Basiliko v. Pargo Corporation
undisclosed (1987)
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Rule of Law:
A successful bidder at a foreclosure sale that is voided due to the seller's error is entitled to standard contract damages, measured by the difference between the contract price and the fair market value of the property at the time of the breach (benefit-of-the-bargain damages).
Facts:
- The property at 3411 Holmead Place, NW, secured a note held by Montgomery Federal Savings & Loan Association.
- A foreclosure sale was scheduled for May 1, 1979, with Arnold L. Karp and James A. Early, Jr. acting as trustees for Montgomery Federal.
- On April 30, 1979, the day before the sale, the borrower made a payment to Montgomery Federal that cured the delinquency on the loan.
- Unaware of the payment, the trustees proceeded with the foreclosure sale on May 1, 1979.
- George Basiliko submitted the winning bid of $28,000 for the property at the auction.
- On May 3, 1979, Basiliko entered into a contract to resell the property to Pargo Corporation for $35,100.
- On May 29, 1979, the scheduled date of settlement, the trustees refused to convey the property to Basiliko, having discovered that the borrower was not in default and thus the sale was unauthorized.
Procedural Posture:
- Pargo Corporation sued Basiliko, Montgomery Federal, Karp, and Early in the trial court.
- Basiliko filed a cross-claim against co-defendants Montgomery Federal, Karp, and Early for breach of contract.
- Following a trial, the trial court judge dismissed both Pargo's complaint and Basiliko's cross-claim on the merits.
- Basiliko, as appellant, appealed the dismissal of his cross-claim against appellees Montgomery Federal, Karp, and Early to the District of Columbia Court of Appeals.
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Issue:
Does a successful bidder at a foreclosure sale, which is later found to be void due to the seller's lack of authority to sell, have a right to recover benefit-of-the-bargain damages from the seller for breach of contract?
Opinions:
Majority - Newman, Associate Judge
Yes. A purchaser at a void foreclosure sale is entitled to recover benefit-of-the-bargain damages for the seller's breach of contract. The court holds that this jurisdiction follows the 'American rule,' which treats a breach of a real estate sales contract like any other contract, allowing the non-breaching party to recover compensatory damages measured by the difference between the contract price and the fair market value at the time of conveyance. The court rejected the 'English rule' (Flureau v. Thornhill), which would limit recovery to the return of deposit and expenses, finding it inappropriate where the breach resulted from a mistake solely within the seller's knowledge and control. Furthermore, the doctrine of caveat emptor does not apply, as it relates to the quality of title, not the fundamental authority of the trustee to conduct the sale. Awarding these damages serves public policy by encouraging bidder confidence and maintaining adequate foreclosure sale prices.
Analysis:
This decision solidifies that foreclosure sale contracts are subject to the same standard remedies for breach as other real estate contracts. It rejects any special exception for sellers who breach due to their own error, such as failing to verify the loan's status. The ruling protects the expectation interests of bona fide purchasers at foreclosure sales, thereby promoting confidence and stability in such transactions. By holding trustees and lenders accountable for their procedural failures, the court incentivizes them to ensure all legal prerequisites for a foreclosure are met, which ultimately benefits borrowers, lenders, and purchasers alike.
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