Smith v. King
| Decision Date | 24 July 1986 |
| Docket Number | No. 52097-6,52097-6 |
| Citation | 722 P.2d 796,106 Wn.2d 443 |
| Parties | Robert D. SMITH and Barbara G. Smith, Plaintiffs, v. Larry D. KING and Virginia D. King, husband and wife; and William K. Mullinax and Patricia J. Mullinax, husband and wife, Respondents, and Al Smith, a single man, Appellant, and John Edward, a single man, aka John Frankenfield, Respondent. |
| Court | Washington Supreme Court |
Robert Klavano, Tacoma, for respondent.
FACTS OF CASE
This is an action seeking damages for breach of a real estate contract brought by one set of contract purchasers against a later set of contract purchasers after all of their interests had been forfeited out by the owner of the property. The trial court awarded damages to the first contract purchasers on their cross claim against the second contract purchasers who then appealed to the Court of Appeals. The appeal was subsequently transferred to this court. 1
On September 30, 1978, Robert Smith and his wife (owners) sold an apartment house to Larry King, William Mullinax and their wives (first purchasers) by real estate contract (Contract I). The purchase price was zero down, with monthly interest installments of $452 and a balloon payment of $57,000 due on September 30, 1981. During the next 20 months, the first purchasers rented out the apartment units and used the resulting income to pay the On June 6, 1980, the first purchasers resold the property to Al Smith and John Frankenfield (second purchasers) by a second real estate contract (Contract II). As part of the purchase price, the second purchasers expressly assumed and agreed to pay all amounts still due to owners on the first contract ($57,000 plus interest installments). In addition, the second purchasers agreed to pay the following to the first purchasers: $9,000 down, monthly interest installments of $200 and a balloon payment of $24,000 due on June 20, 1986. Thus, the purchase price on Contract II totalled $90,000 plus interest.
required monthly interest installments.
The second purchasers proceeded to move the tenants out and began renovation of the apartment house. Two months later, however, they abandoned the property altogether, leaving all of the units uninhabitable and in need of extensive repair; subsequent vandalism resulted in further damage. As of the time of trial, it would have cost approximately $15,000 to make the premises habitable and income-producing again.
Following their abandonment of the property in August 1980, the second purchasers made no payments either to the owners or to the first purchasers as required by Contract II. Nor did the first purchasers make any payments to the owners as required by Contract I. The owners thereupon brought an action to forfeit out the interests of all the purchasers in the property. In this action, the first purchasers cross claimed against the second purchasers, asking that "if the contract is forfeited, they be awarded judgment against [second purchasers] for their damages, costs and reasonable attorney fees." The second purchasers entered general denials to the cross claim.
On June 26, 1981, the trial court entered judgment for the owners. Pursuant to provisions of Contract I, the interests of all purchasers in the property were forfeited out; the owners were permitted to retain all previous payments made to them as liquidated damages; and the owners were awarded judgment against first purchasers for $1,739.60 as Then on August 6, 1981, the trial court entered judgment for the first purchasers against the second purchasers on the first purchasers' cross claim. The trial court awarded the first purchasers a total of $27,339.60 in damages, which consisted of the following: $24,000, the equivalent of the unpaid principal due to them under Contract II; $1,600 in unpaid interest installments; and $1,739.60 as reimbursement for the attorneys' fees and costs which first purchasers were required to pay the owners by the June 26, 1981 judgment. The trial court also awarded the first purchasers an additional $1,000 as attorneys' fees.
attorneys' fees and costs.
Second purchaser Al Smith appealed, 2 following which the case was transferred to this court for review of the judgment entered on the cross claim.
We are presented with one ultimate issue.
Here contract purchasers of real estate resold the property to second purchasers by another real estate contract; the second purchasers then later breached their contract with the first purchasers causing the first purchasers' interest in the property to be forfeited back to the original owner. Under such circumstances, can the first purchasers recover as damages from the second purchasers an amount equal to the unpaid portion of the purchase price that was payable to them (the first purchasers) under the contract?
CONCLUSION. Unless the real estate contract between the first purchasers and the second purchasers (Contract II) provides otherwise, the first purchasers may sue the second purchasers for actual damages resulting from the latter's breach of contract. The first purchasers are entitled to beplaced in as good a pecuniary position as they would have been in had the second purchasers not breached the contract. Thus, where the second purchasers' breach caused the first purchasers' interest in the subject property to be forfeited, the first purchasers are entitled to damages equal to the unpaid portion of the purchase price payable to the first purchasers under the contract.
This appeal involves a number of objections raised concerning the first purchasers' cross claim for damages against the second purchasers who defaulted. The second purchasers' five principal objections are these: (1) the first purchasers' cross claim actually seeks specific performance rather than damages and, since the first purchasers were never in a position to tender a deed to the second purchasers, they should be precluded from resort to this remedy; (2) damages were improperly computed; (3) the real estate contract (Contract II), by its terms, should be held to preclude the first purchasers from recovering actual damages against the second purchasers; (4) the real estate contract (Contract II) lacks an acceleration clause and, therefore, the first purchasers should not be able to obtain an award of the unpaid contract price prior to its due date; and (5) the first purchasers failed to mitigate damages and, therefore, should not be entitled to any recovery herein. We disagree with these contentions for the following reasons.
(1) The first purchasers are not here asking for specific performance of Contract II. They are instead seeking to be put in as good a pecuniary position as they would have been in had the second purchasers fulfilled their obligations under that contract. Under the facts, no possibility of first purchasers obtaining a double recovery exists. Expressed otherwise, the first purchasers are seeking no more than to recover the benefit of their bargain on Contract II. In a number of cases we have identified the seeking of this type of remedy as a claim for damages. 3
(2) The first purchasers' expected "net gain" or "benefit of bargain" 4 under Contract II was properly calculated. By contract, they purchased the property at issue from the owners for $57,000, excluding interest. They later resold the property to the second purchasers for $90,000. Their expected total gain was thus $33,000. Of this amount, $9,000 was collected from the second purchasers as a down payment on the contract (Contract II). However, $24,000 remained to be paid. In addition, second purchasers still owed the first purchasers $1,600 in unpaid interest installments. To deny the first purchasers recovery of this expected net gain of $25,600 as damages would deny them the benefit of their bargain.
The second purchasers contend that this is not the correct method of computing damages. They argue that the first purchasers' damages should have been determined by taking the difference between the contract price still owing to the first purchasers and the market price of the property at the time of the breach. 5 This method of computing damages, however, necessarily presupposes that the first purchasers were free to dispose of the property following the second purchasers' breach, so that they would be able to realize its market value. 6 Such was not the case here. Rather, the second purchasers' breach of contract caused the first purchasers' entire interest in the property to be forfeited back to the original owners. As a result, the "value" of the property to the first purchasers was reduced to zero; its market value became immaterial. Under these circumstances, therefore, the first purchasers may recover as damages an amount equal to that portion of the purchase price, including the unpaid interest installments, still owing to them under the contract. 7
(3) The second purchasers next claim that Contract II, by its terms, prevents the first purchasers from recovering actual damages from them. This contention is not well taken. Contract II provides that if payment is not made in the time and manner required,
the seller may elect to declare all the purchaser's rights hereunder terminated, and upon his doing so, all payments made by the purchaser hereunder and all improvements placed upon the real estate shall be forfeited to the seller as liquidated damages, ...
(Italics ours.) We have held that this type of clause merely gives the seller the option of seeking liquidated damages upon the purchaser's default. The seller is not limited to this remedy; however, the seller may instead sue for specific performance in the proper case or, as was done here, for actual damages. 8
(4) Nor does the absence of an acceleration clause in Contract II affect the first purchasers' right of recovery. It is argued that because the $24,000 balloon payment is not...
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