Norway Plains Savings Bank v. Moors

Colburn, J. In order to determine the questions raised in this case, it is necessary to understand certain facts, which were found by the judge who tried the case, as appears by the report. As early as May 16, 1871, Rice and Hanson made application to the defendant to advance to them $58,000, on eleven houses which they proposed to build on a lot of land in Boston, which they had bargained for, but to which they did not acquire title until August 22, 1871. The defendant made a written agreement with Rice and Hanson, which, though dated May 16,1871, — 132 — could not have been written until after July 1, 1871, as it refers to facts which did not exist and transactions which did not occur until after that date, and was doubtless designed to express in writing the results which had from time to time been reached, in the negotiations between the parties, which had begun as early as May 16. The defendant agreed to advance the money, upon the terms and conditions set out at length in said written agreement, among which were the following: Rice and Hanson were to execute the eleven mortgages to the plaintiff, give the defendant an order on the plaintiff for all money to be lent by the plaintiff on said mortgages, execute certain second mortgages to the defendant, as further security to him, forthwith commence the erection of the houses and complete them, in a certain manner, within a certain time, at a certain cost for each house. All money received by the defendant from the plaintiff was, by the terms of this agreement, to be held by him, as collateral security to repay him for any sums of money advanced by him to Rice and Hanson, together with interest and certain commissions which Rice and Hanson agreed to pay him. The defendant had full discretion, in making the advances, with reference to the progress and quality of the work. The defendant made application to the plaintiff for the loan, in June 1871, submitting to the plaintiff a plan and proposals; and, on June 19, the plaintiff voted to make the loan “on property described in the plan and proposals submitted to us, when the buildings are finished up and completed, and ready for occupancy.” At some time after June 19, probably before July 1, but certainly before July 10, the terms of the agreement declared on were settled, as the report finds that this agreement was executed on July 10, 1871. It does not appear that any agent of the plaintiff made any examination of the work which had been done when this agreement was entered into, and, so far as the report finds, no such agent had been inside any of the houses, until were nearly finished. Though the mortgages were to be given by Rice and Hanson, it is obvious that the defendant conducted the whole negotiation, and, under the agreement with Rice and Hanson, controlled the whole business, as between himself and them, and had full knowledge of what had been done upon the land. — 133 — 1. The report finds that prior to July 1, 1871, the foundations of all the houses had been completed, and the walls were up one story; and the first question presented is, whether the defendant is liable under his agreement for defects in the foundations of the houses. We are of opinion that the foundations were parts of the houses; and that, having reference to the position of the parties, the purpose they had in view, their relative knowledge of what had been done, and how it had been done, the stipulation in the agreement in suit, that “Rice and Hanson shall complete. and finish, as soon as may be, in good, workmanlike manner,” the eleven houses, at a certain cost for each, applied to the entire structures, including the foundations; that the parties intended by the language used, and the defendant agreed, that the plaintiff, in consideration of its advance of money on unfinished houses, should be placed, in the end, in the same position it would have occupied if it had made the loan in accordance with the vote of June 19, “ on property described in the plan and proposals submitted to us, when the buildings are finished up and completed and ready for occupancy.” A person may agree to complete and finish a house before it is begun, or in any stage of the process of construction, and whether the agreement relates to the whole structure, or only to what apparently remains to be done, when the agreement is silent upon the subject, must be determined by the language used, as applied to the facts and surrounding circumstances in each particular case. We see nothing in the agreement, or in any facts or circumstances in this case, to indicate that the parties understood that all that had been done was accepted by the plaintiff, so that the stipulation in the agreement related only to the residue of the work. The facts and surrounding circumstances in this case are widely different from those in the case of Hyannis Savings Bank v. Moors, 120 Mass. 459. 2. In November 1873, the plaintiff sold one of the. houses, under the power of sale contained in the mortgage of that house, for non-payment of interest; and the next question is whether, by this sale, the defendant was released from his liability on the agreement; and we are of opinion that he was not. He made no request for an assignment of any of the mortgages, and the plaintiff was only to make such assignment upon his request, and — 134 — Ms deeming it necessary for his security to take such assignment. The full amount had been advanced by the plaintiff upon each mortgage, the house covered by each mortgage was only held under the mortgage for the amount of principal and interest due on that mortgage, and if the plaintiff saw fit to sell one of the houses under the mortgage thereon, and relieve the defendant from all liability, on that house, he has no cause to complain. 3. The plaintiff made its last payments under the contract on May 29, 1872, and on August 3, 1872, offered to surrender the agreement if there were no liens on the property. The plaintiff did not surrender the agreement. The defendant contends that he was a mere guarantor, and that the plaintiff by these acts, and by not notifying” him that it should hold him responsible for the breach of the contract, in effect said to the defendant that it was satisfied that the contract had been performed, and he was thereby induced not to avail himself of his right to take an assignment of the mortgages at a time when the property was amply sufficient to protect him from loss; and that the plaintiff has been guilty of such laches as will prevent its maintaining the action. But the defendant was in no proper sense a mere guarantor. He was the chief actor in the whole matter, for a liberal compensation. He knew of the defects in the foundations and the deficiencies in the houseshe had paid for the foundations, getting a deduction of twenty per cent from the contract price on account of deficiency in the work, and he knew that the houses had only cost about one half of the sum he had agreed with the plaintiff they should cost. The report does not find that the plaintiff accepted the houses, and finds that it had no knowledge that the foundations were defective until October 22,1873. We see no error in law in the ruling of the judge, that the acts of the plaintiff would not prevent it from recovering for the defects in the foundations. 4. The only remaining question is as to the rule of damages. If the houses had been built in the manner and at the cost required by the agreement, the obligation of the defendant would have been fully performed; he was in no way responsible for the value of the houses, if so built, or their sufficiency as security for the mortgages. — 135 — The measure of damages is the difference between the value of the houses as they were in fact built, and the value they would have had if built in conformity to the agreement, or so much of this difference as would have been necessary, with the value of the houses as built, to have paid the mortgage debt and interest then due; and the time for determining these values was the time when the defendant left the houses, as finished, or as soon afterwards as the plaintiff had notice of the defects and deficiencies, or might have had such notice, by the exercise of reasonable diligence. The report finds that the plaintiff first had notice of the defects in the foundations, which is the chief defect complained of, on October 22, 1873, and there is nothing in the report to indicate that reasonable diligence on the plaintiffs part would have led to earlier notice of this defect. The report finds that the values of the houses remained the same from July 1, 1872, to the autumn of 1873; and as the plaintiff is charged with that value, the time of assessment of damages, between those limits, becomes comparatively unimportant. As the plaintiff appears to have made no special objection to the houses on account of cost, and made no request for a finding of the value the houses would have had if they had cost the sums agreed upon, the plaintiff should perhaps have been held to have waived any objection on that account, especially as the. result is not thereby affected. Assuming the objection to the cost to have been waived, then the measure of damages was so much of the difference in value between the houses as they were in fact built, and the value they would have had if the foundations had been properly constructed, as added to the value of the houses as in fact built was sufficient to pay the principal of the mortgage debt and the interest due thereon, October 22, 1873. The judge did not in terms adopt this rule, as he fixed no maximum liability; but, under the facts in this case, it was not necessary that he should, as the auditor finds that the houses on the street would have been worth $7000 each, and those on the court $6000 each, on good foundations, which was more than sufficient to have paid the mortgage debt, with all interest due thereon, on October 22, 1873, the mortgages on the houses on the street being $6000, and on those on the court $5000. In holding that the plaintiff — 136 — should be charged with the value of the houses, with their defects known, as of October 22, 1873, we assume, as the report and briefs of counsel assume, though there was no direct finding upon this point, that there had been a breach of condition, so that the houses could have been sold under the mortgages at that time. If the houses had been then sold, the plaintiff would have been chargeable with only the amounts received from the sales; but, having neglected to sell, or to make any demand upon the defendant for nearly two years after October 22, 1873, during which the houses, irrespective of defects, had largely decreased in value, the defendant cannot be charged with this decrease. Judgment on the finding.