FSM SUPREME COURT TRIAL DIVISION
Cite as Phillip v. Marianas Ins. Co.
12 FSM Intrm. 464 (Pon. 2004)

[12 FSM Intrm. 464]

NAITEN PHILLIP, individually, and NAITEN
PHILLIP d/b/a KASELEHLIA CAR RENTAL,
Plaintiff,
 
vs.
 
MARIANAS INSURANCE COMPANY
LIMITED, FREDDIE O. BENITEZ, FSM
INSURANCE GROUP, and LILY IRIARTE,
Defendants.
))))))))))))))))))))))))))))))))))))))))))))
MARIANAS INSURANCE COMPANY, LTD.
Counter-plaintiff,
 
vs.
 
NAITEN PHILLIP, individually, and NAITEN
PHILLIP d/b/a KASELEHLIA CAR RENTAL,
Counter-defendant.
 
CIVIL ACTION NO. 2002-009
 
ORDER GRANTING SUMMARY JUDGMENT IN PART
 
Dennis K. Yamase
Associate Justice
 
Decided: May 3, 2004

APPEARANCES:

For the Plaintiff:                     Michael J. Sipos, Esq.
                                               P.O. Box 2069
                                               Kolonia, Pohnpei FM 96941
 
For the Defendants:             Mary Berman, Esq.
                                              P.O. Box 163
                                              Kolonia, Pohnpei FM 96941

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HEADNOTES

Civil Procedure ) Filings
When citing to sources not available in FSM libraries, counsel are expected to provide copies to the court and opposing counsel. Phillip v. Marianas Ins. Co., 12 FSM Intrm. 464, 468 n.1 (Pon. 2004).

[12 FSM Intrm. 465]

Agency
     When the defendants provide documents signed by both Naiten and Linda Phillip showing them to be co-owners of the business; Kolonia Town municipal records showing that they were recorded as the business’s co-owners for business license purposes; an affidavit concerning times that both had come in together to make the original insurance application and that later dealings with the business were always with Linda Phillip; and the rental agreement for the damaged pickup, which was signed by Linda Phillip as "company agent" and when the plaintiff offers no evidence, argument, or affidavit that Linda Phillip did not have authority to act as the business’s agent in this regard, the court must conclude that there is no genuine issue of fact that Linda Phillip had the actual or apparent authority to act as agent concerning payment of the insurance premium. Phillip v. Marianas Ins. Co., 12 FSM Intrm. 464, 469 (Pon. 2004).
 
Agency
     A principal is bound by, and liable for, the acts which his agent does with or within the actual or apparent authority from the principal, and within the scope of the agent’s employment. Phillip v. Marianas Ins. Co., 12 FSM Intrm. 464, 469 (Pon. 2004).
 
Agency
     Under the law of agency, a principal is liable not just for the expressly authorized acts and contracts of his agent, but also, with respect to third parties who deal with his agent in good faith, for actions his agent takes with apparent authority to act on the principal’s behalf. Apparent authority may be implied where the principal passively permits the agent to appear to a third person to have authority to act on his behalf. Phillip v. Marianas Ins. Co., 12 FSM Intrm. 464, 469 (Pon. 2004).
 
Torts
     The general purpose of tort law is to afford a victim compensation for the injuries or damages sustained as the result of another’s unreasonable or socially harmful conduct. In other words, a purpose of tort law is to make the victim whole. Phillip v. Marianas Ins. Co., 12 FSM Intrm. 464, 469 (Pon. 2004).
 
Insurance; Torts ) Negligent Misrepresentation
     A measure of damages for the tort of negligent misrepresentation (also called deceit) employs the benefit of the bargain rule when damages can be proved with reasonable certainty. Under this principle, the insurer would be entitled to its premium, which would be set off against what it owed its insured. Phillip v. Marianas Ins. Co., 12 FSM Intrm. 464, 469 (Pon. 2004).
 
Debtors’ and Creditors’ Rights ) Setoff
     A setoff is a debtor’s right to reduce the amount of a debt by any sum the creditor owes the debtor, or the counterbalancing sum owed by the creditor. Phillip v. Marianas Ins. Co., 12 FSM Intrm. 464, 469 (Pon. 2004).
 
Debtors’ and Creditors’ Rights ) Setoff
     A promissory note will not bear any interest past the date it is setoff against an opposing claim. Phillip v. Marianas Ins. Co., 12 FSM Intrm. 464, 470 (Pon. 2004).
 
Civil Procedure ) Summary Judgment
     When a party’s summary judgment motion has been denied as a matter of law and it appears the nonmoving party is entitled to judgment as a matter of law, the court may grant summary judgment to the nonmoving party in the absence of a cross motion for summary judgment if the original movant has had an adequate opportunity to show that there is a genuine issue and that his nonmoving opponent is not entitled to judgment as a matter of law. Phillip v. Marianas Ins. Co., 12 FSM Intrm.

[12 FSM Intrm. 466]

 
464, 470 (Pon. 2004).
 
Contracts ) Rescission ; Insurance
     Rescission of an insurance contract would, if granted, absolve an insured from liability for the premium and could even entitle him to return of the premium paid. Phillip v. Marianas Ins. Co., 12 FSM Intrm. 464, 470 (Pon. 2004).
 
Contracts ) Reformation ; Insurance
     Reformation of an insurance contract may be sought under a theory of mutual mistake or mistake or fraud of the insurance agent. Phillip v. Marianas Ins. Co., 12 FSM Intrm. 464, 470 (Pon. 2004).
 
Contracts ) Reformation ; Equity; Insurance
     Reformation is an equitable doctrine that allows a court to conform a contract (even an insurance contract) to the true agreement between the parties rather than the agreement as written. Phillip v. Marianas Ins. Co., 12 FSM Intrm. 464, 470 (Pon. 2004).
 
Civil Procedure ) Summary Judgment
     Summary judgment cannot be granted when there appears to be a genuine issue of material fact whether the pickup’s damage was total, and, assuming that it was, what the amount of these total damages were. Phillip v. Marianas Ins. Co., 12 FSM Intrm. 464, 470-71 (Pon. 2004).

Torts ) Conversion; Torts ) Damages
     Prejudgment interest has been allowed on conversion claims. Phillip v. Marianas Ins. Co., 12 FSM Intrm. 464, 471 (Pon. 2004).
 
Torts ) Damages
     Prejudgment interest might rightfully be sought on what would appear to be a liquidated claim in the sense that it is capable of ascertainment by mathematical computation. Phillip v. Marianas Ins. Co., 12 FSM Intrm. 464, 471 (Pon. 2004).
 
Attorney, Trial Counselor and Client ) Fees; Torts ) Damages
     The court is generally without authority to award attorney’s fees in the absence of a specific statute or contractual provision allowing recovery of such fees. Phillip v. Marianas Ins. Co., 12 FSM Intrm. 464, 471 (Pon. 2004).
 
Attorney, Trial Counselor and Client ) Fees; Torts ) Damages
     When no statute or contractual provision has been put forth to support an attorney’s fees award to a prevailing party, the basis for an award must be found in some exception to the general rule that the parties must pay their own attorney’s fees. Such an exception is where attorney’s fees are awarded as an element of costs when it is shown that such fees were traceable to the opposing party’s unreasonable or vexatious actions, or when a party acts vexatiously, or in bad faith, presses frivolous claims, or employs oppressive litigation practices. Phillip v. Marianas Ins. Co., 12 FSM Intrm. 464, 471 (Pon. 2004).
 
Attorney, Trial Counselor and Client ) Fees; Insurance; Torts ) Breach of Implied Covenant of Good Faith; Torts ) Damages
     Courts have permitted attorney’s fee awards under the vexatious conduct exception when the plaintiff has proven the defendant’s breach of the implied covenant or implied duty of good faith and fair dealing (also called the bad faith tort). If a plaintiff were to prevail on a bad faith tort claim against an insurer, the insurer would be liable to him for reasonable attorney’s fees that are proximately caused by the bad faith conduct. Phillip v. Marianas Ins. Co., 12 FSM Intrm. 464, 471 (Pon. 2004).

[12 FSM Intrm. 467]

Attorney, Trial Counselor and Client ) Fees; Torts ) Breach of Fiduciary Duty; Torts ) Damages
     In a narrowly drawn exception to the general rule that the parties will bear their own attorney’s fees, attorney’s fees have been awarded as part of costs when a defendant has breached her fiduciary duty to the plaintiff. Phillip v. Marianas Ins. Co., 12 FSM Intrm. 464, 472 (Pon. 2004).
 
Evidence; Torts ) Damages
     In order to prove lost rental damages, a business should be prepared to show that all other similar available vehicles were rented and that the had to turn away customers who would otherwise had rented the damaged pickup, and the number of days it would have been rented. A long-term, ongoing business might show this by comparing the average of the total rental days of all pickups combined for each month before the pickup was damaged with the average total rental days for each month after the accident. Phillip v. Marianas Ins. Co., 12 FSM Intrm. 464, 472 (Pon. 2004).
 
Evidence; Torts ) Damages
     Under the traditional "new business rule," which applies to any business without a history of profits, it has been recognized that evidence of expected profits from a new business is too speculative, uncertain, and remote to be considered and does not meet the legal standard of reasonable certainty. But lost profits can be recovered by a new business when it is possible to show, by competent evidence and with reasonable certainty, that profits would have been made in the particular situation, and the amount of those profits. Phillip v. Marianas Ins. Co., 12 FSM Intrm. 464, 472 (Pon. 2004).
 
Torts ) Damages
     The proper measure of damages resulting from a business tort is lost profits as opposed to lost gross receipts. Phillip v. Marianas Ins. Co., 12 FSM Intrm. 464, 472 (Pon. 2004).
 
Torts ) Damages
     Any recovery for lost rental income may be limited in time until that point at which the plaintiff could have obtained a replacement for his rental business since if a plaintiff could have avoided the loss by purchasing a substitute item, profits are not the measure of the plaintiff’s recovery even though profits were in fact lost. Phillip v. Marianas Ins. Co., 12 FSM Intrm. 464, 472 (Pon. 2004).
 
Torts ) Damages; Torts ) Negligent Misrepresentation
     Consequential damages, of which economic loss such as lost profits may be an example, are available for negligent misrepresentation (deceit) claims if reasonably foreseeable. Phillip v. Marianas Ins. Co., 12 FSM Intrm. 464, 472 (Pon. 2004).

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COURT’S OPINION

DENNIS K. YAMASE, Associate Justice:

     On January 27, 2004, the court issued its ruling on the pending summary judgment motion and asked that the parties further brief the issue of the enforceability of the promissory or premium note that was the subject of the Marianas Insurance Company’s counterclaim and on which the plaintiff, Naiten Phillip, had also sought summary judgment. Phillip v. Marianas Ins. Co., 12 FSM Intrm. 301, 309 (Pon. 2004). Phillip was granted summary judgment on his third (negligence) and fifth (negligent misrepresentation) causes of action, and denied summary judgment on the other three (breach of contract, breach of implied covenant of good faith and fair dealing, and breach of fiduciary duty), which are still pending and have not been dismissed. Id. at 309-10.

[12 FSM Intrm. 468]

     In partial response to Phillip’s Motion for Order Clarifying Ruling, filed February 12, 2004, the court, in its March 5, 2004 order, acknowledged its error in implying that Phillip personally executed the promissory note in question, and asked that the parties also brief whether the note’s actual signatory had the authority to act as Phillip’s agent in executing the note. Currently before the court for consideration are Phillip’s Motion for Order Clarifying Ruling, with supporting exhibits, filed February 12, 2004; his Memorandum on Enforceability of Promissory Note and Existence of Agent Authority to Bind Principal, filed March 30, 2004; the defendants’ Court-Ordered Brief, with supporting exhibits and affidavit, filed March 30, 2004; the defendants’ Supplement to Exhibits to Court-Ordered Brief ) Omitted "Exhibit I" ), filed April 2, 2004; Phillip’s Response to Defendants’ Brief Regarding Promissory Note Enforcement,1 filed April 6, 2004; and the defendants’ Reply, with supporting exhibits and affidavit, filed April 15, 2004.

I. Background

     On May 7, 1999, Phillip applied for insurance coverage for nine pickup trucks that he had purchased for his rental business. The insurance premium was $7,976. Phillip made an initial payment of $2,393 on May 22, 1999, to bind the insurance coverage.2 The policy, good for one year, was issued on May 26, 1999. An invoice was issued on the same date. By the invoice’s terms, the remaining balance ($5,583) was to be paid in full within 90 days (that is, by August 24, 1999 ) ninety days later).

     Apparently, Phillip sought easier payment terms than that. The insurance agents prepared a promissory note for $7,976.993 with the "first payment" of $2,393 to be made in June, 19994 and four successive monthly payments of $1,117 and the last (November, 1999) payment of $1,115.99. Linda W. Phillip signed the note on June 14, 1999. One of the nine pickup trucks that the insurance policy supposedly covered was involved in an accident on July 14, 1999, while it was being driven by a rental customer. Phillip submitted a claim and proof of loss for the damaged vehicle within two weeks. The claim was initially denied in September, 1999, with a formal written denial issued on December 10, 1999.

II. Agency

     Phillip contends that he cannot be liable for the promissory note because he did not personally sign it. The note was signed by "L. Phillip." It is not disputed that "L. Phillip" is Linda W. Phillip, Naiten Phillip’s wife, a listed driver on the insurance policy, and a co-owner and operator of the rental

[12 FSM Intrm. 469]

car business. Phillip argues that the promissory note is a contract separate from the insurance contract and one for which he has no liability.

     The defendants contend that Linda Phillip acted as Phillip’s agent in signing the promissory note. In support of their position, the defendants provide documents signed by both Naiten and Linda Phillip showing them to be co-owners of the business; Kolonia Town municipal records showing that they were recorded as co-owners of the business for business license purposes; Lily Iriarte’s affidavit concerning times that both had come in together to make the original insurance application and that later when she had to have dealings with the business she was always referred to Linda Phillip; and the rental agreement for the damaged pickup, which was signed by Linda Phillip as "company agent."

     Phillip offers no evidence, argument, or affidavit that Linda Phillip did not have authority to act as the business’s agent in this regard. (Phillip’s initial bald contention that he could not be liable on the note because he had not signed it may therefore raise Rule 11 implications.) The court therefore concludes that there is no genuine issue of fact that Linda Phillip had the actual or apparent authority to act as agent concerning payment of the insurance premium.

     A principal is bound by, and liable for, the acts which his agent does with or within the actual or apparent authority from the principal, and within the scope of the agent’s employment. FSM v. National Offshore Tuna Fisheries Ass’n, 10 FSM Intrm. 169, 174 (Chk. 2001); Bank of the FSM v. O’Sonis, 8 FSM Intrm. 67, 69 (Chk. 1997); Black Micro Corp. v. Santos, 7 FSM Intrm. 311, 315-16 (Pon. 1995). Under the law of agency, a principal is liable not just for the expressly authorized acts and contracts of his agent, but also, with respect to third parties who deal with his agent in good faith, for actions his agent takes with apparent authority to act on the principal’s behalf. Apparent authority may be implied where the principal passively permits the agent to appear to a third person to have authority to act on his behalf. Kosrae Island Credit Union v. Obet, 7 FSM Intrm. 416, 419 n.2 (App. 1996). Phillip is thus liable on the promissory note unless some other principle of law allows him to avoid liability.

III. Liability on the Note

     Phillip correctly notes that the two causes of action on which he has already prevailed are tort claims. He also correctly notes that the general purpose of tort law is to afford a victim compensation for the injuries or damages sustained as the result of another’s unreasonable or socially harmful conduct. See Atesom v. Kukkun, 10 FSM Intrm. 19, 23 (Chk. 2001); Primo v. Refalopei, 7 FSM Intrm. 423, 430 n.13 (Pon. 1996); Asher v. Kosrae, 8 FSM Intrm. 443, 449 (Kos. S. Ct. Tr. 1998). In other words, a purpose of tort law is to make the victim whole. Cf. Moses v. M.V. Sea Chase, 10 FSM Intrm. 45, 50 (Chk. 2001) (compensatory damages are to make the victim whole again).

     Phillip has prevailed on his negligent misrepresentation (also called deceit) cause of action. A measure of damages for this tort cause of action employs the benefit of the bargain rule when damages can be proved with reasonable certainty. W. Page Keeton, Prosser and Keeton on the Law of Torts § 110, at 769 (5th ed. 1984). Under this principle, the insurer would be entitled to its premium, which would be set off against what it owed its insured. A setoff is a debtor’s right to reduce the amount of a debt by any sum the creditor owes the debtor, or the counterbalancing sum owed by the creditor. Bank of the FSM v. Asugar, 10 FSM Intrm. 340, 342 (Chk. 2001) (banks generally have a common law right to a setoff against depositors).

     If the insurer had done what Phillip believes it should have done ) investigated and promptly paid him for the value of the damaged pickup sometime in the second half of 1999 ) the insurer would have deducted the premiums that were in arrearage at the time of payment. Since the July monthly payment

[12 FSM Intrm. 470]

on the note had not been made, the note was in default and the full premium balance would have been due by any time the insurer could have been expected to pay Phillip’s claim. (Even under Phillip’s position that he was not liable on the note, since the full premium payment had not been made by August 24, 1999, it could have been deducted as well anytime after that date. Since the initial denial was in September, 1999, presumably the earliest date at which Phillip could have expected payment, even without the note, the premium would still have been set off against his claim.) The premium note thus would not have borne any interest past that date. Any interest on the note will therefore run from June 14, 1999 to whatever date in 1999 that the insurer should have paid on the claim. That date is a factual issue to be determined at trial.

     When a party’s motion for summary judgment has been denied as a matter of law and it appears the nonmoving party is entitled to judgment as a matter of law, the court may grant summary judgment to the nonmoving party in the absence of a cross motion for summary judgment if the original movant has had an adequate opportunity to show that there is a genuine issue and that his nonmoving opponent is not entitled to judgment as a matter of law. National Offshore Tuna Fisheries Ass’n, 10 FSM Intrm. at 174-75; Truk Continental Hotel, Inc. v. Chuuk, 6 FSM Intrm. 310, 311 (Chk. 1994). Phillip had an adequate opportunity to respond to the defendants’ brief concerning the agency question, and, in fact did respond to the other points discussed in the defendants’ brief but remained silent on the agency issue. There being no genuine issue of material fact, the defendants are granted summary judgment that Phillip is liable for the note’s principal.

     Phillip never canceled the policy nor has he sought rescission of the insurance contract which, if granted, would absolve him from liability for the premium and could even entitle him to return of the premium paid. The policy was written for a one-year period and has ended so it is probably too late to seek rescission now. Additionally, Phillip, under a rescission theory, would not be able to obtain the damages he now seeks.

     Under one reading of the pleadings, it appears that Phillip may be seeking, without articulating it clearly, reformation of the contract under a theory of mutual mistake, see 43 Am. Jur. 2d Insurance § 374 (rev. ed. 2003), or mistake or fraud of the insurance agent, id. § 372, in his breach of contract claim. Reformation is an equitable doctrine that allows a court to conform a contract (in this case, an insurance contract) to the true agreement between the parties rather than the agreement as written. See generally Irwin J. Schifres, Annotation, Reformation of Insurance Policy to Correctly Identify Risks and Causes of Loss, 32 A.L.R.3d 661 (1970). If so, full payment of the premium would be a part of any recovery on this claim.

IV. Phillip’s Relief

     Phillip asks for a decree canceling the promissory note and the entry of an order on his summary judgment motion awarding him compensation for the full value of the totaled pickup, prejudgment interest at the statutory rate, attorney’s fees as the prevailing party, and loss of rental income from the vehicle from the time the insurer should have paid his claim to date. Summary judgment cannot be granted on these claims.

A. Pickup’s Damage

     There appears to be a genuine issue of material fact whether the pickup’s damage was total, and,

[12 FSM Intrm. 471]

assuming that it was, what the amount of these total damages were,5 although the general range or upper limit would seem well-known (the pickup’s purchase price). Presumably, even if the damage were total, the wreck would retain some salvage value (for undamaged spare parts, for instance) that may have to be taken into account. (Often this is done by the insurer paying out the claim and taking title to the vehicle.)

B. Prejudgment Interest

     Phillip has not offered any basis for an award of prejudgment interest. It remains to be shown whether prejudgment interest can be an element of damages for any cause of action for which Phillip has, or may, obtain judgment. The court has previously allowed prejudgment interest on conversion claims. Bank of Hawaii v. Air Nauru, 7 FSM Intrm. 651, 653 (Chk. 1996); Bank of Guam v. Nukuto, 6 FSM Intrm. 615, 616 (Chk. 1994) (conversion involving breach of fiduciary duty). Presumably, the prejudgment interest sought is to be levied only on the pickup’s value that the insurer should have paid for sometime before the end of 1999. If the pickup’s damage is total, this would appear to be a liquidated claim in the sense that it is capable of ascertainment by mathematical computation, see Black’s law Dictionary 839 (5th ed. 1979), and thus a sum on which prejudgment interest might rightfully be sought. Cf. Jonas v. Kosrae, 10 FSM Intrm. 441, 445 (Kos. S. Ct. Tr. 2001) (pre-judgment interest is rarely awarded as an element of damages for tort claims since such claims are generally "unliquidated" and courts will not award interest on unliquidated monetary claims); but see Malem v. Kosrae, 9 FSM Intrm. 233, 236 (Kos. S. Ct. Tr. 1999) (prejudgment interest recoverable in contract cases where the plaintiff is entitled to recover a liquidated sum of money). The exact value and date it should have been paid are factual determinations not yet made and are in dispute. Once calculated and the premium and any interest deleted, prejudgment interest at the statutory rate will be awarded on the balance.

C. Attorney’s Fees

     The court is generally without authority to award attorney’s fees in the absence of a specific statute or contractual provision allowing recovery of such fees. FSM Telecomm. Corp. v. Worswick, 9 FSM Intrm. 6, 18 (Yap 1999) (each party will normally bear its own attorney’s fees); Coca-Cola Beverage Co. (Micronesia) v. Edmond, 8 FSM Intrm. 388, 392 (Kos. 1998); Semens v. Continental Air Lines, Inc. (II), 2 FSM Intrm. 200, 208 (Pon. 1986) (rule that each party to a suit normally must pay its own attorney’s fees is the proper foundation upon which the system in the FSM should be built). When no statute or contractual provision has been put forth to support an attorney’s fees award to a prevailing party, the basis for an award must be found in some exception to the general rule that the parties must pay their own attorney’s fees. Such an exception is where attorney’s fees are awarded as an element of costs when it is shown that such fees were traceable to the opposing party’s unreasonable or vexatious actions, Salik v. U Corp., 4 FSM Intrm. 48, 49-50 (Pon. 1989) (no fees awarded), or when a party acts vexatiously, or in bad faith, presses frivolous claims, or employs oppressive litigation practices, Semens (II), 2 FSM Intrm. at 208. Courts have permitted attorney’s fee awards under this exception when the plaintiff has proven the defendant’s breach of the implied covenant or implied duty of good faith and fair dealing (also called the bad faith tort). See, e.g., Newport v. USAA, 11 P.3d 190, 204 (Okla. 2000); Barnes v. Oklahoma Farm Bureau Mut. Ins. Co., 11 P.3d 162, 178-82 (Okla. 2000). If Phillip were to prevail on his bad faith tort claim against the insurer, the insurer would be liable to him for reasonable attorney’s fees that are proximately caused by the bad faith conduct. 44A Am. Jur. 2d Insurance § 1737, at 213 (rev. ed. 2003). That cause of

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action has not yet been adjudicated. Its adjudication must await trial as it rests on a factual basis which must be proven.

     In another narrowly drawn exception to the general rule that the parties will bear their own attorney’s fees, attorney’s fees have also been awarded as part of costs when a defendant has breached her fiduciary duty to the plaintiff. Nukuto, 6 FSM Intrm. at 617-18 (conversion by bank employee). Phillip’s breach of fiduciary duty claim is still pending and has not yet been adjudicated either. An award of attorney’s fees, based on prevailing on either of these two tort claims or on the Salik and Semens (II) principles, will have to await proof and adjudication at trial.

D. Lost Rental Income

     Any right to loss of rental income is, in part, also dependent on factual proof. Phillip should be prepared to show, in order to prove these damages, that all other similar available vehicles were rented and that the business had to turn away customers who would otherwise had rented the damaged pickup, and the number of days it would have been rented. A long-term, ongoing business might show this by comparing the average of the total rental days of all pickups combined for each month before the pickup was damaged with the average total rental days for each month after the accident. But since the pickup rental business had apparently been in existence for less than two months when the accident occurred, any such comparison may be too speculative for a court to determine and award lost income. "Under the traditional ‘new business rule,’ which applies to any business without a history of profits, it has been recognized that evidence of expected profits from a new business is too speculative, uncertain, and remote to be considered and does not meet the legal standard of reasonable certainty." 22 Am. Jur. 2d Damages § 627, at 688 (rev. ed. 1988) (footnote omitted). But lost profits can be recovered by a new business when "it is possible to show, by competent evidence and with reasonable certainty, that profits would have been made in the particular situation, and the amount of those profits." Id. at 689.

     More importantly, any lost rental income awarded would be reduced by the amount that the plaintiff would have spent on the pickup’s maintenance, and possibly for other overhead expenses. "The proper measure of damages resulting from a business tort is lost profits as opposed to lost gross receipts." Id. § 640, at 702. Furthermore, any recovery here for lost rental income may be limited in time until that point at which Phillip could have obtained a replacement pickup for his rental business since "if a plaintiff could have avoided the loss . . . by purchasing a substitute item, profits are not the measure of the plaintiff’s recovery even though profits were in fact lost." Id. § 637, at 700.

     Consequential damages, of which economic loss such as lost profits may be an example, are available for negligent misrepresentation (deceit) claims if reasonably foreseeable. Keeton, supra, § 110, at 767. They are subject to the principles and restrictions just discussed and thus not awardable until the factual issues are resolved.

E. Cancellation of Promissory Note

     Phillip, relying on FSM Development Bank v. Bruton, 7 FSM Intrm. 246 (Chk. 1995), also asks for cancellation of the promissory note. In Bruton, the promissory note was the instrument evidencing a loan which would have been paid off if the bank had purchased the loan insurance that the borrowers had contracted and paid the premium for. Since the bank had failed to buy the insurance or inform the borrowers of its failure and since one of the borrowers died and the insurance, if purchased, would have then paid off the loan, the promissory note was canceled, leaving the borrowers with no further liability for the loan. Id. at 251. The premium was not returned.

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     Similarly, in this case, the premium will not be returned. It was paid by the note and the note will be honored. Like Bruton, this will put the parties in the position they should have been in but for the opposing party’s tortious act(s).

V. Further Proceedings

      Accordingly, the following issues appear to be left for resolution: (1) the plaintiff’s first (breach of contract), second (implied covenant of good faith and fair dealing claim), and fourth (breach of fiduciary duty) causes of action; (2) the amount of damages due the plaintiff, including a) the total damage to pickup, b) whether plaintiff can recover prejudgment interest and on what date it should start, c) whether plaintiff can recover attorney’s fees, and the amount, if any, and d) whether the defendants are liable for loss rental income and the amount, if any; and (3) the amount of the interest due on the counter-plaintiff’s setoff.

     The court will set a pretrial conference in early August (probably the second week), at which a trial date shall be set. Naiten Phillip shall appear personally as shall a representative(s) of the defendants with authority to settle. Counsel should appear prepared to state what issues remain for trial, what facts may be stipulated to, who they expect to call as witnesses at trial and a brief summary of what each will testify to, and expected length of trial.

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________________________________

Footnotes:

1. The points and authorities cited in this filing are mostly eight California intermediate appellate court cases reported only in the California Appellate Reports and in West’s California Reporter, neither of which is available in the FSM. These cases, from Phillip’s description of them, appear to only support positions on which Phillip has already prevailed and are thus not relevant to the issues to be briefed. When citing to sources not available in FSM libraries, counsel are expected to provide the court and opposing counsel with copies.

2. This factual recitation corrects (in response to Phillip’s motion asking for clarification) the court’s earlier gloss of undisputed facts in its January 27, 2004 order that one payment had been made on the promissory note. Compare with Phillip v. Marianas Ins. Co., 12 FSM Intrm. 301, 304 (Pon. 2004).

3. The reason for the extra 99¢ is unexplained. Also unexplained is why the insurance policy says $7,975, while the earlier application/binder, the receipt, and the invoice all read $7,976.

4. This sum had, of course, had already been paid on May 22, 1999.

5. For instance, the court notes, without taking any position, that under the insurance contract total damage would equal the replacement cost less depreciation.