Fleck v. National Property Management, Inc.

590 P.2d 1254, 1979 Utah LEXIS 808

• Court: Utah Supreme Court
• Decided: January 31, 1979
• Docket: 15480
• Status: Published

Opinions

WILKINS, Justice:

Defendants Ensign Company (hereafter “Ensign”) and The Travelers Indemnity Co. (hereafter, “Travelers”) appeal from a judgment entered against all defendants in the amount of $7,200, by the District Court of Salt Lake County, sitting without a jury. None of the other defendants appeal.

Plaintiffs brought action for damages, claiming as third party beneficiaries, against a performance bond. The bond in question names Travelers as surety, Defendants Ensign, Ski Park City West, Inc., and William S. Richards, Trustee, as principals, and the County of Summit as obligee, and guarantees that the principals would perform installation of sewer, culinary water, and street improvements within certain tracts of land located in Summit County, known as Park City West Plat Nos. 1 and 2 Subdivisions.

The bond was submitted to Summit County in compliance with that County’s ordinance No. 58, as a substitute to actual construction of the improvements, in order to gain the approval by the County of the final subdivision plats, and the acceptance by the County of those areas within the subdivision dedicated as public streets and parks. Ordinance No. 58 also provides that no sale of subdivision lots shall be made before approval and recordation of the final plats.

After the bond was executed, and the plats approved and recorded, plaintiffs entered into a uniform real estate contract for the purchase of three of the subdivision lots with Defendant National Property Management, Inc. (hereafter “National”), as seller, said company having acquired its title through Defendant Ski Park City West, Inc. The total purchase price of the three lots was $36,000, and plaintiffs paid an aggregate sum of $7,200 as a down payment. As a part of said contract, National covenanted to construct the improvements on the land by December 31, 1972, and later agreed with plaintiffs that the latter need not make any further payments on the contract until the improvements were in. At the time of the execution of the contract, the land comprising the entire subdivision was subject to large first and second trust deeds, and all of this information was disclosed to plaintiffs. Shortly after plaintiffs recorded their real estate contract, and pri- or to the time any of the improvements were constructed, plaintiffs’ interest in the land was foreclosed by sale under the trust deeds. Plaintiffs did not attempt to redeem their interest. They assert that the lots without improvements did not have sufficient value to warrant further investment, and that they minimized their losses by refusing to redeem.

Defendants argue, inter alia, that the damages suffered by plaintiffs were not caused by the failure to construct the improvements on the property, and further that the evidence does not support the judgment against these defendants.

There is no doubt that National breached its contract to construct improvements on the property, and there is no doubt that Travelers, as surety, and Ensign, as a principal, guaranteed that the improvements would be constructed, and would therefore be liable for the costs of such construction. But there is no evidence in this record of what the cost of improving these three lots would have been. The damages awarded plaintiffs was the amount they paid on the purchase price. We do not believe that the parties to the indemnity agreement and bond contemplated the risk of such losses, and particularly when such losses were not correlated with the cost of improvements.

In the case of Pacific Coast Title Ins. Co. v. Hartford Accident and Indemnity Co., 7 Utah 2d 377, 325 P.2d 906 (1958), this Court stated the general law:

The rule as to what damages are recoverable for breach of contract is based upon the concept of reasonable foreseeability that loss of such general character would result from the breach. Therefore, to be compensable, the loss must result from the breach in the natural and usual course of events, so that it can fairly and reasonably be said that if the minds of the parties had adverted to breach when the contract was made, loss of such character would have been within their contemplation.

In the Hartford case we held that the loss involved there was the kind of loss that Hartford’s bond covered. In applying the rule to this case, however, we must come to the opposite conclusion. Could it reasonably have been foreseen that the natural and usual consequences of the failure to construct the improvements would bring about the foreclosure of the trust deeds and loss of title? Did the loss of plaintiffs’ down payment result from the breach of the promise to construct improvements in the natural and usual course of events? We think not. Travelers’ bond was not given to guard against this kind of damage but rather the cost of improvements (and as noted ante there was no evidence concerning this cost).

Defendants raise other points of law, but as the point addressed is dispositive, we do not discuss them. The District Court’s judgment against these two defendants is reversed. Costs to defendants.

ELLETT, C. J., and CROCKETT and MAUGHAN, JJ., concur.