Facts: Kemp (plaintiff) is a contractor who built the home concerned in this case, and Gannett (defendant) is a realtor with whom the home was listed. Kemp agreed to relist the home with Gannett upon the condition that Gannett would buy it himself if it was not sold at the end of 90 days. Gannett also agreed to pick up the mortgage payments during the second 90-day listing. After 90 days, Gannett did not buy and Kemp was not able to sell the house for almost a year and then only at a price less than the contract with Gannett. Kemp sued Gannett for a breach of contract. The trial court found for Kemp and awarded $4,725 in damages. Defendant appealed, contending that the damages were improperly computed and that certain evidence was improperly admitted. And plaintiffs cross-appealed, contending that the damage award should have been larger.
Issue: whether the damages awarded to Kemp were properly computed after Gannett breached the contract to buy a house if it did not sell within 90 days (determining market value, whether the plaintiff can recover incidental and consequential damages; whether the plaintiff should be reimbursed for the real estate taxes, expenses incurred in the effort to resell, and three monthly payments on the mortgage, plus the interest to the date of resale; utility fees & realtor commission fees)
Rule: The general rule for damages in breach of contract cases involving the sale of land is that the plaintiff's damages are the difference between the contract price and the market price on the date of the breach. Additional elements of damage can include incidental and consequential damages necessary to put the non-breaching party in the position they would have been had the contract been performed.Incidental damages are the costs incurred by the non-breaching party to remedy the breach, while consequential damages are the losses that result indirectly from the breach.
Application:
William Kemp, a contractor, built a single-family home and listed it with Gannett, a realtor. The agreement was that Gannett would buy the home if it did not sell within 90 days, and he would cover mortgage payments during the second 90-day listing period. Gannett did not buy the home, and Kemp was unable to sell it for almost a year, eventually selling it for less than the contract price with Gannett.
The trial court awarded Kemp $4,725 in damages, which included the difference between the contract price and the resale price, as well as reimbursement for real estate taxes, resale expenses, and three monthly mortgage payments plus interest up to the resale date. Gannett appealed, arguing improper computation of damages and inadmissibility of certain evidence, while Kemp cross-appealed for higher damages.
1)Market Value Evidence: The court found that the resale price obtained by Kemp after consistent and good faith efforts was a valid indication of the fair market value at the time of the breach. This aligns with precedent that resale price within a reasonable time and at the highest price obtainable after breach can evidence market value on the breach date. Mahoney v. Tingley (1974).
2)Incidental and Consequential Damages: Since Kemp had no beneficial use of the home between the breach and the resale, it is reasonable to allow recovery for interest costs and taxes accrued during this period. The court awarded Kemp additional damages for expenses like real estate taxes, resale efforts, and mortgage payments, finding these arose directly from Gannett’s breach and were necessary to maintain the property until resale. The three months’ mortgage payments were required by the listing agreement. Additionally, Gannett's letter to Kemp agreeing to make these payments provides further justification for including the interest expenses. This adheres to the principle of putting the non-breaching party in the position they would have been had the contract been performed.
3)Cross-Appeal Damages: Kemp argued for additional damages covering utility costs and realtor's commission on resale. The court agreed on the utility costs, as they were necessary to keep the house in a sellable condition. However, However, the court did not find the realtor's commission to result in additional damage since it was contemplated in the contract that Gannett would receive a commission, which was not paid due to the breach.
4)Admissibility of Evidence: Gannett contested the inclusion of letters from Kemp’s attorneys, claiming they were hearsay. The court allowed the letters as they demonstrated Kemp’s intent and mental state, rebutting Gannett’s claim that Kemp had withdrawn from the contract, and not the truth of the statements in them that D had broken his contract.
Conclusion: The court found no merit in Gannett’s appeal regarding the improper computation of damages and inadmissibility of evidence. However, it reversed and remanded on Kemp’s cross-appeal to include utility costs in the damage award. Thus, the judgment in favor of Kemp was affirmed with directions to recompute damages to incorporate the additional utility costs.
Feedback & Notes:
Have a clear understanding of actual, incidental, consequential, and expectation damages:
Actual Damages
Actual damages, also known as compensatory damages, are awarded to compensate the non-breaching party for the direct losses and costs incurred due to the breach of contract. These damages aim to put the injured party in the same position they would have been if the contract had been performed as agreed. Actual damages include:
-Direct Losses: Costs directly related to the breach, such as the cost of goods or services that were not delivered.
-Out-of-Pocket Expenses: Additional expenses incurred due to the breach, such as costs to mitigate the breach or to find a substitute performance.
-If the losing party lost his opportunity to sell his property, there might be actual damages from the loss
Incidental and consequential damages are types of damages awarded in breach of contract cases to compensate the non-breaching party for losses that go beyond the immediate scope of the contract itself.
-Ex) $50 phone
Actual damage: The profit the seller would get if the contract was proceeded
No other expenses or related loss; no indirect damages such as incidental damages, consequential damages
Some other incurred expenses due to the cancellation; that expense should be compensated as damages
-Torts: car accident
Actual damages: medical expenses, automobile
Consequential damages: because of the accident, he lost the chance to obtain a contract
Incidental Damages
Incidental damages are the reasonable costs and expenses that the non-breaching party incurs to deal with the breach and minimize further losses. These are closely tied to the direct consequences of the breach. Examples include:
-Costs of Mitigation: Expenses incurred in attempting to avoid further damage, such as finding a replacement supplier or buyer.
-Costs of Transporting Goods: If a buyer breaches a contract to purchase goods, the seller may incur costs in transporting the goods back to storage or to another buyer.
-Storage Costs: Costs for storing goods that were not accepted by the breaching party.
-Administrative Costs: Expenses related to the administrative efforts needed to address the breach, such as fees for sending notices or handling returned goods.
Consequential Damages
Consequential damages, also known as special damages, cover losses that do not flow directly and immediately from the breach but occur as a foreseeable result of the breach. Examples include:
-Lost Profits: If the breach of contract causes the non-breaching party to lose profits from another business opportunity, these lost profits can be claimed as consequential damages.
-Additional Costs: Expenses that arise as an indirect result of the breach, such as the cost of downtime or the loss of business opportunities.
-Damages to Business Reputation: If the breach damages the non-breaching party's reputation or business relationships, those losses may be recoverable.
-Costs of Substitute Transactions: If the non-breaching party has to enter into a more expensive contract to replace the original one, the additional costs may be claimed as consequential damages.
For consequential damages to be recoverable, they must be foreseeable to both parties at the time the contract was made. This means the breaching party should have known or had reason to know that these damages could result from a breach.
Expectation Damages
Expectation damages aim to put the non-breaching party in the position they would have been in had the contract been fully performed. These damages are calculated based on the expected benefits from the contract. They include:
-Value of Promised Performance: The difference between the value of the performance promised in the contract and the value of the performance actually received.
-Lost Benefits: Any additional benefits that the non-breaching party expected to receive from the contract.
Application to Kemp v. Gannett
Imagine a contractor (Kemp) enters into a contract with a realtor (Gannett) to sell a house. If Gannett breaches the contract by not purchasing the house after the listing period, the types of damages Kemp might seek could include:
-Actual Damages: The direct financial loss from the house not being sold at the agreed-upon price.
-Incidental Damages: In Kemp v. Gannett, incidental damages would include the real estate taxes, expenses incurred in the effort to resell the house, and mortgage payments plus interest, as these are direct costs resulting from the breach.
-Consequential Damages: In Kemp v. Gannett, consequential damages would include the utility costs incurred to maintain the property in a sellable condition, as these are additional costs that arose due to the breach but are not directly tied to the original contract terms.
-Expectation Damages: The profit Kemp expected to make from the sale of the house at the contract price.
In a court case, Kemp would need to provide evidence supporting these types of damages to obtain appropriate compensation for the breach.
You have to figure out these damages from the facts. You need to use your legal imagination to find out these kinds of factors, such as utility costs, real estate taxes, mortgage payments, etc.
Where do you find market value?
Real estate taxes – included
- Without the breach, there would be no real estate taxes
Three monthly payments on the mortgages – included
- Expense of resale
- Consequences of the breach of the contract
- It was part of the original contract
- If buyer obtained the title of the real property, the owner should pay the three monthly payments; due to the breach of the contract, the seller had to pay; should be compensated
Interest to the date of resale – included
- In defendant’s letter, he agreed to pay
Utility costs during the period before resale – included
- The buyer should pay utilities if they buyer got the premises
- The ownership belonged to the seller; the title did not transfer to the buyer because of the breach
- Due to the breach, the seller had to pay pay; that’s why that should be included in the damages
Commission – not included
- The seller would have paid the buyer anyway if the contract was fulfilled