Matt Hughes

Real Estate Transactions

11/7/2017
Problem 2 Supplement p381

There are a lot of unknowns in this problem so I note assumptions as I go along.

A(1). In this instance, I would advise SS to 1) sell to GG at $38,000 and (2) sue BB for
breach of contract, claiming damages of $7k plus incidental/consequential damages
(unknown and subject to assumptions well outside of the hypothetical). He could try and
compel specific performance but its really unlikely that the court will force BB to buy
property. If the shoe were on the other foot, BB could probably compel the sale through
specific performance (land is special etc.) but I have a hard time imagining a factual
scenario where a court is willing to supervise the mandated purchase of real property, on
threat of contempt, to somebody who quite apparently is unable or unwilling to meet the
financial obligations involved.
1) Because BB repudiated the contract by declaring her intention to breach, she is
liable for the breach. But SS is obligated in this instance to mitigate his losses
before claiming damages. If SS has a ready, willing and able buyer in the wings
but declines to sell despite a steadily falling market, SS would have a fair amount
of difficulty arguing 50k in damages. Without a duty to mitigate his damages, he
could just as easily sit on the property until it hits $20k or $10k and crank the
damages up accordingly.
a. SS does in fact have another buyer lined up. So, in order to minimize his
own exposure and forestall BBs inevitable unjust enrichment/failure-to-
mitigate defense, I would advise him to sell to GG and limit his claim for
damages to the difference between the K value and the sale price, minus
the deposit paid.
i. The general rule is that the seller may keep the buyers deposit
even though forfeiture is not expressly prescribed by the K, and
even though the sum exceeds the sellers provable damages. In this
basis, SS may keep BBs deposit.
2) There are two competing claims re. the proper measure of damages here.
a. SS would argue that the measure is the difference in the contract price
(50k) and the ultimate sale price (38k) minus avoided expenses and any
amount already paid towards the K, plus incidental/consequential
damages. Under this measure, he would claim 7k in damages: the 50k K
price minus the 38k sale price (12k) minus the 5k deposit (total 7k plus
incidental and consequential.) This is at best arguable. Courts typically
measure breach damages from the time of the breach and not the time of
resale. This is sort of unfair to SS because it leaves him at the whim of
market in the event of a breach, but here the remedy is not inadequate nor
the difference so vast as to be unjust, hard stop. Consider also the
possibility that absent that rule, SS could just wait until the market
bottoms out and claim vastly higher actual and consequential damages
this is manifestly unjust to buyers, even assuming breach.
b. BB would argue that the measure of damages is the difference in the K
price (50k) and the value at the time of her breach (40k) minus her
deposit, for a total of 5k. This is a more accurate measure of the damages.
 Matt Hughes
Real Estate Transactions
11/7/2017
While Kuhn awarded breach damages from the time of resale, the decision
was atypical and courts generally measure damages from the time of the
breach and not
A(2). SS has a stronger claim for higher damages here. If he is able to show that he was
truly unable to sell the house for more than 30k, he might be able to claim 15k in
damages (again, the difference between the 50k K price and the 30k sale price minus the
5k deposit for a total of 15k) plus incidental/consequential. This is kind of a fact matter
and Im going to assume that SSs inability to sell for over 30k is after a good faith effort
to find a buyer willing to pay over 30. The same mitigation issue presents itself, though;
BB might claim that SS was obligated to sell at 30k in order to mitigate his losses. I
would tend to agree.
(A)(2)(a)(b) In either case, I argue that BBs breach leaves SS in the same
position. Maybe Im being ticky tacky with the language but I am hesitant to
conclude that prospering business executive is necessarily the same as
business savvy. If it were, SS might have a more difficult time arguing that he
was unable to find a willing buyer for the price he was asking. He might have a
better understanding of markets and contracting that undermine his supposed
inability to find a better deal. The same goes for insolvent. SS might be
insolvent for a variety of reasons, including a lack of business savvy. This could
cut either way for him depending on the facts.
B(1)(2) In both cases, I would advise SS to just sell to Nina. While BB is still liable to SS
for breaching the K of sale, his damages would be minimal and perhaps negative. If he
declines to sell for a higher price, the measure of damages (Kprice-FMV) would still
have him up, even moreso because BB already paid him 5k. In this scenario he might not
just be estopped from claiming any damages but he might also be liable for unjust
enrichment having taken BBs 5k deposit. I assume that the K of sale did not include any
language obligating SS to refund BBs deposit in the event that the K isnt completed, so
he should just keep the deposit and sell to Nina.
C(1)(2) Both instances present factual circumstances that arent really countenanced in
the problem so Im assuming a bunch of things.
(1) If the K had made the sale contingent on BBs obtaining financing, and had
she made (or failed to make) a good faith effort to do so, she may be excused
from the K. She may even be able to compel SS to return her deposit (though,
again, the general rule is that sellers may keep a deposit in the event of a
breach absent language to the contrary).
(2) If BB had breached because she was financially distressed, quite sadly she
would probably not be able to roll back the K. Courts do not tend to step in
and save people from their own poor decisions absent unjust consequences.
The sale price (50k) is not so high that damages for breach would be
manifestly unjust to BB. In any event, if she is that abjectly broke, she may
simply be judgment proof. SS could win a case for breach of K and never
collect a cent, and actually might end up in the hole after paying my very high
and very well-deserved fees. If that were the case I would just advise him to
sell to Joan for 60k and be thankful that BB put him in a position to avoid
having to deal with the consequences of her inevitable default.