## Facts

- In 1978, Robert Knapp listed his Breckenridge condominium for sale through Romero Corporation (the broker).
- Ronald Sanders made a written offer (a “receipt and option contract”) to buy the unit for $19,000, which Knapp signed and returned by mail.
- The contract set an initial performance deadline in August 1978; Sanders could not close by that date but notified the broker he still intended to complete the purchase.
- Knapp later signed a written extension agreement extending the deadline to October 17, 1978.
- On October 16, 1978, Sanders tendered the purchase price to the broker and began treating the condominium as his own, including making mortgage payments and paying for improvements.
- After closing papers were re-sent to Knapp, Knapp discovered he held title in joint tenancy with his estranged wife, Barbara Knapp.
- Barbara refused to sign the documents necessary to convey full title.
- Sanders sued seeking specific performance and related relief; after learning of Barbara’s interest, he joined her as a defendant and sought additional declaratory relief.
- Following a bench trial, the trial court ruled that a mutual mistake about ownership prevented formation of a binding contract, denied specific performance and liquidated damages, awarded Sanders $756 in limited reimbursement, and denied exemplary damages because Knapp did not act in bad faith.
- Sanders appealed.

## Issues

1. Did a mutual mistake about Knapp’s ownership (sole owner versus joint tenant) prevent formation of a binding sale contract, barring specific performance or other contract remedies against Knapp?
2. If a contract existed, what relief could Sanders obtain against Knapp given that Barbara would not consent to convey her interest (including whether Sanders could obtain relief limited to Knapp’s interest and/or restitution for expenditures made in reliance on the contract)?
3. Was Sanders entitled to liquidated damages under the contract based on Knapp’s inability to close?
4. Did Knapp’s conduct support an award of exemplary (punitive) damages?

## Decision

- The Colorado Court of Appeals reversed the trial court’s conclusion that no contract was formed; the mistake about joint tenancy did not eliminate the parties’ assent to contract.
- The court held that Barbara’s refusal to convey did not negate the existence of Knapp’s contractual obligations; it affected what performance and remedies were available against Knapp.
- The court reversed the limited restitution award and remanded for a redetermination of Sanders’s recoverable expenditures consistent with the existence of a binding contract and Sanders’s performance/tender.
- The court rejected Sanders’s claim to liquidated damages under the contract on the record and contract language presented, treating the liquidated-damages provision as not establishing an automatic recovery for the buyer in these circumstances.
- The court affirmed the denial of exemplary damages because the trial court’s findings that Knapp did not act culpably or in bad faith were supported by the record.
- Overall disposition: reversed in part, affirmed in part, and remanded for further proceedings on appropriate relief.

## Legal Principles

- A mutual mistake about the form or extent of a seller’s title (such as undisclosed joint tenancy) does not necessarily prevent contract formation when the parties otherwise agreed on the sale of identified real property.
- A seller’s inability to deliver the full title contemplated by the parties does not by itself void the contract; it may limit specific performance and shift the remedy to relief consistent with what the seller can convey and/or monetary relief.
- Restitution or compensatory recovery may be awarded to reimburse reasonable payments and expenditures made in reliance on a real estate sale contract when the buyer has performed or tendered performance and the seller cannot complete the transfer as promised.
- A liquidated-damages clause is construed according to its terms; absent clear language granting the buyer a set recovery for the seller’s nonperformance, it will not be treated as an automatic buyer remedy.
- Exemplary damages require proof of willful and wanton conduct or similar aggravated wrongdoing; negligence or an honest mistake about title is not enough.

## Conclusion

The appellate court held that Sanders and Robert Knapp formed a binding contract despite their shared misunderstanding about joint tenancy, reversed the trial court’s denial of contract-based relief and its limited reimbursement award, and remanded to determine proper monetary recovery (and any other relief available against Knapp), while affirming the denial of liquidated and exemplary damages.


Sanders v. Knapp, 674 P.2d 385 (1983)