Womack v. Sternberg

172 So. 2d 683, 247 La. 566, 1965 La. LEXIS 2373

• Court: Supreme Court of Louisiana
• Decided: February 23, 1965
• Docket: 47270
• Status: Published

Opinions

McCALEB, Justice.

This is a suit for damages resulting from the breach of an exchange contract. Originally, the plaintiff (Womack) sought declaratory relief. After rendition of judgment in his favor, he filed amended pleadings praying for money damages from defendant and was awarded $21,000 by the trial judge. On appeal, the judgment was affirmed by the Court of Appeal, First Circuit. See Womack v. Sternberg, 162 So.2d 119. Sternberg then applied for a writ of review, assigning certain errors allegedly committed by the Court of Appeal respecting his liability and also as to the damages, awarded. Certiorari was granted but our review was limited “to the items of damages assessed by the Court of Appeal against the defaulting party.” Accordingly, our inquiry is restricted to a consideration of the quantum of damages, if any, to. which Womack is entitled as a consequence of Sternberg’s breach of contract.

On November IS, 1960, Womack and Sternberg agreed to exchange their residences situated in East Baton Rouge Parish. This contract provides:

“ * * * Womack agrees to buy the house of Sternberg at 3087 East Lake-shore Dr. for $35,000 and Sternberg agrees to buy the house of Womack at 2910 Murphy Dr. for $75,000¹ The difference of $40,000 is to be paid in $50,000 worth of first mortgage paper on colored houses that belong to Stern-berg. This $50,000 less a 20 per cent discount makes up the difference of $40,000.”

On November 29, 1960, the parties met at the office of a notary public to execute formal acts of sale of the premises. The occurrences at this meeting are recounted in detail in the .opinion of the Court of Appeal and need not be repeated here. Suffice it to say that a day or two later Sternberg, taking the position that there was no valid, enforceable agreement between the parties, refused to carry out the contract. The trial court and the Court of Appeal repudiated this defense and held that Sternberg actively breached the contract. On December 21, 1960, less than a month after the breach, Sternberg agreed to sell his house to a Dr. Presley for $42,-500 and the act of sale, in conformity therewith, was passed in September, 1961.

As a result of Sternberg’s breach, Womack claimed numerous items of damages but all were denied by the trial court and the Court of Appeal, except two items which totaled $21,000.²

The first item of damages awarded plaintiff was $13,500 for loss of profit on the exchange of his house having a contractual value of $75,000. A real estate appraiser, Mr. Julius A. Bahlinger, III, testifying for plaintiff, valued the Womack home at $61,-500 as of May, 1962 when the case was tried, approximately a year and six months after the date of Sternberg’s breach of the contract. The district court accepted this appraisal and found that Womack had lost a profit of $13,500, the difference between $75,000 and $61,500, as a result of Sternberg’s breach.

The other item of damages awarded Womack was $7500 for loss of profit on the resale value of Sternberg’s house. The district judge reasoned that, since Stern-berg sold his home (which was valued at $35,000 in the exchange agreement) for $42,500 a short time after the breach, Womack was entitled to receive the difference between the two amounts, or $7500.

The Court of Appeal subscribed to both awards.

In this Court, counsel for Sternberg contend that the Court of Appeal erred in treating the exchange transaction as two isolated sales. Further, they say that, since the parties intended to exchange assets of equal value and assigned the values thereof in their written contract, Womack has suffered no damage whatever as he has been allowed to keep a thing having the same value of the things he would have received in the exchange.

We agree with counsel’s position that the contract of exchange was a single conventional agreement and should be treated as such. But we reject their contention that, since Womack retains his contractually valued $75,000 home, he cannot recover the profit he has actually lost by reason of the breach by showing that his home had a market value at the time of the breach of less than the combined market value of the Sternberg house and mortgage notes which he was to receive in exchange.

Except in certain instances inapplicable to this case, the rules governing the contract of sale apply to the contract of exchange. Article 2667 of the Civil Code so provides and further declares, in exchanges, “ * * * each of the parties is individually considered both as vendor and vendee.” But the circumstance that the parties to an exchange contract are considered both as seller and buyer does not warrant the resolution that there are two separate contracts. On the contrary, there is but one agreement to be fulfilled, i. e., the conventional exchange of the things even though the parties act as to each object in different capacities.

Article 1930 of the Civil Code stipulates that the obligations of contracts extend to whatever is incident to them and a defaulting party is liable “ * * * to the payment of the damages, which the other party has sustained * * * ”. And Article 1934 sets out the measure of damages for breach of contract thus:

“Where the object of the contract is any thing but the payment of money, the damages due to the creditor for its breach are the amount of the loss he has sustained, and the profit of which he has been deprived, under the following exceptions and modifications:

When the debtor has been guilty of no fraud or bad faith, he is liable only for such damages as were contemplated, or may reasonably be supposed to have entered into the contemplation of the parties at the time of the contract. By bad faith in this and the next rule, is not meant the mere breach of faith in not complying with the contract, but a designed breach of it from some motive of interest or ill will. 1.

“2. When the inexecution of the contract has proceeded from fraud or bad faith, the debtor shall not only be liable to such damages as were, or might have been foreseen at the time of making the contract, but also to such as are the immediate and direct consequence of the breach of that contract; but even when there is fraud, the damages cannot exceed this. * * * ”

(Italics ours).

The rule of law as to measure of damages is well stated by Professor J. Denson Smith in his comprehensive article entitled “Recovery of Damages for Non-Delivery and Eviction in Louisiana — A Comparison”, 17 La.Law Rev. 253-272 at pages 255, 256, as follows:

“ * * * In the ordinary case, the award to the buyer will be based on the difference between the contract price and the actual value of the thing, determined by the market price, whether or not he repurchases on the market. [E. B. Williams & Co. vs. Bienvenue, 109 La. 1023, 34 So. 63 (1903) ; Gallaspy vs. A. J. Ingersoll & Co., 147 La. 102, 84 So. 510 (1920); Burglass vs. J. C. Healy Co., 159 La. 393, 105 So. 384 (1925); Pepper vs. Katz, 77 So. (2d) 891 (La.App.1955). See also 3 Pothier Oeurves n. 7 (2d. ed. 1861).] This difference is frequently considered a loss sustained by the buyer, but it is actually a gain of which he is deprived by the breach. [Kohlman vs. Witherell & Dobbins Co., 155 La. 57, 98 So. 756 (1924.)] It represents what the thing is worth over and above the contract price, and therefore constitutes a profit the buyer would have made on the transaction. Since such an award represents the value of the promised performance, its extent is to be determined as of the time the performance was to be rendered. Hence it is that a buyer may not increase the amount recoverable against a defaulting seller by postponing his demand for performance until the price has risen. [Burrus Mill & Elevator Co. vs. Eunice Grain Co., 182 La. 475, 162 So. 48 (1935).] To permit him to do so would be contrary to the principle that permits recovery of only those damages that were within the contemplation of the parties at the time of contracting. [Friedman Iron & Supply Co. vs. J. B. Beaird, Inc., 222 La. 627, 63 So.2d 144 (1953).] For the same reason, damages are not to be measured as of the time suit is filed or the case is tried. [Ibid.; Kory vs. Layman, 108 La. 247, 32 So. 441 (1902)].” Authorities cited in brackets are contained in footnotes to the text.

In Friedman Iron & Supply Co. v. J. B. Beaird Co., 222 La. 627, 63 So.2d 144 (1953), the most recent decision of this Court dealing with quantum of damages allowable for loss of profit for breach of a contract of sale, the Court, on rehearing, said :

“ * * * This court has on numerous occasions pointed out that the measure of damages for the breach of a contract of sale, where no fraud is shown, is the difference between the contract price and the market price of the goods on the date of the breach. See Interstate Electric Company v. Frank Adam Electric Company, 173 La. 103, 136 So. 283 and the authorities cited therein to that effect. This rule of law is based on solid grounds because neither a plaintiff nor a defendant should be permitted to select the market value of a date different from that on which the contract was breached for the purpose of determining whether any loss was suffered or profit deprived to the detriment of either party. * * * If such were to be used as a criterion, the rights of the parties would depend on conditions arising at an uncertain future date. * * * ”³

Applying the above cited general rule relative to breach of sales contracts to the contract of exchange, it is readily seen that the damages due to the creditor for the profit of which he has been deprived by reason of the breach is and can only be one item of damage — viz., the difference between the market value of the thing he was to give and the thing or things he was to receive in exchange. Viewed in this light, it is apparent that the lower courts erred in ruling that Womack suffered loss of two items of profit in the case at bar. This is because the trade between the parties of their respective properties and other movables of value, which were stated to be equivalent ($75,000 each) in the contract, could not result in a profit to either one of the parties unless the thing or things given on the one hand were less in value than the thing or things received on the other. Therefore, to determine the profit which Womack would have made hut for the breach, it was necessary to ascertain the market value of his home at the time of the breach and the market value of Sternberg’s home and the mortgage notes which Wo-mack was to receive in the trade. If the combined value of Sternberg’s home and the mortgage notes exceeded the value of the Womack home, then whatever this difference may be represents the profit of which Womack has been deprived as a consequence of the breach.

No evidence was adduced in the case at bar to establish these market values at the time of the breach and it was error for the lower courts to consider the expert testimony of Mr. Bahlinger that the Womack home had a market value of $61,500 in May of 1962 (the time of the trial) in computing the profit Womack lost as a consequence of the default. Indeed, whatever profit Womack may have lost by reason of the breach cannot he measured without proof of the market value of his property at the date of Sternberg’s default, and proof of the market value of the mortgage notes and Sternberg’s house at such date, because the general principle is that the measure of damages for breach of an obligation is the sum which will place the plaintiff in as good a position as he would have been if the obligation had been fulfilled. 3 Williston on “Sales”, Sec. 599, page 293.

However, it is the contention of Wo-mack’s counsel, which the trial judge upheld, that Sternberg was in bad faith and that,-this being so, Womack is entitled to recover unforeseen damages, as well, as those which might have been foreseen by the contracting parties at the time of the making- of the contract, under the specific provisions of Article 1934(2) of the Civil Code. From this premise it is professed that the unforeseen loss of profits are to be measured by the market value of Womack’s property as of the date of trial because, since his property had appreciably declined in value at that time, this represents the whole profit he has lost by reason of the breach.

We find this proposition untenable. In the first place, we entertain grave doubt as to the correctness of the trial judge’s resolution that Sternberg was in bad faith as defined by Article 1934(1) of the Civil Code.⁴

Moreover, assuming for purposes of discussion that Sternberg was in bad faith, we would not be justified in measuring Womack’s damages for loss of profit as of the time of trial. For, whereas Article 1934(2) renders a bad faith debtor liable for damages which were unforeseen, as well as those which were foreseen at the time of the making of the contract, it restricts recovery to those damages “as are the immediate and direct consequence of the breach * * * It is plain that the direct and immediate profit, if any, that Womack lost as the consequence of Stern-berg’s breach was fixed and ascertainable at the date of the breach. Indeed, the damages recoverable for loss of profits are not unforeseen; such damages are clearly within the contemplation of the contracting parties. In these circumstances, such damages must be fixed as of the date of the breach. To hold otherwise would, as stated in Friedman Iron & Supply Co. v. J. B. Beaird Co., supra, “leave the rights of the parties uncertain and encourage litigants to jockey for a trial on a date when the market was favorable.”

For the reasons assigned, the award of damages made by the trial judge, which was affirmed by the Court of Appeal, is annulled and set aside and the case is remanded to the district court for determination of the quantum of damages in accordance with the views herein expressed. Respondent, Womack, is to pay all costs in this court; assessment of other costs is to await final disposition of the case.

HAMITER, J., dissents, being of the opinion that the judgment of the Court of Appeal (as to the question of quantum) is correct and should be affirmed. HAWTHORNE and HAMLIN, JJ., dissent with written reasons.

1 . This figure included certain furniture, furnishing and fixtures.

2 . The judgment of the Court of Appeal rejecting Womack’s claim for other items of damages is final since he did not apply to this Court for writs. Accordingly, the amount of recovery for the items of damages awarded in the case can never be increased to the prejudice of relator, Sternberg. See Pennington v. Justiss-Mears Oil Company, 242 La. 1, 134 So.2d 53 and authorities there cited.

3 . The Civil Code does not make any distinction between movables and immova-bles with respect to the damages due for breach of contract of sale and there appears to be no good reason why the jurisprudence respecting movables should not apply to all kinds of property. See Du Bell v. Union Central Life Ins. Co., 211 La. 167, 29 So.2d 709.

4 . The Article states “By bad faith * * * is not meant the mere breach of faith in not complying with the contract, but a designed breach of it from some motive of interest or ill will.”

The trial judge, in finding that Sternberg was in bad faith, observed: “While defendant’s excuse was that his wife did not like plaintiff’s home or that plaintiff gave him a hard time, the real reason * * * for his failure to perform * * * lies in the fact that defendant wanted to live in Jefferson Place, and his desire in this regard overcame his usually astute business acumen.” We gather from this statement that the judge felt that Sternberg’s desire to acquire a home in Jefferson Place led him to make an unprofitable deal from which he later recanted. But this is not necessarily bad faith; it is a mere breach of faith in not complying with the contract, which is true of all broken promises; the proof is far from certain that Sternberg’s refusal to comply with the contract was a designed breach “from some motive of interest or ill will” as specified by Article 1934 (1).