Bernardini v. Stefanowicz Corp.

Moore, J., delivered the opinion of the Court. The question we are here asked to resolve is whether, in connection with the granting of specific performance of contracts for the purchase of lots upon which single-family residential units were to be constructed, the purchasers were entitled to an award of compensation measured not only by their out-of-pocket losses, but also by the “fair market net rental value” * 1 of their dwellings during the period of delay in construction. The Chancellor, Saíne, J., made a total award to the appellants of $20,875, constituting their out-of-pocket losses plus interest on their deposits. They assert on appeal that the award should not have included interest on their deposits but should have included an additional sum of $27,498, representing the fair market net rental value of their homes.

There is no cross-appeal by the appellee builder-developer, The Stefanowicz Corporation. The factual context in which the issue is joined is as follows: Between February and September, 1971 some ten families entered into written agreements with Stefanowicz for the purchase of lots in the Bolling Green development of Catonsville in Baltimore County. The lots were to be improved by dwellings “in substantial accordance” with ⁵¹⁰ specified types of existing Model Homes. The purchase prices varied from approximately $27,500 to approximately $32,500 with completion dates 4 to 6 months from the dates of the respective agreements.

In practically all instances, deposits of $2,000 were made and each purchaser was to secure his own financing. None of appellants’ homes was ready on the dates originally specified. The delays were attributed by the builder to a variety of factors. Hurricane Agnes and other heavy rains in 1972 prevented routine progress from being made; the terrain was discovered to contain previously undetected obstacles, including rock formation and subterranean springs; and several of Stefanowicz’s subcontractors did not complete their work on time.

Nonetheless, when 7 of the 10 families instituted an equitable action on February 14, 1973 in the Circuit Court for Baltimore County, 2 the builder ultimately admitted liability and entered into ten 3 separate stipulations, in most of which the out-of-pocket losses were agreed upon; and in all of which the fair market net rental value of the respective homes was established. These stipulations provide the essential factual basis for this appeal, the parties having further stipulated pursuant to Maryland Rule 1026 c 2 that no part of the transcript of testimony at a hearing before Judge Raine on December 11, 1974 was necessary for the appeal. (The latter hearing was for the limited purpose of taking testimony with respect to certain claims for out-of-pocket losses upon which the parties were unable to stipulate and, it appears, to receive argument on the question of whether fair market rental value was also an appropriate measure of damages.) The 10 stipulations reflect delays in construction ranging from 8 months to 17 months. The out-of-pocket losses, “reasonable and foreseeable,” agreed to have been sustained ⁵¹¹ because of these delays, included some or all of the following items in the case of each family: 1.

Forfeiture of rent bonus. 2. Furniture storage. 3. Child’s (school) registration fee. 4. Cost of disposable diapers. 5.

Child’s commutation — extra travel expenses. 6.. Interim telephone installation. 7. Increase in laundry bills because equipment in storage. 8. Extra moving expense. 9.

Mortgage interest increase. 10. Loss of postponement of capital gains on sale of former house. 11. Cost of obtaining clothing and other personal possessions from storage. 12. Additional commuting expense (by husband) to place of employment. 13.

Forfeiture of child’s school registration fee. 14. Increase in child’s school tuition. 15. Increase in automobile insurance (difference between city and county rates). 16. Loss of apartment deposit. 17.

Expenditure to “buy out” apartment tenant. After the court hearing on December 11, 1974, Judge Raine also allowed one of the petitioners, an F.B.I. agent, damages for loss of U. S. Government reimbursement in the sum of $1291 for relocation costs. The claim had expired because of petitioner’s inability to move into the new house. It was further stipulated that the builder believed that the measure of damages for its admitted liability was limited to these out-of-pocket expenses.

The parties also stipulated, however, an amount of compensation based upon fair market net rental value in the case of each family purchaser, should the Chancellor deem such further award appropriate. Thus, in the case of appellants Bernardini, it was stipulated that: (a) the length of delay for which the builder was accountable was 14 months; ⁵¹² (b) the fair market rental value was $305 per month, or $4,270; (c) the builder’s proper offset on the balance of the unpaid purchase price, at 6% per annum, was $2,190; (d) the purchaser was entitled to recover simple interest at 6% per annum on the fair market net rental value of the dwelling from September 1, 1972 through December 1, 1974, in the total sum of $576; (e) the final additional amount which would be due to Mr. and Mrs. Bernardini under this theory was $2,656. 4 The Chancellor, in a written opinion filed on February 20, 1975, rejected the appellants’ claims to awards based upon the theory of fair market net rental value but, as previously stated, did allow recovery of out-of-pocket losses, plus interest on the purchasers’ deposits. Judge Raine stated: “After intensive study and consideration of the matter the court believes that the proper measure of damages are the reasonable and foreseeable expenses that the Complainants were required to make because of the Respondent’s delay in completing the dwellings.[ 5 ] The Complainants argue that in addition to these damages they should be awarded compensation for the loss of use and enjoyment of their homes, and seek to equate this with the net rental value of the dwellings during the period of delay. This Court cannot find, and has not been referred to any specific performance suit of this nature where such damages have been allowed, and the authorities cited by the ⁵¹³ Complainants do not seem to be applicable.

(Emphasis added.) The Chancellor thereafter, on April 16, 1975, entered an Order for judgments against Stefanowicz for appellants’ respective stipulated out-of-pocket losses, and, in two instances, additional foreseeable out-of-pocket expenses upon which agreement between the parties had not been reached. He also ordered that interest on the deposits held by Stefanowicz during the period of delay should be paid to each appellant.* 6 Appellants contend that they should have received the fair market net rental value of their homes rather than interest on their deposits. 7 Stefanowicz maintains that the proper measure of damages was awarded. For the reasons next stated, we agree. II Neither party has cited, nor in our independent research have we discerned, a case where this precise issue — whether recovery should be allowed for loss of use of a home to be constructed, ancillary to a suit for specific performance, measured by net fair market value during the period of delay — has been decided by an appellate court.

There is a clear consensus that where the case is a proper one for specific performance the Chancellor may, as a form of ancillary relief, decree compensation or damages. 1 Pomeroy, Equity Jurisprudence, § 237 (b) (5th ed. 1941). Indeed, an early Maryland case held that unless the monetary relief was claimed in the specific performance action, it was barred by the final decree in the equity suit under the doctrine of res judicata. Walzl v. King, 113 Md. 550 , 77 A. 1117 (1910). The cases abound with general rules concerning ancillary damages in suits for specific performance.

Thus, in Ellis v. Mihelis, 384 P. 2d 7 (Cal. 1963), Chief Justice Gibson of the Supreme Court of California stated at 15: ⁵¹⁴ “The following general rules are applicable where damages are awarded incident to a decree of specific performance: A party to a contract for the purchase cr exchange of land who is entitled to a decree of specific performance is also ordinarily entitled to a judgment for the rents and profits from the time he was entitled to a conveyance. The compensation awarded as incident to a decree for specific performance is not for breach of contract and is therefore not legal damages. The complainant affirms the contract as being still in force and asks that it be performed. If the court orders it to be performed, the decree should as nearly as possible require performance in accordance with its terms.

One of the terms is the date fixed by it for completion, and since that date is past, the court in order to relate the performance back to it, gives the complainant credit for any losses occasioned by the delay and permits the defendant to offset such amounts as may be appropriate. The result is more like an accounting between the parties than like an assessment of damages. (See, e.g., Heinlen v. Martin, 53 Cal. 321, 342-3 ; Note 7 ALR 2d 1204 , 1206).” (Emphasis added.) The rationale that such awards constitute compensation rather than legal damages is thus expressed in Annot., Specific Performance-Delay, 7 A.L.R.2d 1204 ,1206: “ The compensation awarded as incident to a decree for specific performance is not breach of contract and is therefore not legal damages. The complainant affirms the contract as being still in force and asks that it be performed.

He cannot have it both ways, performed and broken. The situation is simply that, if the court orders it to be performed, the decree must as nearly as possible order it to be performed according to its terms, and one of those terms is the date fixed by it for its ⁵¹⁵ completion. This date having passed, the court, in order to relate the performance back to it, equalizes any losses occasioned by the delay by offsetting them with money payments. Often the result is more like an accounting between the parties than like an assessment of damages.” (Emphasis added.) A leading Maryland case, Miller v. Talbott, 239 Md. 382 , 211 A. 2d 741 (1965), presented the Court of Appeals with the question of monetary relief in a controversy arising out of a contract for the sale of an existing country residence in Carroll County.

The Millers appealed from the final decree granting specific performance and the Talbotts cross-appealed from the denial of a recovery for losses and expenses allegedly caused by the failure of the Millers to convey on the date specified. The Chancellor, Boylan, C. J., was held to have properly decreed specific performance but to have committed reversible error, requiring a remand for further proceedings, in refusing to consider an award of compensation. 8 As disclosed in the opinion of Judge Barnes, writing for the Court of Appeals, the items of damages claimed by the Talbotts included additional rent on their former residence; rent for premises temporarily occupied pending the outcome of the specific performance action; costs of storing furniture, boarding pets and transporting a child to a new school in which he had been enrolled in anticipation of settlement. The Court emphatically affirmed the rule that a court of equity has jurisdiction to decree compensation ancillary to a decree for specific performance, citing Walzl v. King, supra; Pomeroy, op. cit. supra; 81 C.J.S. Specific Performance § 162 (b) and the cases of Greenstone v. Claretian Theological Seminary, 343 P. 2d 161 (Cal. App. 1959) and Butler v. Schilletter, 96 S.E.2d 661 (S. C. 1957).

With respect, however, to the “wide variety of expenses and losses” ⁵¹⁶ allegedly suffered, the Court withheld any ruling, Judge Barnes stating (at 394): “ We are of the opinion that it is neither necessary nor feasible for us to rule at this time whether any particular item of damages is or is not recoverable in the equity suit. The question, in part, and in the first instance, is a problem of proof. We leave this