## Facts

- Sellers and purchasers entered a written contract in September 1980 for the purchasers to buy the sellers’ residence for $205,000, with escrow to close in early December 1980.
- The purchasers defaulted and the sale did not close.
- Within days after the expected close of escrow and the breach, the sellers entered a second contract to sell the property to third parties for $215,000.
- The second sale closed in February 1981.
- The sellers filed suit on December 5, 1980, alleging breach of the first contract.
- After a bench trial, the trial court found no damages under Civil Code § 3307 because the resale price indicated the property’s value at breach exceeded the contract price.
- The trial court nevertheless awarded $2,648.34 in consequential damages under Civil Code § 3300 for post-breach carrying costs (insurance, gardening, property taxes, utilities, and encumbrance interest) incurred between default and resale.
- The trial court declined to offset those consequential damages by the $10,000 increased resale proceeds, treating the resale as a separate transaction.
- The purchasers appealed from the judgment.

## Issues

1. Whether a defaulting purchaser of real property is entitled to a credit, against consequential damages claimed by the seller, for the seller’s profit on a prompt resale at a higher price.
2. Whether Civil Code §§ 3300 and 3307 require computing the seller’s damages as net detriment, including the economic effect of a quick resale.

## Decision

- The Court of Appeal reversed the judgment.
- The court held the defaulting purchasers were entitled to credit the sellers’ $10,000 resale gain against the sellers’ claimed consequential carrying costs.
- Because the resale profit exceeded the $2,648.34 in claimed consequential expenses, the sellers suffered no net compensable detriment and could not recover damages.

## Legal Principles

- Civil Code § 3307 supplies the primary measure for a seller’s damages for a buyer’s breach of a real property purchase agreement: the excess, if any, of the contract amount due over the property’s value to the seller at breach.
- Civil Code § 3300 permits recovery of proximately caused consequential damages in contract cases, including certain post-breach carrying costs, when not otherwise expressly displaced.
- A seller’s total recovery must be limited to actual net detriment; damages analysis must avoid placing the seller in a better position than full performance would have done.
- When a seller promptly resells after the buyer’s breach at a higher price, the profit from that resale must be credited against claimed consequential damages arising from the breach.
- Treating the resale as wholly “separate” is improper when its increased proceeds directly reduce or eliminate the seller’s loss attributable to the buyer’s default.

## Conclusion

The court required netting the sellers’ prompt resale profit against claimed consequential carrying costs, and reversed the damages award because the resale gain eliminated any compensable detriment from the purchasers’ breach.


Smith v. Mady, 146 Cal. App. 3d 129 (Cal. Ct. App. 1983)