Daily Development for Tuesday, September 26, 2006
by: Patrick A. Randolph, Jr.
Elmer F. Pierson Professor of Law
UMKC School of Law
Of Counsel: Blackwell Sanders Peper Martin
Kansas City, Missouri

VENDOR /PURCHASER; SPECIFIC PERFORMANCE; ELECTION OF REMEDIES:  While the sale of real property by a vendor to a third party precludes an order of specific performance for purchasers, the election of remedies doctrine does not bar purchasers from seeking legal damages.  

UFG, LLC v. Southwest Corp., 848 N.E. 2d 353 (Ind. App. 2006). 

In a specific performance action, Buyers alleged that Seller wrongfully refused to follow through on its promise to sell the Property to Buyers, and Buyers also requested monetary damages as a result of the failed transaction. Buyers filed a lis pendens at that time. The Superior Court found in favor of Seller, holding that there was not an enforceable contract between the parties.

The Seller then applied for a discharge of the lis pendens, which the trial court granted.  The appeals court, in discussing this issue indicated that the Buyer could have asked for a suspension of the trial court’s ruling pending appeal, but did not do so, presumably because it did not wish to provide an appeal bond.  Therefore the lifting of the lis pendens was proper.  Seller immediately sold the Property to a third party, and Buyers filed thereafter a notice of lis pendens pending the appeal.

Ultimately, the Appeals Court reversed, holding that there was an enforceable contract between the parties. On remand, the trial judge retired and a replacement judge found that  there was no basis for an equitable accounting because specific performance was no longer available, and entered an order in favor of the Seller. The Superior Court also precluded Buyers from a hearing on damages. 

In a second appeal, Buyers contended that the trial court erred (1) in finding that specific performance was no longer possible; and (2) in holding that Buyers elected specific performance as their remedy and therefore abandoned any claim for damages.  With respect to the first claim, the Appeals Court held that Seller’s sale of the Property to a third party necessarily precluded an order of specific performance to Buyers.  The court noted that specific performance is unavailable when the subject matter of the contract is beyond the control of the parties.  Here, the property at issue had been sold to an unrelated third party at a time that there was no lis pendens in existence and before the Appeals Court remanded the case to the Superior Court.  Thus, specific performance was incapable of being performed.

The appeals court acknowledged that the Buyers argued that the trial court should order specific performance both against the Seller and against the new owner of the property, Tycor, on the ground that Tycor purchased with actual knowledge of the pending appeal, notwithstanding the discharge of the lis pendens.  Amazingly, the appeals court hardly touched on this issue, and the editor surmises because Buyers had not in fact brought Tycor into the case as a party defendant.  The court upheld the refusal to grant specific performance on the grounds that the named defendant, the original seller, no longer owned the property.

Under the second claim, Buyers attested that they never elected to pursue the remedy of specific performance to the exclusion of legal damages.  Seller countered that Buyers could not seek damages on appeal because of the election of remedies doctrine, which provides that a party that has two inconsistent remedies and elects to prosecute one such remedy to a conclusion may not thereafter sue on the other remedy. 

The court held that Buyers were entitled to an opportunity to prove any damages they suffered as a result of Seller’s breach of contract.  Relying extensively on an analogous case, Hudson v. McClaskey, 597 N.E.2d 308 (Ind. 1992), the court found that it would be a miscarriage of justice for the court to allow Buyers to choose between two inconsistent remedies, then waiting until after Buyers had elected one of the remedies to inform them that the preferred remedy was not available and, furthermore, that the alternate remedy was no longer available once they had stated their preference.  Affirmed in part, reversed in part, and remanded with instructions.

Comment 1: The court noted that some of the problems arose from confusion over the distinction between equitable compensation that might be associated with a specific performance award - such as compensation for damages occasioned by the delay in performance, and damages for failure to perform the contract at all.  The former - the equitable relief, was not relevant because specific performance was not granted.  But, since the contract had been ruled binding, albeit not subject to specific performance, damages were still available and to deny such relief based upon an argued election of remedies would be a miscarriage of justice.

Comment 2: It strikes the editor as odd that a plaintiff who brings a specific performance lawsuit must file an appeal bond or risk the loss of the protection of a lis pendens.  But the editor doesn’t litigate, and can’t be sure that this isn’t the universal rule.  If it is, then this case serves as a universal warning.  If you lose at trial, preservation of the lis pendens is going to be pricey.  If you are the defendant, and you win at trial, force the issue and seek for discharge of the lis pendens.

Compare: Slachter v. Swanson, 2000 WL 1187811, 25 Fla. L. Weekly D2008 (Ct.  App., Fla., 3d District, 82300). (The DIRT DD for 10/30/00)  Transferee of real property is on constructive notice of fact that any judgments shown in the record might be subject to appeal, and has duty to inquire of court records to determine status of any such appeal. Transferee therefore will be bound by the outcome of any such appeal.  In Slachter the purchaser bought in reliance on the record of a dismissal of a mortgage, but the mortgagee had appealed that dismissal and obtained a reversal, which was not entered into the record. 

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