## Facts

- Sellers and Buyers executed a written contract on June 25, 1994, for Buyers to purchase Sellers’ Albuquerque residence for $610,000, with $6,000 earnest money.
- The purchase agreement identified real estate broker-agents as Sellers’ agents in the transaction.
- Buyers later notified Sellers they would not close due to financial reasons and proposed a termination agreement forfeiting the $6,000 earnest money; Sellers rejected the proposal.
- Sellers relisted the property and resold it in November 1994 for $540,000, $70,000 below the contract price.
- Sellers claimed additional losses from carrying the property (including mortgage interest) while seeking a replacement buyer and from expenditures related to plans to build a new home on a separate lot; Buyers were unaware of those plans when contracting.
- Sellers sued Buyers for breach of contract seeking general, special/consequential, and punitive damages; Buyers counterclaimed and asserted third-party claims against the broker-agents, who sought a commission.
- After a bench trial, the district court found Buyers breached, awarded Sellers $70,000 general damages plus special damages and punitive damages, and ruled Buyers owed the broker-agents a commission.
- Buyers appealed the damages awards and the commission ruling.

## Issues

1. What is the proper measure of a seller’s general damages when a buyer breaches a land-sale contract, and was the award supported by substantial evidence?
2. When may a seller recover consequential/special damages in addition to general damages, and were the particular items sufficiently foreseeable and proven?
3. Under what circumstances may punitive damages be awarded for breach of contract, and was the record sufficient to support such an award here?
4. Whether Buyers were liable for the broker-agents’ commission despite the sale not closing due to Buyers’ breach.

## Decision

- The Court of Appeals affirmed the award of $70,000 general damages as the difference between the contract price and the property’s market value at breach, with the resale price serving as substantial evidence of market value.
- The Court held consequential damages are available in land-sale breach cases only if pleaded and proven and if they were reasonably within the parties’ contemplation at contracting.
- The Court affirmed foreseeable, causally connected consequential items (including certain carrying costs) but reversed or limited items not shown to have been foreseeable to Buyers at contracting (including damages tied to Sellers’ separate new-home construction plans unknown to Buyers).
- The Court recognized punitive damages may be available for breach of contract upon proof of sufficiently culpable conduct (beyond nonperformance), but it limited relief to the extent the trial record did not justify the full punitive and related awards entered below.
- The Court largely affirmed Buyers’ liability for the broker-agents’ commission under the governing agreements and New Mexico law, subject to any modifications required by the partial reversal.

## Legal Principles

- A seller’s general damages for a buyer’s breach of a land-sale contract are generally measured by the difference between the contract price and the property’s fair market value at the time of breach; a prompt resale price may be substantial evidence of market value.
- A seller may elect remedies after a buyer’s breach, including retaining the property and suing for damages; the plaintiff bears the burden to present competent evidence supporting each claimed damage element.
- Consequential damages require proof of causation and that the losses were the natural and probable result of the breach and reasonably foreseeable to the parties at the time of contracting; losses outside the parties’ contemplation are not recoverable as consequential damages.
- Punitive damages are not recoverable for mere breach of contract; they require proof of an aggravated mental state or conduct (such as reckless disregard) sufficient under New Mexico law to justify punishment beyond compensation.
- A broker’s right to a commission may vest upon procurement of a ready, willing, and able buyer and execution of a binding purchase contract, absent contrary contractual terms; a buyer’s breach that prevents closing may leave the buyer responsible for the commission.

## Conclusion

The Court of Appeals upheld the standard difference-in-value measure of general damages for a buyer’s breach of a real estate purchase contract, restricted consequential damages to losses proven and foreseeable at contracting, limited punitive relief to amounts supported by the required culpability showing, and largely sustained Buyers’ responsibility for the broker’s commission where Buyers’ breach prevented closing.


Jones v. Lee, 126 N.M. 467, 971 P.2d 858 (N.M. Ct. App. 1998)