risks of post-foreclosure litigation involving the value of the collateral at some unknown future time. [This rule] would thus benefit neither lenders nor borrowers, because it would render secured loans more risky, thereby impairing the availability of credit and increasing interest rates." 916 F.2d at 827.
However, U.S. West is incorrect that Sharma stands for the proposition that the measure of damages will always be based on the value of the collateral. For example, damages for the breach of an option contract are not based on the value of the underlying shares at the time of breach, but rather on the value of the option to acquire those shares at a particular price and time. The proposition for which Sharma stands is that damages are based on the value of the rights of which the non-breaching party was deprived, valued at the time of breach, excluding subsequent changes in value. 916 F.2d at 826. In Sharma, a borrower sued its lending bank, alleging that the bank breached a financing agreement which the parties had renegotiated after the borrower defaulted on its original loan. The bank had sold the collateral -- three ships -- and the borrower sought to recover, not the value of the ships on the date of breach, but the profits it claimed the ships would have generated. By comparison, Judge Winter reasoned that "under New York law, if the contract in question were for the sale of the vessels to appellants and the seller were to breach the contract, appellants' recovery would be limited to the value of the vessels on the date of the breach." Id. Because the Court found that damages should be measured by the value of the ships at the time of breach, Judge Winter could "see no reason to reach a different result in the instant matter." Id.
Similarly, if the contract in this case were for the sale of the property, recovery would be limited to the value of the property on the date of breach. Also, this limited measure of damages would apply if, as in Sharma, a borrower (Days) who was entitled to the loan property had sued the lending bank. Neither of these situations is this case here. Marine was deprived neither of its right to the loan property nor of its right to foreclose on the loan property. Rather, Marine was deprived of its right to the Standby Loan. Therefore, recovery must be measured by the value of this right. Thus, the stark contrast between the proper measure of damages in this case and the proper measures in Sharma and cases cited therein is "reason to reach a different result in the instant matter." Id.
Although this Court does not apply U.S. West's proposed measure of damages, U.S. West's contention remains that Marine was not damaged on April 23, 1990, the date of breach, because the loan property was worth $ 8.5 million at that time, slightly more than the outstanding principal amount of the loan. Accordingly, U.S. West claims that had Marine foreclosed on the property on April 23, 1990, it would not have been damaged. U.S. West asserts that "the undisputed evidence is that the value of the mortgage . . . equalled or slightly exceeded the outstanding principal amount of [Marine's loan] as of the date of the breach." (U S West Mem. at 28) U.S. West asserts that this "undisputed evidence" entitles it to summary judgment because Marine would not be able to prove damages. Katz Comm., Inc. v. Evening News Assoc., No. 79 Civ. 5931 (JMC) slip op. (S.D.N.Y. June 3, 1982).
However, the only undisputed facts related to damages are as follows: the outstanding principal amount of Marine's loan to Days on April 23, 1990 was $ 8.45 million; U.S. West breached the contract, if at all, on April 23, 1990 or before; and Marine sold its loan to Oleifera Investments for $ 4.65 million on October 17, 1991. (U S West Rule 3(g) Statement P 47, Miller Aff. Ex. 57 at 7, Grant Aff. Ex. 66 at 12-13) The other "facts" to which U.S. West refers are three appraisals of the loan property, none of which valued the property as of April 23, 1990. Marine commissioned these three appraisals, one by Joseph J. Blake and Associates, Inc., and two by Cushman & Wakefield, Inc.:
Appraiser Valued as of: Appraised Value
Joseph J. Blake August 1, 1990 $ 8.5 million
Cushman & Wakefield December 11, 1990 $ 5.8 - $ 6.1 million
Cushman & Wakefield July 8, 1991 $ 5 million
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