Unpublished Disposition, 902 F.2d 1578 (9th Cir. 1988)

MEMORANDUM^* 

On April 23, 1984, plaintiffs-appellants executed to Weyerhaeuser Mortgage Company ("Weyerhaeuser") a deed of trust with assignment of rents. The deed of trust secured a loan on certain commercial real estate located in Seattle, Washington (the "Property"). Also on April 23, 1984, plaintiffs-appellants executed in Weyerhaeuser's favor an assignment of interest in leases to secure the same loan.

On February 11, 1987, plaintiffs-appellants (as landlord) and Gerald L. Bruce, defendant-appellee, and Michael J. Kelly (as tenants) executed a five-year lease of the Property to be used for an automobile dealership.

Some time during 1987, plaintiffs-appellants defaulted on their loan obligation to Weyerhaeuser, and Weyerhaeuser commenced suit in King County Superior Court Cause No. 87-2-18227-4. On October 26, 1987, the Superior Court entered an order appointing a receiver to enforce Weyerhaeuser's rights under the security instruments. Plaintiffs-appellants failed to cure the default on the loan. On March 18, 1988, Weyerhaeuser completed a nonjudicial foreclosure of the deed of trust, and plaintiffs-appellants lost the property through the foreclosure. Plaintiffs-appellants brought this action for lost rentals, cost of tenant improvements, and their lost equity in the property. The district court dismissed the action because plaintiffs-appellants were no longer real parties in interest with respect to the claims for lost rentals and tenant improvements, and the consequential damage due to foreclosure of the property was not "reasonably foreseeable" as a matter of law. We affirm.

To recover consequential damages for breach of contract, plaintiffs must prove that either: (1) the losses were reasonably foreseeable by the party to be charged at the time the contract was made; or (2) if the injury was not foreseeable, that the defendant had special knowledge of the risk he was undertaking. Larsen v. Walton Plywood Co., 390 P.2d 677 (Wash.1964).

To withstand a motion for summary judgment the nonmoving party must produce "significant probative evidence" to support the material allegations in the complaint. T.W. Elec. Serv. v. Pac. Elec. Contractors, 809 F.2d 626, 630 (9th Cir. 1987). The nonmoving party may not avoid summary judgment by relying on the "mere allegations" in the pleadings. Id.

In their opposition to Bruce's motion for summary judgment, plaintiffs-appellants submitted an affidavit of Sal Mungia, which contained excerpts from depositions of Michael Kelly, Gerald Bruce and Barry Margolese, and a declaration of Barry Margolese. However, none of these documents contain "significant probative evidence" showing that Bruce could "reasonably foresee" or had "special knowledge" of the risk of the consequential damages claimed by plaintiffs-appellants.

Plaintiffs-appellants cite several cases holding that a lender breaching its loan commitment can be liable for the borrower's loss of equity in the subject property resulting from the breach. See, e.g., Lincor Contractors Ltd. v. Hyskell, 692 P.2d 903 (1984). None of these cases is applicable because a contract to loan money for the purchase of real property or construction of buildings is fundamentally different from a lease of real property. In the case of a lender, it is generally obvious that withholding the borrower's financing can cause the borrower to lose the property being financed. In the case of a lessee, the lessee generally does not expect that the lessor will lose his property if the lease is breached. Rather, a lessee would expect to be liable for lost rent and any physical damage to the premises.

Plaintiffs-appellants also cite Hornwood v. Smith's Food King No. 1, 772 P.2d 1284 (Nev.1989), which held a breaching "anchor tenant" at the shopping center liable for losses due to a decreased volume of customers once the anchor tenant had left. Hornwood is entirely inapposite. Bruce was not an "anchor tenant" in a shopping center. Furthermore, Hornwood did not involve a claim for loss of the property through foreclosure.

Plaintiffs-appellants also claim damages for the cost of tenant improvements they performed as part of their obligations under their lease. Plaintiffs-appellants correctly note that reliance damages can be awarded as an alternative to expectation damages in contract cases. However, plaintiffs-appellants assigned all of their interest in Bruce's lease to Weyerhaeuser. Thus, they cannot recover either expectation or reliance damages under the lease. In fact, allowing such recovery would expose Bruce to double liability (i.e. both expectation and reliance damages) should Weyerhaeuser bring suit for lost rentals.

For the above reasons, the decision of the district court should be affirmed.

AFFIRMED.