Empire Realty Co. v. Fleisher

Levine, J., delivered the opinion of the Court. Appellants, Empire Realty, Inc. (Empire) and the executors of the Estate of Sidney B. Needle (Needle), appeal from a decree in equity for monetary damages in the sum of $19,641.50 entered against them in favor of appellees (the Fleishers) by the Circuit Court for Washington County (McLaughlin, C. J.). The damages were prayed as incidental relief in a suit brought by the Fleishers to set aside a deed purporting to convey certain real property in Washington County to Empire, a company controlled by Needle. 1 The bill of complaint alleged that the deed had been procured by fraud practiced upon the Fleishers by Needle. Finding that those allegations had been sustained, the chancellor set aside the deed upon the condition that within sixty days from the date of the decree, the Fleishers “reimburse and restore to Empire . . . the total amount of disbursements, expenditures or payments” made or incurred by the latter; that sum was to be determined by the court auditor.

Beginning in the late 1940’s, Fleisher, who had been engaged in the clothing business in the downtown section of Hagerstown for a number of years, first entertained the notion of building a shopping center on the outskirts of the city. In pursuit of his “impossible dream,” he went about purchasing the necessary real estate. During the ensuing years, however, he also “acquired” several judgments and liens, principally because of reversals suffered in the operation of his retail business. By the mid-1960’s, the cumulative effect of these obligations had threatened his continued ownership of the property and, thereby, the ²⁸⁰ fulfillment of his long-cherished goal.

In addition to the parcel he had assembled by outright purchase, Fleisher also had available to him the remainder of the 6.26 acres required for the shopping center; this was in the form of options to the “Jacobs” and “Masser” tracts held by Michael Callas (Callas), a business associate who was also a contractor and engineer. Under- great stress from his creditors, especially the holders of the first and second mortgages on the property, Fleisher sought financial backing from several sources in the City of Baltimore. His specific need was sufficient money for construction financing and payment of the liens. While thus engaged, he contacted Needle in the spring of 1967.

The latter arranged with one Simon Winer (Winer) to advance the funds necessary for the payment of the existing mortgages and judgments. During this period of negotiations — and for the preceding period of almost two years — Fleisher was represented by Shale D. Stiller, Esquire, of Baltimore. He, Fleisher, Needle, Winer and Callas conferred frequently during the summer of 1967; these discussions led to the execution on September 1, 1967 of a “Memorandum of Understanding” by Fleisher, Empire and Callas. Winer was also expected to sign that document, but did not do so.

It called for the following: 1. The formation of a corporation to be known as “Dual Plaza 40 East, Inc.,” with Winer, Empire and the Fleishers each to own one-third of its stock. 2. A settlement to be held in the second week of September — subsequently scheduled for September 18, 1967 — at which the Fleishers were to transfer to the corporation their interest in the real estate together with leases obtained from Drug Fair and Acme Markets, Inc.; and at which Callas would transfer to the corporation the Jacobs and Masser options. 3. A loan by Winer to the corporation of “enough money to pay off all existing mortgages on the property and all other liens, including the outstanding judgments against” the Fleishers.

The settlement scheduled for September 18 never took ²⁸¹ place because of Winer’s absence. By this time, the pressure brought to bear by the mortgagees had intensified, and on October 26, 1967, the Fleishers called on Needle in Baltimore. A meeting was scheduled for the next day at Needle’s office, which was also to be attended by Mr. Stiller. What transpired on the 26th and 27th was the subject of sharp dispute at the hearings below.

According to Mr. Stiller, whose testimony was accepted by the chancellor, when he arrived for the October 27 meeting, he saw Fleisher enter Needle’s office, but he [Mr. Stiller] was ushered out by Needle who stated “that he was going to be taking care of the whole transaction and working out the whole deal.” He also assured Mr. Stiller that his long-overdue fee would be paid. In brief, the Fleishers contended — and the chancellor, in effect, found — that at the October 27 meeting, Needle procured the Fleishers’ signatures to the deed and lease assignments, as well as the options from Callas, by fraudulently representing that those documents were intended solely to provide Needle and Empire with collateral security for his payment of the liens and judgments; but that, instead, Needle recorded the deed to Empire and exercised the two options. As we have previously noted, in addition to decreeing that the deed be “set aside and vacated,” the chancellor required that Empire be restored to the status quo within sixty days of the decree. He also ordered that the case be set for further hearing on the issue of damages.

Following the hearing on damages, held some months later, the chancellor passed a “Final Decree” whereby, in addition to incorporating the earlier decision regarding the cancellation of the deed, he awarded damages to the Fleishers against appellants in the sum of $19,641.50. It is from the part of the “Final Decree” dealing with damages that this appeal is taken. For different reasons — none of which are relevant here — the parties agree that the determination of fraud and the resulting cancellation of the deed are not before us. With respect to the damages, the chancellor, in his written opinion, said merely: ²⁸² “The questions as to damages is a difficult one.

The test boring, recording lease, Lawyer’s Title, preparation of plans and Mr. Stiller’s fee total $9,141.50. . . . The investigation, preparation and trial of the case involved, I would suppose, weeks of hard work by Fleisher’s counsel. I further feel that Mr. Robert Frank should be paid for his services. There is a further obligation on the part of the Fleishers to pay Michael Callas.

He expended time and money in the preparation of many plans and secured the option from Irene Jacobs, which was so badly needed for the Shopping Center. ... I believe that both Mr. Frank and Mr. Callas should be paid on a quantum meruit basis. . . . Mr. Fleisher wants to pay his Attorney, Mr. Stiller, who has reduced his fee from $7,500.00 to $4,000.00, regardless of the promise of Mr. Needle.. . . * * * “I will, therefore, award damages to the Plaintiffs against both Defendants, Empire Realty Company and Sidney B. Needle, in the amount of $19,641.50, plus costs of court.” As appellants have suggested, the chancellor’s itemization of damages might have been explained in greater detail. In certain respects, we are left to speculate on the basis for the total amount.

A certain amount, however, is sufficiently clear. Of the $19,641.50 awarded to the Fleishers, the sum of $9,141.50 represents the following expenses claimed by them at the hearing: Attorney fees (Shale D. Stiller, Esquire) $4,000.00 Recording charges — Acme lease 1,900.00 Title insurance 1,675.00 Fox and Associates (various engineering services) 979.97 Norman S. Earley & Son, Inc. (test borings) 586.54 9,141.51 ²⁸³ The reasons for which the court awarded the remaining $10,500.00 are left largely to one’s imagination. We are told merely that unspecified portions are for payment “to Mr. Robert Frank” (Frank), a Hagerstown real estate agent who apparently devoted his efforts to obtaining prospective tenants for the shopping center; and for Callas who, the chancellor found, “expended time and money in the preparation of many plans and secured the [Jacobs] option.” Finally, the undetermined remainder of the $10,500.00 is in payment of trial counsel fees for the prosecution of the instant case. The first two items, pertaining to Frank and Callas, as with virtually the entire first category of damages totalling $9,141.50, were incurred prior to the appearance of Needle; only the unspecified amount allowed for trial counsel is for services rendered after that event.

Appellants maintain that with the exception of the trial counsel fees, and that part of Mr. Stiller’s fee, if any, which may be attributable to forming the corporation in early September, all the expenses were incurred prior to the negotiations with Needle. Thus, it is argued, they are not recoverable because reimbursement of previously-contracted expenses is unnecessary to the restoration of the status quo. We think that the pivotal event is the actual commission of the fraud, which was fixed by the testimony as having occurred on October 27, 1967, and not when Needle initially entered the picture. This was the occasion on which the deed, together with the transfer of the leases and options, was signed; when Needle represented that he would merely hold those documents; when he concealed his intentions from Mr. Stiller; and it is clearly the date on which the chancellor found Needle’s deception to have been committed.

Thus, we see two issues that are presented by this appeal: (1) whether those expenses which were incurred prior to October 27, 1967 may be recovered; and (2) whether fees for Fleisher’s counsel rendered in the trial of the instant case are a proper element of damages. (1) As we have already stressed, the only expense on the ²⁸⁴ entire list of damages awarded by the chancellor that was incurred subsequently to October 27 — the date on which the fraud was committed — was for the legal services rendered in the trial of this case. We shall consider that portion of the damages later in this opinion. Clearly, the expenses incurred prior to October 27 should not have been allowed as damages, since they could not possibly have been the result of any conduct occurring on that date.

It is the general rule that one may recover only those damages that are affirmatively proved with reasonable certainty to have resulted as the natural, proximate and direct effect of the injury, Plank v. Summers, 205 Md. 598 , 109 A. 2d 914 (1954); Riley v. Naylor, 179 Md. 1 , 16 A. 2d 857 (1940); see McAlister v. Carl, 233 Md. 446 , 197 A. 2d 140 , 15 A.L.R.3rd 496 (1964). This principle is equally apposite here. One suing for fraud or deceit must establish that he sustained damage by reason of the fraud, and that his injury was the natural and proximate consequence of his reliance on the fraudulent act, Russell v. Stoops, 106 Md. 138 , 66 A. 698 (1907); Weaver v. Shriver, 79 Md. 530 , 30 A. 189 (1894); cf. Fowler v. Benton, 245 Md. 540 , 226 A. 2d 556 (1967). Appellees address themselves to this proposition by arguing that “Maryland has adopted a flexible approach to the award of damages in fraud cases,” for which they cite Downs v. Reighard, 265 Md. 344 , 289 A. 2d 299 (1972) and Hinkle v. Rockville Motor Co., 262 Md. 502 , 278 A. 2d 42 (1971).

While we did approve in those cases the flexible approach to damages for fraud and deceit, that doctrine applies only to the measure of damages, i.e., whether one may recover the “benefit of his bargain” or is restricted to his “out of pocket” losses. It does not refer to liability for damages, with respect to which the rule mentioned earlier is controlling. It is aptly stated in 37 Am. Jur. 2d,