Brock Bridge Ltd. Partnership, Inc. v. Development Facilitators, Inc.

DAVIS, Judge. Brock Bridge Limited Partnership (BBLP) and Brock Bridge Builders, Inc. (BBBI) appeal from, a judgment of the Circuit Court for Anne Arundel County in favor of Development Facilitators, Inc. (DFI) and Raymond Streib (Streib). Appellants had filed a four-count Amended Complaint on December 23, 1994, alleging breach of a contract to construct roadside improvements in a housing development for the agreed price, malpractice for negligently misrepresenting the costs of construction, malpractice for failure to process an application for a wetlands permit, and intentional misrepresentation. The court dismissed the intentional misrepresentation claim at the end of the plaintiffs’ case.

After a ten-day trial without a jury, the court found that appellants had not carried their ¹⁴⁷ burden of proof on the breach of contract claim. The court also found that the breach of a contract would not sustain an action sounding in tort, dismissing the claim for malpractice for negligently estimating the costs of construction. Appellants do not appeal the court’s disposition of the wetlands claim or its dismissal of the intentional misrepresentation claim. They appeal the court’s judgment regarding the breach of contract claim and the negligence claim. 1 Appellants present the following questions for our review, renumbered and restated as follows: I. Did the circuit court err as a matter of law when it concluded that BBLP was not indebted to BBBI for BBBI’s expenditures for the project?

II

Was the circuit court clearly erroneous in its determination that it could not award damages to appellants based on anything other than pure speculation?

III

Did the circuit court err as a matter of law when it ruled that the evidence did not support a cause of action for negligent misrepresentation against Streib individually? We answer in the affirmative to all three questions. 2 Consequently, we reverse the judgment as to the first and third issues, and vacate the judgment on the second. FACTS The legal relationships of the parties to this case are interwoven with such complexity as to make a detailed explanation unhelpful. Therefore, we shall not attempt to parse out and define every bit player; however, we will provide all of the ¹⁴⁸ information necessary to an understanding of the issues underlying this appeal.

BBBI is a Maryland corporation whose principals are George Stone (Stone) and Weston Stone (Weston). In 1988, W.F. Utz Construction Company, Inc. (Utz) contracted to purchase real property in Anne Arundel County from Mary and Lawrence Taylor. Utz retained Streib, an engineer, to provide on-site engineering services through his company, DFI, for a contemplated development on the land, Brock Bridge Estates. 3 Streib is the president of DFI. On June 15, 1990, Utz assigned its interest in the purchase contract to BBBI, including all rights to engineering services rendered with respect to the property.

The assignment was intended to cement a relationship by which Utz and Stone would participate in the development project as 50-50 partners. On March 22, 1991, BBBI, through its principal, Stone, formed BBLP, a limited partnership with BBBI as general partner. At this point, neither Stone nor Utz had committed himself irrevocably to the development project. The latest extension of the purchase contract called for settlement by June 7, 1991.

By early 1991, however, bids had been received for most of the project except for the off-site road improvements. Monetary considerations led Stone to inform Streib that the off-site road improvement costs, if too high, could cause Stone to abandon the project as economically unfeasible. Streib assured Stone that, based on an estimate performed in February by his project engineer, Matthew Morgan, the cost of the off-site improvements within the existing right-of-way of Brock Bridge Road would not be more than $1,000 per lot for sixty-seven or sixty-eight lots, which he rounded off to $70,000. On June 5, 1991, BBBI assigned the purchase contract to BBLP.

On that same day, BBLP and Stone executed a letter agreement with DFI. Stone signed individually and on behalf of BBLP, and Streib, the day after receiving the letter, signed ¹⁴⁹ on behalf of DFI, in his capacity as president. The agreement read as follows: Dear Ray: You have advised me that the County will not sign off on the record plat for “Brock Bridge Estates” until execution and delivery of the Agreement between the Developer and the County requiring (i) design of off-site improvements (for Phases 1 and 2 as defined in the Agreement) within existing rights of way for Brock Bridge Road, for Phases 1 and 2, and (ii) construction of improvements under Phase 1 only. On behalf of the Developer, I have advised you that we do not intend to go forward with the development of the Project without your assurance that the costs for all work required under the aforementioned Agreement (including costs of engineering, costs of construction of improvements and any and all other out-of-pocket * costs to the Developer) will not exceed $70,000 in the aggregate.

You have assured me, in the exercise of your professional judgment and responsibility, that the costs required to meet the conditions of the aforesaid Agreement will not exceed $70,000. In the event costs incurred by Developer to meet the obligations to the County under the Agreement exceed $70,000 in the aggregate, you have further agreed that Development Facilitators, Inc. will be liable to Brock Bridge Limited Partnership (“BBLP”) for the difference and shall reimburse, indemnify and hold BBLP harmless for any such excess. In reliance on your representations as to costs, we are prepared to go forward by executing the Agreement on behalf of Brock Bridge Limited Partnership. Please sign below acknowledging receipt of this letter, and agreeing to undertake the liability for excess costs as provided above. ' Refer to phone conversation with Mr. Dennis Hoover, the item of out of pocket expenses means payment to third parties (i.e. right of ways) required in order that construction can occur.

At the date of this letter, no final plans or construction drawings for the off-site improvements existed. The “Agreement” referred to in the letter was the agreement between ¹⁵⁰ Anne Arundel County and Utz for the development of the real estate. It defined Phase One improvements as follows: a. Phase One consists of approximately 2,750 linear feet of road/shoulder widening, with up to 24 feet of Macadam Paving and 8 feet of 4 inches sand asphalt shoulder on both sides of Brock Bridge Road and within the existing right-of-way, and any storm drains and any other appurtenances within the existing right-of-way as shown on the plans attached hereto as Exhibit A. In 1991, Streib held a series of conversations with County officials regarding the requirements for off-site improvements.

In February 1991, as noted supra, Streib’s project engineer, Morgan, estimated that the cost of the off-site improvements for sixty-seven or sixty-eight lots would be approximately $1,000 per lot. Streib communicated this to the County on February 27, 1991. The circuit court found that in May, 1991, the County informed Streib that the cost of improvements to Brock Bridge Road would exceed $250,000. In the letter agreement of June 5, 1991, Streib, on behalf of DFI, guaranteed Stone that it would cost $70,000 to improve Brock Bridge Road within the existing rights-of-way.

In July, shortly after signing this agreement, DFI estimated that the improvements to Brock Bridge Road would cost $281,780.50. The court found that “the estimate of $70,000.00 was for a portion of the work discussed by Anne Arundel [CJounty in May 1991 and estimated as costing $281,780.50 in July by DFI.” Shedding light on this interpretation, the court reasoned, was a letter from DFI (signed by Streib as president) to Stone and Utz dated April 5, 1991, prior to the contract, which explained: ... The end result will be the conditions as previously discussed (design the entire section of roadway, acquire the rights-of-ways from the individual property owners and only construct Phase 1 of the improvements which would parallel $70,000 plus or minus — 2,200 plus or minus lineal feet providing 8 foot shoulders on both sides of the roadway)— ¹⁵¹ The court found that the total cost to construct Brock Bridge Road was $427,800.85, which “substantially exceeded the estimate Streib had made [to Stone].” Concluding that all parties concerned were surprised by the requirements imposed by the County (including the installation of gabion walls 4 ), other expenses, and by the final costs of improving Brock Bridge Road, the court found: ... The costs of construction [were] clearly higher than the $70,000.00.

DFI made guarantees that certain costs in accordance with the June 5, 1991 agreement would not exceed $70,000. The Court finds that the guaranteed costs exceeded $70,000.00 .... (Emphasis added). Thus, the court implicitly found that DFI breached its contract with Stone and BBLP. 5 Nevertheless, the court dismissed the contract claim because, it reasoned, BBLP failed to show specific damages.

The court’s decision on this point turned on two factors: the nature of the damages and the relationship between the parties to the contract. First, the court noted that several bills submitted at trial, pertaining to the Phase One improvements, referred to paving around manholes, none of which existed on Brock Bridge Road. Subcontracts were awarded without competitive bidding, and several contractors were paid to perform the same tasks. “Careless management and bookkeeping” plagued records failing to delineate whether BBBI or another construction company — Weston Builders, Inc.- — was billed for work on Brock Bridge Road, or even to what portion of the road the bills pertained. Therefore, reasoned the court, even assuming that BBLP suffered damages as a result of the ¹⁵² breach, the evidence was “insufficient for the Court to determine an amount of damages by any method other than speculation.” Second, although the court found that BBBI paid for work which “clearly benefited BBLP,” the court found no evidence that BBLP was indebted to BBBI, “who was not a party to the June 5, 1991 agreement.” Appellants introduced no tax returns, promissory notes, or . other evidence to prove that the costs were a debt owed by BBLP.

Appellants presented no evidence that BBLP reimbursed BBBI for the expenses incurred by BBBI. Therefore, the court concluded, appellants could not carry them burden that BBLP suffered damages at all as a result of the breach. Discussing whether Streib was negligent in his estimation of the costs to complete Phase One, the court held that “no duty to guarantee future costs which may arise and which may exceed estimated costs arises as a duty of care outside a contractual agreement to guarantee such overages.” The court reasoned that an incorrect estimate of future costs may prove that a mistake was made, but does not prove negligence; the proper avenue for relief was in contract, not tort. LEGAL ANALYSIS I Appellants argue that the circuit court erred as a matter of law when it concluded that BBLP failed to demonstrate its indebtedness to BBBI (thus failing to carry its burden of showing damages caused by DFI’s breach of the contract).

Appellants’ argument hinges on their interpretation of Md.Code Ann., Corp. & Ass. (C.A.), § 9-401(2) (1975, 1993 Repl.Vol., 1996 Supp.), which reads: The rights and duties of the partners in relation to . the partnership shall be determined, subject to any agreement between them, by the following rules____ ¹⁵³ (2) The partnership must indemnify every partner in respect of payments made and personal liabilities reasonably incurred by him in the ordinary and proper conduct of its business, or for the preservation of its business or property. This section also applies to the general partner of a limited partnership, absent a contrary provision in the partnership agreement. Id. § 10-403(a).

The circuit court concluded that “[t]he work which was performed clearly included work which benefited BBLP.” As the work contemplated in the contract benefited the partnership, argue appellants, and as BBLP signed the contract with DFI in the first place, the contract was executed in the “ordinary and proper conduct” of the partnership’s business. Because BBBI, the general partner of BBLP, paid the money due under the contract, then, under C.A. § 9-401(2), BBLP owes a debt to BBBI as a matter of law, and the circuit court erred in concluding that BBLP suffered no damages as a result of DFI’s breach. We agree. Appellees’ assertions that BBBI acted as the general contractor and independent of the partnership are unconvincing.

First, contrary to appellees’ repeated assertions, the circuit court never concluded — or even remotely hinted — that there was insufficient evidence that BBBI acted as the general partner of BBLP. We are unable to fathom why appellees make this assertion — three times — in their brief. The only reference by the circuit court to the relationship between BBBI and BBLP was the acknowledgment that “BB[B]I is the general partner of BBLP.” Though it does not clearly disprove appellees’ assertion that BBBI was not acting as the general partner, this acknowledgment certainly does not support their position, and it certainly does not support their assertion that the circuit court came to this conclusion. Second, neither the lack of evidence of reimbursement nor the lack of evidence of BBLP’s acknowledgment of a debt owed to BBBI leads to the conclusion that BBBI could not have been acting on behalf of the partnership, as appellees assert.

It is undisputed that the party to the contract was ¹⁵⁴ BBLP, not BBBI. BBBI made the interest payments on the financing and covered other cost overruns. 6 The court found — and it is undisputed in this appeal — that DFI’s performance under the contract benefited BBLP. Outward manifestations of indebtedness are irrelevant in this context. What matters is whether BBLP’s execution of the contract was “reasonably incurred ... in the ordinary and proper conduct” of BBLP’s business, and whether BBBI made the interest payments in fulfillment of BBLP’s obligations under the contract.

C.A. § 9-401(2). BBLP’s execution of the contract was within the conduct of its business. BBBI had assigned the Taylor contract to BBLP on June 5, 1991, so BBLP, as of that date, possessed the rights to develop the land. BBLP, as signatory under the June 5, 1991 contract with DFI, was liable for the $70,000 it would cost to construct Phase One of the off-site improvements.

BBBI and Stone had formed BBLP on March 22, 1991, less than three months before the execution of the June 5 contract, and well after the machinery of the deal was set into motion; obviously, they formed BBLP for this real estate venture. It takes little intuition to conclude that the execution of the agreement with DFI on June 5, 1991, was within the proper and ordinary conduct of BBLP’s business. Similarly, BBBI paid the expenses for Phase One improvements on behalf of BBLP, rather than on its own behalf as general contractor. Appellees’ argument that BBBI acted entirely on its own behalf as the general contractor, independent of its status as general partner to BBLP, ignores the fact that BBLP, not BBBI, was the party to the June 5, 1991 contract that is the subject of this litigation.

This contract called for BBLP to pay no more than $70,000 for off-site improvements under Phase One of the project. BBLP paid ¹⁵⁵ nothing, according to the circuit court, 7 while BBBI paid the fees owed by BBLP under the contract, in addition to the cost overruns for off-site improvements. Under these circumstances, we have no difficulty in finding that, as a matter of law, BBLP was indebted to BBBI under C.A. § 9-401(2). The court erred in holding that BBBI suffered no damages from DFI’s breach.

II The circuit court held that, even if BBBI suffered damages from DFI’s breach, any damages awarded would only be speculative, due to inaccuracies and redundancies in appellants’ estimate. The court determined that ... evidence as to damages was not clear. Weston Builders, Inc. was involved in the residential development of Brock Bridge Estates, phases 1 and 2 of the Brock Bridge Road improvement plan, and other residential development during this time period. Several bills referenced paving around manholes, none of which exists on Brock Bridge Road.

Testimony proved that subcontracts were awarded without competitive bidding and that several contractors were paid to perform the same tasks. Careless management and bookkeeping reflect records which do not clearly delineate whether BB[B]I or Weston Builders was billed for work on Brock Bridge Estates or Brock Bridge Road or on what portion of Brock Bridge Road. Thus, the court concluded that the evidence of damages lacked sufficient clarity and certainty to justify any recovery at all. Appellants rely on Macke Co. v. Pizza of Gaithersburg, Inc., 259 Md. 479 , 270 A.2d 645 (1970), for the proposition that damages need not be proven with certainty, but only estimated.

Id. at 487-88 , 270 A.2d 645 . The court should not preclude all recovery, argue appellants, simply because, in some instances, the proof disclosed that amounts claimed were ¹⁵⁶ excessive or for work on a portion of the project unconnected with the guarantee. Because DFI provided an estimate to the County in connection with obtaining necessary permits and fixing the amount of its bond, appellants argue that DFI should not be allowed to challenge the reasonableness of its own construction costs. 8 Appellees respond that many of the items contained within the estimates made by DFI reflect costs outside the scope of the June 5, 1991 agreement, and that DFI made no guarantees as to these costs. Of particular importance are the estimated costs of a very expensive gabion retaining wall ($166,875) and a split-rail fence ($9,840), that, appellees argue, were outside the “existing right-of-way” of Brock Bridge Road, a limitation to which the June 5 contract specifically refers.

To impose liability for these items, and others, say appellees, would violate the intent of the agreement. In addition, appellees assert, the court correctly decided that BBLP’s poor bookkeeping practices prevented an accurate apportionment of costs and payments. Thus, conclude appel-lees, the court properly determined that it could not award damages based on anything other than pure speculation. With an acceptable demonstration of the amount, appellants may recover the costs they expended under the contract as compensatory damages.

As Professor Corbin explained: Pecuniary gain is a new addition to wealth; pecuniary loss is a subtraction therefrom, examples being an expenditure of money, a destruction of goods, and a decline in price. ¹⁵⁷ A breach of contract may cause loss as well as prevent gain. Recoverable damages include the amount of losses, if they satisfy the rules as to remoteness, certainty, and foreseeability. 5 Corbin on Contracts § 1021 at 127 (1964). To recover compensatory damages, the amount must be proved with reasonable certainty and may not be based upon speculation or conjecture. Lazorcak v. Feuerstein, 273 Md. 69, 75 , 327 A.2d 477 (1974); Asibem Assoc., Ltd. v. Rill, 264 Md. 272, 276 , 286 A.2d 160 (1972).

See also McKeever v. Washington Heights Realty Corp., 183 Md. 216, 226 , 37 A.2d 305 (1944). The amount, however, need not be proven to a mathematical certainty; the plaintiff bears the burden of adducing sufficient evidence from which the amount of damages can be determined on “some rational basis and other than by pure speculation or conjecture.” Ass’n of Maryland Pilots v. Baltimore & Ohio Railroad Co., 304 F.Supp. 548, 557 (D.Md.1969). Nevertheless, we believe appellants’ reliance on Macke to be misplaced. That case dealt with the recovery of damages for lost profits, which differ from the loss sustained in this case, because lost profits are often more difficult to ascertain than amounts expended under a contract. “ ‘[T]he last hundred years have witnessed continual modification of the once rigid rule that anticipated profits, because inherently uncertain, were per se not a proper element of damages for breach of contract.’ ” M & R Contractors & Builders, Inc. v. Michael, 215 Md. 340, 349 , 138 A.2d 350 (1958) (quoting Note, Speculative Profits as Damages /or Breach of Contract, 46 Harv.

L.Rev. 696 (1933)). To satisfy the “reasonable certainty” standard for lost profits when the fact of damage is proven with certainty, the amount of damages may be left to “reasonable inference.” Id. Often, it suffices merely to produce the “best evidence” which is available to show lost profits. Id.

The damages claimed in the case sub judice were not for lost profits, but compensation for sums already expended. Corbin explained the nature of such damages: ¹⁵⁸ If the defendant’s breach is one that, in the usual course of things, causes a substantial pecuniary loss of such a character that its amount cannot be proved, compensatory damages are recoverable in the reasonable discretion of the jury. If the loss is of such a kind that its amount can, in the ordinary course of things, be proved with reasonable certainty, substantial damages will be refused unless such evidence is given. Corbin at 133-34 (emphasis added).

This view is in accord with Maryland law. See Lazorcak, 273 Md. at 75 , 327 A.2d 477 ; Asibem Assoc., Ltd., 264 Md. at 276 , 286 A.2d 160 ; McKeever, 183 Md. at 226 , 37 A.2d 305 . The circuit court announced that any damages it awarded would be based only upon pure speculation. We are reluctant to accept this conclusion.

Admittedly, errors in bookkeeping, duplicate billing, noncompetitive bidding, and other irregularities make it difficult to ascertain the precise extent of the damages caused by DFI’s breach (i.e., those amounts expended by BBBI and BBLP on the guaranteed work of Phase One in excess of $70,000). Nevertheless, this difficulty should not preclude recovery by appellants completely. Although it is not the place of an appellate court to dictate the persuasive value of evidence placed before the trial court, see Md.Rule 8-131(c) (1997), the estimates prepared by DFI constitute some evidence of damages sustained, and the circuit court must evaluate the credibility of this evidence on the record. Certainly, the court may weigh the fact that, however exact the estimates, they may contain some items not within the guaranteed costs as specified in the June 5, 1991 contract, and they were incurred before appellants actually paid for the work.

The latter consideration may, indeed, provide strong support for the conclusion that the estimates might not constitute proof of “reasonable certainty.” See Lazorcak, 273 Md. at 75 , 327 A.2d 477 . After all, if appellants had kept accurate account books, their actual expenditures would be easily provable. See 5 Corbin on Contracts § 1020 at 125. Conclusions on these matters, however, are for the circuit court to reach. ¹⁵⁹ Nevertheless, the court found that the guaranteed costs exceeded $70,000, and it