Here are the facts, liberally edited by me:
Appellee purchased property for $ 20,000.00, including a building that was deemed uninhabitable by both the City and Appellee.
After Appellee purchased the Property, she contacted the Philadelphia Neighborhood Housing Service (PNHS) to assist her in securing a loan to rehabilitate the Property. A building inspector estimated the cost of renovation and repair to be $ 113,500.00. Another contractor estimated the cost of renovation and repair to be $ 122,590.00.
PNHS agreed to lend Appellee $ 65,000.00 to renovate and repair the Property. PNHS also agreed to help Appellee secure additional financing to reach the estimate provided by the inspector. Appellee successfully received a total mortgage commitment of $ 125,000.00 for the renovation and repair of the Property.
After Appellee received the mortgage commitments, but before any renovations were made, the City tore down the building on the Property.
So, what’s it worth? The relevant Second Restatement of Torts provisions are below the fold.
One answer is market value. Plaintiff certainly didn’t want that: they bought it for $20,000 and it was valued at $35,000 after the demolition, a gain of $15,000.
Another is "special value" (the Restatement calls it "peculiar value"). Here’s what happened at trial:
The trial court read, in pertinent part, the following charge to the jury:
Plaintiff is entitled to be compensated for the harm done to her property. If you find that the property was a total loss, damages are to be measured by either its market value or its special value to the plaintiff, whichever is greater. The plaintiff is entitled to be reimbursed for losses reasonably incurred because of the damage to the property.
The City objected to that part of the trial court’s charge which was based on Section 6.11 of the Pennsylvania Suggested Standard Civil Jury Instructions, 3rd Edition (Jury Instruction). The trial court overruled the City’s objection. The jury found the City negligent in tearing down the building and entered a verdict for the Appellee in the amount of $ 80,000.00.
Oliver-Smith v. City of Philadelphia, 962 A.2d 728 (Pa. Commw. Ct. 2008). The Commonwealth Court reversed, holding:
‘The fundamental purpose of damages for an injury to or destruction of property by the tortious conduct of another is to compensate the injured party for the actual loss suffered.’ Department of Transportation v. Crea, 92 Pa. Commw. 242, 483 A.2d 996, 1001 (Pa. Cmwlth. 1977). Appellee presented evidence that she purchased the Property on April 8, 2003, for $ 20,000.00. The Property was later appraised, prior to demolition, at $ 20,000.00. Appellee did not present any evidence showing that she had spent any money repairing or rehabilitating the Property or that there were any unique characteristics of the Property that warranted a special value. The charge by the trial court of anything further than market value was, therefore, an erroneous extension of the range of permissible damages.
Appellee cannot receive as damages money that she never spent. Such unspent money is not actual damages, but a windfall. Section 911 provides for special value, but only for matters which can be accounted for. In this case, the loss of approved loans/mortgages which were never executed and to which no legal obligation ever attached does not amount to ‘special value.’ The trial court erred in directing the jury.
There’s definitely a "special value" here: the plaintiff was going to rehabilitate the project and, presumably, re-sell it for a profit. A condemned building might be worth nothing to you and me, but it’s worth a lot to a contractor with a vision. The plaintiff is entitled to recover those damages.
Maybe the plaintiff didn’t present anything but the sizes of the loans, in which case the above is correct. But I bet they did, since the size of the jury’s verdict reflects, in my view, the lost profit on the resale of the property contemplated by the plaintiff once they had rehabilitated and renovated it. Such a number — a projection about future profits — is certainly open to doubt, but it’s a factual issue for the jury, and the defendant (the City of Philadelphia) easily could have presented evidence to the contrary.
Here are the relevant Second Restatement of Torts provisions, as quoted by the Commonwealth Court:
The Restatement 2nd of Torts (Restatement), Section 927 provides in pertinent part as follows:
(1) When one is entitled to a judgment for the…destruction…of any legally protected interest in land or other thing, he may recover either
(a) The value of the subject matter or of his interest in it at the time and place of the…destruction….
Value is defined in Section c of the comments to Restatement Section 927 as follows:
c. Value. As stated in §911, "value" includes market value and value to the owner. A person tortiously deprived of property is entitled to damages based upon its special value to him if that is greater than its market value.
Restatement Section 911 provides in pertinent part as follows:
(1) As used in this Chapter, value means exchange value or the value to the owner if this is greater than the exchange value.
(2) The exchange value of property or services is the amount of money for which the subject matter could be exchanged or procured if there is a market continually resorted to by traders, or if no market exists, the amount that could be obtained in the usual course of finding a purchaser or buyer of similar property or services. The rental value of property is the exchange value of the use of the property.
Comments (b) and (e) of Restatement Section 911 provide in pertinent part as follows:
(b) Market value. If there is an established market, the value of property ordinarily is determined by the amount paid in actual transactions involving a similar subject matter if the transactions have occurred at or about the time fixed for determining value.
(e) Peculiar value to the owner. The phrase "value to the owner" denotes the existence of factors apart from those entering into exchange value that cause the article to be more desirable to the owner than to others.
Real property may also have a value to the owner greater than its exchange value. Thus a particular location may be valuable to an occupant because of a business reason, as when he has built up good will in a particular neighborhood….