## Facts

- Edward and Donna Donovan agreed to buy a residence from Carl Bachstadt for $58,900 under a realtor form contract, with a $5,890 deposit, $9,010 cash at closing, and a $44,000 purchase-money mortgage.
- The contract required the seller to convey marketable and insurable title.
- Bachstadt was unable to convey marketable title due to a chain-of-title defect involving an unrecorded deed and record title appearing in third parties.
- The buyers previously obtained a judgment for specific performance, but performance became impossible because the title defect could not be cured.
- The buyers then filed a separate action seeking damages for breach of the real estate contract, including losses tied to replacement financing.

## Issues

1. When a seller breaches an executory contract to sell real property by failing to convey marketable title, may the buyer recover benefit-of-the-bargain (expectation) damages, or is the buyer limited to restitution and out-of-pocket expenditures?
2. If benefit-of-the-bargain damages are available, may compensatory damages include losses associated with substitute financing, such as a higher interest rate on a replacement purchase, if properly proven?

## Decision

- The Supreme Court of New Jersey adopted the American rule allowing benefit-of-the-bargain damages for a seller’s breach of an executory real estate sales contract, without regard to the seller’s good or bad faith.
- The court held that compensatory damages may include the difference between the market value of the property (including the agreed financing terms) and the contract price, plus reasonably incurred consequential expenses.
- The court recognized that favorable financing terms may be a material part of the bargain and may be reflected in the damages calculation.
- The matter was remanded for determination of compensatory damages, including whether and to what extent an interest-rate differential tied to a comparable substitute transaction was recoverable.

## Legal Principles

- For breach of an executory contract to convey real property, the buyer may recover expectation damages designed to place the buyer in as good a position as if the contract had been performed.
- Benefit-of-the-bargain damages are available even when the seller’s failure to convey marketable title stems from title defects rather than willful nonperformance.
- The proper expectation measure is the market value of the promised performance (which may include agreed financing terms) minus the contract price.
- Consequential damages reasonably incurred because of the breach (such as survey and title-search costs, and certain transaction-related legal expenses) may be recoverable.
- Financing terms are not categorically “incidental” in real estate contracts; when they affect the economic value of the bargain, they may be considered in valuing the promised performance and related losses.

## Conclusion

The court aligned remedies for breached land-sale contracts with general contract damages by permitting buyers to recover benefit-of-the-bargain damages, potentially including value attributable to favorable financing terms, and remanded for proof and calculation of compensatory damages.


Donovan v. Bachstadt, 91 N.J. 434, 453 A.2d 160 (N.J. 1982)