Case Title: Chesapeake Builders Inc. v. Lee

Citation: 

Docket Number: 961778

State: virginia

Court: Virginia Supreme Court

Date: 1997-09-12T00:00:00Z

Document:
Present:  Carrico, C.J., Compton, Stephenson,
* Lacy, Keenan, and 
Koontz, JJ., and Poff, Senior Justice 
 
CHESAPEAKE BUILDERS, INC. 
 
v.  Record No. 961778 
OPINION BY JUSTICE BARBARA MILANO KEENAN 
                                    September 12, 1997 
WING K. LEE, et al. 
 
 
FROM THE CIRCUIT COURT OF THE CITY OF VIRGINIA BEACH 
 
Robert B. Cromwell, Jr., Judge 
 
 
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 
                     
     
*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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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 
 
 
 
 
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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 
 
 
 
 
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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 attorney’s 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 
 
 
 
 
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alternative, Chesapeake would also receive credit for its $1,000 
deposit and its reasonable attorney’s 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 
Chesapeake’s 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 
 
 
 
 
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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 
 
 
 
 
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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). 
 
 
 
 
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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 
 
 
 
 
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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 
 
 
 
 
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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.