Buyer must specifically perform

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Specific performance remains a viable remedy for sellers, as well as buyers, when the other party breaches a contract for real property.

The Wisconsin Supreme Court declined on June 3 to limit the remedy to buyers only.

Ash Park, LLC, owned a vacant parcel of real estate in Brown County. On April 6, 2007, Alexander & Bishop, Ltd., offered to purchase it, intending to develop a retail shopping center.

They entered into a $6.3 million contract that included a default clause, specifically allowing specific performance as a remedy for both parties.

Alexander & Bishop breached the contract, and the circuit court ordered that it purchase the property. The court of appeals affirmed, as did the Supreme Court, in an opinion by Justice Ann Walsh Bradley.

Longstanding Wisconsin law provides that, when a buyer breaches a contract, the seller may seek actual damages, liquidated damages, or specific performance. The court declined to eliminate specific performance as an available remedy.

Alexander & Bishop argued that, in the context of a contract for land, a seller must demonstrate that damages are an inadequate remedy as a prerequisite for specific performance.

But the court disagreed, noting that sec. 840.03(1)(f) explicitly provides that specific performance is an available remedy for any person having an interest in real property.

Alexander & Bishop also argued that it was not financially able to purchase the property. However, the court found that it failed to assert impossibility as a defense in the circuit court, and thus, it could not consider this argument without usurping the function of that court.

Because specific performance was provided for by contract, by statute, and under the common law, the court concluded the circuit court properly exercised its discretion in ordering it as a remedy.

Alexander & Bishop also argued that, instead of specific performance, courts should order a judicial sale, plus a money judgment for any deficiency.

But Ash Park argued, and the court agreed, that this proposed remedy would not adequately protect it — if the sale price were less than the existing mortgage on the property, it would have to make up the difference at the time of sale, and then try to collect its judgment for the deficiency against the breaching buyer.

Before concluding, the court emphasized that no factual finding has been made that Alexander & Bishop is unable to perform the contract. “Alexander & Bishop never asked the circuit court to order a judicial sale and did not develop a factual record demonstrating why a judicial sale might be an appropriate procedure under the facts of the case. Rather, it asks us to declare that a judicial sale is a mandatory procedure to effectuate an award of specific performance.”

The court declined to do so.

The court further held that a seller has no duty to mitigate its damages if it seeks specific performance, because mitigation would pose practical difficulties. The court found that a seller cannot commit to sell the property to another buyer, and also be in a position to perform its end of the contract if the specific performance it requests is granted.

Case analysis

Noticeably absent from the opinion is any direct consideration of two of the reasons the circuit court gave for its decision.

Summarizing the circuit court’s reasons, the Supreme Court wrote, “It reasoned that the property was unique, that specific performance was the preferred remedy under Wisconsin law, and that under the terms of the contract the parties had bargained for this remedy.”

At several points in its analysis, the Supreme Court noted that the contract explicitly provided for specific performance in holding this an equitable remedy. In this respect, the Supreme Court and circuit court agree.

But at no point did it address whether specific performance actually is “the preferred remedy under Wisconsin law.”

Nor did it discuss whether the uniqueness of real property makes specific performance a more equitable remedy than others.

Had it done so, it would have had to admit that, while specific performance may have been equitable in this case for various reasons, the unique nature of land is not one of them.

On the contrary, the unique character of individual parcels of land is only a valid reason for preferring specific performance over other remedies when the remedy is sought by the buyer.

Each parcel of land is unique, and thus, no money award can give an aggrieved buyer what it bargained for — the land itself.

However, a seller of land seeks only money, and money is fungible.

If a judicial sale and money judgment were indisputably an adequate remedy, then the unique nature of the real property underlying the transaction is no basis to prefer specific performance over other remedies, because money is all that is sought anyway.

As a result, in future cases, if the contract does not explicitly state that specific performance is available as a remedy to the seller, and the primary reason the circuit court gives for ordering it is that the property is unique, the Supreme Court’s opinion could be distinguished.

David Ziemer can be reached at [email protected]