judge said, nothing new was added by

this count and, therefore, he entered judgment under that

count in favor of the defendants. There was no ) appeal on

this item. ,

Judgment as to punitive damages siniiaial Judgments af-

firmed as to liability and case remanded for entry of judg- ~

ments in accordance with this opinion, Appellees Weaver

Bros. Inc. of Maryland and the suman Life Insur-

ance ne to pay the costs.

‘*

Tn The :

Court of Appeals of Maryland”

-

re anit No. 400

ae .

aie September Term, 1970

St. Paul at Chase Corporation, et al.

: ve |

The Manufacturers Life Insurance eee. et al.

MOTION FOR MODIFICATION OF DECISION AND

7 FOR REHEARING —

St. Paul at Chase Street Corporation and Charles W.

Williams, Appellants and Cross Appellees, by David -Frei-

shtat, their attorney, move, pursuant to Maryland Rule 850,

for modification of the decision rendered by the Court of,

Appeals on May 17, 1971 or for reargument of its appeal, "Se

and, in support thereof, respectively. —

INTRODUCTION | .

1. The Appeal of this case was argued before this Court

on April 6, 1971.

2. On May 7, 1971, this Court staked its decision in.

favor of the Appellant - a and against

*

e . Bsa

Manufacturers Life Insurance Company and Weaver .

Brothers, reversing in part,-affirming in part and remanding

- for the entry of a judgment in conformity with its option.

3. Appellant seeks a modification. or reargument upon.

the following: grounds. o

A. The Court erred in holding that “damages” as used

in the Hadley v. Baxendale Rule means “elements” of

damage and not the monetary value of these elements.

as ‘determined by the parties.as of the time they made

their contract. é‘ ay 4, oF

—B. The Court erred in not allowing the $50,000.00

owed to Dr. George Morrell as damages since this sum was

known by the Defendants to be part of the necessary costs

of the project. and remains unpaid as a result of Manu- |

facturer’s breach of contract.

5

oe ee ey ARGUMENT . :

A. The Hadley Rule . sg

_. This Court, -at pg. 39.of its orinion, in interpreting the

Hadley v. Baxendale Rule stated that at the time of con-

tracting, the parties would have contemplated the loss of

the building in the event of a breach but not t}.- value ©

placed on the building. The Court is dividing the Hadley

rule into two parts, each of which the Court states is to.

be separate and determined at different ‘times and under

different circumstances and conditions. The first part re-

- lates to ‘the “elements” that go into a determination: of

loss which are to be determined within tie parties’ cdn-

- templation as of the time of contracting. The second ‘part,

_ those “etements” which the Court states isto be determined

according to the Court, relates to “values” assigned to

at some subsequent undeterrained time, probably on the -

date of breach, independent of any agreed upon values —

assigned and relied upon by the parties.

Hadley states that: : i |

“. .. the damages which the other party ought to re-

ceive in respect of such breach of contract should be >

2 , . a

such as . ', arising naturally . . or such as may

reasonably be supposed to. have been in the contem-"

plation-of both parties at the time they made the con-

tract as the probable result of the breach of it...” -

: “Damages; in the plural as used in the Hadley rule and

~ as used in the cases and texts! is distinguishable from the

singular of “damage.”

— Law Dictionary (4th Edition) defines “damages” :

“A pecuniary compensation or indemnity, which may |

be recovered jin the courts by any person who has

- suffered loss, detriment or injury, whether to his -

person, property, or rights, through the unlawful act

or omission or negligence of another.” (Citations

_ omitted) (emphasis supplied). ,

On the other hand, Black’s Law Dictionary (4th-Bdition)

’ defines~‘damage” (in singular form) as

“Loss, injury, or deterioration caused’ by the negli-

gence, design, or accident of one person to another

in respect of the latter’s person or property. Thé word

is to be distinguished from its plural —{‘damages’ —

which means a cepa in. money. for a loss or

damage.”

Since Hadley and all of the cases itis Hadley, and |

all of the text’s interpretation of Hadley, including Brantley ~

1 For example see 25.C.J.S. Damages, Section -24a:

“The damages which are within the contemplation of the

: parties are to be measured in terms of knowledge of the parties

at the time of making the contract. Ordinary damage because

of the-breach of a contract is assumed as a matter of law to be

within the contemplation of the parties. It is held that the

_ parties will be presumed to have contemplated that the party

injured by the breach of the contract would sustain such

damages as would>fairly and substantially, in ‘the usual course

of things, results from such breach, in the light of -all the facts

known or which should have been known to them; and the

damages recoverable. in and action for breach of contract are

for this reason sometime more remote than those recoverable for -

a tort” (emphasis eat (p. 667). . |

. . on Contracts, used the plural form of “damage” (damages)

in their explanation of the rule, “damages”, as used in

Hadley,.must mean the dollar value\ of the element con-

tracted for and dollar losses of the ‘parties contemplated

at the time of contracting in the event of a breach. These

- losses can only be measured in terms of the knowledge

of the parties at time of coritracting.

The dichotomization of “damages” under Hadley into

“elements” determined as of time of cont acting and |

“value” assigned to those elements on date of breach de-

feats the fundamental purpose. for the rule. ‘Hadley was .

* formulated so that both parties to a contract can, as of the

time of contracting, rather than at some subsequent, un-.

determined time, know what their exposures are under

the contract and to be able to safely rely upon the then

contemplated and agreed upon values in subsequent deal-

ings. The practical effect of the Court’s decision is to

measure damages in a breach of contract situation as of the

time of breach rather than as of the time of contracting

.which equates the contract rule with the rule in tort actions.

To hold that the building is an element of damage deter-

mined at time of contracting -without accepting the relied

upon value the parties simultaneously placed upon that °

“element” is really ‘theoretical, meaningless and has no

. practical application. After all, the dollars are what it is -

all about.:

_ To accept “elements” of damage and ignore the “values”

" assigned ta those elements in no way provides any security -

to the contracting parties. Such parties still have no. way

ef knowing what their exposure or ‘security under the

~ contract ultimately: will be. Th¢ “elements” are there but

under the Court’s ruling the “values” assigned to those -

elements await further determination under unforeseeable

. €conomic circumstances or other unforeseen conditions.

The best example is the instant case. St. Paul and Chemical

_totatly relied upon the value Manufacturers placed upon

the building: To. hold; as this Court has done, that one

in negotiating a construction loan or -in advancing addi-

a

can no longer rely upon the values assigned to a project ‘ ‘

62a

tional monies for a project, will create total chaos in the

‘volatile industry here- involved, saaeines from being grossly

unjust.

Under the Court’s ruling, ccinidsannts lenders and de-

velopers all over the country are placed in the position of

incurring the exposure that.a permanent lender. will cancel

its commitment and, through hired testimony, establish

-. that there was no then existing market for the particular «

project regardless of what the parties believed at time of

contracting and regardless of the degree of reliance the

. developer. and construction lender placed on the values

established for the project by the permanent lender. The

permanent lender can minimize or avoid its losses while

causing a developer to. lose his project and the fruits of his

bargain with the years of work going for naught and caus-

ing the construction. lender to foreclose and end up owning

. and operating a building against its wishes. |

Another tragic aspect of the present ruling is that the |

breaching party is placed in the unique position of déter-

mining the time the “value” will be assigned to the “ele=~

ment.” The potential for inequity and fraud is overwhelm-

ing. Permanent and construction lenders all over the

country, in times like today, when interest rates go up and

. down like a yoyo and money. is available today but not —

ton.orrow, desparately need a firm rule holding a perma--

nent lender to the values the parties contemplated; agreed °

and relied upon at the time of the contracting. Considera-.

‘tion of the totally meaningless “elements” that the parties

_ consider at contracting affords no practical protection to

anyone other than the breaching party. By design, a party

bent upon breaching a contract can scheme to breach at

a moment it knows that the immediate value of the “ele-

ment” is depressed regardless of.the reliance upon the

original values and the resulting injury to others.

The Court, at page 39, held:

) Fem. SON

“The position of St. Paul is that because a tentative

value of the building was assigned by Manufacturers

63a.

in making its loan that this becomes the criteria for

determining damages.” (emphasis supplied. )

Manufacturers Had not assigned a tentative? value on

St. Paul’s building. The value of St. Paul’s real estate and

the value of its project had been carefully determined by

anufacturers prior to giving their commitment. These cf

values had been accepted by St. Paul and had been relied

upon by St. Paul and by Chemical. An insurance. company

such as Manufacturers cannot make a mortgage commit- |

ment of 4.8 million dollars on a tentative value. Manufac-~

‘turers testified that in giving their commitment they were

restricted by Canadian regulations to lending 66% of the

value of the property. To hold that the values placed by

Manufacturers on St. Paul’s property and on its project

‘were merely tentative values, would be to hold that Manu-

- facturers’ commitment of 4.8 million dollars was merely

a tentative commitment, to be accepted or rejected at their

will when the building was complete. |

It was the Court’s belief that this value determined by

-Manufacturers was a “tentative” value that was pivotal in

the Court finding that’St. Paul had no equity in the build-

ing on the date of breach. Manufacturers loaned 66% of

this “tentative” value it placed on the building or 48

million dollars. This 4.8 million dollars was the direct re-

sult of Manufacturers’ “tentative” value and. was_sub-

tracted by the Court from the Court determined fair market

value of the building in determining that sia Paul had

ng equity.

St. Paul further maintains that this Court erred in adopt-

ing’ a “fair market value” as a basis for determining St.

_ 2 There is no evidence in this case to support this Court’s deter- °°

mination that the $7,265,000 was a “tentative” value. Certainly

neither Chemical nor St! Paul would: have agreed to rely upon a

tentative value as security for its loan. Nor would Manufacturers

have been willing to make a permanent Joan using the building

as security if it believed the value was merely. “tentative” and: would

not exceed the amount of its lien. Nor would Manufacturers have

agreed to waive.a higher interest rate in exchange for its 13.31%.

interest in the gross rents — on a “tentative” value:

64a

Paul’s equity. The value of the building on the day of

breach, then empty only because of the breach, ‘to a hypo-

‘ thetical buyer on a specific day, in no way represent its

true value within the contemplation of St. Paul and Manu-

facturers since it was always known that the building

‘would require about eighteen months before maximum

‘occupancy could be expected.

Further, the. fair market value assigned to the building

by the. defendants’ appraisers and accepted by the lower

court, ignores the intent of the parties formulated at time

of contracting relating to the specialized use to be made

of this “element.” If it is the loss of the bricks and

mortar only and not the value of its use that is contem-

plated by the parties at time of contracting, the value

ultimately assigned to the building should be determined

within the contemplated purposes of the parties for the

building. :The value the lower court assigned to the build-

ing was predicated upon a downgrading of the intended

use of the building totally contrary to the intent of -the

parties. Gordon Gilbert was the only expert that deter-

mined the fair, market value of the building on March 7,

1966 based upon the parties intended use. If fair market

value is relevant, it is Gilbert’s value of $7,245,339 that

should control.

The Court has determined that St. Paul’s equity on the

date of breach is all to which it is entitled. That being so,

the equity should be determined by using the “values”

_assigned to the “elements” by the parties at-contracting

based upon the uses then contemplated, pr the difference

between $7,265,000.00 and 4.8 million dollars, of the dif-

ference between Mr. Gilbert’s fair market value of $7,245,-

339 and 4.8 million dollars.

This Court, by. its decision, has effectively removed as

considerations in assessing damages against a wronging ~

party the uses and purposes the parties contemplated ‘and

relied upon in their contract. It is respectfully submitted ©

that this Court’s decision represents one giant step back-

wards in the development of the law which should be

65a

motivated to protect the innocent. Manufacturers chose

to breach knowing what the effect upon St. Paul would be.

But for the deficiency decree, which can be averted next

time and nominal damages, Manufacturers comes out. un-

scathed and St. Paul is obliterated. :

‘We urge the Court to consider the practical effects of

its decision. Cancellation of mortgage commitments by

permanent lenders are rampant over the country. There

is a significant national issue involved. This decision can

only add “fuel to the fire’ in encouraging permanent

lenders to refuse roll-overs each time there is a significant

change in the money market or to use a threat’ of refusal

to roll over as the means to force a developer to renegotiate

his loan on less favorable terms, as has become the custom.

Further, the Court’s decision results in the deprivation of

private property without just compensation in violation of -

the due ‘process requirement of the Fourteenth Amend-

ment of the Constitution of the United States.

The Court’s decision as it presently stands sanctions a

wrong without a remedy for there can be no benefit to

Charles W. Williams or St. Paul, from the present award.

We sincerely urge this Court to permit reargument on

this most important question.

B. Dr. Morrell and the $50,000.00

?

The Court held at page 48 of its opinion that St. Paul

can. recover “. . . portions of the construction costs paid

‘by St. Paul or for which it remains liable . . :” but dis-

allowed the $50,000.00 owed to Dr. Morrell because “: . .

that was not a part of construction . . .” (page 48). The

$50,000.00 was always understood to be a necessary part

of the project costs. In Plaintiff’s Exhibit 24, E. 967,

Jonhson’s letter to Tinley, Johnson stated:

“Attached is a list of the time. payments required in:

connection with the acquisition of the properties (1101- -

1115-St. Paul St. and 100 E. Chase St.) which you

requested by telephone today. This includes $675,- -

66a

000.00 for the land and $50,000.00 additional due one

of the present owners for disrupting his practice and

expenses of moving and reestablishing same.”

This Court; at page 8 of its opinion, considered the total

land costs:to be $725,000.00, where .it stated:

“August, 1962: Williams contracted the first of nine

purchase options on land on the north east corner of

St. Paul and Chase Streets. in Baltimore; total pur-

chase price was to be $725,000.00; the options were

to be exercised’ by June 15, 1963, with ‘payment ap-

—parently” to be made by September 1, 1963.”

Weaver’s. $480, 000.00 land loan was made so as to provide

funds for Williams to make partial payment on the option

to purchase the land. Weaver was repaid from the con-

struction loan. The construction loan was originally in-

tended by all parties to provide the funds for the acquisi-.

tion of the land. It is respectfully submitted that any dis-

tinction between construction costs and project costs is

‘academic. Williams could not purchase Dr. Morrell’s land’

without agreeing to the payment of this $50,000.00. It was

a necessary expense, known and accepted by all parties

_if the project was to proceed. It must be paid by St. Paul -

from any recovery it receives (assuming that any monies

are available after payment to judgment creditors), was

_ personally gauranteed by Williams and should be re-

coverable against Weaver and Manufacturers.

Respectfully submitted,

Davi. FREISHTAT,

_ Attornéy for St. Paul and

Charles W. Williams.

67a

In The |

Court of Appeals of Maryland |

No. 400

September Term, 1970 .

St. Paul at Chase Corporation, et al.

Manufacturers Life Insurance Company, et al. -

SUPPLEMENTAL MOTION FOR MODIFICATION OF

DECISION AND FOR REHEARING .

St. Paul at Chase Street Corporation and Charles W.

Williams, Appellants and Cross Appellees, by David Frie-

shtat, their attorney, move, pursuant to Maryland Rule 850,

for modification of the decision rendered by the Court of

Appeals on May 17, 1971 or for reargument of its appeal

and, in support thereof, respectfully shows: :

INTRODUCTION

1. The Appeal of this case was argued before this Court

on April 6, 1971. CONG:

2. On May 17, 1971 this Court rendered its decision in

favor of the Appellant and Cross-Appellees and against

Manufacturers Life Insurance. Company and Weaver

Brothers, reversing in part, affirming in part and remanding

for the entry of a judgment in conformity with it opinion. .—

' 3. On May 25, 1971, St. Paul filed a Motion for Modifica- -

tion and Rehearing raising points “A” and “B” as contained

therein which Motion was denied by this Court.

'4, Appellant seeks a modification or reargument upon

the following additional grounds. ;

68a

C. The Court. erred in. reversing ‘the trial Court’s

award of punitive damages of -$194,000.00 under Count II

of Plaintiffs’ Declaration based upon its belief that Count

II merely alleged negligence in the performance of a con-

tract and therefore malice must be shown before sych an.

award will lie.

D. The Court erred.in not finding the inference of

malice from Weaver Brothers uncontradicted actions justi-

fying exemplary damages.

E. The Court erred in ruling that St. Paul had suffered

no loss for the loss.of its building.

S = Court at page 32 of its opinion held:

. the first Count was a pure contract claim, while

Pa second Count alleged negligence by Weaver

Brothers in the pr of its contract with St.

Paul.” - ‘

This Court then held that aablien damages would not

lie under Count II because punitive damages can only be

awarded in a contract action where “actual malice” is

shown or where the Court can draw the necessary inference

of malice from the conduct of the offending party.

_ Count II is not-an action for the negligent performance

of a contract. Count II is an action in deceit. Following. -.

are various quotes from Count II establishing the true

nature of this Count.

E. 21-22 (par. 46)

“

.

. the false statements made by the Defendant

Weaver that Manufacturers had withdrawn their offer

of a construction loan . . . were made by Defendant

Weaver with the intent that the Plaintiffs rely on

these false statements and were gt ee 5

E. 26 (par.’55)

“The Plaintiffs further allege that Defendant Weaver |

having secured the Plaintiffs’ complete confidence,

69a

. knowing the position in which the Plaintiffs stood and

the heavy losses faced by the Plaintiffs; evidenced a

complete indifference to the Plaintiffs’ safety and wel-

fare, evidenced a complete absence of even slight care

or diligence, and further evidenced a thoughtless and

reckless disregard of the Plaintiffs’ interests.”

E. 26 (par. 56) . ae Se .

“As a result of Defendant Weaver’s deliberate, willful,

unjustifiable, unwarranted and wrongful acts and neg-

ligence, the start and hence completion of the Plain-

tiffs’ project was delayed by many months. The Plain--

tiffs allege that these deliberate, willful, unwarranted,

and wrongful acts and negligence on the part of

Weaver contributed to and set in motion those causes —

which caused the Plaintiffs their heavy losses and

damages including the loss of their entire project and

in- addition, were then left heavily indebted to Chemi-

- cal Bank and others. Vas,

E. 26 (par. 57)

“In addition, the Plaintiffs allege that when all of “ah

the actions of Defendant Weaver as set out above are

taken together, these actions show constructive fraud

on the part of Defendant Weaver. Accordingly, the

Plaintiffs allege that this fraud contributed to and set

in motion those causes which caused the Plaintiffs

their heavy losses and damages and that Defendant

Weaver is responsible for the Plaintiffs’ heavy dam-

ages and losses,” :

St. Paul has alleged in Count II-all of the essential ele-

ments constituting actionable fraud i.e., a false representa-

tion see E. 21; falsity of the representation was known to

the Defendant see E. 26; thatthe misrepresentation was

directed toward the Plaintiffs see E. 22; reliance by the .

Plaintiff on the misrepreséntation see E. 22; and damage

suffered as a result of the misrepresentation see E. 26.

The question of fraud is one of fact to be determined by

the jury or by the Court sitting as the trier of facts.. Walsh

/ he >

.

70a

v. Edwards, 1964, 197-A. 2d 494, 233 Md. 552; See also a

M. L.E. Fraud, Section 24 and cases cited in Note 31.

Following are the findings: of fact. and the statements |

contained in the opinion of thé trial Court dealing with

the conduct of Weaver which the Court felt. sufficient

justification for the imposition of exemplary damages. —

E. Page Reference

104

109

109.

110

110

118-119

121.

. 122

123

124

-Weaver’s breach of duty willful, material.

Weaver knowingly made a misstatement of fact

concerning Manufacturers construction loan offer.

This was a clear breach of duty.

At the very end it was all for Manufacturers —

nothing for St. Paul.

Series of acts prove Weaver did not act as it .

should toward St. Paul citing Gottschalk and

Grant episode and exacting of letters from New-

meyer - ‘and Cogswell.

If Weaver had spoken up, Manufacturers may

not have cancelled.

At the end everything was “toe Manufacturers, .

nothing for Plaintiffs.

Conscious and deliberate breach of duty should,

in an appropriate case, carry with it something

more than the obligation to pay actual damages.

_ Weaver’s actions were wanton, characterized by

extreme recklessness and utter disregard for the. »

rights of others — in this case St. Paul.

Weaver breached duty it owed to St. Paul by ;

negligent conduct; not merely a failure to dis-

close but knowing misstatenient.

Court has found Weaver owed a duty. of good

faith to Plaintiffs and Weaver breached this obli-

gation by knowingly _—s a misstatement of

facts. |

71a |

; - 2

E. Page Reference as

125 Court’s opinion is that if Tinley had communi-.

cated Plaintiffs acceptance of Manufacturers offer

of construction loan:to Manufacturers, Manufac-

turers would have issued letter of commitment

promptly and that settlement would have been

earlier than May 1, 1964 and’ that everything

would have been moved back at least two months.

126 - Had Weaver communicated St. Paul acceptance ,

it would have been altogether different ball game.

127. +Weavers conduct not only “wanton”, but also

_ may have involved an element of fraud citing

Parish v. Milk Producers Assoc., 250 Md. 24;

Levin v. Singer, 227 Md. 47. oly

Punitive damages can lie in an action for deceit par-

_ ticularly where the wrong involved some violation of duty

_ Springing from a relation of -trust and confidence ‘or in

‘the breach of duty where one is in a fiduciary capacity

as the trial Court found in the instant case or where fraud

is gross or where there is malice and willfulness. See

Fowler v. Bentcn, 1967, 226 A. 2d 996, 245 Md. 540. — 3

* Under the Fowler case, the trial Court, within its dis-.

- cretion, was justified in imposing punitive damages against

Weaver Brothers because of the trial Court’s finding that

the wrongs committed by Weaver Brothers in fact sprang -

_ from a relation of. trust and confidence and did in fact ©

involve a breach of fiduciary duty and did in fact consider

the actions of Weaver Brothers to be grossly fraudulent

to the point where the trial Court found that the gross,

reckless and wanton conduct of Tinley, the Executive

ne Vice-President of Weaver Brothers, justified the trial

Court, - as the trier of fact,:to infer from such conduct an

inference of malice and award punitive damages.

D. Count I was the contract Count. Count II alleyed

all of the essential elements of actionable fraud: How-

ever, arguendo, Weaver’s conduct was such as would com- _

pel an inference of malice regardless of- how this Court ~

characterizes Count II. *

z=

72a

The Court hes equated Weaver’s conduct in the instant

case with the conduct of the Defendant in the Knicker-

bocker v. Gardiner Co., 107 Md. 556 case which did ‘not

involve fraud. and held that the conduct of Tinley was °

“but little different from’ the conduct in Knickerbocker”

page.35 of the Court’s Opfijon. 3

As a factual proposition, we respectfully submit that

the Court erred in equating Tinley’s conduct to that of

the Defendant in the Knickerbocker case. Tinley’s wrong-

ful actions were far more prolific, more egregious and

foreseeably had a far more disastrous effect upon the

Plaintiff then did the acfions of the Defendant in the

Knickerbocker case. In Knickerbocker, the endant’s |

_actions were done with an intent to benefit itself though

knowing that his actions would: result in injury to the

Plaintiff but were not fraudulent and as of a scheming

nature as was Weayer’s conduct.

In St. Paul, Tinley, who was in a ‘ties capacity to

St. Paul, embarked upon a series of wrongful acts over an

extended period of time which, among others included

fraud by specific misrepresentation and fraud by omis-

sion. Tinley’s actions were done with the full knowledge

of the enormous:injury that would be inflicted on St. Paul.

The trial Court refused to find, as urged by St. Paul, that

Weaver’s actions through Tinley were motivated by a de-

sire to benefit itself rather than actions which were spe-

cifically intended to- injure St. Paul. St. Paul argued that

Tinley was scheming to take over the buildirig. .The trial

Court rejected this contention as has this Court by adopt-

ing the trial Court’s opinion. If. Tinley was not scheming |

to take over the building, then there was no justification

for any of the below described actions taken by: Tinley.

Without personal motivation for financial gain, Tinley’s

‘actions. can only be viewed as acts done with ‘a specific -

intent to injure St. Paul.1

: However, St. Paw maintains that the better rule for determining

whether or not exenrplary damages should be awarded is the rule

adopted by the trial Court through its reliance upon Brown v.

| Coates, 253 F. 2d 36. Phe scheming for personal gain by one in

== /This Court has relied ‘to almost an unprecedented de-

gree upon the comprehensive and painstaking factual

analysis of the Trial Court. Judge Proctor analyzed’ Tin-

} ley’s actions and repeatedly, in his Findings of Fact, Opin-

: ion on Liability and Opinion on Damages found that Tin-

ley acted in a grossly reckless and wanton manner ‘which

mounts up to fraud. . ;

ORF RMS ALD,

.

‘A listing of some of Tinley’s wrongful actions follow:

. 1. On October 10, 1963, Williams told Tinley he ac- —

cepted Manufacturers offer of a construction loan. Tinley

told Williams the offer had been. withdrawn when in fact

it was then available and remained available through

May 1, 1964 (E. 40). The loan was available even wien

Weaver coerced St.Paul to sign Defendant’s Exhibit 9,

E. 988, the letter agreement of December 6, 1963 where

_ St. Paul agreed to pay Tinley $96,000.00 even though Tin-

ley could not get the construction loan just to obtain

Weaver’s permission for Merchant’s Mortgage Company

_ to obtain the loan. This is in spite of Judge Proctor’s find-

nt GL EIAD us

Li eh hb Rai tiaias

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dhe)

™ nm nee

Sah clita et Rods

a fiduciary capacity to the substantial detriment of another who .

3 is relying upon the breaching parties’ good faith, should be punish-

4 . able‘ by the imposition of exemplary damages. It is incongryous’

; ; to hold that the intent to benefit oneself creates a shield against

¢ punitive damages regardless of the degree of fraud, reckless and

' wanton conduct involved and regardless of the degree of injury

inflicted. Where conduct is gross, reckless, wanton and/or involves

* elements of fraud and such conduct substantially injures another,

: punitive damages should be imposed whether or not the tortious.

actions had its beginnings couched in the terms of a contract. We

respectfully submit that any distinction between gross, reckless find

wanton conduct stemming from’ the performance of a contract from

similar conduct occurring independent of a contract, does violence

S to the basic principles of justice Ea fair play. The effect upon the

Plaintiff in either case is the sdme.. Now Chief Justice Burger

recognized in Brown v. Coates mgny courts have refused to award

punitive damages in any contract action.: However, the Court held

that the better view permitted such damages where the breach of

contract. merges with and-assumes the character of a wilful tort,

caleulated, flagrant and in disregard of obligations of trust. 5

Corbin, Contracts, Sec. 367; McCormick, Damages, Sec. 290; 70

Harv. L. Rev. 517, 532. ° ) 4

"4a

ings that Tinley had given St. Paul assurances that it could

- obtain the construction toan (E. 54).

2.. After denying the existence of Manufacturers offer

. of a construction loan, Tinley attempted to interest Wil-

liams in selling his project to Gottschalk and Grant. Wil-

liams refused and terminated these discussions (E. 65-66).

Tinley. without any authority from Williams, attempted

‘to force a situation where Williams would be forced to

sell. Tinley contacted Mullen and told Mullen that Gotts-

chalk and Grant were taking over the building (E. 66).

He then called Newmeyer and. told Newmeyer that Wil-

liams was washed up and that Gottschalk and Grant were

taking over the project (E. 66). It must be remembered

‘that Tinley had the offer of a construction jloan in his

pocket all the time.

3. Tinley agreed to lend St. Paul $500,000.00 as a cush-

ion to insure completion if Mullen would obtain the con-

struction loan for 4.8 million dollars (E. 61). Mullen ob-

tained approval of Maryland National Bank if Weaver’s

- $500,000.00 was available (E. 64-65). On October ‘10, 1963,

Tinley denied having made the offer of $500,000.00 and

_ Mullen withdrew his application (E. 65). Both Williams

and Mullen confirmed Tinley’ s offer. ;

4. On March 17, 1964, Tinley told Williams he should

falsify his records so as to inflate the construction costs

_ for the project by giving Mullen St. Paul’s stock; that this

_ would facilitate Manufacturers approval of the plans and

specifications (E. 74-76). These happenings were confirmed

by Johnson. Tinley again repeated his unique suggestion

on April 8, 1964 (E. 76). See also E. 62 for additional con-

firmation of Tinley’s fraudulent suggestion to inflate the

costs of construction.

5. On March, 1966 Weaver hired on behalf of Manu-

facturers, a professional photographer to take pictures of

- only the unfinished work. Hé was accompanied by repre-

sentative of Weaver Brothers (E. 92).

6. On March 11, 1966, Weaver knowing that the build-

ing was fully — as the Court has found, indicated

75a

that the cancellation ‘was because the building was not

complete; there was nothing he. could do; he would not

even try; and Weaver asked for his additional ‘$48,000.00

(E.94). .

7. On March 29 and March 30, Weaver caused Cogswell

and Newmeyer to come to their offices in order to solicit

from them letters which would support Manufacturers

decision for cancellation. (Defendant’s Exhibit FF, De-

fendant’s Exhibit N). Both Cogswell and Newmeyer testi-

fied that they were asked a Specific question by Mrs.

Byrnes of Weaver Brothers as to whether or not the build-

ing was 100% complete. Mr. N ewmeyer testified that Mrs.

Byrnes said that:was not what she asked. She wanted

to know whether the building was 100% complete. To

this question, Newmeyer and Cogswell wrote their letters

‘which Manfuacturers so heavily relied upon at trial.

There are other wrongful actions committed by Weaver

which support St. Paul’s contention that this Court erred.

in reversing the trial Court’s finding that Weaver’s ac-

tions, under the atmosphere and circumstances developed

at the trial, demanded the imposition of sanctions. In

view of the heavy and justifiable. reliance this Court has

placed upon the trial Court’s Findings of Fact’‘it is respect-

fully submitted that the Trial Court’s belief that Weaver’s

actions required the imposition of sanctions should be

_ respected. .

E. Compensatory Damages

The Trial Court having listened to all of the testimony,

having reviewed all of the evidence, and having heard the .

arguments of Manufacturers, rejected Manufacturers’ con- _

tention that the contract between Manufacturers and St.

Paul was a contract to loan money. As stated by the Trial

Court at E. 131: +

“In the first place this was a great deal more than a

contract merely to make a loani, if in fact it was such

- -a contract at all.” |

76a ©

_ his Court at: page 37 of its Opinion overruled the Trial

Court on this point and held; “this was a contract té lend

' rhoney.” —

Whether the subject contract was one to lend money or

not is immaterial. It provided for duties and rights on

both sides with something to be done on each side. As

stated in 5 M.L.E. Contracts, Section 1:

“The law: recognizes, as a matter of classification, two

kinds of contracts, bilateral and unilateral. Every

bilateral contract includes both rights and duties on

each side, while both sides remain executory. A uni-

‘lateral contract, on ‘the other hand, is one in which

there is a promise on one side only, the consideration

on the other side being executed.”

As stated in 17 C.J .S. Contracts, Section 8:

“A ‘bilateral contract’ is one of reciprocal promises,

resulting. in something to be done or foreborne on

each side.”

“A ‘unilateral contract’ is one consisting of a promise

on one-side only: and)| executed consideration on the

y other side.” :

Under the above definitions, the subject contract was :

a bilateral executory contract with duties and obligations

on both St. Paul and Manufacturers. For a breach of its

contract, the damages assessed against Manufacturers must

be determined under the rules laid down for breach of

contracts in general. These rules stem from the celebrated 7

case of Hadley v. Baxendale, 1854, 9 Exch. 341, (Eng.).

The Hadley case has been adopted as part of the Law of

Maryland and has been universall} accepted.

This Court as well as St. Paul and Manufacturers, recog-

‘nized that the rules laid down by Baron Alderson in the

Hadley case should govern the subject case. Simply stated,

‘the Hadley rule is that in breach of contract actions the

damages which the injured party should receive are those

damages which* the parties contemplated at the time the

contract ‘was made, that would result from a breach of

ere

ALLA LE BNL SITY

lla

contract. The Court at page 39 of its Opinion, however, |

Tuled’ that St. Paul misunderstood the Hadley rule and

held that the loss of the building would have been in the

contemplation of the parties at the time the contract was

entered into, but not the values of the building as agreed

to by the parties and that the amount of the loss should

_be established at the time of the breach. :

In its “Motion for Modification of Decision and for Re-

hearing”, filed. May 25, 1971, which Motion was denied —

June 1, 1971, St. Paul had argued that under the Hadley -

rule, that which was in the contemplation of the parties .

at the time the contract was entered into could not be -

split into two elements; (1) the loss .of ‘the building ‘and,

(2) the value of the building. St: Paul will not impose

on the Court and attempt to reargue its position here, but —

will merely respectfully request the Court to reconsider |

its position as a part of this Supplementary Motion.

In this Motion St. Paul will: direct its arguments and

' request for a Rehearing to the following ruling of this

Court (also at page 39 of its Opinion). .

: ; & 2

“Judge Proctor was entirely correet: in, determining

that the loss was the equity, if any, in the building.

There was no equity. Therefore, he was correct in

allowing nothing for the loss of the building”.

In reaching this decision, the Court relied heavily on

the 1924 Texas case of Collins Insurance Co: v. Sallas, 260

S.W. 261. It is respectfully submitted that this case bears

no similarity to the case at bar. Firstly, the Collins case

was a unilateral contract to loan money. There was no.

duties to be performed by each of the parties. Secondly,

prior to negotiating a loan, Sallas had made a downpay-

ment of $1,000.00 on a piece of land priced at $20,000.00 on

which he desired to build a home. Sallas had not relied -

on the loan from Collins and had not started construction

of his home. When Collins reneged, Sallas was unable to

obtain another loan and his deposit was forfeit. Sallas’

only loss was his $1,000.00 deposit. This was all he sued

to recover. The Court found that this $1,000.00 was: the

dS.

78a

amount of Sallas’ equity, and awarded him the damages

., of $1,000.00 requested by him.

In the case at bar, St. Paul had not incurred any obtiga-

. tion and had made no payments on its. land or building

before Manufacturers’ offer was made. St. Paul relied on

Manufacturers’ contract, met all of the conditions im-—

posed by Manufacturers, borrowed $4,800,000.00 from

Chemical, and invested this amount together with sub-

stantial other sums in their project. The statement of the

Court in Collins cannot be held to govern the subject case

. or to modify the general Hadley rule. While the Court in

Collins did not cite Hadley, it recognized the Hadley rule

and held that what was in the contemplation of the parties

at the time they entered into their contract should govern ,

the damages to be awarded. The Collins case, therefore,

cannot be used to modify or in any manner change the.

Hadley rule. —

- During the trial of the subsinet case, Judge Proctor de-

_. termined that the value of St. Paul’s building as of the

* date of Manufacturers’ breach was $4,509,785.00. The Court

affirmed this finding. While St. Paul does not agree with

this value, or the speculative methods used by the Trial

Court in arriving at this figure,-nevertheless, under Judge

Proctor’s findings, this was the value of the building as of

the date of the breach. St. Paul, therefore, should have been

awarded at least this amount for the loss of their build- |

ing even’ though the parties at the time the contract was .

. entered into had. valued the building at $7,920,000.00. .

It is respectfully submitted that there was no’ justifica-

tion whatever for deducting the amount of the mortgage

from this value to determine St. Paul’s equity. In the first

place, equity has nothing to do with the damages St. Paul

. is entitled to recover. At-the time the contract was made,

neither of the parties contemplated that the bricks and >

‘mortar value of the building would pay off and redeem °

the mortgage. Bricks and mortar can pay off nothing. The

parties contemplated that the use of the building which

Manufacturers had valued at $7,265,000.00, would pay off

and. redeem the building. If equity has any part to pay

os )

79a

' in the damages in the subject case (which St. Paul denies),

the only: equity that could be used and the only equity

that was brought out by the testimony and evidence sub-

mitted at the trial of this case, would be St. Paul’s equity

in its use of the building, namely $7,265,000.00, less the

amount of the mortgage, or $2,465,000.00 which was the

-amount St. Paul had demanded as Special Damages. —

Neither the Trial Court nor this Court in awarding

‘damages considered St. Paul’s use of the building. Manu-

facturers’ ‘breach prevented St. Paul from using their

building as they intended to do for a downtown home for

' wealthy persons, and as was contemplated by the parties

at the time the contract was entered into. Manufacturers

cannot take advantage of the wrong committed by them

and say that St. Paul would not have been able to carry

and redeem the.mortgage from its use of the building.

Williams had testified that he had arranged ample funds

to carry the building through-the “lead period”, until it

would be self-supporting. This statement was uncontra-

dicted. While the Trial Court held that St. Paul’s prop-

erty was worth only $4,509,785.00,-‘at the date ,of the

breach, by the use of the Court’s own figures, as shown

by St. Paul in its brief at pages 97, 98, St. Paul would have

been able to meet its mortgage payments in full, with

- $52,283.89 remaining as a return to St. Paul. ee

.

Neither the Trial Court nor this Court in awarding dam-

ages considered the value of St. Paul’s use of its building.

As stated above, the only Valle for the use of the building

that was submitted in‘evidence was the value ‘that Manu-

- facturers had ‘placed on it of $7;265,000.00 from which

should be deducted the amount of the mortgage, leaving a .

' net value of $2,465,000.00.

For the-above reasons, St. Paul respectifully submits that

as damages, it should be awarded at the very least, the

value of the building as determinéd by the Trial Court,

namely, $4,509,785.00 plus the net value of the use of the

building as established by Manufacturers, namely $2,465,-

000.00. For this reason St. Paul has requested in this Sup-

plementary Motion the right to reargue these points. —

80a

“On page 47 of its Opinion, the Court stated:

“If St. Paul is to be placed ‘so far as possible, by mone-

tary award, in the position (it) would have been if the

contract had been properly: performed’, it must be per-

mitted to recover those items which it has been obliged

to pay out or for which it is liable,that are connected

with the erection of the building and which would

in the normal course of circumstances have been paid

. from the loan from Manufacturers”.

It is respectfully submitted that if St. Paul and Williams,

who is a Party Plaintiff, are to be “put back in the position

by monetary award, in the position (it) would have been

had the contract been properly performed”, St. Paul and

Williams must be awarded at the very least, the value of

the building, determined by the Court, namely, $4,509,785.00

plus the net value of its use, namely, $2,465,000.00, as es-

tablished by Manufacturers. Only in this way can St. Paul

and Williams be reimbursed for the enormous amount of

time, effort, and monies expended in developing the proj-

ect, putting it together, in supervising the construction of

the building, in advertising, in furnishing model apart-

ments, and in staffing the building, and having it open and

ready for occupancy. All of this, as well as the loss of the

building and loss of its use were lost as a result of Manu-

facturers’ callous, deliberate and wanton breach.

The amount of the monies awarded by this Court ‘will

not even pay off all corporate obligations with interest,

and will leave nothing for St. Paul and Williams. It is

further submitted that in equity St. Paul’s legal expenses

and fees must be paid before St. Paul’s creditors are paid ~

for, except for the time, effort, and expense-of St. Paul’s

attorneys, its creditors would have received nothing.

Respectfully submitted,

Davip FREISHTAT,

Attorney for. Appellants.

r

ees | 8la

In The

Court of Appeals of Maryland

( | | - Case No. 400

7 Fall Term, 1970 |

St. Paul at Chase Corporation, et al.

. v. .

Manufacturers Life Insurance Company

of Toronto, et al.

MOTION TO STAY ISSUANCE OF MANDATE PEND-

_ ING.REVIEW BY THE SUPREME COURT

. OF THE UNITED STATES

St. Paul at Chase Corporation and Charles W. Williams,

Appellants, by David Freishtat, their attorney, moves, pur-

suant to Maryland Rule 876b that the issuance of the man-

date herein be stayed pending application for review of the

judgment of this Court by the Supreme Court of the

United States. The grounds of the motion are as follows: -

1. Appellants intend to file a timely petition for cer--

tiorari in the Supreme Court of the United States.

2. The petition will present the following federal. and

constitutional questions, which, for the reasons set forth

‘after.each question, are sufficiently important and debat-

able as to raise a reasonable prospect that at least. four

members of the Supreme Court would vote to review the

case. fir at a

a. In view. of the acceptance in nearly all of the.

States of the United States of the Rule of Hadley v. Baxen-

dale, 1854, 9 Exch. 341 (Eng.), for measuring damages

arising out of a breach of contract, a decision of a State :

Court holding that the values determined by the contract-

ing parties at the time of contracting are merely “tenative

s 82a

ib ist values” and are not binding on a mortgagee, and that the

damages to which the injured. party is entitled are to be

determined under conditions existing on date of breach,

different from those values which formed the basis of the -

contract, will créate such chaos and uncertainty in the

Mortgage Financing Industry, that it presents an issue of

over-riding importance to the general public, and as such

constitutes a Federal question.

7

ee

This ruling would permit a permanent nsiiviasealies to » take

a second look at its commitment after a developer and con-

struction lender had spent huge sums in the development

‘and completion of a project and to cancel its commitment.

if it felt it was to its advantage fo do so. In time of eco-

nomic — and fluctuating interest rates, this ruling

would allowsthe permanent mortgagee to breach its con-

tract with impunity.

The Federal Government today is doing all in its power

_ to encourage building so as to stimulate the economy of

the country and provide needed housing for persons of low

incomes. Such developments can only be created by con-

struction loans against permanent mortgage ee

Only in reliance on-a permanent mortgage commitment

can developers and construction loan lenders advance the

huge sums needed for such developments. If under the

ruling of this court developers and construction loan lend-

ers realize they cannot rely on the face value of the com- .

mitment of a permanent. mortgage and the permanent

mortgagee may vary or cancel its commitment with im-

punity when work on the development has*betn completed,

no developer’ or construction loan lender can advance the

huge sums needed with any security. This ruling would

-have an exceedingly detrimental efféct on the national

economy. :

b. May a wrongdoer or a Court i an injured mets

_ to accépt a “fair market value” for his property where the

injured ‘party had no desire to sell his property and ‘does -

not this amount of taking of property without due process

of law in violation of Article Fourteen of the Constitution

of the — States? | x

oe

_to enable th

88a

During the trial of the subject case, the Trial Court

having ruled that Manufacturers had/ breached its contract

with St. Paul and was responsible to St. Paul for the loss

of its building, then disregarded the values of the building

and its use that had been. established by Manufacturers

. prior to the contract being ertered into and which values

formed the essence of the contract between St. Paul and

Manufacturers, and determined that the only damages St.

Paul was entitled to for the loss of. its Property was the

value of its equity in that property as of the date of the

_ breach. To determine. this equity, the Trial Cqurt estab-

lished a “fair market value” as of the date of the breach.

As this “fair market value” was less than the mortgage,

the Trial Court ruled that St. Paul had no equity in the

' property, had suffered no loss, and was not entitled to re- |

cover any damages for the loss of its building. This Court

_ affirmed the above rules.

_ It is submitted that in forcing St. Paul to accept this

arbitrarily established equity based on arbitrarily estab-

lished “fajrJnarket value” as a measure of its damages con-

stituted a taking of property without due process of law.

3. If the mandate issues and the judgment of this Court _

y Appellant will be’ irreparably injured. The

warded by the Court, not only are not sufficient

pellants to pay all of their-obligations that

were incurred in reliance on their contract with Manu-

facturers, but leaves nothing for the Appellants to repay

judgments

. them for the loss of their property, and nothing to pay them

for the time and monies invested in the project by them.

_ 4 The balance of equities favors the relief requested.

_ St. Paul and Williams spent three years in developing

_ the need for their specialized building, as covered in their

feasibilty report; in developing the plans and specifications

for this building and in acquiring the land necessary for

the project. Manufacturers fully approved the purpose for

which this building was developed, and the plans and spe-

cifications of it. St. Paul and Williams then spent another

three years in arranging the financing of the building, in.

_ B4a

supervising es construction of it, in advertising the proj-

ect, in furnishing model apartments, and in ‘staffing the

building and having it ready for occupancy. This repre-

sented a sizeable investment in terms of time, effort,

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