Hall v. LOVELL REGENCY HOMES LIMITED PARTNERSHIP

BYRNES, Judge. Appellants are four couples who purchased newly-constructed houses in the Kingsbrook Development in Frederick County, Maryland. After experiencing water and drainage problems with their properties, they brought suit in the Circuit Court for Frederick County against appellees, the builder of their houses and its general partners, alleging violations of the Maryland Consumer Protection Act, Maryland Code, (1990 Repl.Vol., 1997 Cum.Supp.), §§ 13-301 through 13-501 of the Commercial Law Article (the “CPA”), and asserting claims in contract, warranty, and tort. From July 19, 1996 to August 16, 1996, the case was tried before a jury presided over by Judge Mary Ann Stepler.

At the close of appellants’ case, the trial court granted appellees’ motion for judgment on the CPA claim. The remaining claims were submitted to the jury, which returned a verdict in favor of appellants for breach of contract, breach of express warranty, and negligent misrepresentation and awarded each appellant $1.00 in nominal damages. Appellants challenge the judgment on appeal, presenting three questions for review, which we have reordered and slightly rephrased: I. Did the trial court err in ruling that appellants were limited to nominal damages for their property loss?

II

Did the trial court err in ruling that appellants were not entitled to damages for “loss of use and enjoyment” of their houses in addition to damages for injury to their property value?

III

Did the trial court err in failing to submit the Consumer Protection Act claim to the jury? We find no reversible error on the part of the trial court. Accordingly, we affirm the judgment. 1 ⁶ FACTS 2 In 1989, Kingsbrook Limited Partnership (“KLP”) began developing a 217 acre tract of land that it owned in Frederick County into “Kingsbrook,” a residential community. KLP divided the property into lots and sold them to appellee Lovell Regency Homes Limited Partnership (“Lovell Regency”).

Lovell Regency constructed single-family dwellings on the lots and sold the improved residential properties to interested buyers. Between July, 1992 and September, 1993, appellants James and Janice Hall, Mickey and Mary Ellen Mitchell, Richard and Linda Harcum, and Ronald and Lorene Pregenzer (“the homeowners”) purchased from Lovell Regency lots improved by newly-constructed dwellings. 3 After the homeowners moved into their new houses, they noticed that the streets in their section of Kingsbrook would flood after heavy rains or snow, that their yards collected water and stayed “soggy” for long stretches of time, and that their sump pumps continuously pumped out large volumes of water. The Halls found standing water and mud around the perimeter of the their house. Water accumulated in an unpaved portion of the Halls’ basement.

Their basement walls became discolored and “splotched” and developed cracks. Excessive moisture in their basement caused mold and fungi to proliferate. These water and drainage problems prevented the Halls from finishing their basement, adding a deck to their house, or fencing their yard. The other three families experienced similar problems with their properties: water in their basements, cracks in basement walls and floors, exterior wall cracks, and ground sinking.

They, too, were unable to finish ⁷ their basements and to use their properties as they had planned. The homeowners remained in their properties nonetheless. In February, 1995, the homeowners filed the instant law suit against Lovell Regency and against Lovell Homes, Inc. and Lovell Regency Homes Corporation, the general partners in Lovell Regency. 4 Their complaint sets forth claims for negligence, negligent misrepresentation, breach of implied warranties, breach of express warranty, fraud, breach of contract, and violation of the CPA. At trial, the homeowners presented evidence, including expert witness testimony, demonstrating that Lovell had misrepresented and warranted that their houses had been waterproofed; that Lovell had showed them and other prospective buyers a Camelot model house with a finished basement, thereby misrepresenting that the houses they were purchasing would be suitable for use in fully finished conditions; that Lovell’s sales brochures misleadingly touted the ideal location and setting of the community; that Lovell expressly warranted that there were no water problems in the neighborhood and that the houses would contain dry, usable basements; and that Lovell breached its construction contracts by failing to waterproof the houses as promised, by building the houses in violation of certain zoning and building standards, by building the houses near or in a flood plain and on soil not suitable for construction of that sort, and by not building the houses in conformity with sound engineering standards but instead with structural defects that were exposing them to potential health hazards.

According to the homeowners and their expert witnesses, the defects in their properties were irreparable and their properties were uninhabitable. The homeowners called Peter Vidi, a real estate appraiser, to testify about damages. Mr. ⁸ Vidi opined as follows about the present fair market value of each family’s property: 5 [T]he properties are for all intents and purposes not marketable to someone who understands the degree of risk that is involved in purchasing the properties ... [T]he values of the properties were negligible and that relative to their original market value, their fair market value, at their purchase prices, that they had lost all of their value, that the fair market value that they paid at the time that they paid it was not in my opinion a well informed buyer purchasing what they knew [the value] to be. Mr. Vidi explained that when real property has a “zero” fair market value, the value is not measurable: “it has no quantification.” He opined that because the present fair market value of each family’s property was zero, each family had lost a sum equal to the total purchase price of its property plus the amount of any down payment made and the cost of any subsequent improvements to the property.

On cross-examination, Mr. Vidi acknowledged that he had not obtained any information about comparable sales of properties in the neighborhood and that because he considered that the defects in the properties could not be cured, he did not obtain estimates of repair costs. Mr. Vidi did not supply an opinion about the fair market values of the properties with the alleged defects at the times that they were purchased. He also did not express an opinion about the present fair market values of the properties without the alleged defects. On direct examination, homeowner Richard Harcum was asked: “Do you know what the market value of your home is?” Mr. Harcum responded, “I’m not sure how to answer that right now.

I know that I would not feel comfortable selling [my] house at market value, which is in the $220,000 to $230,000 range.” When asked the basis for that testimony, Mr. Harcum stated, “Just my general knowledge of what ⁹ houses like mine tend to sell for when they’re up for sale.” Later in Mr. Harcum’s direct examination, the following colloquy ensued: MR. STEELMAN: If a willing and knowledgeable buyer was to be told that there’s no problems to a house, there’s no water problems, the community is beautiful, its everything in the brochures, what would you put the value of a comparable house like yours? MR. HARCUM: In a condition where everything’s fine, I think I said that I would guess my house is around $220,000.00 to $230,000.00 The homeowners introduced into evidence the contracts of sales and settlement sheets for their properties.

At the close of the homeowners’ case, Lovell moved for judgment on numerous grounds. The trial court ruled that the homeowners could not recover damages for emotional distress or punitive damages and reserved ruling on other issues raised in the motion. Subsequently, the trial court granted Lovell’s motion for judgment on the CPA claim. It concluded that the homeowners had not presented cost of repair evidence and that they had not submitted evidence competent to show the difference between the fair market values of their properties with and without defects at a given point in time.

On that basis, the court ruled that the homeowners’ evidence was not legally sufficient to permit the jury to award contract, warranty, or tort damages for loss in fair market value measured under an “out of pocket” or “benefit of the bargain” test. Accordingly, they had not submitted proof that they had sustained actual injury or loss, which is necessary to support a private right of action under the CPA. In its case, Lovell introduced evidence showing that it had inspected the homeowners’ properties and that the water problems about which they complained, to the extent that they .existed, could be repaired for a total sum of $10,000.00 to $12,000.00. 6 ¹⁰ The homeowners requested a jury instruction on damages for loss in fair market value. The trial court refused to grant the instruction, stating: “We just don’t have [in evidence] two values at the same point of time to award either out of pocket or benefit of bargain ...” The homeowners also requested that the jury be instructed on damages for “loss of use and enjoyment” of their properties.

The court denied that request as well, ruling that the evidence presented by the homeowners on “loss of use and enjoyment” was speculative. The court refused to grant an instruction requested by Lovell that would have directed the jury that if it found for the homeowners, it could award nominal damages only. The trial court instructed the jury on damages as follows: I [ ... ] ruled that there was no evidence that could be submitted to the jury as a result of any loss in value or loss of use of the properties. Therefore if you return a verdict for any of the [homeowners] on any of their claims, you may award such [homeowners] those damages that compensate them for any actual cost of repair to their properties.

If, however, you return a verdict for any of the [homeowners] on any of their claims, but you do not specifically find that such [homeowner] has proved actual costs of repair damages, you may not award such [homeowner] damages for any other alleged injuries. In this situation, the amount of the verdict would be for $1.00 to each [homeowner]. What this means is, if you find that____there is evidence, by a preponderance of the evidence, of damages of repair, then you proceed to make that finding. If you find that the [homeowner] has not shown, by a preponderance of the evidence, damages of repair, but you still find [Lovell] liable, then you enter what we call nominal damages, and that would be for $1.00.

That is, if you find that there is liability. The jury deliberated and returned a verdict against the homeowners and in favor of Lovell on the claims for negligence, fraud, and breach of implied warranties. It found for the homeowners and against Lovell on the claims for breach of ¹¹ contract, breach of express warranty, and negligent misrepresentation and awarded nominal damages. This appeal followed.

DISCUSSION I The homeowners argue that the trial court erred in instructing the jury that it could not award damages for loss in fair market value of their properties or for “loss of use and enjoyment” of their properties and in directing the jury, in effect, to award nominal damages if it found in their favor on any of the claims. Lovell counters that the trial court correctly ruled that the homeowners did not present evidence legally sufficient to allow the jury to award those types of damages and that it properly instructed the jury in accordance with that ruling. In reviewing the propriety of a trial court’s granting of a particular jury instruction or refusal to grant an instruction, our task is to determine whether the instruction at issue was a correct exposition of the law, whether it was accurate in light of the evidence before the jury, and whether, if a requested instruction was refused, its substance was fairly covered by the instructions that were actually given. Rustin v. Smith, 104 Md.App. 676, 679-80 , 657 A.2d 412 (1995).

In this case, the instruction at issue incorporated the court’s prior ruling on damages. The compound nature of the instruction means that, in passing on whether the court’s instruction was accurate in light of the evidence before the jury, we must undertake the same analysis as the trial court and decide whether the evidence, viewed in the light most favorable to the homeowners, was legally sufficient to permit the jury to award damages for loss in value or “loss in use of enjoyment” of the properties. See Toft v. Pimentel, 108 Md.App. 206, 222 , 671 A.2d 99 (1996). We embark upon our task by briefly reviewing the measures of damages applicable to the homeowners’ claims. ¹² In tort actions founded on misrepresentation, “the aim of compensation ... is to put the buyer, as nearly as practicable, in the position he would have been had he not been defrauded.” Beardmore v. T.D. Burgess Co., 245 Md. 387, 390 , 226 A.2d 329 (1967).

In fraudulent or negligent misrepresentation actions in which a plaintiff has purchased real property that was not as it was represented to be, Maryland law applies a “flexible” measure of damages that allows the plaintiff to chose between two tests for damages. Hinkle v. Rockville Motor Co., 262 Md. 502, 511 , 278 A.2d 42 (1971); Ward Development Co. v. Ingrao, 63 Md.App. 645, 659 , 493 A.2d 421 (1985). The preferred test is the “out of pocket” rule, Weisman v. Connors, 69 Md.App. 732, 749-50 , 519 A.2d 795 (1987), rev’d on other grounds, 312 Md. 428 , 540 A.2d 783 (1988), which is “the difference between the amount of the purchase price the buyer has paid and the actual value of the property on the date it was sold.” Beardmore, 245 Md. at 390 , 226 A.2d 329 . The other acceptable measure of damages for misrepresentation is the “benefit of the bargain” test, in which damages are “the difference between the actual value of the property at the time of making the contract and the value that it would have possessed if the representations had been true.” Id.; see also Call Carl, Inc. v. BP Oil Corp., 554 F.2d 623, 629 (4th Cir.1977), cert. denied, 434 U.S. 923 , 98 S.Ct. 400 , 54 L.Ed.2d 280 (1977)(applying Maryland law).

The amount of damages recoverable for breach of contract is that which will place the injured party in the monetary position he would have occupied if the contract had been properly performed. Beard v. S/E Joint Venture, 321 Md. 126, 133 , 581 A.2d 1275 (1990), reconsideration denied, 322 Md. 225 , 587 A.2d 239 (1991); Casualty Ins. Co. v. Messenger, 181 Md. 295, 301-02 , 29 A.2d 653 (1943); National Micrographics v. OCE-Industries, 55 Md.App. 526, 538 , 465 A.2d 862 (1983), cert. denied, Oce-Indus. v. National Micro-graphics, 298 Md. 395 , 470 A.2d 353 (1984); Dialist Co. v. Pulford, 42 Md.App. 173, 179 , 399 A.2d 1374 (1979). In a breach of contract action for defective performance of a real estate construction contract, the primary measure of damages ¹³ is the cost of repairing or remedying the defect.

Andrulis v. Levin Construction, 331 Md. 354, 370 , 628 A.2d 197 (1993); Gilbert Const. Co. v. Gross, 212 Md. 402, 411 , 129 A.2d 518 (1957); Ray v. Eurice, 201 Md. 115, 129 , 93 A.2d 272 (1952). If the plaintiff presents proof that repairing the defect in the property would be infeasible or impracticable, however, an acceptable secondary measure of damages is the loss in value of the property caused by the breach, i.e., the difference between the fair market value of the property without the defect and the fair market value of the property with the defect. Gilbert, 212 Md. at 411 , 129 A.2d 518 ; Mullan v. Hacker, 187 Md. 261, 270 , 49 A.2d 640 (1946).

Damages for breach of contract “seek to vindicate the promisee’s expectation interest.” Andrulis, 331 Md. at 374 , 628 A.2d 197 . Expectation interest damages include losses sustained, i.e., “out of pocket damages,” and gains lost, i.e., “benefit of the bargain” damages. Beard, 321 Md. at 133 , 581 A.2d 1275 . Compensatory damages for breach of contract may be recovered subject to “limitations of remoteness and speculativeness.” Dialist, 42 Md.App. at 179 , 399 A.2d 1374 .

Such damages “must be proved with reasonable certainty, and may not be based on speculation or conjecture____” Asibem Assoc., Ltd. v. Rill, 264 Md. 272, 276 , 286 A.2d 160 (1972). Finally, the measure of damages for the breach of an express warranty in the sale of real property is the same as the measure of damages for breach of contract. Hooton v. Mumaw Plumbing, 271 Md. 565, 573 , 318 A.2d 514 (1974) (applying contract law and stating that the “ ‘measure of damages [in a breach of warranty action] is that amount of money which will render that which is guaranteed to be as warranted.’ ’’(quoting Correlli v. National, 240 Md. 627, 632 , 214 A.2d 919 (1965)). In the case at bar, the contract, tort, and warranty damages sought by the homeowners and potentially recoverable by them were essentially identical.

Because the homeowners maintained that the defects in their properties could not be cured, they did not introduce cost of repair evidence and ¹⁴ instead sought to recover contract and warranty damages for the diminution in the fair market values of their properties caused by Lovell’s breach, under the “out of pocket” or “benefit of the bargain” tests. They also sought damages in tort for loss in value using the same “out of pocket” and “benefit of the bargain” tests. The valuation evidence on which the homeowners based these damage claims consisted of the “zero” present fair market values of their properties with defects (testimony of Mr. Vidi); the estimated “$220,000.00 to $230,000.00” present fair market values of their properties without defects (testimony of Mr. Harcum); and the sums that they paid to purchase their properties from Lovell (contracts and settlement sheets). The trial court’s ruling on damages for loss in fair market value rested on the following considerations and decisions about the state of the evidence: 1) the contract prices for the properties were not competent evidence to establish their fair market values without defects at the times that they were purchased; 2) no evidence was introduced to show the fair market values of the properties with defects at the times that they were purchased; and 3) Mr. Harcum’s testimony was not competent to establish the present fair market value of properties like his and like the other three properties but without defects, as that, testimony was speculative.

The court reasoned that because the only admissible valuation figure introduced into evidence by the homeowners was Mr. Vidi’s testimony that the present fair market values of their properties with defects was zero, the evidence was not legally sufficient to permit the jury to award damages for loss in fair market value. Even if the contract prices for the properties constituted competent evidence of their values without the alleged defects when they were purchased by the homeowners, the loss of value evidence remained legally insufficient because the only figures in evidence for the fair market values of the properties with the alleged defects pertained to the present and not to the times of the purchases. In short, the case was missing valuation evidence showing the difference between the ¹⁵ fair market values of the properties with and without defects at one point in time. The homeowners assign several errors to the trial court’s damages ruling that together comprise their argument that loss in value damages was a jury issue, contrary to the trial court’s instruction.

First, they contend that the court erred in ruling that the fair market values of their properties in non-defective conditions at the times of the purchases could not be proven by their contract prices, as reflected on their settlement sheets. Lovell counters that the trial court correctly ruled that the evidence of contract (or settlement) prices paid was incompetent to establish the values of their properties without defects at their times of purchase, under Andrulis v. Levin Construction Co., supra. We examine Andrulis in some detail because it has broader relevance to the issues presented. In that case, purchasers of a newly constructed residential dwelling claimed that the builder had breached statutorily implied warranties either by constructing their house without waterproofing and a foundation drainage system or by constructing their house with defects in waterproofing and in the drainage system.

In a bench trial, the circuit court found as a fact that the builder had not installed a drainage system. The court did not award damages for the sum sought by the purchasers to install such a system, however, because it found that the cost to cure would be unreasonably high. Instead, it awarded the purchasers one-half of the amount they sought, as “diminution in value” damages. On appeal, the builder argued that there was no evidence to support that damage award and that nominal damages should have been awarded instead.

See, e.g., Asibem, 264 Md. at 276 , 286 A.2d 160 (if plaintiff in breach of contract action fails to prove compensatory damages he is only entitled to recover nominal damages). In an unreported opinion, we reversed, holding that the trial court had erred in ruling that the cost of cure was unreasonable. The Court of Appeals, affirming in part and reversing in part, explained that the ordinary “cost of repair” measure of ¹⁶ damages in a defective performance breach of contract action is limited by the economic waste doctrine, which provides that, if the breaching party proves that the cost to repair the defect is such as will result in unreasonable economic waste, the proper measure of damages becomes the difference between the fair market value of the property as contracted for (without the defect) and as performed (with the defect). In an action involving improvements to real estate, whether repair will produce economic waste is a question of “disproportionality” that must be determined by comparing the cost to cure to “any difference between the value of the property after the corrective work is done with the value of the property absent the corrective work.” Andrulis, 381 Md. at 374-75, 628 A.2d 197 .

The Court in Andrulis held that the trial court erred by applying the doctrine of economic waste without ascertaining those values. In its discussion of the valuation evidence that the trial court needed to consider when comparing the cost of repair to any difference between the value of the property with the corrective work and the value of the property without the corrective work, the Court observed: ¹⁷ Id. at 375 , 628 A.2d 197 (emphasis supplied). In the case at bar, Lovell maintains that the comments highlighted above support the trial court’s ruling that evidence of the contract prices paid for the homeowners’ properties was not competent to establish their fair market values without defects at the times they were purchased. We disagree. ¹⁶ The trial court sought to supply the missing evidence of values by substituting the reaction of a hypothetical buyer, armed in negotiations with the knowledge that the foundation drainage system is defective.

That substitution constituted speculation. Nor should we assume that the Contract price represents the value of the premises, as warranted, and that the Contract price, less the cost of a drainage system as estimated by [the purchasers’ expert witness] represents the value of the premises without a drainage system. It may be that the value of [the purchasers’] house, without a drainage system, is depressed by more than the cost of the corrective work. It may be that buyers of this class of property in Montgomery County would prefer to purchase a code-complying house, rather than to endure the aggravation of having the corrective work done.

There is no evidence on these points. ¹⁷ The generally accepted meaning of “fair market value,” as defined in