{ "id": 8570088, "name": "T. A. PIPKIN, D. J. DUDLEY, P. M. WILLIAMS, and MACK DONALD WEEKS, INDIVIDUALLY AND TRADING AS P.W.D. & W., A NORTH CAROLINA GENERAL PARTNERSHIP v. THOMAS & HILL, INC.", "name_abbreviation": "Pipkin v. Thomas & Hill, Inc.", "decision_date": "1979-10-17", "docket_number": "No. 104", "first_page": "278", "last_page": "292", "citations": [ { "type": "official", "cite": "298 N.C. 278" } ], "court": { "name_abbreviation": "N.C.", "id": 9292, "name": "Supreme Court of North Carolina" }, "jurisdiction": { "id": 5, "name_long": "North Carolina", "name": "N.C." }, "cites_to": [ { "cite": "236 S.E. 2d 725", "category": "reporters:state_regional", "reporter": "S.E.2d", "year": 1977, "opinion_index": -1 }, { "cite": "33 N.C. App. 710", "category": "reporters:state", "reporter": "N.C. App.", "case_ids": [ 8552363 ], "year": 1977, "opinion_index": -1, "case_paths": [ "/nc-app/33/0710-01" ] }, { "cite": "104 S.W. 887", "category": "reporters:state_regional", "reporter": "S.W.", "year": 1907, "pin_cites": [ { "page": "890" } ], "opinion_index": 0 }, { "cite": "349 A. 2d 564", "category": "reporters:state_regional", "reporter": "A.2d", "year": 1975, "pin_cites": [ { "page": "569" } ], "opinion_index": 0 }, { "cite": "137 N. J. Super. 500", "category": "reporters:state", "reporter": "N.J. Super.", "case_ids": [ 301044 ], "year": 1975, "pin_cites": [ { "page": "507" } ], "opinion_index": 0, "case_paths": [ "/nj-super/137/0500-01" ] }, { "cite": "152 So. 136", "category": "reporters:state_regional", "reporter": "So.", "case_ids": [ 10030419 ], "year": 1934, "opinion_index": 0, "case_paths": [ "/so/152/0136-01" ] }, { "cite": "9 Ariz. App. 172", "category": "reporters:state", "reporter": "Ariz. App.", "case_ids": [ 1204000 ], "weight": 2, "year": 1969, "pin_cites": [ { "page": "175" }, { "page": "416" } ], "opinion_index": 0, "case_paths": [ "/ariz-app/9/0172-01" ] }, { "cite": "271 Ore. 691", "category": "reporters:state", "reporter": "Or.", "case_ids": [ 2123439 ], "weight": 2, "year": 1975, "opinion_index": 0, "case_paths": [ "/or/271/0691-01" ] }, { "cite": "41 A.L.R. 350", "category": "reporters:specialty", "reporter": "A.L.R.", "year": 1925, "opinion_index": 0 }, { "cite": "236 Pac. 12", "category": "reporters:state_regional", "reporter": "P.", "year": 1925, "opinion_index": 0 }, { "cite": "110 Okla. 48", "category": "reporters:state", "reporter": "Okla.", "case_ids": [ 6333628 ], "year": 1925, "opinion_index": 0, "case_paths": [ "/okla/110/0048-01" ] }, { "cite": "99 S.E. 345", "category": "reporters:state_regional", "reporter": "S.E.", "year": 1919, "pin_cites": [ { "page": "346" } ], "opinion_index": 0 }, { "cite": "177 N.C. 469", "category": "reporters:state", "reporter": "N.C.", "case_ids": [ 8654708 ], "year": 1919, "pin_cites": [ { "page": "472" } ], "opinion_index": 0, "case_paths": [ "/nc/177/0469-01" ] }, { "cite": "41 A.L.R. 357", "category": "reporters:specialty", "reporter": "A.L.R.", "year": 1926, "opinion_index": 0 }, { "cite": "100 S.E. 2d 241", "category": "reporters:state_regional", "reporter": "S.E.2d", "year": 1957, "opinion_index": 0 }, { "cite": "247 N.C. 88", "category": "reporters:state", "reporter": "N.C.", "case_ids": [ 8625375 ], "year": 1957, "opinion_index": 0, "case_paths": [ "/nc/247/0088-01" ] }, { "cite": "85 Wis. 2d 706", "category": "reporters:state", "reporter": "Wis. 2d", "case_ids": [ 8673238 ], "weight": 5, "year": 1978, "opinion_index": 0, "case_paths": [ "/wis-2d/85/0706-01" ] }, { "cite": "404 U.S. 857", "category": "reporters:federal", "reporter": "U.S.", "case_ids": [ 6316128, 6315170, 6315652, 6313962, 6314252, 6314449, 6315858, 6315410, 6313750, 6314904, 6314686 ], "weight": 2, "year": 1971, "opinion_index": 0, "case_paths": [ "/us/404/0857-11", "/us/404/0857-07", "/us/404/0857-09", "/us/404/0857-02", "/us/404/0857-03", "/us/404/0857-04", "/us/404/0857-10", "/us/404/0857-08", "/us/404/0857-01", "/us/404/0857-06", "/us/404/0857-05" ] }, { "cite": "278 A. 2d 12", "category": "reporters:state_regional", "reporter": "A.2d", "weight": 3, "year": 1971, "pin_cites": [ { "page": "36" } ], "opinion_index": 0 }, { "cite": "262 Md. 192", "category": "reporters:state", "reporter": "Md.", "case_ids": [ 1894096 ], "weight": 3, "year": 1971, "pin_cites": [ { "page": "243" } ], "opinion_index": 0, "case_paths": [ "/md/262/0192-01" ] }, { "cite": "74 S.E. 2d 634", "category": "reporters:state_regional", "reporter": "S.E.2d", "year": 1953, "pin_cites": [ { "page": "644" } ], "opinion_index": 0 }, { "cite": "237 N.C. 159", "category": "reporters:state", "reporter": "N.C.", "case_ids": [ 8607045 ], "year": 1953, "pin_cites": [ { "page": "171" } ], "opinion_index": 0, "case_paths": [ "/nc/237/0159-01" ] }, { "cite": "105 S.E. 2d 428", "category": "reporters:state_regional", "reporter": "S.E.2d", "year": 1958, "pin_cites": [ { "page": "430, 431" } ], "opinion_index": 0 }, { "cite": "249 N.C. 109", "category": "reporters:state", "reporter": "N.C.", "case_ids": [ 8608972 ], "year": 1958, "pin_cites": [ { "page": "113" } ], "opinion_index": 0, "case_paths": [ "/nc/249/0109-01" ] }, { "cite": "111 S.E. 2d 606", "category": "reporters:state_regional", "reporter": "S.E.2d", "year": 1959, "pin_cites": [ { "page": "612, 613" } ], "opinion_index": 0 }, { "cite": "251 N.C. 359", "category": "reporters:state", "reporter": "N.C.", "case_ids": [ 8625678 ], "year": 1959, "pin_cites": [ { "page": "366-67" } ], "opinion_index": 0, "case_paths": [ "/nc/251/0359-01" ] }, { "cite": "62 S.E. 748", "category": "reporters:state_regional", "reporter": "S.E.", "year": 1908, "opinion_index": 0 }, { "cite": "149 N.C. 20", "category": "reporters:state", "reporter": "N.C.", "case_ids": [ 11269484 ], "year": 1908, "pin_cites": [ { "page": "22, 23" } ], "opinion_index": 0, "case_paths": [ "/nc/149/0020-01" ] }, { "cite": "535 S.W. 2d 740", "category": "reporters:state_regional", "reporter": "S.W.2d", "case_ids": [ 10141632 ], "year": 1976, "pin_cites": [ { "page": "742-43" } ], "opinion_index": 0, "case_paths": [ "/sw2d/535/0740-01" ] }, { "cite": "42 N.Y.S. 2d 744", "category": "reporters:state", "reporter": "N.Y.S.2d", "year": 1943, "opinion_index": 0 }, { "cite": "266 App. Div. 503", "category": "reporters:state", "reporter": "A.D.", "case_ids": [ 5314668, 5313735 ], "year": 1943, "opinion_index": 0, "case_paths": [ "/ad/266/0503-02", "/ad/266/0503-01" ] }, { "cite": "49 S.E. 725", "category": "reporters:state_regional", "reporter": "S.E.", "year": 1905, "pin_cites": [ { "page": "727" } ], "opinion_index": 0 }, { "cite": "121 Ga. 688", "category": "reporters:state", "reporter": "Ga.", "case_ids": [ 431160 ], "year": 1905, "opinion_index": 0, "case_paths": [ "/ga/121/0688-01" ] }, { "cite": "63 S.E. 736", "category": "reporters:state_regional", "reporter": "S.E.", "year": 1909, "opinion_index": 0 }, { "cite": "150 N.C. 183", "category": "reporters:state", "reporter": "N.C.", "case_ids": [ 11270309 ], "year": 1909, "opinion_index": 0, "case_paths": [ "/nc/150/0183-01" ] }, { "cite": "36 A.L.R. 1408", "category": "reporters:specialty", "reporter": "A.L.R.", "weight": 2, "year": 1925, "pin_cites": [ { "page": "1410-11" } ], "opinion_index": 0 } ], "analysis": { "cardinality": 1302, "char_count": 35769, "ocr_confidence": 0.777, "pagerank": { "raw": 2.579834325841266e-07, "percentile": 0.8170762079179134 }, "sha256": "c442bf182ccbb2b4422a944b921b24c42262936c0368a81a3e8ba696ea23d200", "simhash": "1:9c5ce6a7576ce2f2", "word_count": 5847 }, "last_updated": "2023-07-14T19:32:45.067536+00:00", "provenance": { "date_added": "2019-08-29", "source": "Harvard", "batch": "2018" }, "casebody": { "judges": [], "parties": [ "T. A. PIPKIN, D. J. DUDLEY, P. M. WILLIAMS, and MACK DONALD WEEKS, INDIVIDUALLY AND TRADING AS P.W.D. & W., A NORTH CAROLINA GENERAL PARTNERSHIP v. THOMAS & HILL, INC." ], "opinions": [ { "text": "SHARP, Chief Justice.\nInitially, the primary relief which plaintiffs sought in this action was a decree ordering defendant to specifically perform its commitment to provide long-term or \u201cpermanent\u201d financing to enable plaintiffs to take up CCB\u2019s interim construction loan on their motel-restaurant project. Historically, courts of equity refused to decree specific performance of a contract to lend money on the ground that the disappointed borrower could be fully compensated by damages because, presumably, money could always be found elsewhere. More recently, however, courts have employed the equitable remedy of specific performance when the circumstances of the particular case demonstrate the inadequacy of money damages to afford appropriate relief. In this case the parties\u2019 stipulation that defendant is financially unable to comply with its contract rendered the availability of the remedy of specific performance immaterial. Plaintiffs, therefore, are relegated to such damages as they are legally entitled to recover, and are able to collect, from defendant.\nA borrower\u2019s claim for damages resulting from a lender\u2019s breach of a contract to lend money is primarily circumscribed by the rule of Hadley v. Baxendale, 156 Eng. Rep. 145, 151 (Ex. 1854). This rule limits generally the recovery of damages in actions for breach of contract. To recover, a disappointed borrower must not only prove his damages with reasonable certainty, he must also show that they resulted naturally \u2014 according to the usual course of things \u2014 from the breach or that, at the time the contract was made, such damages were in the contemplation of the parties as a probable result of the breach. Additionally, the borrower must demonstrate that, upon the lender\u2019s breach, he minimized his damages by securing the money elsewhere if available. When alternative funds are unavailable, however, the borrower may recover the damages actually incurred because of the breach, subject to the general rules of foreseeability and certainty of proof. See 5 Corbin, Contracts \u00a7 1078 (1964); 11 Williston on Contracts, \u00a7 1411 (3d Ed. Jaeger 1968); Annot., 36 A.L.R. 1408 (1925); 22 Am. Jur. 2d Damages \u00a7\u00a7 68, 69 (1965); Coles v. Lumber Co., 150 N.C. 183, 63 S.E. 736 (1909); Anderson v. Hilton and Dodge Lumber Co., 121 Ga. 688, 49 S.E. 725, 727 (1905); Bond Street Knitters, Inc. v. Peninsula National Bank, 266 App. Div. 503, 42 N.Y.S. 2d 744 (1943); Davis v. Small Business Investment Co. of Houston, 535 S.W. 2d 740, 742-43 (Tex. Civ. App.-Texarcana 1976).\nThe rule governing damages for breach of a contract to lend money is nowhere stated more succinctly than in Restatement of Contracts \u00a7 343 (1932):\n\u201cDamages for breach of a contract to lend money are measured by the cost of obtaining the use of money during the agreed period of credit, less interest at the rate provided in the contract, plus compensation for other unavoidable harm that the defendant had reason to foresee when the contract was made.\n\u201cComment:\na. This Section is an application of the general rules of damages to a special class of contracts. The damages awarded are affected by the fact that money is nearly always obtainable in the market. If the loan was to be repayable on demand, or if the contract rate of interest is as much as the current market rate and the money is available to the borrower in the market, his recoverable damages are nominal only. He is expected to avoid other harm by borrowing elsewhere if he can, the reasonable expenses being chargeable to the defendant. Sometimes inability to borrow elsewhere or the delay caused by the lender\u2019s action results in loss of a specific advantageous bargain, an unfinished building, or an equity of redemption in mortgaged land; damages are recoverable for losses if the lender had reason to foresee them.\u201d\nClearly, the plaintiffs in this case have been injured by defendant\u2019s breach of contract. Without defendant\u2019s commitment to provide long-term financing they would not have begun construction of the motel project. When it was completed and the construction loan from CCB became due they were unable to obtain alternative long-term financing because none was available at any rate of interest. Plaintiffs were able to forestall foreclosure only by refinancing the construction loan with a demand note at a fluctuating rate of interest which varied from 2 to 3\u00b0/o above CCB\u2019s prime rate and was always in excess of the contract rate. At the time of the trial CCB was still carrying the construction loan. Thus, this case differs significantly from those cases involving a disappointed developer-borrower who, unable to obtain specific performance or an alternative permanent loan, either suffers foreclosure or obtains alternative permanent funds at additional expense, for a shorter time, or at a higher but constant rate of interest.\nSpecifically, the question for our determination is the following:\nWhat is the measure of damages for breach of a contract to make a loan of $1,162,500 at 9V2\u00b0/o interest per annum, the loan to be amortized over 300 monthly installments and to be used to take out a short-term construction loan, when a substitute loan was unobtainable upon any terms at the time of the breach and, in order to forestall foreclosure, the borrowers had to refinance the construction loan by a demand note at a fluctuating rate of interest for a period of 18 months?\nAt trial plaintiffs sought to recover \u2014 and the judge purported to assess \u2014 their past, present and prospective damages. The case was tried upon the fiction that at the time of trial plaintiffs had obtained a permanent loan at 10V2\u00b0/o interest, which the court found was the lowest prevailing rate of interest for a comparable long-term commercial loan as of 1 October 1974, the date of the breach. In attempting to fashion a rule which would appropriately measure plaintiffs\u2019 damages the trial judge analogized this case to those in which the borrower actually obtained another loan. On this theory, the trial court awarded plaintiffs general damages in the amount of $120,000, this amount being the difference between the interest on a 25-year loan of $1,162,500 at 10V2\u00b0/o per annum and a similar loan at 9V2\u00b0/o, reduced to present value and \u201cdiscounted for the likelihood of early payment.\u201d As special damages, Judge McKinnon awarded plaintiffs $5,888.12, the total of amounts which plaintiffs reasonably expended in refinancing their construction loan with CCB to prevent foreclosure, and in their unsuccessful attempts over 18 months to secure a replacement long-term loan. The judge, however, refused to allow any recovery of the $184,619.49 in interest which plaintiffs paid CCB on the demand note during that 18-month interim.\nThe Court of Appeals affirmed the trial judge\u2019s award of $5,888.12 in special damages. This ruling was clearly correct, and we affirm it. As the Court of Appeals pointed out, additional title insurance and brokerage, accounting and appraisal fees \u201cwere foreseeable expenses which, but for the breach, plaintiffs would not have incurred.\u201d With reference to these expenditures, defendant concedes in its brief filed in this Court that \u201cin view of the evidence and the Trial Court\u2019s explicit and implicit factual findings pertaining to these items there is no room for further argument and the judgment of the Trial Court is binding as to such damages.\u201d\nThe Court of Appeals also ruled that the trial judge was correct in using the lowest prevailing rate of interest for a long-term commercial loan (10V2 \u00b0/o) to determine \u201cthe basic measure\u201d of plaintiffs\u2019 damages, i.e., the difference between the interest on the loan at the contract rate during the agreed period of credit and the rate (not exceeding that permitted by law) which plaintiffs would have had to pay for the money in the market on the date of breach. Defendant argues that the use of a hypothetical loan at the lowest prevailing rate of interest for comparable long-term loans, at least in cases where an alternative lender cannot be found, is too speculative and uncertain a technique for approximating the borrower\u2019s prospective losses. However, a party seeking recovery for losses occasioned by another\u2019s breach of contract need not prove the amount of his prospective damages with absolute certainty; a reasonable showing will suffice. \u201cSubstantial damages may be recovered though plaintiff can only give his loss proximately.\u201d Wilkinson v. Dunbar, 149 N.C. 20, 22, 23, 62 S.E. 748 (1908). See Tillis v. Cotton Mills & Cotton Mills v. Tillis, 251 N.C. 359, 366-67, 111 S.E. 2d 606, 612, 613 (1959); Thrower v. Dairy Products, 249 N.C. 109, 113, 105 S.E. 2d 428, 430, 431 (1958); Perkins v. Langdon, 237 N.C. 159, 171, 74 S.E. 2d 634, 644 (1953).\nIn our view, plaintiffs have reasonably demonstrated that as a consequence of defendant\u2019s breach of its loan commitment they will suffer prospective losses; and we agree with the Court of Appeals that the trial court\u2019s use of the lowest prevailing rate for comparable long-term loans as a figure to be compared with the contract interest rate represents effort to provide relief from these prospective damages. We also agree that the trial judge erred in reducing the present worth of plaintiff\u2019s prospective damages ($143,282.03) to the amount of $120,000 \u201cfor the likelihood of early payment.\u201d\nAlthough a witness for defendant opined that the average life of a commercial loan such as the one defendant was committed to make for plaintiffs was \u201capproximately seven years,\u201d no witness attempted to fix the value of such a probability. Further, there was no evidence that plaintiffs contemplated early payment of the loan. The Court of Appeals, therefore, properly ordered this reduction stricken, and we affirm.\nFinally, the Court of Appeals concluded that the trial judge erred in refusing to allow plaintiffs to recover the $184,618.49 in interest which they paid CCB on the demand notes during the 18 months elapsing between the date of defendant\u2019s breach of its contract and the date of the trial. This interest, that court said, was recoverable as special damages which defendant should have foreseen as the probable consequence of its failure to provide plaintiffs the promised long-term financing. Thus, the question remaining is whether, in order to avoid foreclosure, a disappointed borrower to whom a defaulting lender had committed long-term financing to pay off a temporary construction loan, is entitled to obtain temporary refinancing at a higher rate of interest and to recover the cost of this refinancing as special damages.\nOn the ground that such refinancing was an unforeseeable consequence of the breach defendant argues that the trial court properly denied plaintiffs any recovery of the interest they paid on the demand note which refinanced the temporary construction loan. In our view, this contention by a defaulting lender, fully aware of the purpose for which plaintiffs had secured its commitment, is entirely unrealistic. In 11 Williston on Contracts \u00a7 1411 (3d Ed. Jaeger 1968) it is stated:\n\u201cIt will frequently happen that the borrower is unable to get money elsewhere, and, if the defendant had notice of the purpose for which the money was desired, he will be liable for damages caused by the plaintiff\u2019s inability to carry out his purpose, if the performance of the promise would have enabled him to do so.\u201d\nThe case of St. Paul at Chase Corp. v. Manufacturers Life Ins. Co., 262 Md. 192, 278 A. 2d 12, cert. denied, 404 U.S. 857 (1971), grew out of the defendant\u2019s breach of a commitment to provide the plaintiff with permanent financing \u201cto take out\u201d a construction loan on a high rise apartment building. When the defendant canceled its commitment and the plaintiff was unable to obtain a substitute loan, the bank carrying the construction loan foreclosed the property and obtained a deficiency judgment against the plaintiff, which then sued the defendant for damages. In affirming the trial court\u2019s award of compensatory damages which would enable the plaintiff to pay the deficiency judgment and other \u201cconsequential damages,\u201d the Court of Appeals of Maryland also adopted both the judge\u2019s rationale and his succinct statement of it. After noting that in loan transactions such as the one in suit \u201cthe parties, of course, anticipate that everything will proceed according to Hoyle \u2014 that there will be no breach by either party,\u201d Judge Proctor added:\n\u201cOn the other hand, the would be permanent mortgage lender must contemplate that if, at the last minute, it cancels its commitment such action would be disastrous to the borrower; that in such event obtaining a new permanent mortgage loan would be well-nigh impossible, for the reason that whatever brought about the cancellation would in all likelihood prevent another lender from entering the fray; that one doesn\u2019t find someone willing and able to lend $4,800,000 at a moment\u2019s notice; that, under such circumstances, foreclosure under the construction mortgage would not only be a probability, it would be almost inevitable.\u201d (Emphasis added.) 262 Md. at 243, 278 A. 2d at 36.\nWhether the loan commitment be for $4,800,000 or $1,162,500, we harbor no doubt that a committed permanent lender on a substantial building project certainly must foresee that a breach of his commitment a relatively short time before the date he has contracted to provide the money to pay off the interim construction loan will result in substantial harm to the borrower.\nDefendant, in this case, being unable to find a lender willing to make the permanent loan it had committed itself to provide plaintiffs, formally notified them on 6 August 1974 \u2014 less than two months before the scheduled closing date \u2014 that it would not make the loan. At that time the same conditions which had thwarted defendant\u2019s efforts to obtain the loan also thwarted plaintiffs. In a reasonable effort to minimize their losses, while they continued their search for another permanent loan plaintiffs refinanced the construction loan to prevent foreclosure of property in which they had acquired equity of approximately $627,500. That their search during the subsequent 18 months proved futile is no reason to deny them compensation for the resulting damages they sustained during that period.\nHowever, our conclusion that plaintiffs should recover as foreseeable damages their losses arising from the interest payments on the demand notes does not necessarily entail an award for the full amount of interest actually paid to CCB. On the contrary, we hold that the Court of Appeals erred insofar as it awarded plaintiffs both the full amount of interest actually paid CCB from the date of the breach until the date of trial and the present value of the difference between the interest on $1,162,500 amortized over 25 years from the date of the trial at the hypothetical rate of 10V2\u00b0/o per year and the contract rate of 9V*%.\nIn Bridgkort Racquet Club v. Univeristy Bank, 85 Wis. 2d 706, 271 N.W. 2d 165 (1978), plaintiffs contracted with defendant University Bank for a loan of $250,000 at 10V4\u00b0/o to be amortized over a 15-year period. The loan closing, which was scheduled for 13 January 1976, involved both the short-term construction lender, and long-term financiers. The short-term loan was closed on 13 January, but on 23 January 1976 plaintiffs discovered that the defendant University Bank had breached its contract and would not make its long-term loan. After extensive attempts to obtain financing at a comparable rate, the plaintiffs obtained financing at 11% for the same 15-year period. The Wisconsin court recognized the plaintiff\u2019s damages as the difference between the cost of obtaining substitute money at an increased rate of interest and the interest rate specified in the contract. In the case at bar, plaintiffs contracted with defendant to have the use of $1,162,500 from 1 October 1974 until 1 October 1999. To award plaintiffs the entire amount of interest paid to CCB from the time of the breach until the time of the trial ($184,619.49), with no deduction for interest at the contract rate of 9 \u00a52%, would give plaintiffs the use of $1,162,500 interest-free for that 18 months period. When defendant failed to make the agreed loan on 1 October 1974 it became liable to plaintiffs at that time for the increased cost of obtaining the use of the money \u201cduring the agreed period of credit,\u201d that is, 25 years from 1 October 1974.\nWe are of the opinion that the Wisconsin Court in Bridgkort Racquet Club, supra, was correct in determining the plaintiffs\u2019 damages to be the differential between the cost of obtaining new financing and the interest payments specified in the contract. Based on this principle, plaintiffs\u2019 recovery of interest payments made to CCB during this 18-month period must be reduced by the amount of interest which would have been payable to defendant at the contract rate of 9 \u00a52%.\nHaving concluded that plaintiffs are entitled to compensatory damages for the cost of refinancing during the 18-month period between the date of defendant\u2019s breach and trial, and a general damages award resulting from defendant\u2019s breach, we believe the most equitable remedy will be achieved by compensating plaintiffs for the amount of their actual losses up until the date of trial and using the difference between the hypothetical interest rate of 10\u00a52% and the contract rate as the basis for determining the damages sustained after the trial. The record shows that for each of the 300 months of the loan plaintiffs contracted for, the amount of interest which plaintiffs would have been obligated to pay defendant can be determined with exactitude. Therefore the amount of plaintiffs\u2019 actual damages prior to trial can be computed by subtracting from the $184,619.49 actually paid CCB by March 31, 1976, the amount of interest plaintiffs would have paid to defendant under the contract by that date. As to plaintiffs\u2019 prospective losses from the contractural breach, they can be calculated by using the differential between the 10 \u00a52% per an-num rate which the trial court hypothesized to be the lowest prevailing rate of interest on 1 October 1974 for a long-term commercial loan on a project such as plaintiffs\u2019 and the contract rate of 9 \u00a52%. Plaintiffs are therefore entitled to the present value of the difference in interest payments owed under the contract from 1 April 1976, the date of the trial, until 1 October 1999 and the interest which would have been paid during the same period for a loan bearing interest at 10V2\u00b0/o per annum.\nThis cause is returned to the Court of Appeals for remand to the Superior Court of Wake County with instructions that, after hearing such additional evidence as may be necessary to make the calculations required to determine the amounts defined in subsections (b) and (c) below, that court shall enter judgment that plaintiff recover of defendant as damages the sum of the amounts specified in subsections (a), (b), and (c) as follows:\n(a) $5,888.12 expended for additional title insurance, brokerage, accounting, and appraisal fees necessitated by defendant\u2019s breach;\n(b) $184,619.49, less the amount of interest plaintiffs contracted to pay defendant from 1 October 1974 until 31 March 1976;\n(c) the present value of the amount determined by subtracting the interest payments which were to have been made by plaintiffs pursuant to the contract from 1 April 1976 until 1 October 1999, from the interest payable during the same period on a loan of $1,162,500, amortized over 300 months from 1 October 1974 bearing an interest rate of 10V2% per annum.\nThe judgment entered shall also provide that the damages therein awarded plaintiff shall bear interest at the legal rate of six percent from 28 May 1976, the date of the judgment from which the parties appealed. See G.S. 24-1 and 24-5 (1965); 45 Am. Jur. 2d Interest and Usury \u00a7 109 (1965). See also Jackson v. Gastonia, 247 N.C. 88, 100 S.E. 2d 241 (1957).\nFor the reasons stated and specified above, the decision of the Court of Appeals is\nAffirmed in part, and\nReversed in part.\n. This opinion was written in accordance with the Court\u2019s decision made prior to the retirement of Chief Justice Sharp and was adopted by the Court and ordered filed after she retired.\n. Annot., 41 A.L.R. 357 (1926); Draper, The Broken Commitment: A Modern View of the Mortgage Lender\u2019s Remedy, 59 Cornell L.R. 418 (1974). See Norwood v. Crowder, 177 N.C. 469, 472, 99 S.E. 345, 346 (1919).\n. See Columbus Club v. Simons, 110 Okla. 48, 236 Pac. 12; Annot., 41 A.L.R. 350 (1925); Vandeventer v. Dale Construction Co., 271 Ore. 691, 534 P. 2d 183 (1975); Cuna Mutual Insurance Society v. Dominguez, 9 Ariz. App. 172, 175, 450 P. 2d 413, 416 (1969); Cohen v. Leaman and C'test, 152 So. 136 (La. App. Ct. Orleans 1934); Selective Builders, Inc. v. Hudson City Savings Bank, 137 N. J. Super. 500, 507, 349 A. 2d 564, 569 (1975); 81 C.J.S. Specific Performance \u00a7 94 (1977); 71 Am. Jur. 2d Specific Performance \u00a7 104 (1973); 5A Corbin, Contracts \u00a7 1152, 167-68 (1964); Gro'ot, Specific Performance of Contracts to Provide Permanent Financing, 60 Cornell L.R. 718, 736-742 (1975).\n. Upon oral argument here, in response to questions from the Court, counsel for plaintiffs stated that CCB was still carrying the construction loan.\n. St. Paul at Chase Corporation v. Manufacturer's Life Ins. Co., 262 Md. 192, 278 A. 2d 12, cert. denied, 404 U.S. 857 (1971).\n.Bridgkort Racquet Club v. University Bank, 85 Wis. 2d 706, 271 N.W. 2d 165 (1978).\n. Hedden v. Schnebhn, 126 Mo. A. 478, 104 S.W. 887, 890 (1907); Annot., 36 A.L.R. 1408, 1410-11 (1925); Restatement, Contracts \u00a7 343 (1932); 22 Am. Jur. 2d Damages \u00a7 68 (1965).", "type": "majority", "author": "SHARP, Chief Justice." } ], "attorneys": [ "Manning, Fulton & Skinner by M. Marshall Happer III, and Charles L. Fulton, for plaintiffs.", "Smith, Anderson, Blount & Mitchell by H. A. Mitchell, Jr., and Michael E. Weddington, for defendant." ], "corrections": "", "head_matter": "T. A. PIPKIN, D. J. DUDLEY, P. M. WILLIAMS, and MACK DONALD WEEKS, INDIVIDUALLY AND TRADING AS P.W.D. & W., A NORTH CAROLINA GENERAL PARTNERSHIP v. THOMAS & HILL, INC.\nNo. 104\n(Filed 17 October 1979)\nContracts \u00a7\u00a7 29.2, 29.3\u2014 breach of contract to make long-term loan \u2014special and compensatory damages\nWhere defendant lender breached a commitment to provide long-term financing for plaintiffs\u2019 motel construction project, a substitute loan was unavailable upon any terms at the time of the breach, and, in order to forestall foreclosure, plaintiffs had to refinance their construction loan by a demand note at a fluctuating rate of interest which was higher than that called for by defendant\u2019s commitment, plaintiffs are entitled to recover the following special and compensatory damages for defendant\u2019s breach of the loan commitment; (1) amounts which they expended for additional title insurance and for brokerage, accounting and appraisal fees in refinancing their construction loan and in their unsuccessful attempts to secure a substitute long-term loan; (2) the interest plaintiffs have paid on the demand note between the date of defendant\u2019s breach of its commitment and the date of trial, less the amount of interest plaintiffs contracted to pay defendant between those dates; and (3) the present value of the difference between the interest payments at 9V2\u00b0/o per annum which would be owed under the contract between the date of the trial and the end of the credit period and interest which would have been paid during the same period for a loan bearing interest at 10 72% per annum, the rate found by the trial court to be the lowest prevailing rate of interest on the date of the breach for a long-term commercial loan.\nON discretionary review of the decision of the Court of Appeals reported in 33 N.C. App. 710, 236 S.E. 2d 725 (1977), which modified the judgment of McKinnon, J., entered 26 May 1976 in the Superior Court of WAKE, docketed and argued as Case No. 113 at the Fall Term 1977 of this Court.\nPlaintiffs, as individuals and general partners doing business under the name of P.W.D. & W., brought this action for damages against defendant, a West Virginia corporation engaged in the mortgage banking business, to recover damages for its breach of an alleged contract to make plaintiffs a long-term loan to repay a construction loan from Central Carolina Bank (CCB). Defendants denied the contract, and the case was tried at the 29 March 1976 session before Judge McKinnon without a jury. The essential facts, as found by the trial court and stated in his judgment, are supported by the evidence and are not now in dispute. In brief summary the pertinent facts are set out below.\nDefendant maintained a branch office in Greensboro, North Carolina, from 2 August 1971 until 15 April 1974. During this time, Mr. 0. Larry Ward (Ward), then an assistant vice-president of defendant corporation, was the manager of this office. Ward was equipped with and authorized to use stationery and business cards bearing defendant\u2019s name and his own name and corporate titles. He was also authorized to solicit loan applications from prospective borrowers, but he did not have actual authority to issue permanent loan commitments. However, no notice of this limitation upon Ward\u2019s authority appeared anywhere, and plaintiffs were unaware of it until August 1974.\nIn August 1972 plaintiffs acquired property on U. S. Highway 70 and 401 just south of Raleigh for the purpose of constructing and operating a motel and restaurant. At that time they were experienced business men but inexperienced real estate developers. After extended negotiations with Ward, on 19 April 1973 plaintiffs jointly and severally filed with him, on a form furnished by defendant, an application for a \u201clong-term permanent loan commitment from the defendant\u201d in the amount of $1,162,500, repayable over 25 years at an interest rate of nine and one-half percent (972 \u00b0/o) per annum, with monthly payments of $10,156.76 for amortization of principal and interest. Plaintiffs\u2019 application was accompanied by a check for $500, the specified application fee.\nAt the same time plaintiffs were negotiating with Ward they were also negotiating with CCB for a loan in the amount of $1,162,500 to finance construction of the motel-restaurant project. As a condition for making the construction loan CCB required that plaintiffs obtain a permanent loan commitment in the same amount \u201cto provide a payout of the construction loan upon the completion of construction.\u201d Mr. Weeks, one of the plaintiffs, introduced Ward to Mr. Scott Edwards, an assistant vice-president of CCB and the manager of its Credit Department. Edwards told Weeks that he would check out defendant\u2019s financial situation. After doing so he told Weeks he was satisfied with it and would make the construction loan based on its permanent commitment.\nMr. Edwards testified that he told Ward from the beginning that CCB would not make plaintiffs a construction loan until plaintiffs had secured a commitment for a long-term loan with which to' repay CCB at the time construction was completed, and that Ward assured him defendant would itself \u201ctake the loan out of the bank\u201d if it had not found a permanent lender when the construction loan became due. Mr. Edwards further testified that his investigation of defendant corporation led him to believe it \u201chad an honorable reputation among West Virginia banks . . . and had financial strength ... to fund this loan out of its own resources at the appointed time if they had not brought another lender into the picture.\u201d\nOn 7 June 1973 Ward received word from defendant\u2019s home office in Charleston, West Virginia, that defendant had been unable to place plaintiffs\u2019 application with a permanent lender. Notwithstanding, on 11 June 1973, Ward wrote Edwards a letter in which he committed defendant to make the long-term loan plaintiffs had requested. A copy of this letter was sent to each plaintiff. In pertinent part this letter said:\n\u201cThomas & Hill, Inc., is processing an application for a permanent loan for Mr. P. M. Williams, Mr. D. J. Dudley, Mr. Thomas A. Pipkin, and Mr. McDonald (sic) Weeks, on the above property.\n\u201cPlease accept this letter as our commitment to fund the permanent loan on or before September 1, 1974, in an amount of $1,162,500.00, as outlined in the loan submission mailed to you May 24, 1973.\u201d\nThereafter, Edwards mailed Ward documents detailing the terms of CCB\u2019s construction loan and asked that these terms be incorporated into defendant\u2019s letter of commitment. On 27 June 1973 Ward replied as follows:\n\u201cPlease accept this letter as our commitment to fund the permanent loan on or before October 1, 1974, in an amount of not less than $1,162,500.00 as outlined in my loan package submitted to you on May 24, 1973.\n\u201cPlease be further advised that your commitment dated June 26, 1973, for the construction loan is hereby made a part of our commitment to the borrowers and is attached as Exhibit A.\u201d\nAgain each plaintiff received a copy of the correspondence. At that time Ward and plaintiffs agreed that defendant would receive a fee of $11,625 for the loan commitment and a fee of $11,625 for closing the loan, a total of $23,250.\nRelying upon defendant\u2019s commitment to make the permanent loan, on 2 July 1973 CCB and plaintiffs executed a construction loan agreement in the amount of $1,162,500, at 9\u00b0/o interest per annum, payable on 1 October 1974 or at the closing of the long-term permanent loan, whichever occurred first. The construction loan was closed in August 1973. Thereafter plaintiffs utilized the entire loan of $1,162,500 in building the motel and restaurant, except for $23,250 representing the fees due defendant upon the closing of its loan to plaintiffs. Upon Ward\u2019s instructions, and with plaintiffs\u2019 consent, CCB held this sum in an escrow account for defendant.\nThe motel was completed on 8 July 1974. When it became apparent in May that construction would be finished well in advance of October, Mr. Edwards then attempted to contact Ward to ascertain if defendant would be interested in taking the construction loan out of CCB earlier. At that time he learned that defendant had closed its Greensboro office, and that Ward could not be located. On 9 May 1974 Edwards took the matter up with defendant\u2019s home office in Charleston, West Virginia, informing its officers in detail of all dealings which plaintiffs and CCB had had with Ward with reference to the loan in suit. However, it was not until 6 August 1974 that defendant repudiated the loan commitment Ward had made to plaintiffs and to CCB. On 27 August 1974 in a letter to CCB\u2019s attorney, defendant\u2019s president stated that Ward had no authority to issue the loan commitment and that the defendant would not honor the commitment.\nImmediately upon receiving notice that defendant had repudiated the loan commitment the plaintiffs, assisted by CCB, began a diligent and exhaustive search for alternative permanent financing. They found that no such loans were available at any rate of interest. All the evidence tended to show that it had become extremely difficult to obtain commerical loans of any type and motel loans were almost nonexistent; that had such money been obtainable, it would have been at a very high rate, the best terms being a \u201c10V2\u00b0/o rate for 20 years with a 25-year amortization schedule at seven discount points.\u201d\nAfter the completion of construction plaintiffs\u2019 motel-restaurant project was appraised at $1,790,000. This gave plaintiffs a net equity, over and above the $1,162,500 construction loan, of $627,500.\nOn 1 October 1974, to forestall foreclosure, CCB required plaintiffs to refinance their construction loan by \u201cexecuting a new deed of trust\u201d and \u201ca six-month demand note\u201d for $1,162,500, bearing a variable interest rate of 2% above CCB\u2019s prime. On 1 January 1976 CCB increased the interest payments on the loan to three percent above its prime rate. Between 1 October 1974 and the date of the trial, 31 March 1976, plaintiffs had paid CCB $184,619.49 in interest. No payments had been made on the principal of the loan. During the same 18 months, in attempting to obtain another long-term loan, plaintiffs incurred the following \u201creasonable expenses,\u201d totaling $5,888.12: (1) $1,613.12 for title insurance required by CCB; (2) $3,000 in additional brokerage fees; (3) $1,025 for extra accounting expenses; and (4) $250 for an updated MAI appraisal. Despite their diligent efforts, and the efforts of CCB, plaintiffs had not been able to arrange alternative, long-term financing at the date of the trial. Plaintiffs demonstrated and the trial court found, however, that the lowest prevailing rate of interest on comparable commercial loans on 1 October 1974 was 10 V2 % per annum.\nOn the basis of his findings of fact, all of which are supported by competent evidence, Judge McKinnon concluded (1) that although Ward did not have actual authority to obligate defendant to make a loan to plaintiffs, he nevertheless \u201chad apparent authority to bind the defendant to a contract\u201d; (2) that plaintiffs, who had no notice of Ward\u2019s lack of such authority, had reasonably relied upon his apparent authority to commit defendant to make them the loan for which they had applied; (3) that in June 1973 plaintiffs and defendant had entered into a contract, duly supported by consideration, which embodied the terms of plaintiffs\u2019 loan application; and (4) that defendant had breached this agreement.\nJudge McKinnon then adjudged that \u201cthe plaintiffs [had] sustained and [were] entitled to recover past, present, and prospective damages as follows\u201d: $5,888.12 for the additional expenses incurred in searching for an alternative lender; (2) $120,000, \u201crepresenting the present worth of the reasonable additional cost to the plaintiffs of a loan at the lowest prevailing rate of interest on 1 October 1974, after also being duly discounted for the likelihood of early payment.\u201d Judgment was entered in favor of plaintiffs for $125,888.12 with legal interest from the date of judgment. No recovery for the interest plaintiffs paid CCB between 1 October 1974 and the date of trial was allowed.\nThe explanation for judgment item (2) above ($120,000) appears to be the following: Dr. J. Finley Lee, a professor of business administration specializing in economics, insurance, and statistics at the University of North Carolina, was qualified as an expert in calculating the present economic value of monetary payments to be made in the future. He testified that the difference between the cost of the agreed loan in the amount of $1,162,500 repayable over 25 years with interest at 9V2\u00b0/o per an-num and the cost of a similar loan at 10V2\u00b0/o per annum was $245,805. He determined the present cash value of that sum to be $143,282.03, a figure which Judge McKinnon evidently reduced by $23,282.03 \u201cfor the likelihood of early payment,\u201d thereby obtaining the amount of $120,000.\nUpon defendant\u2019s appeal and plaintiffs\u2019 cross appeal the Court of Appeals affirmed the judgment of the trial court insofar as it imposed liability on defendant for breach of contract. However, the Court of Appeals modified Judge McKinnon\u2019s award of damages in two respects: It held that plaintiffs were entitled to recover (1) the $184,619.49 in interest which they had paid CCB from 1 October 1974 on the demand notes until the date of the trial and (2) the full present cash value of the difference between the cost of the agreed loan at 9V2\u00b0/o interest per annum and 10V2\u00b0/o interest for 25 years, $143,282.03, without any reduction \u201cfor the likelihood of early prepayment.\u201d\nWe allowed defendant\u2019s petition for discretionary review for the sole purpose of considering what damages plaintiffs are entitled to recover for defendant\u2019s breach of contract.\nManning, Fulton & Skinner by M. Marshall Happer III, and Charles L. Fulton, for plaintiffs.\nSmith, Anderson, Blount & Mitchell by H. A. Mitchell, Jr., and Michael E. Weddington, for defendant." }, "file_name": "0278-01", "first_page_order": 302, "last_page_order": 316 }