Contract of Sale Remedies and Such

Question 1

What are the four remedies available to the non-defaulting party in the event that the contract for sale is breached?

Answer 1

1. Specific Performance of the Contract
2. Damages
3. Rescission and Retention of the Deposit (seller) or Restitution of the Deposit (buyer)
4. Liens
   Generally, the winner may elect which damages he/she prefers

Question 2

What is Specific Performance?

Answer 2

A judicial order that a breached contract be fulfilled as originally agreed.
Very common in the case of contracts for the sale of land

Question 3

What are different types of damages in a sales contract litigation?

Answer 3

1. Compensatory Damages
   -General Damages
   -Special Damages
2. Punitive Damages

Question 4

Compensatory Damages

Answer 4

Covers the loss the non-breaching party incurred as a result of the breach of contract. The amount awarded is intended to make good or replace the loss caused by the breach.

Question 5

Two Categories of Compensatory Damages

Answer 5

General damages: diff. between the purchase price and the market value of the property at the time of the breach (known as the “loss of the bargain” rule)

Question 6

Two Categories of Compensatory Damages

Answer 6

Special damages: damages resulting as the natural and probable consequence of the breach that breaching party should have anticipated from the facts and circumstances (also called consequential damages)

Question 7

Punitive Damages

Answer 7

Over and above compensation to plaintiff that are awarded to punish D and deter D and others from engaging in similar conduct.

Question 8

In the event that the seller is unable to convey marketable title as stipulated in the agreement, the buyer can recover different types of damages based on the rule that the jurisdiction follows. What are the two possible rules?

Answer 8

English Rule: Buyer can typically recover just her deposit plus interest
American Rule: Buyer can recover both general and special damages in contract

Question 9

What is the deposit?

Answer 9

The deposit is an amount of money paid by the buyer that tells the seller that the buyer is committed to purchasing the property.
If the buyer’s offer is accepted by the seller, the deposit will go toward the down payment and closing costs

Question 10

What are other names for the deposit?

Answer 10

Escrow Money or Earnest Money

Question 11

What should happen when a buyer breaches and the seller’s damages are less than the deposit paid? In other words, should the buyer receive any money back in this situation?

Answer 11

Minority Rule: When a buyer breaches a contract to purchase land, the seller is not entitled to retention of the deposit in excess of damages incurred.
Majority Rule: When a buyer breaches a contract to purchase land, the seller may elect to retain the entire deposit, which courts generally limit to 10 percent of the contract price or less

Question 12

What are liquidated damages clauses?

Answer 12

-Parties agree to the amount of damages in the event of breach of contract.
-Such agreement is generally enforceable, so long as the stipulated amount is not disproportional to the damage actually sustained.
-Sellers electing to retain liquidated damages have more leeway than the 10% limit for deposits

Question 13

What is a lien as a remedy for breach of the sales contract?

Answer 13

Liens are a security interest on property or other assets.
–Where the seller breaches the sales contract, the buyer may place a lien on the property. The seller’s breach creates a debt to the buyer, which is secured by the lien and a court may order that the property be sold in order to repay the deposit.
–Where the buyer breaches the sales contract, the seller may have a lien placed on buyer’s assets to secure unpaid amounts owed under the purchase agreement

Question 14

What is the doctrine of merger in the real estate transaction? (getting into closing/deed)

Answer 14

-Merger provides that when a buyer accepts a deed, the buyer is deemed to be satisfied that all the contractual obligations have been met.
-Thus, the contract merges into the deed, and the deed is deemed the final act of the parties expressing the terms of their agreement
-Because of merger, the buyer can no longer sue the seller on the promises in the contract of sale not contained in the deed, but must sue the seller on the warranties, if any, contained in the deed.

Question 15

Merger Exceptions

Answer 15

-Fraud; and
-Contractual promises deemed independent or collateral to the deed