Chesapeake Builders, Inc. v. Lee

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.
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.

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