Vines v. Orchard Hills, Inc.

• Decision Date: 15 July 1980
• Citation: 181 Conn. 501,435 A.2d 1022
• Court: Connecticut Supreme Court
• Parties: Euel D. VINES et al. v. ORCHARD HILLS, INC.

Page 1022

435 A.2d 1022

181 Conn. 501

Euel D. VINES et al. v. ORCHARD HILLS, INC.

Supreme Court of Connecticut.

Argued April 11, 1980.

Decided July 15, 1980.

Walter A. Stewart, Jr., New Canaan, for appellant (defendant).

Joel Schlossberg, Westport, for appellees (plaintiffs).

Before COTTER, C. J., and BOGDANSKI, PETERS, HEALEY and PARSKEY, JJ.

PETERS, Associate Justice.

This case concerns the right of purchasers of real property, after their own default, to recover moneys paid at the time of execution of a valid contract of sale. The plaintiffs, Euel D. Vines and his wife Etta Vines, contracted, on July 11, 1973, to buy Unit No. 10, Orchard Hills Condominium, New Canaan, Connecticut, from the defendant Orchard Hills, Inc. for $78,800. On or before that date, they had paid the defendant $7880 as a down payment toward the purchase. Alleging that the sale of the property was never consummated, the plaintiffs sought to recover their down payment. The trial court, I. Levine, J., overruled the defendant's demurrer to the plaintiffs' amended complaint; subsequently, after a hearing, the trial court, Novack, J., rendered judgment for the plaintiffs for $7880 plus interest. The defendant's appeal maintains that its demurrer should have been sustained, that its liquidated damages clause should have been enforced, and that evidence of the value of the property at the time of the trial should have been excluded.

The facts underlying this litigation are straightforward and undisputed. When the purchasers contracted to buy their condominium in July, 1973, they paid $7880, a sum which the contract of sale designated as liquidated damages. ¹ The purchasers decided not to take title to the condominium because Euel D. Vines was transferred by his employer to New Jersey; the Vines so informed the seller by a letter dated January 4, 1974. There has never been any claim that the seller has failed, in any respect, to conform to his obligations under the contract, nor does the complaint allege that the purchasers are legally excused from their performance under the contract. In short, it is the purchasers and not the seller whose breach precipitated the present cause of action.

In the proceedings below, the purchasers established that the value of the condominium that they had agreed to buy for $78,800 in 1973 had, by the time of the trial in 1979, a fair market value of $160,000. The trial court relied on this figure to conclude that, because the seller had gained what it characterized as a windfall of approximately $80,000, the purchasers were entitled to recover their down payment of $7880. Neither the purchasers nor the seller proffered any evidence at the trial to show the market value of the condominium at the time of the purchasers' breach of their contract or the damages sustained by the seller as a result of that breach.

The seller's principal argument on this appeal is that the trial court improperly disregarded the parties' valid liquidated damages clause. That claim is pursued both by a renewal of the seller's position that the purchasers' complaint was demurrable and by an argument on the merits of the evidence presented at the trial. As to the demurrer, now denominated a motion to strike by Practice Book, 1978, § 152, we find no error. Whether a party may recover payments made despite its own default and despite its agreement to a liquidated damages clause is a question that presents issues of fact which transcend the legal sufficiency of the complaint, as the trial itself demonstrated. Putnam, Coffin & Burr, Inc. v. Halpern, 154 Conn. 507, 517, 227 A.2d 83 (1967); 1 Stephenson, Conn.Civ.Proc. § 119b (1970). The trial court was, however, in error in its conclusion that the evidence before it was sufficient to sustain a judgment in favor of the purchasers.

The ultimate issue on this appeal is the enforceability of a liquidated damages clause as a defense to a claim of restitution by purchasers in default on a land sale contract. Although the parties, both in the trial court and here, have focused on the liquidated damages clause per se, we must first consider when, if ever, purchasers who are themselves in breach of a valid contract of sale may affirmatively invoke the assistance of judicial process to recover back moneys paid to, and withheld by, their seller.

I

The right of a contracting party, despite his default, to seek restitution for benefits conferred and allegedly unjustly retained has been much disputed in the legal literature and in the case law. See 5A Corbin, Contracts §§ 1122-1135 (1964); Dobbs, Remedies § 12.14 (1973); 1 Palmer, Restitution, c. 5 (1978); 12 Williston, Contracts §§ 1473 through 1478 (3d Ed. 1970); 5 Williston, Contracts § 791 (3d Ed. 1961); Lee, "The Plaintiff in Default," 19 Vand.L.Rev 1023 (1965-66); Talbott, "Restitution for the Defaulting Buyer," 9 W.Res.L.Rev. 445 (1958); annot., "Vendee's Recovery of Purchase Money," 31 A.L.R.2d, pp. 8-131 (1953). Although earlier cases often refused to permit a party to bring an action that could be said to be based on his own breach; see, e. g., Hansbrough v. Peck, 72 U.S. (5 Wall.) 497, 506, 18 L.Ed. 520 (1867); Wheeler v. Mather, 56 Ill. 241, 246-47 (1870); Miller v. Snedeker, 257 Minn. 204, 217-18, 101 N.W.2d 213 (1960); Ketchum & Sweet v. Evertson, 13 Johns. 359, 365 (N.Y.1816); Dluge v. Whiteson, 292 Pa. 334, 335-36, 141 A. 230 (1928); many of the more recent cases support restitution in order to prevent unjust enrichment and to avoid forfeiture. See, e. g., Hook v. Bomar, 320 F.2d 536, 541 (5th Cir. 1963); Amtorg Trading Corporation v. Miehle Printing Press & Mfg. Co., 206 F.2d 103, 108 (2d Cir. 1953); Honey v. Henry's Franchise Leasing Corporation, 64 Cal.2d 801, 803, 52 Cal.Rptr. 18, 415 P.2d 833 (1966); Freedman v. Rector, Wardens & Vestrymen of St. Matthias Parish, 37 Cal.2d 16, 20, 230 P.2d 629 (1951); Haas v. Crisp Realty Co., 65 So.2d 765, 768 (Fla.1953); Nichols v. Knowles, 87 Idaho 550, 556, 394 P.2d 630 (1964); Graves v. Cupic, 75 Idaho 451, 456-59, 272 P.2d 1020 (1954); Woodliff v. Al Parker Securities Co., 233 Mich. 154, 156, 206 N.W. 499 (1925); Newcomb v. Ray, 99 N.H. 463, 467, 114 A.2d 882 (1955); Massey v. Love, 478 P.2d 948, 950-51 (Okl.1971); DeLeon v. Aldrete, 398 S.W.2d 160, 163-64 (Tex.1966); Perkins v. Spencer, 121 Utah 468, 475-77, 243 P.2d 446 (1952); Schwartz v. Syver, 264 Wis. 526, 531, 533, 59 N.W.2d 489 (1953); and see Restatement (Second), Contracts § 388 (Tent.Draft No. 14, 1979).

A variety of considerations, some practical and some theoretical, underlie this shift in attitude toward the plaintiff in breach. As Professor Corbin pointed out in his seminal article, "The Right of a Defaulting Vendee to the Restitution of Instalments Paid," 40 Yale L.J. 1013 (1931), the anomalous result of denying any remedy to the plaintiff in breach is to punish more severely the person who has partially performed, often in good faith, than the person who has entirely disregarded his contractual obligations from the outset. Only partial performance triggers a claim for restitution, and partial performance will not, in the ordinary course of events, have been more injurious to the innocent party than total nonperformance. Recognition of a claim in restitution is, furthermore, consistent with the economic functions that the law of contracts is designed to serve. See Kessler & Gilmore, Contracts, pp. 4-6 (1970). The principal purpose of remedies for the breach of contract is to provide compensation for loss; see Restatement (Second), Contracts, c. 16, Introductory Note (Tent.Draft No. 14, 1979); Farnsworth, "Legal Remedies for Breach of Contract," 70 Colum.L.Rev. 1145 (1970); and therefore a party injured by breach of contract is entitled to retain nothing in excess of that sum which compensates him for the loss of his bargain. Indeed, there are those who argue that repudiation of contractual obligations is socially desirable, and should be encouraged, whenever gain to the party in breach exceeds loss to the party injured by breach. Birmingham, "Breach of Contract, Damage Measures, and Economic Efficiency," 24 Rut.L.Rev. 273, 284 (1970); Posner, Economic Analysis of Law § 4.9, pp. 89-90 (2d Ed. 1977). To assign such primacy to inferences drawn from economic models requires great confidence that the person injured by breach will encounter no substantial difficulties in establishing the losses for which he is entitled to be compensated. It is not necessary to push the principle of compensatory damages that far, or to disregard entirely the desirability of maintaining some incentives for the performance of promises. A claim in restitution, although legal in form, is equitable in nature, and permits a trial court to balance the equities, to take into account a variety of competing principles to determine whether the defendant has been unjustly enriched. "Even though we adhere to the rule that only compensatory damages are to be awarded, there are other important questions of policy to be considered. One is whether aid is to be given to one who breaches his contract, particularly when the breach is deliberate and without moral justification. Another is whether restitution can be administered without leaving the innocent party with uncompensated damages." 1 Palmer, Restitution § 5.1, p. 574 (1978).

Recognition that there are circumstances under which a defaulting purchaser may be entitled to restitution for benefits conferred upon the innocent seller of land is consistent with parallel developments elsewhere in the law of contracts. Judicial resistance to enforcement of forfeitures has of course long been commonplace, particularly with regard to contract clauses purporting to liquidate damages. See 5 Corbin, Contracts § 1058 (1964); 5 Williston, Contracts § 788 (3d Ed. 1961). Despite the deference afforded by nineteenth-century courts to freedom of contract in other areas; see Weisbrod, The Boundaries of...