Rite Aid Corp. v. Lake Shore Investors

CHARLES E. ORTH, Jr., Retired, Specially Assigned Judge. The only concern of this appeal is the measure of damages recoverable in an action for the tort of interference with a contract and for the tort of injurious falsehood as it pertains to slander of title or disparagement of real property. 1 I Lake Shore Investors (Lake Shore) instituted an action in the Court of Common Pleas of Baltimore City, now the Circuit Court for Baltimore City, against Rite Aid Corporation and Rite Aid of Maryland, Inc. (Rite Aid) seeking damages for “False and Fraudulent Claim of Lease” and for “Wrongful Interference with Contracts.” 2 The claim of ⁶¹⁵ injurious falsehood arose from Rite Aid’s representations that a valid lease agreement on certain property existed between it and Lake Shore. The claim of wrongful interference with a contract arose from the cancellation by BTR Realty, Inc. of an agreement whereby it was to purchase certain property from Lake Shore. Rite Aid claimed that a portion of this property was subject to its alleged lease with Lake Shore.

Because of Rite Aid’s claim, BTR Realty, Inc. insisted on a clause in the purchase agreement to the effect that it could withdraw from the agreement if Lake Shore did not furnish a written release from Rite Aid. When the release was not forthcoming, BTR Realty, Inc. withdrew from the contract. The grant of a pre-trial motion for a partial summary judgment made by Lake Shore and the denial of such a motion by Rite Aid resulted in a judgment as a matter of law that there was no valid lease between Lake Shore and Rite Aid. In that posture, trial commenced before a jury.

During the presentation of Lake Shore’s case, the trial judge ruled that damages must be measured under the contractual “benefit of the bargain” rule which he defined to mean the difference between the fair market value of property at the time of a tortious interference with a contract and the contractual price for the purchase of the property. He noted that he would sustain the objection to the admissibility of evidence regarding any interim expenses. “Specifically mortgage interest, real estate tax, insurance premiums and engineering expenses.” He explained later: “It seems to me that all we are talking about would be the contract price of the sale. The property, the total package was sold, or was under contract of sale for x hundred thousand dollars. Then the only other evidence that is admissible on damages would be testimony bearing on the actual value of the property sold under that contract at the time of the tort.” ⁶¹⁶ Lake Shore did not offer evidence of damages under the limitations imposed by the judge.

When the court refused to admit evidence of damages measured under a tort standard, Lake Shore abided by a proffer of the amount of damages calculated under that standard. At the conclusion of Lake Shore’s case the trial judge granted the request of Rite Aid for a directed verdict as to both injurious falsehood and interference with a contract. 3 The Court of Special Appeals believed that “the trial court erred in limiting the evidence of damages to the ‘benefit of bargain.’ [Lake Shore] should have been permitted to prove such damages as would reasonably flow from the tortious contractual interference by Rite Aid.” Lake Shore Inv. v. Rite Aid Corp., 55 Md.App. 171, 182 , 461 A.2d 725 (1983). It ⁶¹⁷ reversed the judgment in favor of Rite Aid and remanded the case for a new trial. 4 Id. at 184 , 461 A.2d 725 . II It is firmly established that both injurious falsehood (sometimes known as disparagement or slander of title) and wrongful interference with contractual relations are actionable torts.

W.L. Prosser, Handbook of the Law of Torts, § 128 (injurious falsehood) and § 129 (interference with contractual relations) (4th ed. 1971). They have long been so recognized in Maryland. Gent v. Lynch, 23 Md. 58, 63 (1865) (injurious falsehood); Knickerbocker Co. v. Gardiner Co., 107 Md. 556, 566 , 69 A. 405 (1908) (interference with contractual relations). Opinions of this Court concerning interference with a contract have been relatively numerous.

See Sumwalt Co. v. Knickerbocker, 114 Md. 403, 413-416 , 80 A. 48 (1911); Cumberland Glass Mnf’g. Co. v. DeWitt, 120 Md. 381, 392 , 87 A. 927 (1913), aff’d. 237 U.S. 447 , 35 S.Ct. 636 , 59 L.Ed. 1042 (1915); Goldman v. Building Assn., 150 Md. 677, 681-683 , 133 A. 843 (1926); Stannard v. McCool, 198 Md. 609, 616-617 , 84 A.2d 862 (1951); Horn v. Seth, 201 Md. 589, 593 , 95 A.2d 312 (1953); McGinnis v. Chance, 247 Md. 393, 401 , 231 A.2d 63 (1967); Rinaldi v. Tana, 252 Md. 544, 545 , 250 A.2d 533 (1969); Daugherty v. Kessler, 264 Md. 281, 285-287 , 286 A.2d 95 (1972). On the other hand, injurious falsehood in the form of slander of title to real property did not come before this Court again until 107 years after Gent when we decided Beane v. McMullen, 265 Md. 585, 607-610 , 291 A.2d 37 (1972). 5 The tort has not been before us since. Cf. ⁶¹⁸ Hopkins C. Co. v. Read Drug & C. Co., 124 Md. 210 , 92 A. 478 (1914) (slander of personal property).

The Court of Special Appeals has had the opportunity to deal with the tort on two occasions before the instant case — in Horning v. Hardy, 36 Md.App. 419, 424-431 , 373 A.2d 1273 , cert, denied, 281 Md. 739 (1977) and in Dixon v. Process Corp., 46 Md.App. 198, 203-209 , 416 A.2d 1295 (1980). In each of these cases the focus was on “conditional privilege.” None of the opinions of the two appellate courts has expressly addressed or definitively answered the question now before us, namely, how the damages recoverable under the two torts are to be measured. In the case at hand the parties, at trial, before the intermediate appellate court and before us, the trial judge, and the Court of Special Appeals in its opinion, made no distinction between the two torts with respect to the measure of damages. Apparently they proceeded on the assumption that liability for damages under each tort was measured by the same test.

We do not find this to be so. 6 Ill We first consider how damages are to be measured for interference with a contract. The test has not been firmly established by judicial opinions. As the Court of Special ⁶¹⁹ Appeals pointed out, 55 Md.App. at 179 , 461 A.2d 725 , Professor Prosser found that there were three lines of cases. He described them: “[0]ne line of cases tends to adopt the contract measure of damages, limiting recovery to those damages which were within the contemplation of the parties when the original contract was made.

Another, apparently somewhat more uncertain of its ground, has applied a tort measure, but has limited the damages to those which are sufficiently ‘proximate,’ with some analogy to the rules as to negligent torts. A third, perhaps the most numerous, has treated the tort as an intentional one, and has allowed recovery for unforeseen expenses, as well as for mental suffering, damage to reputation, and punitive damages, by analogy to the cases of intentional injury to person or property.” Prosser, § 129, pp. 948-949 (footnotes omitted). Professor Prosser left no doubt that he thought that the third line of cases was the most persuasive: “In the light of the intent and the lack of justification necessary to the tort, this seems the most consistent result.” Id., § 129, p. 949. Professor D.B. Dobbs also found that “[t]he authorities are both divided and uncertain” as to whether the interference with a contract tortfeasor is liable under tort or contract tests.

D. Dobbs, Handbook on the Law of Remedies, § 6.4, p. 461 (1973). He thought that the ultimate weight of the cases on each side is difficult to evaluate. He observed: “[T]he more liberal authority on the issue is just about as ambiguous as the more restrictive, and it is difficult to feel that the issue has been completely foreclosed by either group of cases.” Id. at 462. But he declared that “[tjhere is a good deal to be said for the view that the tortfeasor is liable under tort rather than contract tests.” Id.

Restatement, Second, Torts, § 774A (1979) reflects Professor Prosser’s preference and Professor Dobbs’ inclination. Comment d to the section states flatly: ⁶²⁰ “The action for interference with contract is one in tort and damages are not based on the contract rules, and it is not required that the loss incurred be one within the contemplation of the parties to the contract itself at the time it was made.” Section 774A reduces Prosser’s view to specifics. It provides: “(1) One who is liable to another for interference with a contract or prospective contractual relation is liable for damages for (a) the pecuniary loss of the benefits of the contract or the prospective relation; (b) consequential losses for which the interference is a legal cause; and (c) emotional distress or actual harm to reputation, if they are reasonably to be expected to result from the interference. (2) In an action for interference with a contract by inducing or causing a third person to break the contract with the other, the fact that the third person is liable for the breach does not affect the amount of damages awardable against the actor; but any damages in fact paid by the third person will reduce the damages actually recoverable on the judgment.” Comment a points out that “[TJhis Section states only the rules applicable to the recovery of compensatory damages.

Since the tort is an intentional one, punitive damages are recovered in these actions under appropriate circumstances.” 7 ⁶²¹ As we have seen, the Court of Special Appeals adopted the test followed in the third line of cases set out in Prosser by holding that “the trial court erred in limiting the evidence of damages to the ‘benefit of bargain,’ ” and declaring that Lake Shore “should have been permitted to prove such damages as would reasonably flow from the tortious contractual interference by Rite Aid.” 55 Md.App. at 182 , 461 A.2d 725 . 8 We agree in principle with the views and holding of the Court of Special Appeals. But we deem it advisable to be more specific. Accordingly we expressly adopt as the law of this State the provisions of § 774A of the Restatement, Second, Torts. 9 In the light of those provisions “such dam ⁶²² ages as would reasonably flow from a tortious contractual interference” may include the pecuniary loss of the benefits of the contract, consequential losses for which the tortious act is the legal cause, emotional distress and actual harm to reputation, if they are reasonably to be expected to result from the tortious act, and, in appropriate circumstances, punitive damages. We embrace this measure of damages because it fully recognizes that the tortfeasor who induces the breach must be held to the more extensive tort damages since the tort is necessarily an intentional one, but does not impose liability without some limit.

See Dobbs, Law of Remedies, § 6.4, p. 461. IV Any type of legally protected property interest that is capable of being sold may be the subject of disparagement, but generally injurious falsehood cases have been concerned, as here, with aspersions upon the title to property or its quality. Prosser, § 128, p. 918. Annot., 4 A.L.R. 4th 532 (1981) comments: “The law does not presume that damages occur as a necessary result of an act of slandering one’s title to real or personal property.

Thus, it is well established that in a slander of title action recovery may be had only for special, as distinguished from general, damages. Indeed, together with the uttering and publication of the slanderous material, as well as the falsity of such materials and malice, the existence of special damages is an element of a cause of action for slander of title.” Id., § 2 a, pp. 536-537 (footnotes omitted). The Annotation collects and discusses the state and federal cases in which the courts have considered what losses constitute special damages recoverable in a slander of title action. ⁶²³ Despite the abysmal lack of uniformity in the consideration by the courts in most areas with regard to the right of the injured party to recover for special damages suffered as a result of a slander of title, one principle stands bright and clear. “It is a well established principle, supported explicitly or implicitly by all of the cases in this annotation, that the injured party can recover only for pecuniary loss resulting from the disparaging words or material, that is, recovery is limited to harm to those interests having pecuniary value.” Id. at 537 (footnotes omitted). It is also well established as a corollary to this principle that “mental distress or anguish is not within the range of special damages proximately resulting from a slander of title action, a principle supported by some, and disputed by none, of the cases. . . . ” Id.

(footnote omitted). Professor Prosser, in complete accord, put it this way: “The ‘special damage’ which the plaintiff must always plead and prove as an essential part of his cause of [slander of title] action means a pecuniary loss. Such personal elements of damage as mental suffering, which frequently are recoverable in defamation, have been very strictly excluded from actions for disparagement and injurious falsehood.” Prosser, The Law of Torts, § 128, p. 922. Comment f to § 623A of Restatement, Second, Torts (1977) states that “[compensatory damages in an action for injurious falsehood have consistently been limited to harm to interests of the plaintiff having pecuniary value, and to proved pecuniary loss.” Comment j to § 633 declares: “[E]motional distress and resulting harm may not in an action for injurious falsehood be taken into account as an element of damage that the jury may consider in determining the amount recoverable, even when there is such pecuniary loss as to make the publication of the injurious matter actionable.” ⁶²⁴ Professor Dobbs agreed: “The requirement in disparagement cases that the plaintiff prove special damages is a requirement that he prove actual pecuniary loss.” Dobbs, Law of Remedies, § 6.7, p. 504.

Accord, 50 Am.Jur.2d, Libel and Slander, § 546 and § 550. The limitation of “special damages” to pecuniary loss in an injurious falsehood action seems to be the only area with respect to damages that is clearly delineated. There is no persuasive weight of authority expressing a general principle in regard to what losses are within the designation of “pecuniary losses” and thus recoverable. Although some courts have expressed legal principles as to what constitutes special damages in slander of title cases, most courts that have addressed the matter have generally treated the question of what various losses are recoverable as special damages in a slander of title action as a factual matter to be determined by the allegations or evidence in a particular case.

They indicate thereby that such losses would be recoverable if duly established. This latter approach has been applied, for example, to loss of vendibility or value of the disparaged property, to the litigation expenses incurred in removing the effects qf the slander, to losses involving interest, either in the sense of losing interest due or being required to pay interest which should not have been due but for the slander, to losses involving the value of a leasehold interest, to harm to credit reputation, to losses by reason of a denial of rents due under a lease or by reason of preventing the entering into of a lease, and to other miscellaneous losses. See Annot., 4 A.L.R. 4th 537 -539. This ad hoc approach is indicated in 50 Am.Jur.2d § 550 which states, “What constitutes special damages, and the amount of the recovery, depend upon the character of the defamation ... and upon the evidence introduced.”