This summary was computer-generated without any editorial revision. It is not official, has not been checked for accuracy, and is NOT citable.
Facts
P.S.G. Limited Partnership (PSG) sought to recover damages from August Income/Growth Fund VII (AIGF VII) and its assignees after a series of lease and sublease agreements involving a property in Albuquerque, New Mexico, culminated in a foreclosure. PSG, as successor lessor, claimed liquidated damages for unpaid rents and consequential damages after AIGF VII defaulted on sublease payments, leading to a chain of defaults and foreclosure on the property. The dispute centered on whether foreclosure extinguished AIGF VII's contractual obligations under the sublease (paras 1-3).
Procedural History
- District Court of Bernalillo County: The trial court granted partial summary judgment, limiting PSG's potential damages for lost rents to the date of the foreclosure sale and denying its claim for consequential damages (para 4).
Parties' Submissions
- Appellant (PSG): Argued that the liquidated damages clause in the sublease survived the foreclosure and that AIGF VII remained liable for damages until the end of the redemption period. PSG also claimed consequential damages for the loss of its property (paras 4, 14, 17).
- Respondents (AIGF VII, AMI, AMA): Contended that the foreclosure extinguished all rights and obligations under the sublease, including liability for liquidated damages and consequential damages. They argued that PSG's status as landlord and its claims for rents or damages were terminated by the foreclosure (paras 6-7, 18).
Legal Issues
- Did the foreclosure of the mortgage extinguish AIGF VII's liability for liquidated damages under the sublease?
- Was PSG entitled to consequential damages for the loss of its property due to the foreclosure?
- Did the liquidated damages clause in the sublease survive the termination of the lease by foreclosure?
Disposition
- The Supreme Court of New Mexico reversed the trial court's decision limiting damages to the foreclosure date and held that liquidated damages were recoverable until the end of the redemption period (February 3, 1991) (para 22).
- The Court affirmed the denial of PSG's claim for consequential damages based on the sublease (para 22).
- The case was remanded for further proceedings to determine the exact amount of liquidated damages and to address PSG's third-party beneficiary claim (paras 21-22).
Reasons
Per Ransom, C.J. (Franchini and Frost, JJ., concurring):
Liquidated Damages Clause: The Court distinguished between property rights and contract rights under a lease. While foreclosure terminates property rights, it does not extinguish contract rights, including liquidated damages clauses. The clause in the sublease expressly survived termination and allowed PSG to recover damages for unpaid rents until the end of the redemption period (paras 7-15).
Foreclosure and Contractual Obligations: The Court rejected AIGF VII's argument that foreclosure extinguished all obligations under the sublease. It held that the liquidated damages clause became operative upon default, not upon termination, and that PSG's claim was for damages, not rents (paras 11-14).
Consequential Damages: The Court found no express or implied covenant in the sublease requiring AIGF VII to preserve PSG's reversionary interest in the property. The non-recourse provisions in the agreements and the lack of foreseeability of such damages precluded recovery for consequential damages (paras 17-20).
Third-Party Beneficiary Claim: The Court preserved PSG's right to pursue a claim for consequential damages as a third-party beneficiary to the purchase agreement between HDC and AIGF VII, which included a covenant to pay the mortgage (para 21).
Conclusion: The Court emphasized that foreclosure does not terminate liability for breach of express covenants or liquidated damages clauses in a lease. It remanded the case for further proceedings to determine the amount of liquidated damages and to address PSG's third-party beneficiary claim (para 22).