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CHESAPEAKE BUILDERS, INC. v. LEE, et al. (59909)


CHESAPEAKE BUILDERS,
INC. v. LEE, et al.


September 12, 1997
Record No. 961778

CHESAPEAKE BUILDERS, INC.

v.

WING K. LEE, et al.

OPINION BY JUSTICE BARBARA MILANO KEENAN
FROM THE CIRCUIT COURT OF THE CITY OF VIRGINIA BEACH

Robert B. Cromwell, Jr., Judge
Present: Carrico, C.J., Compton, Stephenson,[1] Lacy, Keenan, and
Koontz, JJ., and Poff, Senior Justice


In this appeal, we consider whether a purchaser of real
property was entitled to recover damages for the loss of his
bargain, or specific performance of the contract with an
abatement in the purchase price, as a result of the sellers’
breach of contract.

Chesapeake Builders, Inc. (Chesapeake) filed an amended bill
of complaint against Wing K. and Dorothy W. Lee, seeking specific
performance of a contract with the Lees, or in the alternative,
damages of $205,000 for the alleged loss of bargain caused by the
Lees’ breach of contract. The Lees filed an answer requesting
rescission of the contract based on an alleged mutual mistake of
fact. The chancellor referred the matter to a commissioner in
chancery who heard the following evidence.

In April 1994, Chesapeake and the Lees executed a contract for
the sale of Lots 2, 3, and 4, as shown on the Tazewell plat of
Ocean Park, in the City of Virginia Beach. Lot 2 was a vacant
lot, and Lots 3 and 4 contained improvements including a
residence, a carport, and a garage. Chesapeake agreed to purchase
the three lots for $95,000, which included a $1,000 deposit. The
Lees were the owners of Lot 2, but they did not own, and never
had owned, Lots 3 and 4.

Mr. Lee testified that he first attempted to sell Lot 2 by
erecting a "For Sale" sign on the property which
included the dimensions of his vacant lot. The Lees later
employed real estate agent A. Deborah Sutphin of Man-Jac Realty,
Inc. to assist them in the sale of the lot. The Lees gave Sutphin
a copy of their tax assessment for Lot 2, and copies of two
surveys depicting all three lots.

Sutphin erroneously advertised Lots 2, 3, and 4 in a Metro
Multiple Listing Service, Inc. (MLS) publication as the lots
offered for sale by the Lees. The Lees’ listing was located in
the vacant land section of the publication. The listing did not
indicate that there were any improvements on the property and
stated that the lot was zoned for duplex construction. The
listing further showed a tax assessment of $55,000 for the land
and $0 for improvements.

Sutphin erected a Man-Jac Realty sign on Lot 2 and left in
place the Lees’ sign. William E. Wood and Associates had erected
"For Sale" signs on Lots 3 and 4 on behalf of the owner
of those lots.

J. C. Keeter, the president of Chesapeake, discovered the Lees property through the MLS
listing. Keeter directed his real estate agent, who was
affiliated with William E. Wood and Associates, to prepare a
standard purchase agreement conditioned on Chesapeake’s ability
to construct one duplex on the property. After making some minor
changes, the Lees signed the contract, and Keeter accepted the
Lees’ counteroffer. About seven weeks after the contract was
executed, during preparations for settlement, Keeter learned from
his attorney that the Lees did not own Lots 3 and 4.

Keeter testified that he believed he was obtaining the three
lots at a greatly reduced price due to the Lees’ ongoing marital
difficulties, which were known to him at the time the contract
was negotiated. The Lees stipulated they were having such
difficulties at that time.

Mr. Lee testified that he had a fifth-grade education and
that, at all times prior to discovery of the contract error, he
believed the MLS listing and the contract were limited to the
sale of Lot 2. The parties stipulated that Mrs. Lee had received
a degree from a two-year business college, and that she reads and
understands English. Mr. Lee testified that Mrs. Lee did not read
the contract before signing it, and that Sutphin did not read the
contract to him before he signed it.

The parties stipulated that the combined fair market value of
Lots 2, 3, and 4 was $300,000. The parties also agreed that the
fair market value of Lot 2 was $80,000.

In their amended bill of complaint, Chesapeake sought a decree
awarding specific performance of the contract, requiring the Lees
to convey title to the three lots or, alternatively, to convey
Lot 2 for $25,333.33, a reduction in price of more than
two-thirds the fair market value of the lot. In the alternative,
Chesapeake requested $205,000 in damages for its alleged loss of
bargain, representing the difference between the total market
value of the three lots and the contract price.

The commissioner found that, although the Lees
"apparently paid little attention to what they signed, there
is no evidence that they intentionally contracted to convey
something they did not own." Since the commissioner found
that the Lees did not act with the intent to mislead or deceive,
he concluded that Chesapeake was not entitled to damages for its
loss of bargain.

The commissioner also ruled that Chesapeake was entitled to an
abatement in the purchase price based on the Lees inability to perform the
entire contract, but that the abatement requested by Chesapeake
would create an inequitable result. Instead, the commissioner
recommended that Chesapeake be allowed to elect between two
remedies. The first remedy would allow Chesapeake to rescind the
contract, based on mutual mistake of fact, with a refund of the
$1,000 deposit plus interest on that amount, and reasonable
attorneys fees of
$4,258 pursuant to the terms of the contract. The second remedy
would allow specific performance of the contract, requiring the
Lees to convey Lot 2 at a price abated to its fair market value
of $80,000. Under this alternative, Chesapeake would also receive
credit for its $1,000 deposit and its reasonable attorneys fees of $4,258 under the
contract terms. Both Chesapeake and the Lees filed exceptions to
this report.

After a hearing, the chancellor entered an order overruling
both parties’ exceptions. The chancellor held that there was a
mutual mistake of fact when the contract was executed, and that
Chesapeake was entitled to the remedies outlined in the
commissioner’s report.

On appeal, Chesapeake argues that the commissioner erred in
ruling that the contract contained a mutual mistake of fact.
Chesapeake asserts that the evidence did not show that Keeter
made a mistake in executing the contract with the Lees, and that
any "mistake" committed by the Lees was due to their
own negligence in failing to read the contract before signing it.
Chesapeake contends that it is entitled to either (1) damages of
$205,000 for the loss of its bargain, representing the difference
between the fair market value of the three lots and the contract
price, or (2) specific performance of the contract for Lot 2,
with an abatement in the purchase price to $25,333.33 to reflect
Chesapeakes loss of
the right to purchase the other two lots.

In response, the Lees assert that the commissioner’s finding,
that the parties acted under a mutual mistake of fact in signing
the contract, is supported by the evidence. The Lees allege that
Chesapeake mistakenly believed the Lees owned the three lots, and
that the Lees mistakenly thought the contract was limited to the
sale of the one lot they owned. The Lees assert that, since they
did not act in bad faith, the commissioner afforded Chesapeake an
appropriate choice of remedies. The Lees further contend that
equitable principles support the commissioner’s decision to set
the purchase price for Lot 2 at its fair market value of $80,000.

We consider these arguments under an established standard of
review. A decree which approves a commissioner’s report will be
affirmed unless plainly wrong or without evidence to support it. Firebaugh
v. Hanback
, 247 Va. 519, 525, 443 S.E.2d 134, 137 (1994); Hill
v. Hill
, 227 Va. 569, 576-77, 318 S.E.2d 292, 296-97 (1984).
While the report of a commissioner in chancery does not carry the
weight of a jury verdict, Code ? 8.01-610,
the report should be sustained by the chancellor if the
commissioner’s findings are supported by the evidence. This rule
applies with particular force to the report’s factual findings
which are based on evidence heard by the commissioner, but does
not apply to pure conclusions of law contained in the report. Morris
v. United Virginia Bank
, 237 Va. 331, 337-38, 377 S.E.2d 611,
614 (1989); Hill, 227 Va. at 576-77, 318 S.E.2d at 296-97.

We first conclude that the record supports the chancellor’s
decision sustaining the commissioner’s finding that the Lees did
not act in bad faith or intentionally misrepresent that they
owned Lots 3 and 4. As stated above, Mr. Lee testified that he
placed his sale sign on the one lot he owned, and that his sign
included only that lot’s dimensions. He also stated that he
provided Sutphin with a copy of his real estate tax assessment
for the property which showed that he only owned Lot 2. Lee
further testified that, throughout the negotiation of the
contract, he believed the contract related exclusively to Lot 2.
The record also shows that Sutphin prepared the erroneous MLS
listing on which Keeter relied. Finally, as the commissioner
observed, the Lees could not have expected to benefit from the
misrepresentation because the error necessarily would have been
discovered before settlement.

Since the record supports the finding that the Lees did not
act in bad faith, Chesapeake was not entitled to contract damages
of $205,000 for its alleged loss of bargain. Absent a contrary
contractual provision, a purchaser of real estate may not recover
damages for breach of contract beyond the return of the purchase
money actually paid, with interest, unless the purchaser proves
that (1) the seller acted in bad faith in contracting to convey
title at such time, or (2) on or before the time fixed for the
completion of the contract, the seller voluntarily rendered
himself unable to complete the conveyance, or (3) the seller was
able to make the conveyance contracted for and neglected or
refused to do so. Williams v. Snider, 190 Va. 226, 230, 56
S.E.2d 63, 65 (1949); Davis v. Beury, 134 Va. 322, 339,
114 S.E. 773, 777 (1922).

To recover damages for the loss of its bargain, Chesapeake was
required to prove one of the above exceptions. See Davis,
134 Va. at 340-41, 114 S.E. at 778; Spruill v. Shirley,
182 Va. 342, 348-49, 28 S.E.2d 705, 708 (1944). However, the
record shows that Chesapeake failed to prove that the Lees’
conduct fell within any of these exceptions, or that any specific
contractual provision entitled Chesapeake to recover such
damages.

We agree with Chesapeake, however, that the chancellor erred
in ruling that rescission was a proper remedy because the parties
entered into the contract under a mutual mistake of fact.
Although Keeter entered into the contract under the mistaken
belief that the Lees owned Lots 3 and 4, there is no evidence
that the Lees executed the contract believing they owned those
additional lots. Instead, the evidence is uncontroverted that the
Lees did not read the contract or take other measures to acquaint
themselves with the contract terms. Such conduct is evidence of
negligence, not of mistake, and does not constitute grounds for
rescission of a contract. See Metro Realty of
Tidewater, Inc. v. Woolard
, 223 Va. 92, 99, 286 S.E.2d 197,
200 (1982); Ashby v. Dumouchelle, 185 Va. 724, 733, 40
S.E.2d 493, 497 (1946).

We next consider whether the record supports the chancellor’s
award of specific performance. Specific performance of a contract
does not lie as a matter of right, but rests in the discretion of
the chancellor, and may be granted or refused under established
equitable principles and the facts of a particular case. Firebaugh,
247 Va. at 526, 443 S.E.2d at 137; Hawks v. Sparks, 204
Va. 717, 720, 133 S.E.2d 536, 539 (1963). The chancellor’s
discretion must be exercised with a view to the substantial
justice of the case. Millman v. Swan, 141 Va. 312, 319,
127 S.E. 166, 168 (1925).

Generally, when there is a deficiency in title, quantity, or
quality of an estate, the purchaser has the option to require the
seller to convey such part as the seller is able, with an
abatement of the purchase price for any deficiency. Turner v.
Holloway
, 146 Va. 827, 834, 132 S.E. 685, 687 (1926); Millman,
141 Va. at 322, 127 S.E. at 169. The purpose of an abatement, as
reflected in our decisions, is to allow the purchaser to enforce
the contract at a price reflecting the value of the estate that
the seller is able to convey. See, e.g., Turner,
146 Va. at 834, 132 S.E. at 687; Watson v. Hoy, 69 Va. (28
Gratt.) 698, 712-13 (1877); Hoback v. Kilgores, 67 Va. (26
Gratt.) 443, 444-45 (1875). The terms of the abatement, as part
of the award of specific performance, rest within the
chancellor’s sound discretion. See Millman, 141 Va.
at 319, 127 S.E. at 168.

Here, the chancellor, in accordance with the commissioner’s
recommendation, abated the contract price to $80,000, the
stipulated fair market value of Lot 2. The commissioner set this
amount after finding that the abatement requested by Chesapeake
would be inequitable under the circumstances of the case. We
conclude that the record supports this finding.

The stipulated value of all three lots was $300,000. Although
Keeter believed that he was able to secure the $95,000 contract
price based on the Lees’ personal circumstances, those
circumstances had no bearing on the price set by the Lees, who
erroneously believed they had fixed the contract price for the
sale of Lot 2 only. Further, the Lees did not act in bad faith
throughout the course of these events. Thus, we hold that the
chancellor correctly sustained the commissioner’s refusal to set
an abatement which would have deprived the Lees of more than 68%
of the fair market value of their property. The chancellor
properly modified the demands of the parties according to the
substantial justice of the case. See Millman, 141
Va. at 319, 127 S.E. at 168.

For these reasons, we will affirm in part, and reverse in
part, the chancellor’s decree and enter final judgment in favor
of Chesapeake for specific performance of the contract according
to the terms of the chancellor’s decree.

Affirmed in part,
reversed in part,
and final judgment.

 

 

 

FOOTNOTES:

[1] Justice Stephenson participated in the hearing
and decision of this case prior to the effective date of his
retirement on July 1, 1997.

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