Minn. Stat. § 480A.08, subd. 3 (1996).
STATE OF MINNESOTA
IN COURT OF APPEALS
Coldwell Banker Northwoods Realty,
David I. Hector, et al.,
Aitkin County District Court
James W. Nelson, Fitzpatrick Nelson & Ten Eyck, 502 Laurel Street, P.O. Box 631, Brainerd, MN 56401 (for respondent)
Considered and decided by Shumaker, Presiding Judge, Huspeni, Judge, and Schumacher, Judge.
U N P U B L I S H E D O P I N I O N
In this real estate misrepresentation action, appellant seeks reversal of the jury's award of damages on the ground that the trial court allowed inadmissible expert testimony as to the calculation of damages. We reverse, holding that the trial court's evidentiary error was substantial and prejudicial.
Respondent purchased a home in 1994 in Hill City, Minnesota from David and Ingeborg Hector. Appellant Coldwell Banker Northwoods Realty acted as the sellers' listing broker and appellant Kevin Bailey as their sales agent.
Disclosure documents and advertisements prepared for the sale contained misrepresentations as to the age of the home and the condition or existence of various systems and structural components in the home. Respondent sued all parties for damages. The sellers defaulted. The appellants went to trial. The jury found appellants 90% at fault and awarded damages in the sum of $36,000.
At trial respondent's principal witness on damages was a real estate appraiser. He testified that he was retained to calculate "damages" resulting from the misrepresentations. He indicated that he did not use any of the three standard and accepted appraisal approaches: market, cost, or income. Rather, he combined out-of-pocket-loss and benefit-of-the-bargain approaches to determine actual damages. Over objection, the appraiser testified that he obtained bids for costs to correct the deficiencies as to the misrepresented systems and structural items and then determined the costs of repair or replacement. He stated his opinion that these items would have a dollar-for-dollar impact on the value of the home and that his effort was to ascertain the costs necessary to "make that home fully livable." As to the misrepresentation of the home's age, he calculated the "expected life" of the home and considered depreciation. He added all the repair and replacement costs and the depreciation factor for the home's age and subtracted the total from the price of the house, exclusive of the land value. He found the total damages to be $36,000. The jury found the total damages to be $36,000. The district court denied appellants' motions for directed verdict and judgment notwithstanding the verdict on the issue of damages.
D E C I S I O N
We will not set aside a jury verdict unless
(1) in the light of the evidence as a whole, it would clearly be the duty of the trial court to set aside a contrary verdict as being manifestly against the entire evidence, or where (2) it would be contrary to the law applicable to the case.
Peterson v. Little-Giant Glencoe Portable Elevator Div. of Dynamics Corp. of America, 366 N.W.2d 111, 115 (Minn. 1985).
In real estate misrepresentation actions where the property is not returned to the seller, there are two ways to measure the buyer's damages: the value of the benefit-of-the-bargain and out-of-pocket-loss. Marion v. Miller, 237 Minn. 306, 309, 55 N.W.2d 52, 55 (1952); Shane v. Jacobson, 136 Minn. 386, 390, 162 N.W. 472, 474 (1917). "Minnesota recognizes the `out-of-pocket-loss' rule as the proper measure of damages for misrepresentation." Lobe Enterprises v. Dotsen, 360 N.W.2d 371, 373 (Minn. App. 1985). Explaining the out-of-pocket-loss rule, this court has said:
More precisely, in cases involving a fraudulent misrepresentation to a buyer of real estate, the measure of damages is the amount paid less the fair market value of the property.
Nave v. Dovolos, 395 N.W.2d 393, 398 n.1 (Minn. App. 1986); (citing Peterson v. Johnston, 254 N.W.2d 360, 362 (Minn. 1977); Tysk v. Griggs, 253 Minn. 86-95, 91 N.W.2d 127-134 (1958)).
In order to show out-of-pocket-loss, it is not sufficient merely to prove the cost of replacement or repair. Lobe 360 N.W.2d at 373. In Lobe, the seller and his agents represented that a new roof had been installed by a prior owner of the apartment building being sold. The representation was false. At trial, the buyer proved the cost of replacing the roof and subtracted that cost from the purchase price to arrive at the out-of-pocket-loss. The trial court ruled that the buyer failed to prove that the building was not worth the purchase price even with the misrepresented roof, and, thus, had failed to prove loss. The court of appeals affirmed, saying
The installation price of a new roof includes cost factors which have no effect upon the market value of the building. Appellants offered no evidence to show the actual value of the property in the condition received. That value is essential to prove loss. Under these circumstances, repair costs do not accurately reflect appellants' loss proximately arising from the misrepresentation.
In this case, respondent used basically the same approach as that employed in Lobe. No evidence as to the requisite values was presented. Thus, there was no showing that the property was not worth the purchase price even with the misrepresentations.
Although the trial court properly instructed as to the out-of-pocket-loss measure of damages, it erroneously permitted the jury to hear expert testimony that combined the correct measure with an incorrect one and that substituted replacement and repair costs for value. That the evidentiary error was substantial and prejudicial is shown by the fact that the jury accepted the expert's precise erroneous damages calculation. The issue of damages must be retried.
Reversed and remanded.