Freedman v. Rector, Wardens & Vestrymen of St. Matthias Parish
31 A.L.R. 2d 1, 37 Cal. 2d 16, 230 P.2d 629 (1951)
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Rule of Law:
A vendee who willfully breaches a real estate contract is entitled to restitution for the portion of their down payment that exceeds the vendor's actual damages resulting from the breach.
Facts:
- On October 8, 1947, Plaintiff signed an agreement to purchase two lots from Defendant for $18,000, paying a $2,000 deposit.
- The escrow instructions, signed by both parties, stipulated the property would be subject to easements of record, and Plaintiff was informed of an existing easement for the water and power department.
- On November 28, 1947, Plaintiff repudiated the contract in writing, claiming the property was misrepresented and title had not been cleared.
- On December 19, 1947, Plaintiff offered to proceed with the purchase, but only on the condition that the easement be cleared, a term he had no right to impose.
- On December 27, 1947, Defendant, relying on the repudiation, canceled the escrow and sold the property to a third party for $20,000, which was $2,000 more than the contract price with Plaintiff.
Procedural Posture:
- Plaintiff sued Defendant in a state trial court, seeking specific performance of the real estate contract.
- The trial court entered a judgment in favor of Defendant.
- Plaintiff, as the appellant, appealed the trial court's decision to the state's highest court.
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Issue:
Does a vendee who willfully breaches a contract for the sale of real property have a right to recover the portion of their down payment that exceeds the vendor's actual damages?
Opinions:
Majority - Traynor, J.
Yes, a willfully breaching vendee has a right to recover the portion of their down payment that exceeds the vendor's actual damages. The court affirmed the denial of specific performance because the Plaintiff's repudiation was a total breach, and his later attempt to withdraw it was conditional and ineffective. However, allowing the Defendant to retain the entire down payment despite suffering no actual damages (and in fact, profiting from a subsequent sale) would constitute an unenforceable penalty and result in unjust enrichment. The policy of the law, reflected in the Civil Code, is to avoid forfeitures and penalties, limiting recovery to compensatory damages. A contract provision allowing forfeiture of a deposit is an invalid liquidated damages clause when, as here, actual damages are not impracticable or extremely difficult to fix. Therefore, the Plaintiff is entitled to the return of his down payment, less any actual damages and expenses incurred by the Defendant.
Concurring - Not specified
There is no content for this opinion in the provided text.
Analysis:
This case marked a significant departure from the traditional common law rule that a party in willful default of a contract forfeits all payments made. By grounding the right to restitution in the policy against penalties and unjust enrichment, the court extended protection to even willfully breaching parties. This decision diminished the power of forfeiture clauses in real estate contracts and established a precedent requiring sellers to prove actual damages to retain a buyer's deposit. It shifted the legal focus from punishing the breaching party to fairly compensating the non-breaching party for their actual losses.
