Patterson v. Meyerhofer
97 N.E. 472 (1912)
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Rule of Law:
In every contract, there is an implied covenant that each party will not intentionally and purposely do anything to prevent the other party from carrying out their part of the agreement. A breach of this implied covenant can give rise to damages for the non-breaching party.
Facts:
- Plaintiff and Defendant entered into a written contract for Plaintiff to sell four specific parcels of land to Defendant for $23,000.
- At the time of contracting, Defendant knew that Plaintiff was not the owner of the properties but intended to acquire them at an upcoming foreclosure sale to fulfill the contract.
- Before the foreclosure sale occurred, Defendant informed Plaintiff that she would not perform the contract and would instead buy the properties for her own account.
- Plaintiff attended the foreclosure sale, ready, willing, and able to purchase the properties.
- At the sale, Defendant actively bid against Plaintiff for the four parcels.
- Defendant successfully purchased the four parcels by consistently outbidding Plaintiff.
- The total price Defendant paid for the four parcels was $620 less than the price she had agreed to pay Plaintiff under their contract.
Procedural Posture:
- Plaintiff sued Defendant in the trial court (Special Term), seeking equitable relief in the form of a constructive trust and monetary damages.
- The Special Term rendered a judgment in favor of the Defendant.
- Plaintiff, as appellant, appealed the judgment to the intermediate appellate court (Appellate Division).
- The Appellate Division affirmed the trial court's judgment in favor of the Defendant.
- Plaintiff, as appellant, then appealed to the Court of Appeals of New York, the state's highest court.
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Issue:
Does a party to a real estate contract breach that contract by intentionally outbidding the seller at a foreclosure sale, when both parties knew the seller had to acquire the property at that sale to fulfill their contractual obligation to convey title?
Opinions:
Majority - Willard Bartlett, J.
Yes, a party to a contract breaches an implied duty by intentionally preventing the other party's performance. In every contract, there is an implied undertaking that neither party will intentionally hinder the other from carrying out the agreement. By entering a contract to purchase property that she knew the plaintiff had to acquire at a specific foreclosure sale, the defendant implicitly promised not to do anything to prevent him from acquiring it. When the defendant outbid the plaintiff at that very sale, she violated this implied agreement. This action directly caused the plaintiff's inability to perform and resulted in a loss of his expected profit. Therefore, the plaintiff is entitled to damages equal to the profit he would have made, which is the difference between the contract price and the price the defendant paid at the auction ($620).
Dissenting - Chase, J.
No, the plaintiff is not entitled to relief because he failed to prove the specific equitable claim he brought before the court. The plaintiff's lawsuit was framed as an action in equity, seeking to establish that the defendant held the property in trust for him. Having failed to establish any such trust relationship, his equitable claim fails. A party who brings an action in equity must succeed on equitable grounds or not at all, even if they might have a valid claim for damages at law. The plaintiff never requested that the case be treated as an action at law or moved to the proper court for a damages claim, and he should not be awarded legal relief after failing to prove his chosen equitable cause of action.
Analysis:
This case is a foundational example of the implied covenant of good faith and fair dealing, specifically the duty of non-hindrance. The court's decision establishes that a party cannot actively and intentionally sabotage the other party's ability to perform their contractual duties. This precedent extends beyond the explicit terms of a contract, enforcing an implicit promise of cooperation. The ruling solidifies the principle that a party who prevents performance cannot then use that non-performance to escape liability, and it provides a clear remedy: the profit the innocent party would have earned had the contract been fulfilled.
