Strategies, Challenges, and Answers

“Reasonable Rental Cost” Not “Financing Cost” Is The Proper Measure Of Damages For Loss Of Use

Disputes over the value of loss of use are common. Sometimes these disputes are small such as the loss of use of a car following an auto accident. Other times, the dispute involves a much bigger piece of equipment.

For example, Asphalt Products Company (APCO) arranged to sell a used bulldozer tractor to All Star Ready Mix. The agreed sales price was $467,000. The sale was memorialized in a written “Intent to Purchase”. APCO then transferred the use of the tractor to All Star. It immediately put the tractor to use, 22 hours a day, in All Star’s concrete mixing business.

A lender gave All Star a letter of commitment that contemplated a monthly payment of $10,427.17. All Star paid the lender $10,000 in earnest money. But three months later, the financing fell through. APCO had to repossess the tractor.

The parties disagreed what if anything All Star owed APCO for the use of the tractor. APCO said that the appropriate measure for loss of use damages was the “Reasonable Rental Cost” of a similar tractor. APCO proved that that was $18,000 per month. APCO argued also said that it should be compensated for “overtime” use of the tractor.

All Star disagreed. If it owned anything at all, All Star said that it should pay no more than then monthly amount it would have paid had it obtained financing, namely $10,400 per month. Plus it argued that APCO should refund the $10,000 earnest money it paid to the lender. When the dispute didn’t settle, the matter went to court.

The trial judge sided with All Star on all the issues. Instead of awarding $18,000 per month for loss of use, the judge awarded $10,400 per month and ordered APCO to set off the $10,000 in earnest money.

APCO was none too happy. It appealed the damages portion of the verdict. In Asphalt Prods. Corp v. All Star Ready Mix, Inc, 111 Nev. 799, 898 P.2d 699 (1995), the Nevada Supreme Court completely overturned the trial judge’s decision. The Court said that trial judge had not justified how he reached the decision that $10,400 per month was the proper rental amount. It went on to say that the trial judge ignored substantial evidence that the rental amount was much higher. Furthermore, the Supreme Court said that if All Star wanted its earnest money back, it should take it up with the lender and not APCO. In the end, the Nevada Supreme Court sent the case back for a new trial on what the true measure of damages should have been.

If you have a question about Nevada law and loss of use damages, please contact Mike Mills at Mills & Associates 702-240-6060×114 to discuss your questions.