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Keywords

contractbreach of contractplaintiffdefendantdamagesappeal
contractplaintiffdefendantdamagesappealtrialrespondentjury trial

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Smith v. Mady, 146 Cal.App.3d 129, 194 Cal.Rptr. 42

Facts

In September 1980, plaintiffs and defendants entered into a written agreement for the sale of a residence for $205,000, with the sale expected to close in December 1980. However, the defendants defaulted, and the sale did not occur. Shortly after the breach, plaintiffs sold the property to third parties for $215,000. The plaintiffs then sued for breach of contract, claiming consequential damages incurred due to the default.

The essential facts are not in dispute. In September of 1980, plaintiffs and defendants entered into a written agreement by which defendants were to purchase respondent plaintiffs' residence for a purchase price of $205,000. The sales escrow was to close in early December of 1980. However, defendants defaulted and the sale did not take place. On December 7, 1980, within a few days after the expected close of escrow and breach by defendants, plaintiffs entered into another contract to sell the property to third parties. Under this second sales agreement, the purchase price was $215,000.

Issue

Whether a defaulting purchaser of real property is entitled to credit, against damages from his default, the increase in proceeds of a subsequent, but rapid, resale at a higher price.

The sole issue is whether a defaulting purchaser of real property is entitled to credit, against damages from his default, the increase in proceeds of a subsequent, but rapid, resale at a higher price.

Rule

Under Civil Code section 3307, the detriment caused by the breach of an agreement to purchase real property is deemed to be the excess of the amount due to the seller under the contract over the value of the property. Additionally, Civil Code section 3300 allows for recovery of other consequential damages incurred as a result of the breach.

Under the provisions of Civil Code, section 3307, ‘The detriment caused by the breach of an agreement to purchase an estate in real property, is deemed to be the excess, if any, of the amount which would have been due to the seller, under the contract, over the value of the property to him.’

Analysis

The court applied the rules from Civil Code sections 3307 and 3300, determining that the increased resale price obtained by the sellers shortly after the breach should be credited against the consequential damages claimed by the sellers. The court emphasized that the resale price established the property's value at the time of breach and that the sellers should not be unjustly enriched by the defaulting purchaser's breach.

We discern no reason to deprive the defaulting purchaser of benefitting from a higher price on resale after continued ownership by seller while crediting the purchaser, as required under Abrams and Sutter, with the value of use to the seller during continued ownership.

Conclusion

The judgment was reversed, and the case was remanded for further proceedings, allowing the defaulting purchaser to receive credit for the increased resale proceeds against the damages awarded to the sellers.

The judgment is reversed and the cause remanded.

Who won?

The defaulting purchasers prevailed in the appeal because the court ruled that they were entitled to a credit for the increased resale proceeds against the damages claimed by the sellers.

Defendants, who were defaulting purchasers under an agreement to buy real property from plaintiff sellers, appeal from a judgment after a non-jury trial.

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