White v. Farrell
987 N.E.2d 244, 20 N.Y.3d 487 (2013)
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Rule of Law:
The measure of a seller's damages for a buyer's breach of a contract to sell real property is the difference between the contract price and the fair market value of the property at the time of the breach. A subsequent resale price is not the measure of damages, but may be considered as evidence of the fair market value.
Facts:
- In May 2004, Dennis and Nancy Farrell listed their newly constructed lakeside property in Skaneateles, New York, for sale.
- On June 12, 2005, Paula and Leonard White signed a contract to purchase the property for $1.725 million and tendered a $25,000 deposit.
- The contract was contingent on resolving several issues, including ongoing drainage and water problems on the property.
- On June 22, 2005, the parties executed an addendum where the Whites removed all contingencies in exchange for the Farrells' promise to complete several tasks, including finishing the drainage system.
- On July 7, 2005, the Whites' attorney notified the Farrells that his clients were terminating the contract, citing concerns that the drainage situation might never be rectified.
- On July 23, 2005, while the dispute was ongoing, the Whites signed a contract to purchase a different property on the same lake.
- In January 2007, the Farrells ultimately sold their property to a third party for $1,376,550, which was $348,450 less than the price agreed to by the Whites.
Procedural Posture:
- The Whites (plaintiffs) sued the Farrells (defendants) in New York Supreme Court (trial court) to recover their $25,000 down payment.
- The Farrells counterclaimed for damages for breach of contract.
- The Farrells moved for summary judgment; the Whites cross-moved for summary judgment.
- The trial court granted summary judgment, finding that the Whites breached the contract but that the Farrells suffered no actual damages because the property's market value at the time of breach was the same as the contract price.
- The Farrells (appellants) appealed the damages ruling to the Appellate Division, Fourth Department (intermediate appellate court).
- The Appellate Division unanimously affirmed the trial court's order.
- The Farrells (appellants) were granted leave to appeal to the Court of Appeals of New York (the state's highest court).
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Issue:
Is the proper measure of a seller's damages for a buyer's breach of a real estate contract the difference between the contract price and the property's fair market value at the time of the breach?
Opinions:
Majority - Read, J.
Yes. The proper measure of a seller's damages for a buyer's breach of a real estate contract is the difference between the contract price and the property's fair market value at the time of the breach. This long-standing 'time-of-the-breach' rule is consistent with general contract principles and promotes stability and adherence to precedent. A subsequent resale price is not the definitive measure of damages, but it can serve as strong evidence of the property's fair market value, provided the sale occurs within a reasonable time and under similar market conditions. Here, a question of fact exists because the Farrells' real estate agent testified that the fair market value at the time of breach was the contract price, while the substantially lower resale price suggested otherwise, precluding summary judgment.
Concurring - Pigott, J.
No. While concurring in the result to remit for further proceedings, the proper measure of damages should not be the fair market value at the time of breach, but rather the difference between the contract price and the subsequent resale price. Real property is unique and not fungible like other goods, making the standard contract rule a legal fiction that often results in no damages for the non-breaching seller. The majority's rule unfairly places the risk of market decline on the innocent seller. A better rule, found in the Uniform Land Transactions Act (ULTA), would be to award the seller the difference between the contract price and the resale price, which properly places the risk on the breaching buyer and reflects the seller's actual loss.
Analysis:
This decision reaffirms New York's adherence to the traditional 'time-of-the-breach' rule for calculating a seller's damages in a breached real estate contract, explicitly rejecting the alternative 'resale price' measure. It clarifies that a subsequent resale price is merely evidence of fair market value, not the measure of damages itself. This holding provides doctrinal stability but creates a practical challenge for trial courts, which must now weigh competing evidence, such as expert testimony versus a later sale price, to determine a property's value on a past date, potentially complicating damage calculations in future cases.
