Facts
- William Jack Sexton and Marsha C. Sexton obtained a construction loan of approximately $160,000 from St. Clair Federal Savings Bank to build a residence, secured by a construction mortgage.
- The loan agreement required the bank to disburse funds in increments approximating the stage of construction and to monitor progress.
- After construction began, the bank halted further draws, stating progress did not justify prior disbursements.
- The Sextons alleged they then learned that all but about $17,000 had been disbursed and that roughly $93,000 of disbursed funds had not been used by the builder on the residence.
- The Sextons could not complete the home, stopped making loan payments, and the bank sued for foreclosure, sale of the unfinished residence, and a deficiency.
- The Sextons counterclaimed for breach of contract (improper monitoring/disbursement) and breach of fiduciary duty, seeking compensatory damages (including mental anguish), punitive damages, and lost profits tied to a sale of investment property.
Issues
- Whether mental-anguish damages are recoverable for breach of a construction loan contract connected to building the borrowers’ future residence.
- Whether lost profits from the borrowers’ sale of investment property are recoverable as consequential damages for the alleged breach.
- Whether the trial court could grant summary judgment disposing of the fiduciary-duty claim when the bank’s motion targeted only damages issues.
Decision
- The Supreme Court of Alabama affirmed in part, reversed in part, and remanded.
- It reversed the ruling that barred mental-anguish damages, holding the contract fit an exception for agreements concerning a residence.
- It affirmed the ruling that denied recovery of the claimed lost profits as contract damages.
- It reversed the summary judgment on the fiduciary-duty claim because that claim was not properly presented by the scope of the summary-judgment motion, and remanded without deciding whether a fiduciary relationship existed.
Legal Principles
- Mental-anguish damages are generally unavailable for breach of contract, but may be recoverable when the contract is closely tied to matters of mental concern such that emotional distress is a likely result of breach, including contracts involving construction or acquisition of a home.
- Consequential damages such as lost profits must be foreseeable, sufficiently connected to the breach, and not speculative; attenuated profits from unrelated investment-property decisions are not recoverable on these facts.
- Summary judgment must be confined to issues properly raised and supported in the movant’s motion; a court errs by adjudicating and disposing of a claim not placed in issue by the motion.
Conclusion
The court held that a construction loan agreement for a future residence can support mental-anguish damages for breach, rejected claimed lost profits as too remote, and required further proceedings on the fiduciary-duty claim because it was improperly resolved on a damages-focused summary-judgment motion.