Remedies and Real Estate Transactions
1. Damages: vendor will either keep the property or sell it to someone else.
2. Specific Performance: Vendor conveys it to the contract purchaser who will pay the full agreed price.
3. Loss of Bargain Damages/Benefit of Bargain/Compensatory Damages : The difference between the contract price and the market value of the land on the date of breach (generally. actual resale price is used sometimes). Available to the buyer if the property’s value is higher than the contract price. Available to the seller if the property’s value is lower than the contract price.
• Donovan v. Brachstadt (NJ 1982): When the seller was unable to obtain good title to the property, the sales contract was breached. Buyer sought to recover incidental damages for the difference in interest rates between the contract and the other property he ended buying. A buyer of realty may recover incidental damages for the seller’s breach (difference between the FMV and the contract price).
– American Rule: Can get benefit of the bargain damages simply for breach of the contract. There is no good faith/bad faith distinction.
– English Rule: No compensatory damages unless there is a willful breach. If there is no willful breach, can only get restitution. The breach must be related to defective title.
4. Consequential Damages: For actual costs incurred. Subject to a “reasonably foreseeable” test. See note 2, page 49 for examples.
5. Specific Performance: Demands actual performance.
• Centex Homes Corp. v. Boag (NJ 1974): The equitable remedy of specific performance is not available for the enforcement of a contract for the sale of a condominium. Condominiums are not special or unique like land, and the damages remedy is adequate.
• If there are precedent or concurrent conditions that have not been fulfilled or if the plaintiff is in substantial breach, specific performance and other remedies will be denied.
• Vendee’s and Vendor’s Liens (to secure earnest money or payment of the purchase price; transfer to a good faith purchaser will defeat the lien since contracts are not generally recorded).
6. Liquidated Damages: Contracts often contain clauses that allow the vendor to retain the earnest money (deposit applied to purchase price upon closing; amount highly negotiable) as liquidated damages if the purchaser breaches. Does such a clause preclude assertion of other remedies?
• Mahoney v. Tingley (Wash. 1975): Buyer and Seller entered into an earnest money agreement with a liquidated damages clause stating that seller could sue for specific performance upon breach or retain the earnest money as liquidated damages. Buyer breached and seller sought damages, contending that the liquidated damages clause constituted a penalty because it was substantially below the actual penalty. The court rejects this argument since the clause was negotiated and relied upon, and specific performance was not possible since seller sold the property to another party. A seller who chooses to utilize the device of liquidated damages, considering its certainty (not risky) and the reliance by the buyer upon the limitation, cannot avoid its effect.
• In Texas, one must specifically limit the remedies in the K. One cannot be vague. Use language such as “as sole and exclusive remedy”.
• Reasonableness of the amount of liquidated damages may be judged at the time the K was entered into or at the time of the breach.
• Some states have statutes that make liquidated damages a percentage o f the sales price.
• If contract gives seller election of remedies and buyer only earnest money back, it is illusory. The solution is to make the contract an option K with separate consideration than the earnest money.
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