American Mechanical Corp. v. Union Machine Co. of Lynn, Inc

Citation. 22 Ill.21 Mass. App. Ct. 97, 485 N.E.2d 680 (App. Ct. 1985)

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Citation22 Ill.21 Mass. App. Ct. 97, 485 N.E.2d 680 (App. Ct. 1985)

Brief Fact Summary. American Mechanical Corp. (Plaintiff), made a contract with Union Machine Co. of Lynn, Inc. (Defendant), to sell its real estate and equipment for $135,000.00. Defendant repudiated the contract, knowing the Plaintiff’s mortgage lender, Saugus, would foreclose on Plaintiff. At the foreclosure sale, Plaintiff’s real estate and equipment sold for $90,000.00.

Synopsis of Rule of Law. In cases where it is clear to both parties, in a sale of real estate, what the actual losses will be, the court may use actual losses of the injured party, when the other repudiates a contract rather than the contract price minus the fair market value of the real estate.

Points of Law - Legal Principles in this Case for Law Students.

The fundamental principle of law upon which damages for breach of contract are assessed is that the injured party shall be placed in the same position he would have been in, if the contract had been performed, so far as loss can be ascertained to have followed as a natural consequence and to have been within the contemplation of the parties as reasonable men as a probable result of the breach, and so far as compensation therefor in money can be computed by rational methods upon a firm basis of facts.

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Facts. Plaintiff and Defended entered into a contract to sell Plaintiff’s equipment and real estate and equipment for $135,000.00. At the time of the contract, Defendant knew that Plaintiff was having financial problems, and that Plaintiff’s mortgager, Saugus, would probably foreclose on them if the sale did not go through. Defendant repudiated the contract. Saugus held a foreclosure sale when Saugus sold the equipment for $35,000.00 and the real estate for $55,000.00. In the suit, following, the trial court entered a judgment for Plaintiff, but only granted nominal damages.

Issue. Was the trial court correct in assigning only nominal damages?

Held. No. This court awards Plaintiff $45,000.00 in damages
The trial court assumed that, because the foreclosure sale was properly done, that fair market value was obtained for the property.
The traditional rule for repudiation for a contract for sale of real estate is the contract price minus fair market value. The trial judge did not believe the price obtained at the foreclosure sale, seven months later, represented the fair market value at the time of the contract.
In this case, it is clear that if the sale did not go through, the most likely result would be a foreclosure sale. Defendant knew this at the time of the contract.
Defendant argues that Plaintiff did not put the real estate and equipment back on the market. If it were possible for Plaintiff to get a better price, Plaintiff’s damages would be reduced. The burden of proof is on Defendant to prove that, but Defendant has not.

Discussion. The fact that Defendant knew the likely result of the breach, led the court to award Plaintiff actual damages, which was the contract price minus the price Plaintiff actually obtained for the real estate and equipment, rather than the fair market value of the real estate and equipment.

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