Facts
- John L. Ubaldo contracted in writing to buy Roger and Cynthia Williams’s Oxford, Maine home for $450,000, paying a $10,000 deposit with the balance due at a May 1993 closing.
- The agreement made Ubaldo’s duty to purchase contingent on his ability to obtain sufficient financing and required him to seek and accept financing in good faith.
- The contract provided that if Ubaldo breached, the Williamses could retain the $10,000 deposit while reserving other legal and equitable remedies.
- Ubaldo initially could not qualify for a mortgage, and the Williamses agreed to extend the time for performance to allow him more time to secure financing.
- A bank offered financing for $360,000 with Ubaldo’s mother as a co-signer, and the remaining $90,000 was to be supplied by his mother at or before closing.
- At the scheduled closing, the sale did not close because Ubaldo’s mother did not provide the $90,000 cash contribution.
- Afterward, Ubaldo sought other financing without his mother and was denied.
- The Williamses sued for specific performance and release of the deposit from escrow; Ubaldo filed a separate action seeking return of the deposit. The cases were consolidated.
- Before trial, the Williamses sold the property to a third party for $430,000. Although the home had been appraised at $480,000 in preparation for closing, no appraiser testified at trial.
- After a jury-waived trial, the Superior Court found Ubaldo breached and awarded: (1) $20,000 in compensatory damages (contract price minus later sale price), (2) $3,500 for real estate taxes paid between breach and resale, and (3) $500 for snow-removal expenses after the Williamses sold their snow-removal equipment in anticipation of moving. After crediting the $10,000 deposit, the court entered a net judgment of $14,000 for the Williamses.
- Ubaldo appealed, challenging the breach finding and the tax and snow-removal components of damages.
Issues
- Whether Ubaldo’s failure to complete the purchase was excused by the financing contingency, or whether he breached by failing to satisfy the contract’s good-faith financing requirement.
- What measure of damages applies when a buyer breaches a contract to purchase real property, and whether a subsequent resale price may be used as evidence of fair market value at the time of breach.
- Whether the sellers could recover (a) real estate taxes paid between breach and resale and (b) snow-removal-related expenses as additional damages.
Decision
- The Maine Supreme Judicial Court (Law Court) affirmed the finding that Ubaldo breached the contract; the financing contingency did not excuse performance on this record.
- The court affirmed the use of the “benefit of the bargain” measure: contract price minus the property’s fair market value at the time of breach.
- The court held that a subsequent arm’s-length resale price is probative evidence of fair market value at the time of breach when there is no showing the resale was unreasonable or made in bad faith; the $20,000 award was therefore supported.
- The court vacated the $3,500 tax award because taxes paid during the period the sellers retained ownership, use, and occupancy were not shown to be part of the benefit-of-the-bargain loss on these facts.
- The court vacated the $500 snow-removal award because it was based on the sellers’ personal plans and there was no evidence Ubaldo knew of those circumstances at contracting.
- The judgment was modified to remove the tax and snow-removal awards and otherwise affirmed, leaving $20,000 in compensatory damages offset by the $10,000 deposit (net $10,000).
Legal Principles
- A financing contingency that requires the buyer to seek and accept financing in good faith does not automatically excuse nonperformance; the buyer’s conduct and efforts may support a finding of breach.
- In a seller’s action for a buyer’s breach of a real estate purchase contract, expectation (“benefit of the bargain”) damages are generally the difference between the contract price and the property’s fair market value at the time of breach.
- Evidence of a later resale price can be used to prove fair market value at the time of breach when the resale is not shown to be unreasonable or made in bad faith.
- Carrying costs such as real estate taxes incurred while the seller retains ownership and use are not recoverable as benefit-of-the-bargain damages absent a showing that accounts for corresponding benefits of continued ownership.
- Special (consequential) damages may be recovered only when the loss arises from circumstances the parties reasonably had in mind at the time of contracting; losses tied to undisclosed personal plans are not recoverable.
Conclusion
Williams v. Ubaldo held that the buyer breached a home-purchase contract despite a financing contingency requiring good-faith efforts to obtain financing, and that the sellers’ general contract damages were the contract price minus fair market value at breach, which could be shown by a later good-faith resale price; the court removed added awards for interim real estate taxes and snow-removal expenses because they were not justified as benefit-of-the-bargain or foreseeable special damages on the record.