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Remedies

Stan and Barb entered into a valid written contract whereby (1) Stan agreed to convey to Barb 100 acres of agricultural land and water rights in an adjacent stream, and (2) Barb agreed to pay Stan $100,000. When Stan and Barb were negotiating the deal, Stan said, “You know I want to make sure that this property will still be used for farming and not developed.” Barb replied simply, “Well, I can certainly understand your feelings.” In fact, Barb intended to develop the land as a resort. The conveyance was to take place on June 1. On May 15, Stan called Barb and told her the deal was off. Stan said that a third party, Tom, had offered him $130,000 for the land. Stan also said that he had discovered that Barb intended to develop the land. On May 16, Barb discovered that Stan has title to only 90 of the 100 acres specified, and that he does not have water rights in the adjacent stream. Barb still wishes to purchase the property. However, it will cost her $15,000 to purchase the water rights from the true owner of those rights. What equitable and contractual remedies, if any, may Barb seek, what defenses, if any, may Stan assert, and what is the likely outcome on each? Discuss.


This answer provided by The Writing Edge, 800-949-PASS, www.writingedge.com. Stan told Barb the deal was off Anticipatory repudiation? When the defendant tells the plaintiff he does not intend to perform his duties under the contract in advance of the date set for performance, it is a form of breach known as an anticipatory repudiation. Here, Stan was due to deliver the deed on June 1 and he told Barb on May 15 the deal was off. Therefore, Stan is in breach. Assuming he has no defenses, to be discussed below, Barb is entitled to relief. Barb’s remedies. Expectation damages: No water rights. Expectation damages provide plaintiff with the benefit of the bargain that performance of the contract would have given. They must be: Foreseeable. The contract specifically promised water rights, so it was foreseeable to Stan that Barb would be harmed if there were no water rights. Unavoidable. Barb must spend $15,000 to obtain the water rights. She is mitigating her loss. Causal. But for Stan’s lack of water rights, Barb would not have to expend $15,000. Certain. The amount Barb must pay to obtain water rights is known. Therefore, if Barb wanted to sue Stan for damages, she could obtain $15,000 so that she could get the water rights. Rescission: 90, not 100 acres � mutual mistake? A mutual mistake can permit the aggrieved party rescission. To be a mutual mistake, the term must be: (a) a basic assumption of the contract; (b) have a material effect on performance; and (c) the plaintiff must not have assumed the risk of the mistake. (a) Basic assumption. Even where the acreage is named, it may not necessarily have been a basic assumption. If the price is stated as a lump sum rather than a per-acre price, and no survey mentioning acreage is included, then the plaintiff will probably not be able to get out of the contract. Here, the acreage was stated as a lump sum. (b) Material effect on performance. Barb’s plans don’t depend on the parcel being 100 acres. She still wants the parcel even though it is 10 acres less. It cannot be said that the reduction in acreage has a material effect. (c ) The party who knows her knowledge of the facts is limited bears the risk of an unfavorable mistake. Barb has less ability to know the true acreage than Stan, so she bears the risk. Conclusion: the acreage is not a mutual mistake that will permit Barb to avoid the contract completely. She might not be entitled to any relief at all. At best, Barb could get is an adjustment in purchase price. Specific Performance Where legal remedies are not adequate to make the plaintiff whole, the plaintiff may enforce performance of the contract where: Legal remedies are inadequate. Land is unique. Therefore, legal remedies are inadequate. Definite and certain contract. All terms are contained in the contract. The acreage can be reformed to reflect the true acreage that Stan is conveying. Feasibility of enforcement. The court’s order must be capable of being obeyed without burdensome monitoring by the court. Here, Stan need only convey title, so the order is easily obeyed and does not require court oversight. Mutuality of performance. Both parties to the contract must have duties to perform. Here, Barb will pay and Stan will convey title. Therefore, there is mutuality of performance. Conclusion: Assuming no equitable defenses (see Stan’s defenses, below), Barb can get specific performance. Acreage � Pro rata price adjustment. Abatement is a deduction from the purchase price when defendant supplies less consideration than he has promised. Generally, abatement is a legal remedy when plaintiff is suing the defendant for breach. However, abatement may also be sought in equity along with specific performance. The court in equity can adjust the purchase price to reflect true value. The purchase price could be adjusted pro rata. The contract was for 100 acres for 100,000. Ten acres is 10,000 of this purchase price. The purchase price can be reduced by $10,000 to reflect the value of the true acreage. Whether the equity court will adjust the price depends on overall fairness, discussed below. Water rights � offset. An offset is a deduction from the consideration owed to defendant when his performance is not a material breach but is less than perfect. Barb is choosing not to treat Stan’s failure to deliver the water rights as a material breach. Under specific performance, Stan will receive the contract price, minus the cost to Barb of completing Stan’s promised performance from another source. Barb can obtain the water rights for $15,000. So the amount Stan is entitled to is offset by $15,000. Even though an offset is normally considered a legal remedy, a court in equity may fashion the appropriate relief, as long as the result in equitable (see Stan’s defenses, fairness). Conclusion: Barb will be able to get specific performance of the contract with Stan. The court can order abatement of the purchase price by the $15,000 it will cost Barb to obtain the water rights.. The court could, but might not, also order an offset for the missing 10 acres. Stan’s defenses. Although Stan and Barb entered into a valid contract, Stan still may have defenses to formation based on (1) his belief Barb promised to keep the land as farm land and (2) he can get a higher sale price from T. (1) Stan believed Barb would keep land as farmland. Fraud? Fraud is a material misrepresentation at the time the contract is formed made with the intent the other party would rely on it. It permits the plaintiff to get out of a contract through rescission. Stan said he wanted to keep the land as farmland. When S later stated that he discovered Barb did not plan to comply, this indicates Stan did in fact believe Barb had made such a promise. However, Barb said only she understood his feelings. Barb made no material misrepresentation at all. Therefore, Stan cannot prove fraud. Stan cannot get out of the contract on this basis. Unilateral mistake? Generally, there is no relief for a unilateral mistake. Here, it appears that Stan made a mistake in thinking Barb had agreed to limit her use of the land as he wished. Only Stan was mistaken, and this type of mistake is granted no relief. However, certain kinds of unilateral mistakes are granted rescission. Where the other party knew of the mistake and snapped up the bargain, the aggrieved party may get out of the contract and have consideration returned to him. Here, it appears Barb knew that Stan believed Barb would retain the land as farmland. The question is whether Barb snapped up the bargain. Generally, this theory requires that plaintiff’s mistake affects the adequacy of defendant’s consideration. S’s mistake arguably has nothing to do with a mistake as to the price of the land. However, it could be said that land that is commercially developed will be far more valuable than land that remains farmland. It is conceivable that Stan priced his land as farmland, and that Barb knew it was far more valuable as a commercial development. Barb’s willingness to go through with the contract even though it is 10 acres short and lacks water shows how valuable Barb finds this land. If Stan can prove Barb snapped up the bargain, taking advantage of what she knew was his mistake, then Stan can get out of the contract using the remedy of rescission. (2) Tom made a better offer � Frustration of purpose? A defendant is discharged from performance under the contract if he can prove: He did not assume the risk of the event. Stan received a higher offer for his land after he entered into the contract for sale with B. Stan did assume the risk of receiving a better offer. This element is not met. The event is outside the control of the parties. A third party made the offer. This is outside the control of Stan and B. The event was unforeseen by either party at the time of formation. Getting another offer for a sale is not the kind of act of God event for which frustration of purpose provides a discharge. The event completely destroys value of contract to defendant. On one hand, Stan could make greater profits if he is able to sell to T. However, Stan will still make a profit if he sells to B. Therefore, this element is not met. Therefore, frustration of purpose will not discharge S’s duty and he is in breach. Conclusion: Stan’s defense of fraud will fail because Barb made no misrepresentation. Stan’s defense of unilateral mistake is unlikely to succeed unless Stan can prove that Barb took advantage of Stan’s mistake about her intended use of the property to obtain an advantageous contract price. Stan’s defense of frustration of purpose will fail because the contract with Barb still has economic value to Stan. Defense to specific performance: Barb’s unclean hands? Where the plaintiff has engaged in unethical or immoral conduct concerning the subject of the contract, the court will deny the plaintiff equity. Here, Stan may claim that Barb misled Stan into believing she would not develop the land. While it is true that Stan did form this belief and that Barb was aware of it, Barb did not really engage in sharp practices to foster S’s belief. She simply said she understood his feelings. This is insufficient for a court to find Barb was unethical. S’s defense of unclean hands will fail. Fairness of remedy. The only problem in Barb enforcing the contract as well as receiving adjustments for the lack of water and missing ten acres might be that Barb is asking the court to force Stan to take a bargain that is substantially less favorable than the one he made. Stan would receive $75,000 rather than $100,000. It could be that $100,000, or even $75,000 was a fair price for farmland, but a bargain price for the development Barb plans. A 25 percent reduction in the contract price may not strike an equity court as fair to Stan. In that case, the court may “split the difference,” and grant an abatement for obtaining the water rights but not an offset for the 10 missing acres.

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