Daily Development for
Thursday, January 21, 1999

by: Patrick A. Randolph, Jr.
Professor of Law
UMKC School of Law
Of Counsel: Blackwell Sanders Peper Martin
Kansas City, Missouri

MORTGAGES; FORECLOSURE; DEFAMATION: Mortgage foreclosure announcement involves no matters of public concern, but purely private concern, and consequently if announcement is defamatory injured party may collect special damages without a showing of knowledge of falsity or reckless disregard for the truth.

Touma v. St. Mary's Bank, 712 A.2d 619 (N.H. 1998).

This case is the same that was reported in yesterday's DD, then for the point that the mortgagee must comply with lease covenants if it collects rents under an assignment of rents. Here the case is reported for the issue that actually triggered the dispute the claim by the lessee of foreclosed property that the mortgagee defamed it when it advertised the property for foreclosure sale with a big picture of the lessee's premises, complete with the lessee's very recognizable sign and a statement that there was to be a public auction of "two well known N.H. restaurants."

Both the photo and the heading of the picture identified the property as "T.J. Dooley's II."

In fact T.J. Dooley's, the lessee, was not in default at the time; the lessor/mortgagor was in default. The lessee, which had no notice of the lessor's financial difficulties when it entered into the lease a short time before, was just emerging from a lengthy remodel and had operated at this location only for eight months when this notice was posted. Lessee had another well known and successful restaurant operation under the same name, and this lease was for its expansion to a new location.

The lessee responded by posting large ad in the same newspaper indicating that the restaurant was "alive and well," but still business declined. Lessee sued for defamation. The trial court ruled that the foreclosure notice was defamatory in that it communicated a false impression about plaintiff's business, but that presumed damages were not recoverable in actions such as this and special damages (lost income) had not been proven, citing the fact that business had already been declining before the challenged advertisement.

On appeal: held: Reversed.

The New Hampshire Supreme Court affirmed the ruling that the postings were defamatory, and the ruling that the lessee had failed to prove that it had not shown "special damages" in the form of lost profits. But on the question of whether the jury could award "presumed damages," the court reversed the trial court and remanded.

In defamation law, "presumed damages" are damages the jury awards for the perceived injury to community reputation. It is supposed to be an economic measure, not exemplary or punitive damages, but it these damages specifically are supposed to be the jury's "best guess," and need not be supported by evidence of specific losses. The bank had argued successfully below that this case was an inapproriate case for presumed damages because it involved a proceeding of public interest, a foreclosure. In matters involving public figures or public events, because of concerns of free speech and freedom of press, the courts have rule that presumed damages are available only if the plaintiff shows deliberate falsehood or reckless disregard for truth. The trial court bought the bank's argument, but the Supreme Court held that the issues at stake here were "purely private," and that there was no special public interest in shielding the mortgagee from damages.

The bank further argued that it was privileged in making the advertisement it made, but the court held that any privilege enjoyed by the bank did not extend to naming and picturing the restaurant without also including a statement that the owner of the real estate, and not the restaurant, was suffering the foreclosure.

Comment: This is an unfortunate case because it may serve to discourage mortgagees from making efforts to advertise foreclosure property broadly, which clearly is usually in the best interests of the debtor, at least. But it's hard to argue with the conclusion that the restaurant was defamed by the actions described by the court.

Items in the Daily Development section generally are extracted from the Quarterly Report on Developments in Real Estate Law, published by the ABA Section on Real Property, Probate & Trust Law. Subscriptions to the Quarterly Report are available to Section members only. The cost is nominal. For the last six years, these Reports have been collated, updated, indexed and bound into an Annual Survey of Developments in Real Estate Law, volumes 1 - 6, published by the ABA Press. The Annual Survey volumes are available for sale to the public. For the Report or the Survey, contact Maria Tabor at the ABA. (312) 988 5590 or mtabor@staff.abanet.org

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