C. Recovery by the Buyer

• Library: South Carolina Damages (SCBar) (2009 Ed.)

C. Recovery by the Buyer

1. Introduction

When a seller of real property unjustly fails or declines to perform his obligations in a land sale contract, the buyer is eligible for three basic remedies: (1) specific performance of the contract, (2) money damages resulting from the breach, or (3) rescission of the contract along with restitution of the earnest money and reasonable expenses.¹⁶³

The choice of remedy for the buyer should depend on the nature and circumstances of the breach. Specific performance may be asserted should the seller be able though unwilling to perform. It is considered an equitable remedy. Because of the unique nature of each parcel of real estate and a general difficulty to assess its value, courts have been reluctant to recognize monetary compensation as an adequate remedy for the loss.¹⁶⁴

In lieu of seeking equitable relief, a buyer may assert an action at law for damages. The formula established to determine the amount of damages where no consideration has been paid is calculated as the difference between the contract price and the fair market value of the property at the time the contract should have been performed.¹⁶⁵ This is known as the "benefit of the bargain" or "loss of bargain" rule. Historically, courts have not imposed loss of bargain damages on the buyer.

2. Breach of Contract

a. General Theory of Recovery

In determining damages, the courts usually follow the classic rule in Hadley v. Baxendale,¹⁶⁶ which states:

Where two parties have made a contract, which one of them has broken, the damages which the other party ought to receive in respect of such breach of contract should be such as may fairly and reasonably be considered either arising naturally, i.e. according to the usual course of things, from such breach of contract itself, or such as may reasonably be supposed to have been in the contemplation of both parties at the time they made the contract, as the probable result of the breach of it.¹⁶⁷

A buyer is not required to "make good on" or show a willingness to perform his obligations of the contract if it becomes obvious that the seller will not perform.¹⁶⁸

b. Proof of Value

The general rule is that the time for determining the land's value is the date of the seller's breach, as opposed to the date of the contract. The process for the valuation of land is similar to that used in condemnation cases. The property owner should be entitled to compensation upon the basis of the most advantageous and profitable use of the land. "In estimating the value of property condemned, all of the uses to which it may be applied, or for which it is adapted, which affect its value in the market, are to be considered, and not merely the condition it is in at the time and the use to which it was then applied by the owner."¹⁶⁹ However, adjoining tracts of land that are not under unity of ownership may not be aggregated for the purpose of increasing compensation for the land taken.¹⁷⁰

Evidence of the cost of labor and materials for improvements is also admissible; however, the total value of the property is based on the whole of the land rather than the sum of its individual parts. Additionally, a property's resale price within a reasonable time after the breach is prima facie evidence of its market value at the time of the breach. "Whether or not the resale occurred at too remote a time after the breach to be considered is a question for the trial court to determine in the exercise of its sound discretion."¹⁷¹

(1) Hofer v. St. Clair ¹⁷²

Buyer brought action against the sellers for breach of three land sale contracts.¹⁷³ Although there was a dispute concerning the business relationship between the sellers, the lower court found that a partnership had existed, that the sellers had breached the contract by failing to convey to the buyer and by conveying to a third party, and that the buyer had suffered monetary damages.¹⁷⁴ On appeal, the sellers contested, among other things, the amount of the award for damages.¹⁷⁵ They asserted that the appreciated appraisal of the property, performed two years after the breach, should not be allowed as evidence to determine the damages.¹⁷⁶ The supreme court disagreed and affirmed all rulings of the lower court, including the assessment of damages calculated in part on the new appraisal.¹⁷⁷

c. Cost of Clearing Title

In some jurisdictions, if the reason for the breach is the seller's failure to convey good title and if the breach can be cured by payments to the lien holder, the required payments may be the proper measure of damages. If sellers propose to use purchase money to remove encumbrances and thereby providing good title, then closing can take place.¹⁷⁸

In Moore v. Maes,¹⁷⁹ the South Carolina Supreme Court stated that if the seller

is unable to convey the full title or the full amount of property which he contracted to sell, and the vendee elects to take that which the vendor has, the court will not permit the vendor to object that he does not have the whole thereof. The court will compel him, if the vendee so chooses, to execute so much of the contract as he is able, allowing the vendee to have an abatement of the purchase price proportionate to the value of the defect in title or deficiency in interest.¹⁸⁰

An attorney must be careful to insert a provision into the sales contract that would make the sale of the property contingent on its suitability as a construction site. Clauses that propose freedom from encumbrances usually refer only to freedom from liens, easements, and other claims by a third party.¹⁸¹

(1) Taylor v. Highland Park Corp. ¹⁸²

The two parties entered into a contract for the sale of property with the contingency that the house be equipped with certain appliances (hot water heater, electric stove, and a refrigerator).¹⁸³ When the seller refused to convey the deed in fee simple and failed to provide the stipulated white goods, the buyer sued for reformation of the contract to abate the purchase price to its legal limit, specific performance of the reformed contract, special damages with interest, and the costs of the action.¹⁸⁴ The seller countered that buyer needed a separate statement for the cause of action for damages.¹⁸⁵ The court ruled only on the nature of the pleadings, concluding that only one cause of action was necessary and that the seller could be held liable to compensate the buyer for the illegal overcharge and the undelivered appliances.¹⁸⁶

(2) Lawson v. Citizens & Southern National Bank of South Carolina ¹⁸⁷

Buyers brought an action for damages for fraud and deceit when they discovered that their new house, which was beginning to sink, sat on a twenty to twenty-five-foot gully that had been filled by stumps and debris, and capped with a layer of clay.¹⁸⁸ The court affirmed the lower court's ruling that combined the benefit of the bargain rule with special damages, thereby awarding the "difference between the value of the lot and improvements at the completion of the dwelling and the value they would have had if the land had been stable."¹⁸⁹

d. Loss of Resale Profits

No South Carolina case directly discusses the issue of whether a buyer may recover the profits that he would have made on a resale of the land had the original contract gone through.¹⁹⁰ There is authority to indicate that these special damages are recoverable if, at the time of the contract, both parties contemplated that profits would be lost if the contract were breached. A practitioner must be diligent in identifying and presenting his client's supporting data and proof.

e. Expenses in Preparation

In anticipation of executing a contract for the sale of land, both the buyer and seller often incur preparatory expenses. In some cases, where such expenses would not have occurred had it not been for the particular contract in question, the buyer is eligible for the recovery of such costs.¹⁹¹

If the purchaser makes improvements on the land in anticipation of the possession, the value of these improvements is included in the value of the land at the time of the breach and it would amount to a double recovery to also allow reimbursement of these expenses.

If the buyer incurs expenses such as title investigation, attorney's fees, etc., and the seller breaches, the buyer can recover the expenses.¹⁹²

f. Damages for the Seller's Delay in Conveyance

The measure of damages for delay is usually based on the circumstances of the case and is often calculated as the difference between the market value of the property at the time of the actual conveyance and the market value at the time of the original date of transfer.¹⁹³

In some states, damages have been limited to reasonable rental value for the time of the delay. In other jurisdictions, courts have awarded damages for delay based on the difference between the market value of the land at the time it was scheduled to be conveyed and its value at the time the conveyance was actually made.¹⁹⁴ Still, in other parts of the country, in certain circumstances, lost profits for delay have been denied altogether.

Special "damages occasioned by the breach of a contract may be recovered where such damages may reasonably be supposed to have been within the contemplation of the parties at the time the contract was made."¹⁹⁵ A court may award special damages resulting from non-conveyance or delay in conveying real property, following the provision established in the sales contract.¹⁹⁶

(1) White v. Felkel ¹⁹⁷

The buyer sued for damages resulting from the seller's failure to convey based on losses buyer incurred from preparation to move and displacement of a sawmill and crew, "no timber to cut[,] and no work to give his regular employees."¹⁹⁸ Remanding the case, the court refused to comment on the specific elements of the damages but stated that a court of equity has jurisdiction to award legal damages "for loss of rents and profits resulting from delay in the conveyance of land, or business loss resulting from delay in the...