## Facts

- R. L. Warr entered into a 1973 Uniform Real Estate Contract to purchase a parcel of real property from J. H. Ehlers, Evelyn P. Boyce, and Lois P. Connell, with title to be conveyed by special warranty deed upon full payment.
- Don S. Smith and Brigham H. Smith claimed the property by adverse possession and filed an action to quiet title against the record owners.
- During the adverse-possession litigation, Warr was added as a defendant because of his interest under the purchase contract.
- Warr filed a cross-complaint against Ehlers, Boyce, and Connell, alleging breach of the purchase contract based on their inability to convey the interest promised.
- Warr continued to make contract payments while the adverse-possession case proceeded.
- The trial court ultimately quieted title in favor of the Smiths, determining the sellers (and thus Warr) had no title to convey to Warr under the contract.
- On Warr’s cross-complaint, the trial court found a breach of the purchase contract but ruled the sellers had not acted in bad faith.
- The trial court limited Warr’s recovery to his out-of-pocket losses (such as payments and expenses) and denied attorney’s fees and costs.
- Warr appealed, challenging the damages measure and the denial of fees and costs.

## Issues

1. What is the proper measure of damages for breach of a contract to convey real property when the vendor cannot convey title: out-of-pocket loss only, or benefit-of-the-bargain damages (market value at breach minus unpaid price), even absent bad faith?
2. Whether the prevailing buyer may recover attorney’s fees and costs in enforcing rights under the real-estate purchase contract.

## Decision

- The Utah Supreme Court held that benefit-of-the-bargain damages are the proper measure for breach of a real-estate sale contract in Utah, even when the seller’s failure to convey is in good faith.
- The court reversed the trial court’s limitation of damages to out-of-pocket loss and remanded for recalculation using the benefit-of-the-bargain measure.
- The court also remanded for further proceedings on attorney’s fees and costs consistent with the contract and governing law.

## Legal Principles

- For breach of a contract to sell and convey real property, the buyer’s general damages are the difference between the property’s fair market value at the time of breach and the unpaid portion of the contract price (expectation damages).
- A seller’s good faith inability to convey title does not restrict the buyer to reimbursement of expenditures; expectation damages may still be awarded.
- Contract damages seek to put the injured party in the position the party would have occupied had the agreement been performed, which ordinarily supports a market-value-minus-price measure in failed conveyances.
- When a purchase contract authorizes recovery of attorney’s fees and related costs for enforcement, the prevailing party may seek those amounts, subject to proof of reasonableness and compliance with applicable law.

## Conclusion

Smith v. Warr holds that in Utah a buyer deprived of contracted-for real property is not limited to out-of-pocket reimbursement simply because the seller acted in good faith; the buyer may recover benefit-of-the-bargain damages measured by market value at breach minus the unpaid purchase price, and the case was remanded to recalculate damages and to address claimed attorney’s fees and costs under the contract and applicable law.


Smith v. Warr, 564 P.2d 771 (1977)