Turner v. Benson
672 S.W.2d 752 (1984)
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Rule of Law:
When a buyer breaches a real estate contract, the seller is entitled to recover the difference between the contract price and the fair market value at the time of the breach, plus any foreseeable special damages that were within the reasonable contemplation of the parties when the contract was formed.
Facts:
- Robert and Anna Turner's residence was specially modified so Mrs. Turner could operate a day-care center out of it.
- On July 31, 1980, the Turners entered into a contract to sell their residence to Jerry and Janice Benson for $75,000.
- The Bensons were aware at the time of contracting that the Turners intended to use the proceeds from the sale to purchase another home.
- After the Bensons informed the Turners that their loan had been approved, the Turners entered into a contract to purchase a new residence.
- The closing for the Turner-Benson sale was scheduled for September 2, 1980, but the Bensons failed to appear and never completed the transaction.
- As a result of the breach, the Turners were forced to take out a loan to finance the purchase of their new home, making them owners of two properties.
- The Turners incurred additional expenses for maintenance, insurance, moving, and advertising while attempting to resell their original home.
- On December 16, 1981, over a year after the breach, the Turners sold their original residence to a third party for $76,000.
Procedural Posture:
- Robert and Anna Turner (plaintiffs) filed suit against Jerry and Janice Benson (defendants) in a Tennessee trial court, seeking specific performance and damages.
- After the property was sold to a third party, the action proceeded solely on the claim for damages.
- The trial court found the Bensons had wilfully breached the contract and awarded the Turners $14,529.73 in damages.
- The Bensons, as appellants, appealed to the Tennessee Court of Appeals.
- The Court of Appeals affirmed the denial of damages for lost income but remanded the case for a new evidentiary hearing on the amount of other damages.
- The Turners, as plaintiffs, sought and were granted review by the Supreme Court of Tennessee.
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Issue:
In a buyer's breach of a real estate contract, may the seller recover foreseeable special damages, such as interest on a loan taken to purchase a new residence, in addition to the general measure of damages based on the property's market value?
Opinions:
Majority - Fones, Justice
Yes, a seller may recover foreseeable special damages in addition to general damages. While the general measure of damages is the difference between the contract price and the fair market value at the time of breach, a seller can also recover special damages that were a foreseeable consequence of the breach and within the reasonable contemplation of both parties at the time the contract was made. In this case, because the market value at the time of breach was equivalent to the contract price, the Turners were entitled only to nominal general damages. However, many of the Turners' additional expenses were recoverable as special damages. The Bensons knew the Turners intended to buy a new home with the sale proceeds, so it was foreseeable that a breach would force the Turners to seek alternative financing and incur costs associated with owning two homes. Therefore, expenses such as interest on the loan for the new house, advertising costs to mitigate damages, moving expenses, and maintenance costs for the unsold property were recoverable. In contrast, damages for lost day-care income were denied because the Turners intended to terminate that business upon sale, and other claimed losses were either too speculative or not within the parties' contemplation.
Analysis:
This case clarifies that the traditional 'contract price minus market value' rule is not the exclusive remedy for a seller in a breached real estate contract. By applying the foreseeability doctrine from Hadley v. Baxendale, the court broadens the scope of recoverable damages to include consequential costs incurred by the non-breaching seller. This decision establishes that sellers can be compensated for the direct, foreseeable financial fallout of a buyer's breach, such as financing costs for a replacement home, provided the buyer had reason to know such costs were likely. The ruling incentivizes a factual inquiry into what was communicated and understood between the parties at the time of contracting to determine the scope of liability.
