McGILL LAW JOURNAL
REVUE DE DROIT DE McGILL
Vol 24
Montreal
1978
No. 4
Specific Performance of Contracts for the Sale
of Land Purchased for Resale or Investment
Paul J. Brenner*
I. Introduction
In two recent decisions, Canadian courts have refused to order
specific performance of contracts for the sale of land. The basis for
these decisions appears to be that the property in question was
not being purchased for personal use, but for investment or resale.
The first instance occurred in Heron Bay Investments Ltd v. Peel-
Elder Developments Ltd’ where -leave to appeal from an order
vacating registration of a certificate of lis pendens was refused on
the ground that the plaintiffs’ action was appropriately characteriz-
ed as one involving a monetary claim rather than an interest in
land.2 In addition, it seems that section 42(3) of The Judicature
Act 3 was relied upon; the Court decided that any loss sustained by
the plaintiffs could be satisfactorily compensated by an award of
damages, despite the probable loss of the land.4 Aside from its
* Paul J. Brenner, of the Faculty of Law, University of Windsor, Windsor,
Ontario. I would like to thank Professors Joseph Arvay and Kathleen Lahey
for their valuable comments on an earlier draft of this paper.
1 (1976) 2 C.P.C. 338 (Ont. H.C.) per Weatherston J. (as he then was).
2 See The Judicature Act, R.S.O. 1970, c. 228, s. 42(2).
3Ibid.
4 Weatherston J. held that the balance of convenience therefore favoured
the defendants, since they would lose an apparently profitable pending sale:
supra, note 1, 339.
McGILL LAW JOURNAL
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refusal to follow Galinski v. Jurashek,5 the decision by Weathers-
ton J. is remarkable for its views on purchasers’ rights under con-
tracts for the sale of realty:
The remedy of specific performance is one that is peculiar to real estate
transactions and is based on the fact that real estate is regarded as
unique and of particular importance to the purchaser. Obviously, the
purchase of a new house is much different than the buying of a new
car …. That reasoning does not apply when land is purchased merely
as an investment …. True it may be a uniquely good investment, but
it was not being purchased by the plaintiffs for their own use but only
to develop and resell at a profit. Obviously, any loss of profits can be
compensated for in damages.6
Similar views were expressed by the Newfoundland Court of
Appeal in Chaulk v. Fairview Construction Ltd.7 The vendor had
agreed to construct and convey five duplexes to the plaintiff pur-
chaser. Two of the duplexes were in fact conveyed to the purchaser
and subsequently resold at a substantial profit, but the vendor
refused to build and convey the remaining duplexes on the ground
that the purchaser had failed to notify the vendor that necessary
financing had been obtained.8 Gushue S.A., delivering judgment on
behalf of the Court,9 held that formal notification that suitable
financing had been arranged was not required, and that in any event,
financing had actually been procured. Thus he found it unnecessary
to consider the .vendor’s second argument that the financing con-
dition was a condition precedent to the completion of the contract,
the nonfulfilment of which precluded specific performance.1 0 Yet
the purchaser was ultimately unsuccessful in his attempt to obtain
specific enforcement of the contract:
6 (1976) 1 C.P.C. 68 (Ont. H.C.). Lerner
. decided that a certificate of Us
pendens could be vacated only when the claim was frivolous or vexatious
or when it was an abuse of process and must fail at trial.
I Supra, note 1, 339 [emphasis added].
7 (1977) 14 N. & P.E.I.R. 13.
8The financing clause provided as follows: “Subject to financing as offered
by agent that is $1,200 downpayment per unit with monthly payments of
$305.00 which includes principal, interest, furnace financing and municipal
taxes up to $55.00 per mo.”
9Morgan J.A. and Mahoney S. concurring.
‘0 Gushue S.A. doubted whether the clause was a condition precedent
within the meaning given to that term in Turney v. Zhilka [1959] S.C.R. 578,
and also stated that as the vendor was not himself ready, willing and able
to perform his own obligations, he could not rely on any default by the
purchaser. For an extensive analysis of conditions precedent in contracts
for the sale of land, see Davies, Conditional Contracts for the Sale of Land
in Canada (1977) 55 Can. Bar Rev. 289.
1978] SALE OF LAND PURCHASED FOR RESALE OR INVESTMENT
515
The question here is whether damages would have afforded Chaulk an
adequate remedy, and I have no doubt that they could, and would, have.
There was nothing whatever unique or irreplaceable about the houses
and lots bargained for. They were merely subdivision lots with houses,
all of the same general design… which the respondent was purchasing
for investment or resale purposes only … . It
is therefore obvious that
damages do afford an adequate remedy to Chaulk, and that these damages
should be capable of assessment, with very little difficulty. 1
This essay seeks to examine the principles governing specific
performance in cases of acquisition of realty for the purposes of
investment or resale. It is contended that the decisions in Heron Bay
Investments Ltd and Chaulk are not warranted by the state of au-
thorities and are incorrect as a matter of principle. Part II of the
article describes the reasons normally articulated in support of the
equitable remedy for contracts for the sale or lease of interests in
land. An examination of the relevant case law is presented in Part III,
while differences between the concepts of “resale” and “investment”
in the context of dealings with land are considered in Part IV. The
final section is concerned with the question whether damages are an
adequate remedy where the purchaser seeking specific performance
has already resold the property by the time specific performance is
sought..
II. Factors giving rise to specific performance of agreements
for the sale of land
Contracts for the sale of land may be specifically enforced by
either the vendor or the purchaser. The right to specifically enforce
a contract for the transfer of an interest in land is so well known
that there is perhaps a tendency to overlook the reasons for this
right in any particular case. Thus Maitland concluded that “specific
performance applies to agreements for the sale or the lease of
lands as a matter of course”. 2 The inadequacy of the legal remedy is
the traditional reason ascribed to the enforcement of contractual
obligations in specie by courts exercising equitable jurisdiction.’
11 Supra, note 7, 21 [emphasis added].
12 Maitland, Equity rev. ed.
(1936), 304. See also Kloepfer Wholesale
Hardware & Automotive Co. v. Roy [1952] 2 S.C.R. 465, 472 per Kerwin J.
13 Spry, Equitable Remedies (1971), 57. There has been some attempt to
argue that specific performance should be liberated from the “adequacy of
legal remedy” test, so as to expand its availability. See Dawson, Specific
Performance in France and Germany (1959) 57 Mich. L. Rev. 495; Farns-
worth, Legal Remedies for Breach of Contract (1970) 70 Colum. L. Rev. 1145;
McGILL LAW JOURNAL
[Vol. 24
Damages at law for contracts for the sale of land were viewed as
inadequate because land was seen as unique, peculiar, or of special
significance’ 4 to the purchaser. 15 Whether or not the property
possessed any intrinsic value due to its fertility or mineral wealth,
damages for failure to convey legal title were always considered
inadequate, without regard to the size, value, or location of the land,
or to the possibility of obtaining other land substantially equivalent. 0
A related justification, more appropriate to the times when land
was relatively difficult to obtain, was that “there is no open. market.
… The number of instances where the buyer could get land substan-
tially as satisfactory or where the vendor could make a ready sale
Van Hecke, Changing Emphases in Specific Performance (1961)
40 N.C.L.
Rev. 1, cited by Brun, Comment on Centex Homes Corp. v. Boag (1974) 43
U. of Cin. L. Rev. 935, 944, n. 36.
14 Cud v. Rutter (1719) 1 P. Wins. 570, 571, 24 E.R. 521, 522 (Ch.); Buxton
v. Lister (1746) 3 Atk. 383, 26 E.R. 1020, 1021 (Ch.); Adderley v. Dixon (1824)
1 Sim. & St. 606, 610, 57 E.R. 239, 240 (Ch.); Scott v. Alvarez [1895] 2 Ch.
603, 615 (C.A.); Restatement of the Law of Contracts, 360, comment (a).
12 Since the purchaser may obtain specific performance, the vendor has a
similar right, based on the concept of mutuality of remedy. See Lewis v.
Lord Lechmere (1722) 10 Mod. 503, 88 E.R. 828 (Ch.); Regents’ Canal Co.
v. Ware (1857) 23 Beav. 575, 53 E.R. 226 (R.C.); Cogent v. Gibson (1864)
33 Beav. 557, 55 E.R. 485 (R.C.). Spry, supra, note 13, 59 cites Eastern Coun-
ties Ry v. Hawkes (1855) 5 H.L.C. 331, 10 E.R. 928, and Dougan v. Ley (1946)
71 C.L.R. 142 (H.C. Austl.) for the view that the vendor’s remedy is inade-
quate in any event, but cf. Hanbury & Maudsley, Modern Equity 10th ed.
(1976), 40; Megarry & Baker (eds.), Snell’s Principles of Equity 27th ed.
(1973), 574; Waddams, The Law of Contracts (1977), 424.
There is some evidence that the doctrine of mutuality is gradually being
modified: see Price v. Strange [1977] 3 W.L.R. 943 (C.A.). In the United
States the operation of the mutuality concept has been considerably weaken-
ed, if not annihilated: see Cook, The Present Status of the “Lack of Mutua-
lity” Rule (1927) 36 Yale L..
897; Durfee, Mutuality in Specific Performance
(1922) 20 Mich. L. Rev. 289; Epstein v. Gluckin 233 N.Y. 490, 135 N.E. 861
(1922) (per Cardozo J.), cited by Brun, supra, note 13, 939-40, n. 20.
Those who argue that damages alone should be the vendor’s sole
lemedy overlook the particular ditficulties vendors may face in actually
disposing of the land in question, whatever its theoretical market value:
see Brun, supra, note 13, 942-44. That author also notes the possible existence
of a proprietary right justifying the vendor’s claim for specific performance,
t.e., “equitable conversion”, where a purchaser in breach is deemed to be
the [constructive] trustee of the purchase price for the vendor. See Hynes,
Remedies of the Vendor and Purchaser Under a Contract for the Sale of
Realty in Pennsylvania (1965) 10 Vill. L. Rev. 557, 569, cited by Brun, supra,
note 13, 938, n. 14.
“D Clark, Equity (1919), 42, citing Gartrell v. Stafford 12 Neb. 545, 11 N.W.
732 (1882); Corbin, Corbin on Contracts (1964), vol. 5A, 1143.
1978] SALE OF LAND PURCHASED FOR RESALE OR INVESTMENT
517
to another purchaser is so small as to be negligible”. 7 It has also
been said that in the case of a contract for the sale of land, the “real
meaning between the parties … was not that there should be a
contract with legal remedies only, [but] that the purchaser should
get the land, and should not be put off in an ordinary case by
offering him damages”.’ s Of course the fact that this is “the real
meaning” of the contract is not of itself sufficient to compel
specific performance of contracts for the sale of substitutable
goods. 9 These justifications for compelling the specific transfer of
interests in realty appear to stem from the importance of land as a
“favorite and favoured subject”, 20 and are based on rationaliza-
tions concerning the inadequacy of damages. Where the foundation
for the rule is not present, does the rule nonetheless operate, or are
damages always to be deemed inadequate as a matter of law, there-
by precluding inquiry in any particular case?2
In the United States there are considerable differences of opi-
nion regarding the approach to be taken toward this question. Ina-
dequacy of damages may be presumed or assumed without any onus
upon the plaintiff to affirmatively demonstrate that this is so. 2 On
the other hand it has been said that the remedy is discretionary; thus
the plaintiff must show the inadequacy of legal relief before specific
performance will be deoreed.2 A third line of authorities supports
17 See Clark, supra, note 16.
18 Scott v. Alvarez, supra, note 14, 615, per Rigby L.J.
19 See, e.g., Mennonite Land Sales Co. v. Friesan (1921) 62 D.L.R. 344, [1921]
3 W.W.R. 341 (Sask. K.B.).
20 Kitchen v. Herring 42 N.C. 137, 138, 7 Ired. Eq. 190, 191 (1851).
21 See Waddams, supra, note 15, 423; Megarry & Wade, The Law of Real
Property 4th ed. (1975), 593.
22See, e.g., Rowan v. Harburney Oil Co. 91 F. 2d 122 (10th Cir. 1937);
Sinclair Ref. Co. v.. Miller 106 F. Supp. 881 (D. Neb. 1952); Lee Builders, Inc.
v. Wells 33 Del. Ch. 439, 95 A. 2d 692 (1953); Dee v. Collins 235 Iowa 22, 15
N.W. 2d 883 (1944); Farringlon v. Hays 353 Mo. 194, 182 S.W. 2d 186 (1944);
Wasserman v. Manson 225 App. Div. 342, 233 N.Y.S. 80 (1929). See also cases
cited in 81 C.J.S. 76, nn. 26-31, 77, nn. 73. 74; 81A C.J.S. 167, nn. 88, 89; and
cases cited in 49 Am.Jur. 92, n. 15; 71 Am.Jur. 2d 112, nn. 72, 74.
Accordingly it has been said that in the case of contracts for the sale
of land, ” ‘it is as much the duty of the court to decree specific performance
of the contract as it is to give damages for its breach’ “: see de Funiak,
Contracts Enforceable in Equity (1948) 34 Va L. Rev. 637, 643, cited by
Brun, supra, note 13, 938, n. 12.
22See, e.g., Shields v. Trammell 19 Ark. 51 (1857); Porter v. Frenchman’s Bay
84 Me 195, 24 A. 814 (1892); McCall v. Atchley 256 Mo. 39, 164 S.W. 593 (1914);
Peeler v. Levy 26 N.J. Eq. 330 (1875); Schwartz v. Church & Commerce Corp.
184 Misc. 200, 53 N.Y.S. 2d 666 (1945).
McGILL LAW JOURNAL
[Vol. 24
the proposition that specific performance of a contract for the
sale (or lease) of land will be ordered whether or not the legal
remedy of damages is adequate, or because as a matter of law,
damages will be deemed an inadequate remedy? 4 Finally, there is
the issue whether contracts for the sale of land will be specifically
enforced as a “matter of course”,25 or subject to the general discre-
tion of courts exercising equitable jurisdiction?,
24 See, e.g., McCargo v. Steele 160 F. Supp. 7 (D. Ark. 1958); Dickinson v.
McKenzie 197 Ark. 746, 126 S.W. 2d 95 (1939); Dollar v. Knight 145 Ark. 527, 224
S.W. 983 (1920); Dean v. Brower 119 Cal. App. 412, 6 P. 2d 580 (1931); White
v. Greenamyre 77 Colo. 33, 234 P. 164 (1925); Hotel Candler v. Candler 198 Ga
339, 31 S.E. 2d 693 (1944); Spoden v. Krause 117 Ind. App. 14, 68 N.E. 2d 654
(1946); Battista v. Moreau 366 Mass. 247, 316 N.E. 2d 626 (1974); Janiszewski
v. Shank 230 Mich. 189, 202 N.W. 949 (1921); Bria v. Michalski 188 Mich. 400,
154 N.W. 110 (1915); Wilkinson v. Vaughn 419 S.W. 2d 1 (Mo. 1967); McCullough
v. Newton 348 S.W. 2d 138 (Mo. 1961); Cummins v. Dixon 265 S.W. 2d 386 (Mo.
1954); Rice v. Griffith 349 Mo. 373, 161 S.W. 2d 220 (1942); Jesseman v. Aurelio
106 N.H. 529, 214 A. 2d 743 (1965); Gulf Oil Corp. v. Rybicki 102 N.H. 51, 149 A.
2d 877 (1959); Kann v. Wausau Abrasives Co. 81 N.H. 535, 129 A. 374 (1925);
McVoy v. Baumann 93 N.J. Eq. 638, 117 A. 725, aff’g 93 N.J. Eq. 360, 117 A. 717
(1922); Guokas v. Bishara 57 N.Y.S. 2d 588 (1945); Montano v. Kimmel 185
Misc. 165, 57 N.Y.S. 2d 281 (1945); Belanewsky v. Gallaher 55 Misc. 150, 105
N.Y.S. 77 (1907); Belin v. Stikeleather 232 S.C. 116, 101 S.E. 2d 185
(1957);
Adams v. Willis 83 S.E. 2d 171 (S.C. 1954); Singleton v. Cuttino 107 S.C. 465,
92 S.E. 1046 (1917); Hammond v. Foreman 48 S.C. 175, 26 S.E. 212 (1897);
Payne v. Still 10 Wash. 433, 38 P. 994 (1894).
25 .e., in the absence of any vitiating factor, e.g., uncertainty, incompleteness,
unconscionability. See, e.g., General Am. Life Ins. Co. v. Natchitoches Oil Mill
160 F. 2d 140 (5th Cir. 1947); Sabin v. Rauch 75 Ariz. 275, 255 P. 2d 206, aff’d
76 Ariz. 71, 258 P. 2d 991 (1953); Kimball v. Slatter 20 Ariz. 81, 176 P. 843
(1918); Vincent v. Grayson 30 Cal. App. 3d 899, 106 Cal. Rptr 733 (1973); Lee
v. Peck 228 Ga 448, 186 S.E. 2d 94 (1971); Baron v. Anderson 204 Ga 7, 48 S.E.
2d 846 (1948); Lewis v. Trimble 151 Ga 97, 106 S.E. 101 (1921); Tolbert v. Short
150 Ga 413, 104 S.E. 245 (1920); Funk v. Browne & Leary 145 Ga 828, 90 S.E.
64 (1916); Miedema v. Wormhoudt 288 Ill. 537, 123 N.E. 596 (1919); Excell Co.
v. Freeman 252 Md 242, 250 A. 2d 103 (1969); Manning v. Potomac Elec. Power
Co. 230 Md 415, 187 A. 2d 468 (1963); Sims v. Nidiffer 203 Va 749, 127 S.E. 2d
85 (1962); Ballard v. Ballard 25 W. Va 470 (1885). See also cases cited in
81 C.J.S. 10b, nn. 41-44; 77, nn. 45, 55.
26 See, e.g., Willard v. Tayloe 75 U.S. (8 Wall.) 557 (1869); Williams v.
Neeld Gordon Co. 86 Fla 59, 97 So. 315 (1923); Murphy v. Hohne 73 Fla 803,
74 So. 973 (1917); Zempel v. Hughes 235 Ill. 424, 85 N.E. 641 (1908); Clifton
Land Co. v. Reister 186 Ky 114, 216 S.W. 345
(1919); McNeil v. McNeil 61
Utah 141, 211 P. 988 (1922); Merill v. Rocky Mtn Cattle Co. 26 Wyo. 219,
181 P. 964 (1919). See also Annotation –
Specific performance- of a contract
as a matter of right 65 A.L.R. 7, 3945.
The Canadian courts recognize that the remedy is discretionary. See,
e.g., Harris v. Robinson (1892) 21 S.C.R. 390, 397 per Strong J.; Webb v.
1978] SALE OF LAND PURCHASED FOR RESALE OR INVESTMENT
519
In England there is some indication that the decree of specific
performance, rather than being dependent on an answer to the
“adequacy of damages” test (which itself tends to depend on the
classification of the contract under consideration), is being rein-
terpreted -2 7 and applied on a case by case basis. Although the equit-
able remedy there sought was an interlocutory injunction rather
than specific performance, Sachs L.J. in Evans Marshall & Co. v.
Bertola S. A.2 8 stated that “the standard question …
‘Are damages
an adequate remedy?’, might perhaps, in the light of the authorities
of recent years, be rewritten: ‘Is it just, in all the circumstances,
that a plaintiff should be confined to his -remedy in damages?’ “9
Whether this reformulation alters judicial attitudes towards the
specific enforcement of contracts for the sale of interests in land
remains to be seen.
Whatever the relationship between specific performance and
contracts for the sale of land, it is apparent that where the purchaser
by conduct demonstrates that to him or her the realty is not unique,
special, or peculiar, a conflict beween the reasons for the remedy
and the application of the remedy has been created.30 Whatever the
Dipenta [1925] S.C.R. 565, 571 per Rinfret J. But see Roberto v. Bumb
[1943] O.R. 299, 310 (C.A.) per Laidlaw J.A.
This is perhaps an arid debate, since the assertion that such contracts
are being specifically enforced “as a matter of course” will not be made
in the presence of a factor affecting the court’s discretion, unless the court
intends to ignore that factor. The exercise of discretion will necessarily
be present even where a court refuses to recognize its existence.
2 Beswick v. Beswick [1968] A.C. 58 (H.L.). See also Coulls v. Bagot’s
Ex’r & Trustee Co. (1967) 119 C.L.R. 460, 503 (H.C. Austl.) per Windeyer I.
28 [1973] 1 W.L.R. 349, 379 (C.A.). An earlier illustration may be found
in Wilson v. Northampton & Banbury Jctn Ry (1874) 9 Ch. App. 279, 284
per Lord Selborne L.C.
29 See Guest (ed.), Chitty on Contracts: General Principles 24th ed. (1977),
vol. 1, 776. For recent indications that the basis for .primary equitable
relief is broadening, see North West Beverages Ltd v. Pepsi-Cola Canada Ltd
(1971) 20 D.L.R. (3d) 341 (Man. Q.B.) and Baxter Motors Ltd v. American
(Anderson J.
Motors (Canada) Ltd (1973)
adopting the language of Sachs LJ. in Evans Marshall), cited by Brown,
Specific Performance in a Planned Economy (paper delivered at the
Eighth Annual Workshop on Commercial and Consumer Law, Toronto,
October 1978). See also Yule Inc. v. Atlantic Pizza Delight Franchise
(1968) Ltd (1977) 17 O.R. (2d) 505 (DiV. Ct.).
40 D.L.R.
(B.C.S.C.)
(3d) 450
a0Which is not to say that the conflict cannot be avoided. The purchaser
who has bought realty in order to resell and actually resells may elect to
sue the reluctant vendor for damages only, although his or her failure to
obtain title to the property may result in exposure to a suit for specific
McGILL LAW JOURNAL
[Vol. 24
formal criteria may be, their application to the unusual case calls
for their re-examination1 The next issue to -be investigated is the
manner in which the courts have responded to the tensions created
by the conflict between the rule and its reasons.
III. The courts’ treatment of contracts for the sale of land
purchased for resale or investment
A. Canada
The specific enforcement of contracts for the sale of land pur-
chased for resale, investment, or speculation has not ‘been the sub-
ject of much judicial activity. Perhaps the first occasion upon which
the issue arose in Canada occurred in Prittie v. Laughton,3 2 where
the plaintiff brought an action for specific performance of an agree-
ment or option for the sale of land. Meredith C.J., in dismissing the
claim, rested his judgment on the plaintiff’s failure to satisfy the
court that the contractual document in question was plain and
performance by the subvendee. See text, infra, Part V.
language employed
Earlier decisions are sensitive to the requirement of a case by case
consideration, although the
is often equivocal. See,
e.g., Adderley v. Dixon, supra, note 14 per Leach V.C.: “Courts of Equity
decree the specific performance of contracts.., because damages at law
may not, in the particular case, afford a complete remedy. Thus a Court
of Equity decrees performance of a contract for land, not because of the
real nature of the land, but because damages at law, which must be cal-
culated upon the general money value of land, may not be a complete remedy
to the purchaser, to whom the land may have a peculiar and special value.”
[emphasis added]. See also Chitty on Contracts: General Principles, supra, note
29, 775; Loan Inv. Corp. of Australasia v. Bonner [1968] N.Z.L.R. 1025, 1046
(C.A.) per Richmond J., dissenting; af’d [1970] N.Z.L.R. 724 (P.C.).
31 Kronman, Specific Performance (1978) 45 U. of Chi. L. Rev. 351, argues
that although the concept of “uniqueness” (depending as it does on the
intrinsic characteristics of the good in question) does not admit of an
economic analysis, there are a number of economic rationales operating
in favour of specific performance when the object has no ready substitutes:
e.g., the cost of investigation of the purchaser’s subjective evaluation of
the interest coupled with the risk of undercompensation militate against
mere pecuniary damages. See Brun, supra, note 13, 940-43 for an argument
that “uniqueness” should not give rise to a finding that a vendor’s remedy
at law is inadequate. Rather, the test should be the “factual remarket-
ability” of the property within a reasonable
time after the purchaser’s
repudiation.
32 (1902) 1 O.W.R. 185 (Div. Ct.). See also O’Neill, Specific Performance
of a Contract for Purchase and Sale of Land (1973) 21 Chitty’s L..
109,
110-11; Reiter & Sharpe, Wroth v. Tyler: Must Equity Remedy Contract
Damages? (1979) 3 Can. Bus. L.J. 146, 154-155, n.. 23.
1978] SALE OF LAND PURCHASED FOR RESALE OR INVESTMENT
521
legible. This factor, coupled with uncertainty as to price, proved
fatal. The plaintiff had not requested -damages -in the alternative,
and, according to Meredith C.J., the evidence failed to support such
a claim. 33 However, the judgment went on to say:
But, in addition to these circumstances, the cause is one in which the
plaintiff might well be left to his common law remedy for breach of
contract. The lots, apparently about 20 in number, were to be sold for
$100 altogether, an average of $5 each. They were bought to sell again
for the purpose of speculation only. They were tax title lots in Toronto
Junction. No one can doubt the feasibility of going into the market and
being able to buy abundantly of such lots ….
It is not a case in which
damages will not “afford a complete remedy”: Adderley v. Dixon, 1
S. & S. 608. Here damages will completely compensate.3 4
Putting aside the fact that Adderley v. Dixon had nothing what-
ever to do with speculative contracts for the sale of land, it is easy
to agree with the sentiments expressed in the above passage, pro-
vided that one or two necessary qualifications are stated. First, there
was no evidence to warrant the supposition that the plaintiff had
already subcontracted or assigned his rights under the original
agreement or option; accordingly, there was no danger of denying
or precluding the exercise of a third party’s rights by refusing
specific relief. Second, it appears that Meredith C.J. regarded the
lots in question, namely, “tax title lots in Toronto Junction” as
perfectly substitutable, in the sense that exactly equivalent lots in
Toronto Junction were -redily available on the market. Thus a
unique opportunity to speculate was not being -forfeited. Finally, it
should be noted that there was no attempt to deny specific relief on
the basis that an agreement entered into for speculative purposes
was void or unenforceable as contrary to public policy 5
In Roberto v. Bumb30’ the Ontario Court of Appeal was given the
opportunity of addressing the question of the availability of specific
performance where damages were alleged to be an adequate remedy
for the breach of a contract for the sale of land. Laidlaw J.A. was
the only member of the Court to respond. After stating that if the
agreement was otherwise unobjectionable and valid in form, specific
performance would be decreed as “a matter of course”, Laidlaw
J.A. continued:
It has been said that where damages are sufficient compensation for
breach of contract, specific performance should not be decreed. But I
3 1bid., 186.
3 Ibid., 187.
35 If such had been the case, damages at common law would presumably
not have been -awarded in any event.
36 Supra, note 26. See also O’Neill, supra, note 32, 111.
McGILL LAW JOURNAL
(Vol. 24
think that where the substance and essentials of a valid contract are
sufficiently defined the Court ought to enforce actual performance of
it unless there are special circumstances for not doing so. The affairs
of modern business and society depend increasingly upon a strict ful-
filment of obligations voluntarily undertaken by parties, and I think that
a person seeking relief from his contractual burdens must clearly establish
to the satisfaction of the court such circumstances as render discharge
by him unnecessary or inexpedient. That has not been done in this case. 7
Although one commentator has observed that this decision
“demonstrated a lenient approach in finding inadequacy of dama.
ges,” 38 it seems more accurate to state that Laidlaw J.A. was willing
to decree specific performance whether or not damages could be
held inadequate. In any event, there is nothing in the report to
support the vendor’s contention that damages might adequately
compensate the purchaser for his loss. Furthermore, one scrutinizes
the decision in vain for a reference to any motives of the purchaser
which might indicate a proposed nonpersonal use. If the plaintiff
had resold or assigned his interest, that fact was not thought im-
portant enough to mention. The remarks of Laidlaw J.A. concern-
ing “strict fulfilment of obligations” would seem to apply equally
to contracts for the sale of chattels, which are usually remediable
by damages and not by specific performance.
In Armstrong & Armstrong v. Grahama9 LeBel J. did not even
consider refusing equitable relief although the plaintiffs had resold
the land to a third party who subsequently withdrew from the sale
when the defendant wrongfully refused to execute the conveyance.
Damages for the lost sale 0 were awarded in addition to specific
performance. There was no argument made that the decree should
not be ordered simply because the plaintiffs had quantified their
loss by contracting to resell the property, and the result reached is
inconsistent with such a view.
On one occasion the Supreme Court of Canada enunciated a view
similar to that expressed by Laidlaw J.A. in Roberto. In Kloepfer
Wholesale Hardware & Automotive Co. v. Roy41 Kerwin J. empha-
tically rejected the contention that damages were an adequate
remedy although the plaintiff allegedly acquired the land for use as
an investment:
37 Ibid., 311.
38 O’Neill, supra, note 32, 111.
39 [1947] O.W.N. 295 (H.C.) per LeBel J. (as he then was).
4 0 LeBel J. directed a reference to the Local Master to determine the
41 Supra, note 12.
damages recoverable as a result of the lost sale.
1978] SALE OF LAND PURCHASED FOR RESALE OR INVESTMENT
523
Finally, as to the suggestion that damages would be sufficient because it
is contended that the plaintiff desired to use the property as an invest-
ment, it is sufficient to say that generally speaking, specific performance
applies to agreements for the sale of lands as a matter of course.42
There is no evidence in any of the reports of the case to suggest
that the purchaser had actually resold or assigned his equitable
interest 3 in the premises either before or after the contract was
formed. The only evidence of any intention to use the land as an
investment is that contained in Kerwin J.’s remarks, quoted above.
However, Kerwin J.’s approach is consistent with that of Laidlaw
J.A. in Roberto, for the question of adequacy of damages is ignored,
subsumed or overcome by the assertion (or conclusion) that specific
performance applies to the category of agreements for the sale of
land as a matter of course.
What then can be gleaned from the Canadian authorities decided
prior to the Heron Bay and Chaulk decisions? The dicta of Meredith
C.J. in Prittie can be severely restricted by reference to the perfectly
substitutable nature of the realty there in issue. Roberto and
Kloepfer Wholesale Hardware -suggest that specific performance
will be decreed even where the purchaser entered into the contract
of sale with an investment intention, regardless of whether damages
might be considered an adequate remedy. The result achieved in
Armstrong is consistent with such a position, and could perhaps be
construed as support for the more extreme proposition that specific
performance will be decreed even though the purchaser has actually
resold or assigned the equitable interest created ‘by the contract
of sale. Thus, although there is no direct authority on the availability
of specific performance where the plaintiff transfers or intends to
transfer his or her equitable interest, the -decisions in the two recent
cases, insofar as they suggest that specific performance is not avail-
able to a purchaser who acquires -real property for the purposes of
investment, are open to considerable doubt.
42 Ibid., 472 (Estey and Fauteux JJ. concurring). Locke and Cartwright
[1952]
the basis for the decree of specific performance
JJ. did not discuss the issue, nor did the Ontario Court of Appeal:
1 D.L.R. 158.
43Although
is the
absence of an adequate remedy in damages, the decree has the effect of
creating a proprietary interest (i.e., an interest enforceable against persons
other than the grantor: Jackson, Principles of Property Law (1967), 83-85;
cf. Maitland, supra, note 12, passim). It has been suggested, however, that
the award of specific performance “does not necessarily connote an equit-
able right”: Note, (1973) 89 L.Q.R. 326, 329.
McGILL LAW JOURNAL
[Vol. 24
B. Australasia
Sir Garfield Barwick, Chief Justice of the High Court of Austra-
lia, has twice commented on the availability of the equitable remedy
where the purchaser bought the property intending to develop or
hold it for commercial purposes. In Pianta v. National Finance &
Trustees Ltd,44 all members of the Court agreed that in the cir-
cumstances of that case, a solicitor retained by owners to protect
their interests concerning a proposed sale had no authority to con-
clude a binding agreement of sale. Barwick C.J. then considered
whether specific performance was otherwise available:
There was a faint endeavour made on behalf of the appellants to support
the refusal of a decree [of.] specific performance on the ground that,
because the respondent was a land developer, damages would be an
adequate remedy. But in my opinion this proposition is without foun-
dation in law, even if the respondent had had no other business than that
of subdividing and selling land and had made a decision to subdivide
and sell the subject land. 45
This passage is not entirely clear. Did Barwick C.J. consider
damages in such a case to be an adequate remedy, yet hold nonethe-
less that specific performance was available for the enforcement of
that type of contract (that is, a contract for the sale of land) as a
matter of course? Or did he think that as a matter of law, damages
for breach of a contract for the transfer of an interest in realty
were to be deemed inadequate, for reasons left unartioulated?4 The
last sentence in the statement quoted above is tantalizingly ambi-
guous. Is Barwick C.J. ‘referring to a general decision to subdivide
and resell or to a specific intention to subdivide and resell the sub-
ject land at a certain price? If the former, damages could be inade-
quate because speculative, unascertainable or difficult to prove.47 If
the latter, it could well be contended that the purchaser, by alienating
44 (1964) 38 A.L.J.R. 232. Kitto, Windeyer, Owen and Menzies JJ. concurring.
See also Starke & Higgins, Cheshire and Fifoot’s Law of Contract 3d Aust.
ed. (1974), 589.
45 Ibid., 233.
46 Spry, supra, note 13, 58, cites Pianta for the proposition that in such
a case, damages will not usually be regarded as an adequate remedy for
the purchaser.
47Decro-Wall Int’l S.A. v. Practitioners in Mktg Ltd [1971] 1 W.L.R. 361
(C.A.); Tanenbaum v. Bell Paper Co. (1956) 4 D.L.R. (2d) 177 (Ont. H.C.).
See also Behnke v. Bede Shipping Co. [1927] 1 K.B. 649; Hogg v. Wilken
(1975) 5 O.R. (2d) 759, 51 D.L.R. (3d) 511 (H.C.), cited by Reiter & Sharpe,
supra, note 32, 150, n. 12.
1978] SALE OF LAND PURCHASED FOR RESALE OR INVESTMENT
525
the proprietary interest for a sum certain, has quantified the loss
and hence rendered damages an adequate remedy.4 8
Sir Garfield Barwick was provided with an opportunity to am-
plify his views in Pianta when Loan Investment Corp. of Australasia
v. BonnetAO was argued in the Privy Council. The contract provided
that land was to be sold for 13,300, but of that amount 11,000 was
to be “deposited” with the purchaser by -the vendor without security
for ten years at a stipulated rate of interest. When the vendor-res-
pondent repudiated, the purchaser-appellant claimed specific per-
formance. Lord Pearson, delivering the majority opinion of the
Judicial Committee, held that “the contract was neither in form
nor in substance an ordinary contract for the sale of land with a
usual ancillary provision for part of the price to remain on loan
from the vendor to the purchaser”. 51 His Lordship continued: “If a
composite contract includes what is in substance and reality a
long-term unsecured loan, the loan ought not to be treated … as
something different simply by being connected with a sale of land.”8 2
The respondent had argued inter alia that the contract could
not be enforced by specific performance because: (1) as the pur-
chaser wanted the land solely for commerciaP 3 purposes as part of
its general business, the land did not possess a peculiar and special
value to it; (2) the puirchaser, had rot suffered any loss that could
not have been adequately compensated by an award of damages,
since (a) the property had been purchased solely for commercial
purposes, and (b) the contract provided for an unsecured loan, the
value of which, not being “peculiar or special”, could not justify
specific performance. 4 Besides refusing the decree for the reason
already given, Lord Pearson appeared to consider these other sub-
missions in the following passage:
This composite contract was predominantly in the nature of a commercial
bargain. The appellant company wanted the property not for their own
use, but for selling, letting, mortgaging and perhaps developing, and they
48 See the discussion of calculation of damages, infra, Part V.
4o [1970] N.Z.L.R. 724 (P.C.).
50 Viscount Dilhorne, Lords Hodson and Donovan concurring.
51 Supra, note 49, 734.
52 Ibid.
.5 There was no attempt made, either by counsel or by any member of
the Judicial Committee, to differentiate between the intention to resell,
to invest or to speculate. Hence the term “commercial” is used to indicate a
nonpersonal use.
54 Supra, note 49, 727.
McGILL LAW JOURNAL
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wanted the loan to help in financing their business generally …. If the
appellant company can show that they have been deprived of a good
bargain, … they are entitled to proper damages. On the whole, damages
are a sufficient and suitable remedy [.J55
One wonders whether this reason could stand alone as a ground
for refusing specific relief had the Judicial Committee not already
stated that the contract was not specifically enforceable in any
event. Sir Garfield Barwick delivered a very cogent and compelling
dissent. He first refuted the majority position –
that the contract
could not be specifically performed because a “principal transaction”
within it provided for a simple loan – by focusing attention on the
foundation for that proposition: generally an award of damages as a
remedy for the breach of an agreement to lend money constitutes
adequate compensation.” But it does not follow that a contract to
lend money can never in any circumstances be specifically per-
formed: 57 cessante ratione legis, cessat ipsa lex. Where damages
are not an adequate remedy, even in the case of a contract which
provides for an unsecured loan, the decree can be ordered. In the
instant case, specific performance was the correct choice because
damages would not adequately compensate, since the property was
an appreciating asset, and the plaintiff would only have to part with
55 Ibid., 735. This statement echoes the words of Turner J. in the New
Zealand Court of Appeal (supra, note 30, 1043): “[T]his purchaser decided
to enter into this contract for the purchase of land not with the object
of becoming the owner of a particular piece of real property, to which he
attached some sort of importance, but simply so as to acquire an un-
encumbered asset capable of being sold or mortgaged, upon which it could
raise finance upon sale or loan. If this was the object of the purchaser in
entering into this agreement, the transaction is about as far as possible
from the agreement for the purchase of land referred to by Sir John Leach
V.-C. in Adderley v. Dixon … where he explains the applicability of specific
performance to contracts for the sale of land as being ‘not because of the
real nature of the land, but because damages at law … may not be a com-
plete remedy for the purchaser, to whom the land may have a peculiar and
special value’ ” [emphasis in text]. It is respectfully suggested that the two
purposes motivating a purchaser, set out in the first sentence quoted above,
are not incompatible but complementary. A purchaser may especially prize a
particular piece of property precisely because of the unique investment or
speculative opportunities afforded by its acquisition.
56Supra, note 49, 741. The majority had stated
that specific relief
for a contract to repay money should be refused because the court could
not supervise repayment, and because of inequality between, the lender and
borrower where the loan was unsecured. Sir Garfield Barwick disagreed.
7 Beswick v. Beswick, supra, note 27; Beech v. Ford (1848) 7 Hare 208,
68 E.R. 85 (Ch.), cited by Sir Garfield Barwick, ibid., 742.
1978] SALE OF LAND PURCHASED FOR RESALE OR INVESTMENT
527
a small cash outlay, the balance being repayable at the end of a
lengthy period.”
Sir Garfield Barwick then took issue with the majority conclusion
that the purchaser, having only a commercial interest in the land,
should be denied primary equitable relief. After indicating that the
earlier English authorities established the principle that the pur-
chaser’s decision to acquire particular land demonstrated -an idio-
syncratic evaluation without more, he concluded as follows:
The authorities and established principle do not mean, in my opinion,
that only those who want the land for some reason over and above the
fact that it is land can have specific performance of the contract. Other-
wise, for example, developers who buy land merely as a means of profit
making or a person who having bought land has already subsold it before
suit could not have specific performance …. No two pieces of land can
be identically situated on the surface of the earth. When a buyer purchases
a parcel, no other piece of land, or the market value of the chosen land
can be considered, in my opinion, a just substitute for the failure to
convey the selected land.59
The ambiguities raised by Barwick C.J.’s judgment in Pianta
have thus been resolved. Damages for the breach of a contract for
the sale of land are definitionally inadequate, whether or not the
purchaser merely contemplates a resale or has actually subsold the
realty before suit. It is respectfully suggested that the doctrine enun-
ciated by Sir Garfield Barwick is correct, and should be followed in
preference to that propounded by Lord Pearson. A distinction and
consequent reconciliation of the different opinions might, however,
be possible. Lord Pearson, it may be recalled, considered that the
two transactions involved characterized the contract as a “com-
mercial bargain”. Hence damages were an adequate remedy because
a principal component of the agreement was an unsecured -loan,
which could not be specifically enforced. Had the loan transaction
not been present, the contract may not have been viewed as a
“commercial bargain”, but simply as an agreement for the sale of
land; -specific performance could then be decreed, whether the mo-
tives of the purchaser were commercial or otherwise. The weakness
58 Ibid, Sir Garfield Barwick also remarked that the “noticeable reluctance”
to award specific performance was due (in part) to the “singular advantage”
which the purchaser would obtain if the contract as a whole were speci-
fically performed.
59Ibid., 745. Richmond J., the dissentient in the court below, agreed that
damages were not an adequate remedy (supra, note 30, 1046-47) for reasons
similar to those given by Sir Garfield Barwick, and stated that damages based
on differences in the market value of the land were unreliable, nominal or
negligible and a poor substitute for the land itself.
McGILL LAW JOURNAL
[Vol. 24
of this reconciliation is that it minimizes the emphasis Lord Pearson
placed on the reasons for which the appellant attempted to acquire
the property.
It appears that the conclusions reached in the earlier Canadian
cases are largely compatible with Barwick C.J.’s reasoning in Pianta
and Bonner. The opinion of Meredith C.J. in Prittie that the avail-
ability of substitutable lots precluded specific performance cannot
be reconciled with Barwick C.J.’s view, for the latter was unable to
accept the assertion that interests in realty are substitutable. As
far as the Australian judge was concerned, the court had no satis-
factory mechanism for determining the monetary worth of the land
in question as valued by the purchaser.” If the court is to attempt
to compensate the purchaser for the breach of contract, it is the
purchaser’s evaluation of the promisor’s performance “as distinct
from what the promisee, or anyone else has offered to pay for it””1
that really matters. By accepting the evaluation of supposed substi-
tutes by others in lieu of the promisee’s evaluation, the court runs
a considerable risk of under-‘or overcompensating the purchaser. 2
0 Kronman, supra, note 31, 360-61, argues that an economic justification
for specific relief depends on the difficulties created by a promisee who
subjectively evaluates the worth of a substitute selected in place of the
contract subject. The least costly substitute must still be determined by
the evidentiary process, and this expensive exercise renders specific per-
formance a more efficient remedy.
OlIbid., 361.
62 Ibid. Although Kronman excepts the case of the purchaser interested
in reselling the property from his statement that the court cannot simply
infer the promisee’s evaluation from the values that others place on the pro-
perty or any supposed substitutes, the exception is qualified. Thus Kronman
states that money damages may be undercompensatory where the promisee
intended to hold the property for some time as an investment rather than
resell immediately. In the latter case Kronman considers that it is perhaps
reasonable to treat any loss “as equal to the difference between the con-
tract price and the price at which he could have sold it to someone else”
at whatever the relevant date (date of breach or date of performance).
However, the Hadley v. Baxendale (infra, note 81) principles do not
necessarily permit the purchaser to recover this amount from the vendor.
Where the proposed resale price is either less than or more than the
market price (if any such price can be calculated) at the relevant date
(date of breach or date of performance), any award of damages based on
the difference between purchase price and market price will be either
under- or overcompensatory: see text, infra, Part V.
Where the court assesses damages as the difference between the con-
tract price and a particular resale price to a third party, damages may also
be either under- or overcompensatory, when compared to the difference
between the purchase price to the plaintiff and the price at which he or
she would have been prepared to resell, as Kronman illustrates (ibid., n. 43).
1978) SALE OF LAND PURCHASED FOR RESALE OR INVESTMENT
529
This proposition is in turn qualified by the recognition that a degree
of reasonableness is required to ensure that merely because a pur-
chaser values a readily obtainable substitute less than his or her
peers do, damages are therefore inadequate:
In asserting that the subject matter of a particular contract is unique
and has no established market value, a court is really saying that it cannot
obtain, at reasonable cost, enough information about substitutes to permit
it to calculate an award of money damages without imposing an un-
acceptably high risk of undercompensation on the injured promisee.
Conceived in this way, the uniqueness test seems economically sound.63
C. The United States
In the United States, the decree for specific enforcement of con-
tracts concerning the sale of land has been generally available,
although there is some debate regarding the application of equitable
principles to the remedy itself0 4 However, there have been occasions
upon which -specific performance has been refused because the court
concluded that the land was of no particular value to the purchaser;
hence damages were deemed adequate 5 On the other hand, land
has been described as intrinsically “peculiar” so that specific per-
formance will ‘be granted upon the assumption that all contracts
concerning that category must, perforce, relate to the transfer of
something unique.”
1. Authorities favouring specific performance where the purchaser has
resold the land
The American courts have had many opportunities to consider
whether specific performance should be decreed where the land
03 Ibid., 362.
64 See text, supra, pp. 517-18 and accompanying footnotes.
5 Blake v. Flaharty 44 N.I. Eq. 228, 14 A. 128, 129 (1888), rev’g 10 A. 158
(Ch.): “The lot described is a small, unimproved piece of land without any
peculiar value to the complainant for business purposes, … or for any use
to which he may wish to apply it.”
100Paddock v. Davenport 107 N.C. 717, 12 S.E. 464, 464-65
(1890) per
Shepherd J.: “The true principle upon which specific performance
is de-
creed … is founded upon the inadequacy of legal remedy by way of pecuniary
damages. This principle is acted upon (1) where there is a peculiar value
in
attached
damages. The law assumes land to be of this character ‘simply because’
a
says PEARSON, J., in Kitchen v. Herring, 7 Ired. Eq. 191,
favorite and favored subject in England, and every country of Anglo-Saxon
origin’.”
is not compensable
to
the subject of the contract which
‘it is land, –
Shepherd J. also stated that the basis of the remedy did not depend on
an arbitrary distinction between different types of property. Yet he still
maintained that land was assumed to be peculiar, thereby justifying equitable
relief in all such cases.
McGILL LAW JOURNAL
[Vol. 24
was purchased for general purposes of speculation, investment or
immediate resale. It seems that a principal reason for awarding
specific relief, especially where the (realty has actually been sub-
soldeT is that to do otherwise encourages additional litigation:6 s
The fact that the vendee has made a contract for the resale of the land
to a third person does not deprive him of the right to specific performance.
He will be liable in damages for breach of this new contract, and these
damages cannot be accurately determined without litigation. He has a
right that the vendor shall make the transfer as agreed, in order to enable
him to perform specifically his contractual duty to the new vendee and
to avoid litigation and the payment of such damages.p
The above comment reflects two related propositions: (1) addi-
tional litigation should be avoided where possible; and (2)
the
remedy should be decreed in order to protect the title of the -sub-
vendee. It is this latter objective that provides justification for many
of the decisions. In Roaring Fork Land & Cattle Co; v. O’Brien,”
the plaintiffs had resold their interest in the land to a third party.
The defendant’s objection was that the plaintiffs, having alienated
their interest, had no right to the decree. Coyte J. (Silverstein C.y
and Dufford J. concurring) held that the plaintiffs were under a
duty to protect the title of their grantees, “and therefore had stand-
ing to enforce this suit in equity”. 71 Nothing was said regarding the
adequacy of damages. In this case, as in many others, the purchasers
had “conveyed” their interests by a “deed of warranty” to the sub-
vendee, and it was this general warranty deed which gave rise
to the duty placed upon the purchasers to protect their vendee’s
67 Restatement of the Law of Contracts, 360, comment (b).
‘0 Quaere whether The Judicature Act, R.S.O. 1970, c. 228, s. 18(8) could be
utilized to effect the same end. The section is aimed at avoiding “multiplicity
of proceedings” between the parties, and does not purport to deal with the
more general notion that additional litigation should be avoided even if it
does not involve the same parties.
10 Supra, note 67.
70 476 P. 2d 276 (Colo. App. 1970).
71Ibid., 278. See also Corbin, supra, note 16, 1143, n. 60, citing Blair
v. Morris 212 Ala. 91, 101 So. 745 (1924); and Note, Specific Performance –
Suit by Vendee who has Sold to a Third Party (1925) 34 Yale L.Y. 802;
McCullough v. Newton 348 S.W. 2d 138 (Mo. 1961); Ackerman v. Maddux
26 N.D. 50, 143 N.W. 147 (1913); Shannon v. Freeman 117 S.C. 480, 109 S.E.
406 (1921); Patterson v. T. J. Moss Tie Co. 46 Tenn. 405, 330 S.W. 2d 344
(1959); Bittrick v. Consolidated Improvement Co. 51 Wash. 469, 99 P. 303
(1909); Simpson, Fifty Years of American Equity (1936) 50 Harv. L. Rev.
171, 174, n. 18.
1978] SALE OF LAND PURCHASED FOR RESALE OR INVESTMENT
531
title.7 2 But it would seem to matter little whether the subsequent
contract expressly or impliedly bound the purchaser to “warrant
and defend” 73 the title, since the purchaser’s claim to specific per-
formance depends on the validity of the initial contract: the fact
that the purchaser is bound to sue for specific performance does
not necessitate the conclusion that the court is bound to award it.
However, it does seem clear that by decreeing specific performance,
the courts are both minimizing the likelihood of a second action by
the subpurchaser and protecting the ability of that subpurchaser to
acquire and maintain good title. 4
Right of subpurchasers and the desire to avoid litigation are not
the only reasons given for decreeing specific performance in these
cases. In Radiant Realty Co. v. Sheinbaum, 5 Hofstadter J., aside
from relying on 360 of the Restatement of the Law of Contracts,
stated that the decree was necessary because the anticipated profits
on resale may not have been included in calculating an award of
damages.76 Furthermore, even if awarded, the damages were pro-
bably not collectible, except by the sale of the property in question.
For both these reasons, damages were not an adequate remedy.
Occasionally judges react adversely to the argument that the
equitable right should be made to depend on the motives or inten-
tions of the purchaser regarding the property. For example, in
Loveless v. Diehl,77 Smith J. said:
Whether they kept it, sold it, or gave it away was of no concern to the
sellers. To refuse specific relief on account of the proposed resale would
establish an unsound precedent, diminishing the transferability of pro-
perty, since in similar situations prospective buyers would be reluctant
72 Corbin, supra, note 16, 1143, 129: “… if the purchaser has resold to
another person, with covenant of warranty, the defendant’s breach not
only causes him to lose his profit, but also to be liable in damages to the
new purchaser.”
7-3 Dobbs, Remedies (1973), 836.
74 Loveless v. Diehl 236 Ark. 129, 364 S.W. 2d 317 (1963).
759 Misc. 2d 1009, 171 N.Y.S. 2d 252
(1958); noted, (1958) 33 N.Y.U.b
Rev. 1183. See also Corbin, supra, note 16, 1143, 130; Dobbs, supra, note
73, 848.
76It was uncertain whether there was sufficient evidence to demonstrate
that the defendants had contracted in contemplation of the resale. Any
additional profits beyond
the market value of the property would not
otherwise be compensable. See also 7 A.L.R. 2d 1198, 1209, 3. For a general
treatment of the availability of damages to a purchaser, including claims
for lost profits as a result of being unable to use the land, see 11 A.L.R. 3d
719, 722; 48 A.L.R. 12.
77 Supra, note 74. See also Corbin, supra, note 16, 1143, 130; Dobbs, supra,
note 73, 848.
McGILL LAW JOURNAL
[Vol. 24
to bind themselves to a purchase contract, for fear that it might prove
to be unenforceable.78
Whatever the merits of the view that the decree should be
ordered in order to enhance the “transferability of property,” the
motives and intentions of the purchaser are relevant to the extent
that they affect the central question as to the adequacy of damages.
If subsequent dealings with the land demonstrate that damages are
indeed adequate, specific performance should be denied.79
In all of the American cases examined thus far, the purchaser
had subsequently entered into a valid and enforceable contract with
a third party for the resale of the land. Is the situation any different
where the terms of that subsequent contract, especially the term
regarding price, are unknown? In Walcis v. Kozacik, 0 the original
vendor attempted to resist specific performance by arguing that
damages (being the difference between the initial purchase price
and the amount receivable from the subpurchaser) were an adequate
remedy. This method of calculation is not necessarily within the
scope of the Hadley v. Baxendale8’ rules, since the purchaser under
the original contract may have advantagebusly secured a resale price
greater than current market value.”‘ However, Nichols J. did not re-
ject the vendor’s contention on that basis. He chose a narrower tech-
nical ground:
But there is nothing in the special findings to show upon what terms
It does
appellee [original purchaser] had agreed to sell the property ….
not appear as to whether the parties have continued to treat the contract
as still in effect, nor that appellee had agreed to sell for a ‘definite amount
under such circumstances that his damages could be ascertained.83
2. Authorities refusing specific performance where the purchaser has
resold the land
As has been seen, all of the American decisions discussed to this
point are in favour of ordering the decree, notwithstanding the re-
78 Ibid., 321. See also de Funiak, supra, note 22, 643, who agrees that equit-
able relief should not depend on the motives of the purchaser.
79 It is the writer’s view that damages are certainly not adequate where
the land has been subsold, as was the case in Loveless. See text, infra,
Part V.
80 86 Ind. App. 484, 156 N.E. 589 (1927).
81 (1854) 9 Ex. 341, 156 E.R. 145.
82 If the proposed resale price were lmown to the original vendor, the
entire amount would be recoverable: see supra, note 76.
8-Supra, note 80, 592. Nichols J. also indicated that “[e]ven
if such
damages were ascertainable, still it is not the law that, because of such
fact, resort must be had to the remedy at law rather than to equity for
the enforcement of specific performance”.
1978] SALE OF LAND PURCHASED FOR RESALE OR INVESTMENT
533
sale of the land in question. There are, however, some authorities
which could be read to favour a contrary view. In Thweatt v. Jones,84
the plaintiff arranged with one of the defendants that he would pur-
chase property in his own name from one Jones in order to hold it
for the benefit of the first defendant. Boysen, the first defendant, in
fact purchased the land from Jones, the second defendant, directly,
thereby preventing the plaintiff from obtaining the property. Could
Thweatt obtain specific performance of his valid contract of sale
with Jones? It appeared that Thweatt’s compensation was’to be the
difference between the purchase price of the land to him and $4.20
per acre.
Thayer J. (Sanborn and Shiras JJ. concurring) characterized
the relationship between Thweatt and Boysen as one of agency.
Thweatt’s remedy accordingly lay in an action against Boysen for
damages for breach of his agency contract;8 5 and damages being an
adequate remedy, specific performance was denied. This is not an
entirely satisfactory line of analysis, although the result seems just.
We are accustomed to seeing the request for equitable relief denied
where, as between the same parties, damages are an adequate re-
medy; in Thweatt the plaintiff was told that specific performance
was inappropriate because he had a cause of action on a different
and separate contract. 6 On the other hand, a decree of specific per-
formance granted to the plaintiff in these circumstances could re-
sult in the subpurchaser having to bring a second action on his
contract to recover the land, should the purchaser refuse to convey
84 87 F. 268 (8th Cir. 1898). See also Corbin, supra, note 16, 1143, 128;
Bird & Fanning, Specific Performance of Contracts to Convey Real Estate
(1934) 23 Ky L.T. 380, 384; Note, Specific Performance of Contracts to Convey
Land When the Vendee has Contracted to Sell to a Third Person (1921) 21
Colum. L. Rev. 80, 84.
85 Where the subvendee induces the original vendor to convey directly to
him or her in breach of the original vendor’s contract with the plaintiff pur-
chaser, the purchaser can join the original vendor and the subvendee as de-
fendants in an action for breach of contract and recover the benefit of his or
her bargain: Note, supra, note 84, citing McLennan v. Church 163 Wis. 411, 158
N.W. 73 (1916) as authority for this proposition.
86 There could well be difficulties faced by the plaintiff in attempting to
recover damages on the “agency” contract. If that were the case, should
specific performance be awarded because damages might be difficult
to
obtain or collect? In Thweatt, Thayer J. adverts to the problem in the follow-
ing passage at page 271: “It
is not even alleged in the bill that the de-
fendant Boysen is insolvent, and that it is necessary for that reason to set
aside the convenyance
to Boysen, and to vest the title to the property
in the plaintiff, for the purpose of securing his claim to compensation for
services rendered in negotiating the alleged purchase.”
McGILL LAW JOURNAL
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the property. Thus, the award of damages, at least where the sub-
vendee is a co-defendant, is preferable to specific performance,
since additional litigation is thereby prevented.
Presiding over a similar set of circumstances, the court in Mart-
hinson v. King7 emphasized that the direct transfer of title to the
“subpurchaser/principal” passed the property in the manner anti-
cipated by the combined effects of both contracts. By reading the
terms of the two contracts together, it was clear that the plaintiff
“acquired no right to hold the title to the property permanently”,. 8
An alternative method of characterizing the plaintiff’s position, both
in Thweatt and in Marthinson, is to classify him as a trustee, rather
than as a mere agent: he is therefore not beneficially entitled to
specific performance and should be estopped from asserting any
equitable interest in the property.8
The net result in Marthinson does, however, favour the view
that where the purchaser quantifies his loss, as evidenced by his
agency relationship with the individual beneficially interested in the
land, specific performance will be denied. The subject-matter of
the option contract in Marthinson was a “cross-tie camp and outfit”,
together with certain growing timber; all these items were even-
tually held to be personal property rather than realty. 0 Marthinson
has been approved in several other cases dealing with the availability
of the decree for the enforcement of contracts concerning personal
property.9 1
Perhaps the most notorious example of the refusal of the decree
where the purchaser had contracted to resell occurred in Hazelton
87150 F. 48 (5th Cir. 1906). See also Hume, Specific Performance of Con-
tracts to Convey Land (1933) 21 Ky LJ. 348, 349; Brun, supra, note 13, 946,
n. 44.
88 Ibid., 53.
89 In Bird v. Hall 30 Mich. 374 (1874), specific performance was decreed
on facts similar to those in Marthinson. Bird v. Hall may be distinguished,
insofar as the plaintiff’s claim against his principal had not matured before
the suit in equity was litigated, and as Note, supra, note 84, 84, n. 24 indic-
ates, damages at law could not be awarded in the absence of an anti-
cipatory breach. Furthermore, the plaintiff was entitled to hold the pro-
perty as security for payment by his principal, and to that extent can be
viewed as holding an equitable interest in the land.
9 Supra, note 87, 52.
9 1 E.g., Hawaiian Pineapple Co. v. Masamari Saito & Libby, McNeill &
Libby of Honolulu, Ltd 24 Haw. 787 (1919); Pacific States Automotive Fin.
Corp. v. Addison 261 P. 683 (Idaho 1927); Trustees of Columbia Univ. v. Mort-
gagee Investors Corp. 89 N.Y.S. 2d 324 (1949).
1978] SALE OF LAND PURCHASED FOR RESALE OR INVESTMENT
535
v. Miller,!2 where, in a suit for specific performance, the plaintiff
alleged that he had entered into a subsequent contract to convey
the property to a third party for a stipulated amount. Shepard C.J.
dismissed the plaintiff’s appeal on the following ground:
Having no other purpose, and having fixed and rendered certain the
damages sustained by the breach of the contract, his sole remedy is at
law. Further discussion, and the citation of authorities in support of this
conclusion are unnecessary.93
If the authorities Shepard C.J. found unnecessary to cite were
specifically concerned with the question whether a plaintiff could
obtain the decree where he or she had subsequently contracted to
resell for an agreed amount, it is most unfortunate that they were
not cited, since apart from Thiveatt the writer has been unable to
locate any case decided prior to 1905 even remotely on point. The
effect of this decision, then, is to deny the property to the third
party who must in turn sue his or her vendor for damages for
breach of contract. Even though there was no evidence to show the
purpose for which the third party in
the case, the United States
Government, had purchased the land, its rights to the property itself
were still thwarted 4 The only saving grace in the case is that there
was an indication in the plaintiff’s bill that the defendant intended
to transfer the property directly to the United States Government
in any event9 5 One wonders whether the Court would have held in
the plaintiff’s favour if there were any prospect of the defendant
conveying the land to a bona fide purchaser.
9225 App. D.C. 337 (1905), affd on another ground sub nom. Hazelton v.
Sheckells 202 U.S. 71. See also Corbin, supra, note 16, 1143, 128, n. 57;
Clark, supra, note 16, 43; Spry, supra, note 13, 58; Simpson, supra, note
71, 174; Note, supra, note 84, 82; Bird & Fanning, supra, note 84, 384; Huie,
supra, note 87; Note (1905) 5 Colum. L. Rev. 473; Note (1905) 18 Harv. L. Rev.
625; Cox, Specific Performance of Contracts to Sell Land (1928)
16 Ky
Li. 338, 339-40; Jones, Specific Performance of Contracts for the Conveyance
of Real Estate (1933) 22 Ky L.i. 143, 144; Van Hecke, Equitable Remedies
(1959), 14.
18 Harv. L. Rev. 625; Cox, supra, note 92, 340.
03 Ibid., 341-42.
04 See Note (1905)
05 Cox, supra, note 92, 340, argued that Hazelton v. Miller did not furnish
authority which was inconsistent with the third party’s right to specific
performance, since the plaintiff’s bill “did not show that the third party
was asking performance of the contract by the vendee”. It is difficult to
understand why the author saw a need to impose a formal pleading require-
ment upon
the plaintiff before specific relief would be decreed. One
would think that the transfer of the actual property purchased, rather than
monetary compensation, constitutes the usual expectation of the subpur-
chaser. In any event, specific performance may not yet be due.
McGILL LAW JOURNAL
[Vol. 24
Hazelton has received mixed reviews from the commentators.
One writer,0 6 referring to subsequent case law to the contrary,O
stated: “A budding heresy that equity will not specifically enforce
a land contract at the suit of a purchaser who has contracted to
resell the land has been nipped [.]”98 Cox, writing on the nature of
the relationship between contracts for the sale of land and the
equitable remedy, refers to Clark’s criticisms” and admits that they
“seem well grounded”. 10 The unsuccessful plaintiff’s exposure to an
action by his or her purchaser, coupled with the lost right of the -latter
to specific performance, are the reasons given for yet another writer’s
disapproval.” Perhaps the most telling oriticism of Hazelton con-
cerns the actual calculation of damages in order to negate the reason-
ing that damages consist simply of the difference between the two
contract prices.10 2 These “technical” objections are sufficiently im-
portant to warrant more detailed attention, and shall be further
considered. 10 3 Not unexpectedly then, the Restatement of the Law of
Contracts’04 also rejects the doctrine so casually enunciated
in
Hazelton.
On the other hand, four commentators writing in the Kentucky
Law Journal approve the proposition that damages are an adequate
remedy where the plaintiff has subsequently resold the property,
and go further in advocating the view that specific performance
should not be awarded unless the plaintiff can affirmatively de-
monstrate that damages are inadequate. 105 This superficially attrac-
tive view fails to take the right of the subpurchaser into account,
and does not deal with the problem created by the plaintiff’s liability
should an action be brought by the disgruntled subvendee. In addi-
tion, the proponents of Hazelton seem to -assume that the appro-
priate quantum of damages consists of the difference between the
two contract prices, but as shall be seen, this will not necessarily
constitute the proper quantum when assessing damages.
supra, note 24; Shannon v. Freeman, supra, note 71.
06 Simpson, supra, note 71, 174.
97Mier v. Hadden 148 Mich. 488, 111 N.W. 1040 (1907); McVoy v. Baumann,
98 Simpson, supra, note 71, 174. See also Spry, supra, note 13, 58, n. 31.
“Clark, supra, note 16, 43.
100 Cox, supra, note 92, 340.
10 Note (1905) 18 Harv. L. Rev. 625.
102 Note, supra, note 84, 82-84.
103 See text, infra, Part V.
104 360.
‘o5 Hume, supra, note 87; Jones, supra, note 92; Bird & Fanning, supra,
note 84.
1978] SALE OF LAND PURCHASED FOR RESALE OR INVESTMENT
537
In light of the well-considered disapproval of the reasoning in
Hazelton, it is not surprising to find that specific performance is
generally decreed where the plaintiff has resold the premises. Oc-
casionally, the remedy is refused where there is no evidence that
the land has been resold. In Suchan v. Rutherford,10 6 the purchasers
sued for the rescission of a contract for the sale of land, where-
upon the vendors counterclaimed for specific performance or dam-
ages for breach of contract. Taylor J.107 refused to order specific
performance on the basis that the land involved was not unique,
but instead, common to the general area. Sales of similar land were
said to be frequent, so that the market value of the property was
readily calculable L’0 Unfortunately, Taylor J. was prepared to con-
cede that specific performance Would have been available to the
plaintiffs as purchasers had the vendors refused to perform. 19 He
thus refused to apply the “mutuality” doctrine which one would
think should compel a different result regarding the purchasers’
remedy if the vendors really have no right to the decree. The ven-
dors were ultimately relegated to relief by way of damages.” 0
Of course, Suchan is not directly concerned with the situation
where the plaintiff-purchaser has himself or herself resold the pre-
mises to a third person. In view of Taylor J.’s apparent concession
that the equitable remedy was nonetheless available to the vendee,
the appropriateness of his remarks concerning the uniqueness of
the property is perhaps open to some doubt.”‘
100 90 Idaho 288, 410 P. 2d 434 (1966). See also Brun, supra, note 13, 939,
10 7McFadden and Smith JJ. concurring; McQuade C.J. and Knudson I.
n. 18.
dissenting.
108 Supra, note 106, 438.
100 Ibid., 440.
110 Ibid., 443.
111 In Watkins v. Paul 95 Idaho 499, 511 P. 2d 781 (1973),
the Supreme
Court of Idaho approved Suchan v. Rutherford, Donaldson C..
(Shepard,
McQuade and McFadden JJ., Scoggin D.C. concurring) stating at page 783:
“Here, as in Suchan v. Rutherford … ‘[i]t cannot be seriously contended
that the remedy at law via damages was not adequate, plain, speedy and
complete in this case.’ … The evidence fails to show that the plaintiffs need
the land in question for any particular, unique purpose, which is one of the
main reasons for granting specific performance; on the contrary, the plain-
tiffs’ own evidence shows that they seek to obtain the land only so they
may resell it for profit. Under these circumstances, specific performance
would bring the plaintiffs no greater relief than would damages in the
amount of their lost profit.”
Unlike Suchan v. Rutherford, it was the purchasers who here sought
equitable relief.
McGILL LAW JOURNAL
[Vol. 24
Almost all of the American decisions considered so far have
turned on the issue whether damages could be considered an ade-
quate remedy, or whether the specific enforcement of the contract
was necessary in order to protect a ‘third party’s -right to the subject-
matter of the contract. However, there have been cases where spei-
fic performance was refused, not on these grounds, but because the
contract has been characterized as “gambling” or “speculative”.
3. Gambling and speculative contracts
From 1920 to 1922, three such cases were litigated in South
Carolina. The first was Schmid v. Whitten.112 In that case, Whitten
(the defendant) agreed to sell his homestead to Schmid for $1,150.
Schmid took possession as a tenant and subsequently gave one
Morrison an option to purchase for $1,900. Morrison in turn con-
tracted to sell to one Lyles (presumably for an even greater amount).
When Whitten refused to complete the contract, Schmid sued for
specific performance. Watts J., delivering the majority judgment,113
held in favour of the defendant and refused the decree. After decid-
ing that Schmid was not interested in the property as a home, but
rather that “he was on the make,” 114 the judgment proceeds as
follows:
[lt is [a] rule of absurdity if a court of equity intends to decree specific
performance in such cases, and lend their [sic] aid and assistance to
enforcing such barefaced gambling and speculative contracts. One of the
curses of the country at present is the gambling speculative craze, whereby
a lot are out for easy money and a desire for quick riches.115
Since the plaintiff was referred to a court of law for his remedy
in damages,'”‘ one can only suppose that the gambling or speculative
nature of the contract (the Court did not draw any distinction bet-
112 114 S.C. 245, 103 S.E. 553 (1920). See also James, Specific Performance
of Speculative Land Contracts (1939) 3 U.S.C. Selden Soc’y Y.B. 29; Corbin,
supra, note 16, 1143, 128; Note, supra, note 71; Note, supra, note 84; Cox,
supra, note 92.
113 Gage and Fraser JJ. concurred. Gary C.J. and Hydrick J. (concurring)
dissented. The majority judgment was originally written as a dissent.
114 Supra, note 112, 553.
115Ibid., 553-54. Watts J. then stated that there were “a lot of good people
engaged in the real estate business, legitimately buying and selling, but the
case at bar presents no such features”. One wonders how Watts J. was
able to differentiate the “good people” from Schmid, who was presumably
one of the bad.
110 Ibid., 554.
1978] SALE OF LAND PURCHASED FOR RESALE OR INVESTMENT
539
ween the two categories)11 7 rendered it illegal,” 8 void, or unenforce-
able in equity, but did not affect its validity at law.
The unusual aspects of this decision (apart from the Court’s con-
demnation of speculative contracts) lie in the matters not discussed.
There is no mention of the issue of the adequacy of damages, nor
are the rights of the optionee and his subpurchaser deemed worthy
of mention.’ 9 Schmid was followed two years later by the same
court in Sumner v. Bankhead,120 where the vendor sought specific
performance of a contract for the sale of land. The facts disclose
that the plaintiff had only recently acquired the equitable interest
in the property under a contract of sale, and had not yet received
a conveyance from the legal owner. Bankhead, the defendant, agreed
to purchase the property, but refused to pay the purchase price when
Sumner tendered the deed (Sumner having in the meantime obtain-
ed the legal title). The only defence considered at trial and on appeal
was that the contract was speculative.12′
Cothran J., dissenting, had doubts whether the contract between
Sumner and Bankhead was in fact speculative, although he con-
ceded that Sumner had entered into the previous contract with the
original owner with speculative motives, and that Bankhead con-
tracted for the land in order to speculate with it. In other words,
Sumner may not in fact have been speculating when he resold to
3″1 Note, supra, note 84, 81. The writer points out that the contract should
not be considered a gambling contract since in that type of transaction,
“there is no intention ever to acquire the property”, which lack of intention
is apparently rebutted by the fact that the purchaser, in bringing suit for
specific performance, evidently desires the land. If the contract were a
gambling contract, it would be “contrary to public policy and … unenforceable
both at law and in equity”: Flagg v. Baldwin 38 N.J. Eq. 219 (1884); Lowry
v. Dillman 59 Wis. 197, 18 N.W. 4 (1884).
The writer then states that “speculative” contracts are enforceable at
law (citing Dillaway v. Alden 88 Me 230, 33 A. 981 (1895)), and after examin-
ing the likelihood of injury or inconvenience to the public if land specula-
tion contracts were enforceable in equity, concludes that there is no good
reason why these contracts should not be enforced in courts exercising
equitable jurisdiction.
118 James, supra, note 112, 31, states that the Court held the contract
illegal, but in all fairness to the majority judgment, Watts J. did not go so
far, although he did refuse to lend the Court’s aid to enforce it.
19 The dissenting judges do not expressly address the issue which forms
the basis for the majority opinion, but since both were prepared to decree
specific performance, one can infer that they rejected the majority view on
the question.
120 119 S.C. 78, 111 S.E. 891 (1922). See also James, supra, note 112.
121 Ibid., 893 per Cothran J. (dissenting).
McGILL LAW JOURNAL
[Vol. 24
Bankhead: “it was rather the consummation, the closing out, of a
previous speculative intent, which should not be permitted to inject
its poison into this valid contract.’ 1 22 This fine distinction may
possess merit. If the defendant is able to vitiate the contract (at
least with respect to its specific enforcement) by alleging some
“improper” motive on behalf of the plaintiff, that is one thing. If
the defendant is able to allege his own “improper” motive as a de-
fence to the plaintiff’s otherwise valid claim, that is entirely a dif-
ferent matter.
Cothran J. delivered a furious but well-reasoned dissent.m2a He
rejected the doctrine enunciated in Schmid (even if the facts were
found to support a speculative intent) for the reason that “the
promulgation of that opinion”‘2 4 had wrought havoc in commercial
transactions; “that opinion” was also responsible for “the disinte-
gration of the moral obligation to comply with solemn contracts,”‘ 2
and (ironically enough in view of the reasons underlying the major-
ity judgment in Schmid) “that opinion” led to “the opening of a
port of refuge to those who, with their eyes wide open, and, their
greed for quick riches excited, are willing to repudiate their en-
gagements under disappointing results [],112’ This last comment,
together with another further along in the judgment,’2 has led one
commentator to remark that the doctrine enunciated in Schmid
therefore operates to defeat its own purpose. 28
Whatever the quantum of damages awarded in the ordinary
dispute, Cothran J.’s view is certainly justifiable in the instant case,
since the contract itself provided the measure of damages –
forfei-
ture of the initial payment . 29 Cothran J. then embarked upon an ex-
122 Ibid.
123Fraser J. (Gary C.J. and Watts J. concurring) delivered the majority
opinion. Gary C.J. thought himself bound by Schmid.
124 Supra, note 120, 893.
125 Ibid.
126 1bid.
127Ibid., 893-94: “If the purpose to be accomplished by the Schmid v.
Whitten Case be to discourage men ‘free, white and twenty-one’ from en-
tering into contracts of speculation, … the means employed create a positi-
ve inducement for such enterprises. It presents a ‘heads and tails’ proposi-
tion. If the advancement in value anticipated by the speculator be realized,
he pockets his profits with the exultation of a ‘Jack Homer’; if not, he
pleads the speculative features of the contract, and under the protection
of Schmid v. Whitten, retires with a whole financial skin, but with a tat-
tooed reputation.”
128 James, supra, note 112. 31.
129 Supra, note 120, 892 per Fraser J.
19783 SALE OF LAND PURCHASED FOR RESALE OR INVESTMENT
541
haustive analysis of stock speculation contracts, and demonstrated
that these transactions were not per se illegal, void, or unenforce-
able. He concluded that in the absence of a factor affecting the
exercise of the chancellor’s discretion (and a speculative motive was
not such a factor), the plaintiff had a “legal” right to specific per-
formance.”3
Before leaving Sumner, it should be noted that by refusing to
accept legal title, the purchaser was not apparently precluding any
subsequent sale (just as in Scarborough v. Register, 131 a very tersely
reported decision of the same court to the same effect a year
later,132 no third party was involved). Thus these two cases stand
for the proposition that specific performance will be denied a plain-
tiff who enters a contract for the sale of land with a general spe-
culative intention, whether or not damages are an adequate remedy.
Schmid goes even further, for two subsequent purchasers were pre-
judiced by the refusal to grant the equitable remedy. 33
Despite the denial of specific performance in all three decisions,
Cothran J. may well have had the last word, at least in South Caro-
lina. He wrote the majority opinion in Welling v. Crosland,’M .which
involved -a syndicate resisting specific performance although it was
130 Ibid., 897.
131 123 S.C. 59, 116 S.E. 97 (1923). See also James, supra, note 112.
132 Marion J. thought himself bound to follow Schmid and Sumner al-
though his own “individual” views were “in entire accord with those so
clearly and forcefully presented in the dissenting opinion of Mr. Justice
Cothran in the case of Sumner v. Bankhead”. Watts and Fraser JJ. con-
curred. Cothran J. did not participate. Gary C.J. did not sit.
133 In view of the fact that there are few reported cases on the question,
three such cases, all going against the party
one might wonder why
seeking specific performance, arose in South Carolina, the first being
litigated in 1920. In Welling v. Crosland 129 S.C. 127, 123 S.E. 776 (1924),
Fraser J. (dissenting), provides an explanation. From 1920 on, prices of
cotton began rising. For this reAson, and because the boll weevil was
rapidly approaching, the price of cotton lands underwent sudden escalation.
After the boom, vendors demanded specific performance, but in the light
of post-boom land prices, this would have severely jeopardized the solvency
of many purchasers, who, even if able to meet their contractual obligations;
would be left with relatively worthless land. Damages at law, being assessed
with market value at the date of breach in mind, operated to save the pur-
chaser. Presumably the same circumstances militated against the purchaser
when he or she claimed specific performance before the maximum level of
prices was reached. He or she would only be content with damages where
the market price at the date of breach was higher than the contract price.
’34Ibid. Gary C.J. and Marion J. concurred; Watts and Fraser JJ. dissented.
See also James, supra, note 112, 36; Corbin, supra, note 16, 1143, 128.
McGILL LAW JOURNAL
[Vol. 24
contractually bound to purchase the land. One of its grounds of
objection was that the property was to be resold at auction. Cothran
J. distinguished the earlier cases:
This case does not come at all within the rule declared in Schmid v.
Whitten, Sumner v. Bankhead, and Scarborough v. Register [citations
omitted], where the purchasers never expected to do anything with the
land except to hold it for a brief time and gamble upon the rise in value.
Here the syndicate expected to hold an auction sale and realize profits,
but if that failed, to farm or rent it.
It certainly would be remarkable
to hold that a contract for the
purchase of land which had been carried out to the extent of payment
of part of the purchase price, an entry upon the land by the purchaser,
a survey and division, and an attempted auction sale, should be held so
vicious that a court of equity would decline to decree specific performance,
for the reason that the purchaser contemplated a profit by the trans-
action. 35
The distinction suggested by Cothran J. is a very fine one, al-
though it emanates from the opinion of Watts J. in Schmid itself. 6
Where the principal motivation for the purchase –
resale at a
profit –
remains unrealized, the purchaser has little choice but
to make the next best use of the property. The articulated presence
of a subsidiary farming or renting intention does not therefore
seem to be h very strong basis for distinguishing Schmid and its
progeny from Welling. Furthermore, realizing a profit by auction
should not be considered differently from Tealizing a profit by
private agreement. In addition, the length of time the property is
retained before disposition (given that an intention to speculate
exists) must surely be irrelevant. Indeed, if speculation per se is
considered objectionable, one might think that the more deliberate
and lengthy the technique of profit-making, the more reprehensible
the scheme. These difficulties indicate that distinctions based on the
methods of resale employed or on the existence of other possible
uses for the land are ultimately unhelpful. 37
As in Sumner, the plaintiffs in Welling were the vendors. Unlike
Sumner, it appears reasonably clear that the plaintiffs in Welling
were not themselves guilty of any speculative intent; it was the de-
fendants who sought to rely on their own speculative motive to de-
feat the vendors’ claim to specific performance. This possible ground
’13 Ibid., 780.
M6 See supra, note 115.
137 For a more detailed analysis of purchasers’ intentions regarding future
commercial exploitation of land, see text, infra, Part IV.
1978] SALE OF LAND PURCHASED FOR RESALE OR INVESTMENT
543
of distinction was not mentioned by Cothran J. in Welling, but it
is not inconsistent with the decision in Schmid, where the speculat-
ing purchaser was refused specific performance. Thus it would
seem from the actual results in these four South Carolina cases that
regardless of status as plaintiff or defendant, the party guilty of
“speculation” will lose. 3s However, the language utilized in the
majority judgments of all these cases points to ‘a broader conclu-
that is, that the presence of a speculative motive vitiates
sion –
the contract. Equity, it is said, will refuse to specifically enforce
such a transaction, even if courts of law allow a speculating party
to sue for damages.
Cothran J.’s final distinction in Welling was that the remedy
would not be refused if the contract was (partially) executed. How-
ever, it would seem that whether the contract is partially executed
or executory, specific performance should be decreed if the contract
is in all other respects valid and enforceable.
The dissenting judges in Welling did not generally object to
Cothran J.’s views, perhaps because Cothran J. made no attempt to
directly overrule the earlier decisions. The process of distinguishing
continued in Armstrong v. Henson,1 9 where a lower court decision
in favour of a purchasing farmer was upheld. Although the vendor
relied on Schmid, the applicability of that precedent was rejected:
I do not understand that the Supreme Court in that case meant to outlaw
the business.of bona fide estate dealers or to close the doors of equitable
relief to them, nor was it meant to be understood as holding that a farmer
who engages to purchase a farm as an investment and for farming purpose
[sic], even though he may have anticipated and expected that he might
sell at a profit, is engaged in speculation within the meaning of the
decision[.]’ 4 0
As was the case in Welling, an attempt has been made to dis-
tinguish one type of speculation from another. Admittedly the
1.38 Which is not to say that a speculating party may not win, if the other
party is speculating as well: Sumner, supra, note 120.
139 139 S.C. 156, 137 S.E. 439 (1927). See also James, supra, note 112, 36.
140 Ibid., 440 per McIver Circuit J. His Honour continued: “In a sense,
almost all purchasers of real estate, or at least many of them, are speculati-
ve; that is, the purchaser ultimately expects to sell and make a profit. The
desire to buy and sell at a profit is the very life of trade and is not a reason
for denying equitable relief, so long as it appears that the contract was
made in good faith, intended really to be carried out, and an actual in-
vestment made. The very able opinion of Mr Justice Watts [at 103 S.E. 554]
recognizes that there is such a thing as ‘legitimately buying and selling’
lands, and that, in such a case; relief would not be denied [.J”
McGILL LAW JOURNAL
[Vol. 24
farmer who can prove to the court that he or she was primarily in-
terested in the land for farming purposes is in a stronger position
than the morally reprehensible and rapacious land speculator whose
sole interest in the property is the profit to be made by its resale.
Leaving aside any possible prejudice to subvendees’ 4′ (and Welling,
Armstrong, and Scarborough did not involve the rights of ascertain-
able subpurchasers), the concept of “speculative purpose” seeks to
differentiate legitimate resale (where a legitimate intention to ob-
tain a profit is allowed) from illegitimate resale (where specific
performance will be denied). The workability of this approach is
considered in more detail in the next section.
The decision of McIver Circuit J. was affirmed on appeal.
Cothran J., perhaps made wary by the problems encountered in
limiting “speculation”, could not resist a final comment: “I think
that the case of Schmid v. Whitten is wrong in principle and should
be distinctly overruled.”’42
Schmid has not fared well in the one other state in which it
was contended that speculative motives precluded equitable relief.
In Waller v. Lieberman,143 the defendant vendor sought to resist
specific performance, -arguing that the original purchaser had made
the contract for the purpose of speculation. Stone J. for the Court
rejected this contention:
If we were to deny specific performance of every contract for the purchase
of land made for speculative purposes, but few decrees for specific
performance would be granted, for, as a rule, purchasers of real estate
buy property in good faith frequently with the intention of selling it
again at a profit[.] 144
141 In Shannon v. Freeman, supra, note 71, specific performance was
decreed by the South Carolina Supreme Court where the purchaser had
resold to a third person. There is no mention of speculation in this case.
142 Supra, note 139, 441. Another shadow of doubt was cast by the com-
ments of Marion J. in White v. Douglas 128 S.C. 411, 123 S.E. 259 (1924):
“The contention that the doctrine of Schmid v. Whitten and Sumner v. Bank-
head [citations omitted] may be soundly extended to the witholding of
personal judgment in a proceeding to foreclose a mortgage founded upon
a speculative land transaction is manifestly untenable, even if the validity
of the theory applied in those cases be conceded … ” [emphasis added].
See also James, supra, note 112, 35-36.
143214 Mich. 428, 183 N.W. 235 (1921).
144Ibid., 240. The original purchaser had assigned his interest to another.
1978] SALE OF LAND PURCHASED FOR RESALE OR INVESTMENT
545
IV.
Investment, resale and speculation:
the meaning of commercial use145
An analysis of the case law reveals -that where specific perform-
ance has been refused, the courts have sometimes been content to
deny this form of relief simply because the purchaser failed to
prove that the realty was required for personal use. However, the
dichotomy of “personal use/nonpersonal use” or “personal use/
commercial use” is too broad to permit of a proper understanding
of the various nonpersonal or commercial uses that can be made of
land. In Heron Bay,146 Weatherston J. seemed to assimilate the non-
personal purpose’of “investment” to the nonpersonal purposes of
“development” and “resale”. Gushue J.A. in Chaulk 47 treated “in-
vestment” and “resale” as if the terms were interchangeable. Similar
tendencies are also apparent in many of the other authorities ex-
amined in the previous sections of this paper.48 The purpose of this
section is to present a more detailed categorization in order to
determine whether specific performance may be appropriate for
some kind or kinds of intended nonpersonal use but not for others.
A term often utilized to indicate an intended nonpersonal or
commercial use of land is “investment”, yet this term has not been
defined in those judgments that rely on the classification to avoid
decreeing specific performance. It is suggested that the concept of
nonpersonal use contains two contrasting subcategories –
“invest-
ment” on the one hand and “resale” on the other. It is also suggest-
ed that the term “speculation” is concerned with a particular form
of “resale”, or that it represents a point or a category somewhere
along the continuum between “resale” and “investment”.
When land is bought for the purposes of investment, two possible
and not inconsistent intentions may be present in the mind of the
purchaser. One purpose may be to utilize the property as a capital
(revenue-producing) asset by leasing it to others. This purpose may
or may not be accompanied by a present or future intention to
develop the land (especially where the property is undeveloped) in
order to render it more profitable (that is, in order to generate a
greater rental revenue). The other purpose behind the purchase
145 1 am grateful to Professor Kathleen Lahey for drawing my attention
to the need for discussing the various categories of commercial or non-
personal use.
‘ 4GSupra, note 1.
147 Supra, note 7.
148 See, e.g., Pianta, supra, note 44; Bonner, supra, note 49.
McGILL LAW JOURNAL
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may be to hold the land for a period of time in order to realize
any increase in the value of the property upon a subsequent dispo-
sition. Where land is purchased as this sort of “investment”, it
may also be that the vendee decides to -lease or otherwise exploit
the premises in the meantime.
Where land is purchased with the intention that it will be subse-
quently sold, the land has been bought for “resale”. What, then, is
the distinction between land purchased for “,resale” and land pur-
chased for “investment” where the investment purpose is to achieve
a profit by disposing of the realty itself rather than by utilizing the
premises to produce rent? It is submitted that the only basis upon
which a distinction can be made is the -length of the period -that
the land is retained before sale.149 From the standpoint of the ap-
propriate remedy, the only reason to draw this distinction is that it
may assist in determining the response to the question of adequacy
of damages.
In the case of land acquired for complex commercial develop-
ment, it is contended that specific performance is to be preferred
to damages because of the difficulties inherent in the calculation of
the quantum of damages that might otherwise be awarded. Even
assuming that losses caused by forgone commercial expectations of
the type under discussion are within the Hadley v. Baxendale princi-
ples in any given set of circumstances, it is still true that these
losses are generally going to be classified as “speculative” or very
difficult to assess. The fact that the property has been acquired for
commercial purposes does not mean that the land is not “unique”
or of “some special value” to the vendee.’r, A unique investment
opportunity does not lose its unique character because it is of a
commercial rather than of a sentimental or personal nature. The
other difficulty arises out of the assumption that such losses are in
fact recoverable under the rubric of Hadley v. Baxendale. However,
as Richmond J. pointed out in Bonner, damages for the -loss of the
bargain “could be nominal or negligible and a poor substitute for
the land itself whether as an investment or as a property with future
possibilities of development”. 5’ Since an economic rationalization for
149 This is not to say that other bases cannot be taken into account when
the distinction between investment and resale is made in other contexts.
150 E.g., Calgary Hardwood & Veneer Ltd v. CNR [1977] 4 W.W.R. 18 (Alta
S.C.) cited by Reiter & Sharpe, supra, note 32, 155, n. 24. In this case, the
plaintiff purchased land for commercial purposes, requiring railroad ser-
vicing.
151Supra, note 30, 1047 (C.A.).
1978] SALE OF LAND PURCHASED FOR RESALE OR INVESTMENT
547
specific performance is based on a dearth of relevant information
regarding proper substitutes152 (even if this information is other-
wise admissible), it is contended that in these circumstances, spe-
cific performance, rather than damages, is the appropriate remedy.
If the purchaser has obtained the realty in order to resell it at a
profit, the purpose for which the land has been acquired may be
characterized as either “investment” or “resale”. An individual who
buys land only to resell it at a profit is seen as treating the property
as if it were mere business inventory. Where there is no intention
to retain the land for a (relatively) lengthy period, but rather an
intention to sell in the near future, the court is much more capable
of accurately assessing the actual loss through a calculation of the
market value of the property in question or its close substitute.
The shorter the period of retention, the more accurate the assess-
ment is likely to be, for the overall loss will not include any loss
arising from a forgone development prospect. Thus we can properly
speak of the purpose of “resale” when the vendee intends to sell
in the short term; otherwise the property is purchased as an “in-
vestment”, even though the purchaser may not intend to utilize
the land to produce a usufruct. Damages are more appropriate in
the case of a purchaser with an intention to resell in the short term
than in the case of a purchaser who intends to hold the land as an
“investment”, for development or otherwise. The only difficulty
here is that the Hadley v. Baxendale rules require market valuation
at the date of breach,’a whereas the purchaser necessarily intends
to retain the property for a lengthier period of time; thus damages
calculated in this way may not be an accurate mdasure of the
vendee’s loss, and may well undercompensate.
“Speculation” is apparently present when property is held for
a brief time in the hope that a rise in value will occur.’4 To that
extent, “speculation” seems to be similar to the concept of “resale”,
and the same reasoning should apply. The courts have experienced
problems in attempting to differentiate some types of speculation
from others, 5 but one factor suggests itself as relevant: the pur-
chaser’s lack of expertise or inclination to utilize the land otherwise
than as an asset for short term resale. Since an assessment of
damages based on the difference between the contract price and
152See text, supra, Part II, and accompanying footnotes.
153A more detailed analysis of the Hadley v. Baxendale principles is un-
dertaken in Part V, infra.
154 Welling v. Crosland, supra, note 133, per Cothran J.
155 See text, supra, Part III.
McGILL LAW JOURNAL
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the “market value” of the property at the intended date of disposi-
tion (assuming that the court can take the price at that hypothetical
date into account) is likely to be more ‘accurate than an assessment
that attempts to take lost development opportunities into account,
damages will be a more appropriate remedy in such cases than
they are in the case of land purchased for “investment” purposes.
The fact that it is easier to assess damages in one situation than
in another does not mean that damages are a more appropriate
remedy than specific performance in any of the cases considered.
It is suggested that unless courts have sufficient information to
determine the market value of the property in question at the hypo-
thetical disposition date, and are willing to base their damages
awards on the difference between contract price and market value
as at that date, specific performance should be decreed in all such
cases.
Where the purchaser has actually resold the land before legal
title is conveyed, the question arises whether -specific performance
should be awarded rather than damages. This question is considered
in the following section.
V. The calculation of damages where specific performance
is refused
The foregoing survey of the decisions in several common-law
jurisdictions makes it apparent that some courts have refused
specific performance because damages were considered an adequate
alternative mode of redress. Occasionally, the quantum of damages
envisioned as adequate is said to be the difference between the two
contract prices..1 6 However, damages for breach of contract are not
necessarily awarded on this basis. The problem of quantification
of damages must now be addressed.5 7
A. The relationship between resale price and market value
Let us suppose that V contracts to sell -land to P for $20,000, and
that P has subcontracted to sell the property to S for $23,000. Should
P obtain specific performance upon V’s refusal to convey, P will
profit by $3,000. However, V may not be ‘able to convey title to P
156 See, e.g., Walcis v. Kozacik, supra, note 80.
157The reader is referred to Note, supra, note 84, 82-85, where the author
demonstrated that damages were not an adequate remedy by utilizing
calculations similar to those appearing in the text.
1978] SALE OF LAND PURCHASED FOR RESALE OR INVESTMENT
549
if through no fault, but because of an honest mistake, V does not
have title to all of the land. Specific performance with respect to all
the land will not be decreed in these circumstances. Until very re-
cently, should P sue for damages against the honestly mistaken V,
P’s recovery would be limited by the rule in Bain v. Fothergill’58
to nominal damages, costs of investigating title, and the return of
purchase moneys with interest. In A. V. G. Management Science Ltd
v. Barwell Developments Ltd, 159 the Supreme Court of Canada over-
threw by way of obiter the principle enunciated in Bain v. Fothergill,
notwithstanding its well-established position in Canadian jurispru-
dence. 10 Accordingly, V will now be liable for substantial damages for
failure to convey legal title.16 How are these damages to be ascertain-
158 (1874) L.R. 7 H.L. 158, 43 L.J. Ex. 243. The rule in Bain v. Fothergill
has hitherto prevented purchasers from recovering substantial damages for
breaches of contracts to sell or lease land in Canada. See, e.g., Lobel v.
Williams (1915) 7 W.W.R. 1042 (Man. C.A.); Maitland v. Mathews (1915) 8
(C.A.);
W.W.R. 274 (Alta C.A.); Rotman v. Pennett (1921)
Wetmore v. Gilbert (1921) 48 N.B.R. 208 (Ch. D.); Besnard v. La Corpora-
tion Episcopale Catholique Romaine De Saskatchewan (1916) 10 W.W.R. 806
(Sask. S.C.); Bajer & Baler v. Bougie (1963) 44 W.W.R. 608 (B.C.S.C.); Peacock
v. Wilkinson (1915) 8 W.W.R. 600 (S.C.C.).
49 O.L.R. 114
(1978) 92 D.L.R. (3d) 289 (S.C.C.).
‘5
160The Supreme Court 16 Canada had approved Bain v. ,Fothergill in
Ontario Asphalt Block Co. v. Montreuil (1913) 52 S.C.R. 541, despite a vi-
gorous dissent by Fitzpatrick C.I. in which he indicated that the rule was
anomalous and should not be applied in Canada, where vendors experience
far less difficulty in proving a marketable title than do their English coun-
terparts. In O’Neill v. Drinkle (1908) 1 Sask. L.R. 402, Lamont J. also stated
that Bain v. Fothergill should not apply when land transfers were far
simpler and more expedient than in England. His comments were subse-
quently disapproved. See McAndie v. Jackson (1911) 1 W.W.R. 10 (Alta S.C.);
Black v. Magill (1914) 6 W.W.R. 623 (Sask. S.C.); Peacock v. Wilkinson, supra,
note 158.
’10 ‘The same result would follow if the rule in Bain v. Fothergill were
excluded (although otherwise applicable), as, for example, where V has
wilfully refused to convey or where his inability to convey has been caused
by a fraudulent conveyance to a bona fide purchaser for value without
notice: Ridley v. De Geerts [1945] 2 All E.R. 654 (C.A.); Goffin v. Houlder
(1920) 90 L.1 Ch. 488; Wright v. Dean [1948] Ch. 686; Sandford v. Murray
(1908) 2 Alta L.R. 87; Dunn v. Callaghan (1908) 8 W.L.R. 169 (Alta C.A.);
Pinsonneault v. Lesperance (1925) 58 O.L.R. 375 (C.A.); Armstrong & Arm-
strong v. Graham, supra, note 39; Littleproud v. Craig (1927) 60 O.L.R. 182
(Q.B.); Stewart v.
(H.C.); Trenholm v. Hicks (1969) 1 N.B.R.
Gunn (1974) 5 N. & P.E.I.R. 291 (P.E.I, C.A.).
Although the rejection of Bain v. Fothergill in the Barwell case was not
necessary for the decision, Laskin C.J. (Ritchie, Spence, Dickson and Estey
JJ. concurring) was at pains to minimize the effect of Ontario Asphalt
Block Co. v. Montreuil, supra, note 160, stating that the former case was
(2d) 548
McGILL LAW JOURNAL
[Vol. 24
ed? The ordinary and accepted measure for calculating damages for
loss of bargain is the difference between the contract price and mar-
ket value at the date of breach. 16 2 However, where the propertyhas
decided at a time when the Supreme Court of Canada was “still subject
to the Privy Council and through it to the House of Lords in matters of
common law. That situation no longer obtains, and this Court has asserted
its freedom not only to depart from its own decisions, but from Canadian
decisions of the Privy Council as well [.J” (p. 298). Laskin C.J. also indicated
that Bain v. Fothergill should likewise not apply to those provinces whose land
transactions are “governed by a registration of deeds and documents system
such as exists in the Atlantic Provinces, in parts of Ontario, and in parts of
Manitoba.” (p. 301).
Notwithstanding this recent pronouncement by the Supreme Court of
Canada, the decision in Ontario Asphalt Block Co. v. Montreuil is still tech.
nically binding on lower courts, although it is most unlikely that the rule
in Bain v. Fothergill will be followed in any court from now on. For the
purposes of calculating damages, I shall assume in the text that the restric-
tive Bain v. Fothergill principle no longer applies. Where the result achiev-
ed by calculating damages in accordance with Bain v. Fothergill produces
a different result, these calculations will be depicted in accompanying foot-
notes.
162Le., at the date of communication of the acceptance of repudiation:
Cull v. Heritage Mills Devs. Ltd (1975) 5 O.R. (2d) 102 (H.C.). It is arguable
that Wroth v. Tyler [1974] Ch. 30 changes the assessment of damages for
breach of contracts to convey realty to the difference between the contract
price and the market value at the date of judgment, a figure which will
usually be higher than one calculated according
to date of breach in
times of escalating land prices. Wroth v. Tyler has been generally accepted
in Canada. (But see Woodford Estates Ltd v. Pollack (1978) 22 O.R. (2d) 340,
345 (H.C.) where Lerner J., in refusing to award the plaintiff vendor damages
based on market value at the date of trial, appeared to confine Wroth v.
Tyler to its unusual fact situation. The value of the property in Woodford had
considerably depreciated since the date of breach.) For an analysis of the
impact of the decision, see Reiter & Sharpe, supra, note 32, and Jolowicz,
Damages in Equity – A Study of Lord Cairns’ Act (1975) 34 Cambridge L.J. 224.
In Wroth v. Tyler, the plaintiffs were, to the defendant’s knowjedge,
unable to purchase an “equivalent” house at the date of breach, and thereby
to mitigate their loss. Where the plaintiff is able to invest his or her funds
elsewhere at the date of breach, the date of assessment should be the earlier
date, not the date of judgment: A. V. G. Management Science Ltd vi
Barwell Devs. Ltd (1976) 69 D.L.R. (3d) 741
(B.C.S.C.) per McKenzie J.,
a!f’d on this point by all members of the B.C.C.A. in (1977) 83 D.L.R. (3d)
702. See also A. S. A. Constr. Pty Ltd v. Iwanov [1975] 1 N.S.W.L.R. 512
(Eq.). Where the plaintiff has purchased property for the purposes of in-
vestment, speculation or resale, it is more likely than not that there are
sufficient funds for alternate investments. Thus the date utilized in the
calculation of damages in this section of the paper is the date of breach.
But cf. Metropolitan Trust Co. v. Pressure Concrete Serv. Ltd (1975) 9 O.R.
(2d) 375 (C.A.), where Wroth v. Tyler was misapplied, and damages awarded
1978] SALE OF LAND PURCHASED FOR RESALE OR INVESTMENT
551
been resold by the vendor to a bona fide purchaser at a higher price
than the purchaser has contracted to pay, some courts have ‘suggest-
ed that the appropriate measure of damages is the difference between
the two prices. 1 3 Similarly, where the purchaser has resold at a
price greater than the contract price, the difference between the
two figures has been said to represent the plaintiff’s loss.11 The
in equity although the purchase was for commercial purposes.
Where the quantum of damages is computed, the plaintiff is normally
under a duty to mitigate his or her loss. Generally speaking, a purchaser
claiming specific performance is under no such obligation so long as there
is some “fair, real and substantial justification for [specific] performance”:
Asamera Oil Corp. v. Sea Oil & Gen. Corp. (1978) 89 D.L.R. (3d) 1, 26 (S.C.C.)
per Estey J. According to Estey J., a plaintiff who has agreed to purchase
a particular piece of real estate would not be under a duty to mitigate once
a writ has been issued, provided that the claim for specific performance
is prosecuted with “due diligence”. Whether a purchaser acquiring realty
for commercial purposes is under a duty to mitigate is therefore a circular
question, since a claim for specific performance may well be denied if de-
cisions like Heron Bay and Chaulk are followed.
Where the property
is purchased for commercial purposes and the
plaintiff pursues specific performance, any alternative property bought
in order to mitigate damages may have to be liquidated in order for the
purchaser to pay the purchase price. It cannot be that by mitigating when
able, the purchaser renders specific performance unavailable. The purchaser
may of course elect to claim damages only.
:13 Ridley v. De Geerts, supra, note 161; Goffin v. Houlder, supra, note 161;
Sandford v. Murray, supra, note 161; Dunn v. Callahan, supra, note 161;
Pinsonneault v. Lesperance, supra, note 161; Paseika v. Fox [1921] 1 W.W.R.
1104 (Man. K.B.), where the plaintiff, at the defendant’s urgings, purchased
the property from the true owners at a higher price than that contracted
for with the defendants. The defendant was held liable to reimburse the
plaintiff for the difference. In Trenholm v. Hicks, supra, note 161, a fresh
demand by the vendor for a higher price was held to show the market
value of the property. See also Davies v. Russell [1971] 2 O.R. 699 (H.C.).
There are two American decisions indicating that the subsequent resale
price may be ignored when determining the quantum of the first purchaser’s
(cited by
damages. In Cushing v. Levi 117 Cal. App. 94, 3 P. 2d 958 (1933)
Kronman, supra, note 31, 378, n. 85), the plaintiff contracted to purchase
realty for $80,000, but the vendor sold the property to a bona fide purchaser
for $112,500. At trial the market value of the property at the date of breach
the plaintiff was
was said to be $90,000. Rather than receiving $32,500,
awarded $11,000 in damages. See also Grummel v. Hollenstein 90 Ariz. 356,
367 P. 2d 960 (1962) (cited by Kronman, ibid., 378-79).
164 Engell v. Fitch (1869) L.R. 4 Q.B. 659; Littleproud v. Craig, supra, note
161, where it was said that prima facie the value at the date of breach is-
the price realized by the vendor on resale. There the purchaser had resold.
Logie J. added that that figure was not conclusive, and gave judgment for
less than the difference. In Armstrong & Armstrong v. Graham, supra, note
39, LeBel J. awarded the plaintiffs both specific performance and damages
McGILL LAW JOURNAL
[Vol. 24
same principle has been applied to a vendor’s claim for damages.'”
The difficulty with this approach is that the resale price (achieved
either by the vendor or the purchaser) may not be identical to the
market price at the relevant date. Some courts, perhaps in order to
overcome this problem, have taken the subsequent contract price
as representative of the market value of the property, 6
thereby
resolving the issue by ignoring its existence (although on many of
these occasions there is little evidence available to indicate the
market value except for evidence of the amount realized on resale).
for the loss of their subsale. He indicated that the appropriate measure of
damages was the sum which would place the plaintiffs in the same position
as if the agreement had been performed, and referred the issue to the
Local Master to determine the amount of damages payable because of the
plaintiffs’ inability to complete the subsale.
16 Dobson v. Winton & Robbins Ltd [1959] S.C.R. 775. Where the vendor
sues only for damages, there will be a duty upon him or her to mitigate
the loss. In 100 Main St. Ltd v. W.B. Sullivan Constr. Ltd (1978) 20 O.R.
(2d) 401 (C.A.), the Court held that due to the presence of the duty to miti-
gate, damages should be calculated “on the basis of a finding of the highest
price obtainable within a reasonable time after the contractual date for
completion following the making of reasonable efforts to sell the property
commencing on that date” (per Morden J.A., 421). (See also Tozer v. Berry
[1955] O.W.N. 399 (C.A.); Hickey v. Paletta (1972) 14 N.R. 4 (Ont. H.C.),
aff’d (1973) 14 N.R. 3 (C.A.), afI’d (1974) 14 N.R. 1 (S.C.C.).) By adopting this
principle, the Court rejected the views enunciated in Jamal v. Moolla
Dawood, Sons & Co. [1916] 1 A.C. 175
(P.C.), where the seller of shares
succeeded in realizing a greater amount on the resale of the securities
than would have resulted had they been sold at the date of breach. The
Judicial Committee held that any “profits” (or losses) made in this fashion
were the result of the seller’s own speculation; accordingly, the purchaser
remained liable for the difference between the contract price and market
value at the date of breach. (See also Keck v. Faber (1916) 60 Sol. “. 253;
Noble v. Edwardes (1877) 5 Ch. D. 378, rev’d on another point (1877) 5 Ch. D.
392 (C.A.); York Glass Co. v. Jubb (1926) 134 L.T. 36 (C.A.).) Morden “.A.
conceded at page 420 that where the market had risen (as in Jamal), the
results reached could be justified by recognizing that the party in breach,
as a matter of policy, should not be permitted to take advantage of for-
tuitous market conditions so as to reduce the vendor’s compensable loss.
This implies that if the market has fallen since the date of breach, the pur-
chaser will be liable for the difference if the vendor’s efforts to mitigate
are “reasonable”. It is suggested that the Ontario approach embodies the
sounder policy.
lOG Chugal Properties Ltd v. Levine [1971] 2 O.R. 331 (H.C.), rev’d on an-
other ground [1972] 1 O.R. 158 (C.A.), a ‘d 33 D.L.R. (3d) 512 (S.C.C.); Pin.
sonneault v. Lesperance, supra, note 161; Littleproud v. Craig, supra, note
161; ‘Ridley v. De Geerts, supra, note 161; Farantos Dev. Ltd v. Canada
Permanent Trust Co. (1975) 7 O.R. (2d) 721 (H.C.).
1978] SALE OF LAND PURCHASED FOR RESALE OR INVESTMENT
553
An approach based on the status of the vendor as constructive
trustee is likely to lead to a different and more just result in those
cases where the vendor has improperly resold the property. Any
profit obtained in excess of the market value will be retained by
the vendor under the contract damages principle,””r but will be
disgorged if a constructive trust approach is adopted.”‘ In one
sense of the word, the purchaser is overcompensated if he or she
receives an amount greater than the difference between the contract
price and market value; however, to do otherwise permits a vendor
to profit from his or her own breach of contract. The imposition
of a constructive trust upon all the profit realized from a wrongful
resale creates a disincentive to the vendor attempting to resell in
breach of the initial agreement of sale.1 9 Where the realty has been
purchased by the complaining vendee for commercial purposes, this
approach begs the questions, for the constructive trust can only be
utilized if specific performance could be decreed.
B. Calculation of damages where market value is less than
resale price
If the market value is lower than the subcontract price of
$23,000 to S, that is, $22,000, P would recover the difference between
$2,000.170 Since P would have made
$20,000 and the latter figure –
an additional $1,000 profit if the court had ordered specific per-
formance, damages are not an adequate remedy. It is only if the
profitable subcontract is within the contemplation of the parties,
as required by Hadley v. Baxendale, that the purchaser would be
entitled to his or her actual loss; even then, it is unclear whet-
167 See Treitel, The Law of Contracts 4th ed.
in
Asamera Oil Corp. v. Sea Oil & Gen. Corp., supra, note 162, 30): “In general,
damages are based on loss to the plaintiff and not on gain to the defendant.
They are not, in other words, based on any profits which the defendant may
have made out of the breach.”
(1975), 618 (approved
168 See Restatement of the Law of Restitution (Quasi Contracts and Cons-
tructive Trusts), 198, 202; Restatement of the Law of Trusts (2d), 202;
Scott, The Law of Trusts 3d ed. (1967), vol. 3, 202, vol. 5, 503; Goff &
Jones, The Law of Restitution 2d ed. (1978), 490 et seq. See generally Coy v.
(C.A.);
Pommerenke (1911) 44 S.C.R. 543; Othen v. Crisp [1951] O.W.N. 459
Boryczko v. Toronto Polish Veterans’ Ass’n [1958] O.W.N. 118 (H.C.). In Toron-
to-Dominion Bank v. Uhren (1960) 24 D.L.R. (2d) 203 (Sask. C.A.), Culliton J.A.
(as he then was) stated that the trustee’s liability could never be less than the
amount realized from the sale of the properties in question.
169 Kronman, supra, note 31, 380.
17o If the rule in Bain v. Fothergill were applicable, P would not recover
any substantial damages.
McGILL LAW JOURNAL
[Vol. 24
her extraordinarily high profits would be within the Hadley v.
Baxendale requirements, unless the actual amount of pending profit
or a reasonable approximation thereof was known to the defendant
before the breach.’7′ Furthermore, apart from the disparity between
P’s actual loss and the usual award of damages, P may well be made
a defendant to a claim by S for either specific performance with
damages as an alternative claim or rescission 72 of the contract.
Rescission seems more likely in these circumstances, given the
hypothesis that the subcontract price is greater than the market
value of the property. But the point remains that P will be liable to
171 This reasoning depends on the proposition that a court would accept
that market value may differ from the subsequent contract price. In Little-
proud v. Craig, supra, note 161, Logie J. seemed to think that the resale price
was too high (see note 164, supra). If one of the aims of the Hadley v. Baxen-
dale rules is to further the expectation interest, then in light of a contract of
resale between P and S, the only sum that could do so is the difference
between the two contract prices. In Brading v. McNeil & Co. [1946] Ch. 145,
it was held that the resale price was irrelevant, but there the subcontract
price was less than the market value. Where the resale price is higher than
market value, the plaintiff will need to demonstrate that both parties con.
templated a resale within the requirements of Hadley v. Baxendale: but
see Engell v. Fitch, supra, note 164, where the Court of Exchequer Chamber
said that there was no general rule of law that a purchaser of land could
recover the loss of profit on a resale, or that the parties must be taken to
have contemplated a resale. In Bain v. Fothergill, Lords Chelmsford and
Hatherley thought that a loss on resale was too remote because land was
not generally purchased for the purposes of resale. See also McGregor,
McGregor on Damages 13th ed. (1972), 477-81, and Diamond v. Campbell
Jones [1961] 1 Ch. 22.
Whether this proposition should be followed today is another matter.
See Ridley v. De Geerts, supra, note 161, per Lord Greene M.R. Where the
knowledge of a particularly profitable commercial use is “brought home”
to the vendor, recovery for the expected profits could well result: Diamond
v. Campbell-Jones, ibid., 36 per Buckley J.; Cottrill v. Steyning & Little.
hampton Bldg Soc’y [1966] 1 W.L.R. 753, 756 (Q.B.); Biggin v. Permanite Ltd
[1951] 1 K.B. 422, 436 per Devlin J. (sale of goods).
If the parties knew that the plaintiff had entered or intended to enter
a contract for the resale of land in excess of market value, would it matter
that the resale price was extraordinarily lucrative? Although Megarry J. (as he
then was) thought not in Wroth v. Tyler, supra, note 162, 61, it has been suggest-
ed by Lawson, Damages – An Appraisal of Wroth v. Tyler (1975) 125 New L.J.
300, 301, that Megarry J.’s view, even if sound in principle, defies precedent:
Horne v. Midland Ry (1873) L.R. 8 C.P. 131; The Arpad [1934] P. 189 (C.A.);
Household Machines Ltd v. Cosmos [19461 2 All E.R. 622 (K.B.); Victoria
(C.A.);
Laundry (Windsor) Ltd v. Newman Inds. Ltd [1949] 2 K.B. 528
Heskell v. Continental Express [1950] 1 All E.R. 1033 (K.B.). But cf. Asamera
Oil Corp. v. Sea Oil & Gen. Corp., supra, note 162, 16.
172E.g., Hamann v. Galbraith (1914) 6 W.W.R. 920 (Sask. S.C.).
19783 SALE OF LAND PURCHASED FOR RESALE OR INVESTMENT
555
any action that S may bring, and will therefore be ordered to pay
costs, aside from any other damages awarded. If P is sued by S before
in turn bringing suit against V, it appears that P can recoup the
costs of defending the previous action,’73 if reasonably incurred,
as against V. However, P has been subjected to the trouble and
some noncompensable expenses involved in two actions. Specific
performance should therefore be awarded, since damages will not
normally constitute an adequate remedy in these circumstances.
C. Calculation of damages where market value is equal
to resale price
If the market value at the relevant date is the same as the
subcontract price, that is, $23,000, the plaintiff would recover $3,000
by way of damages from V, together with those costs reasonably
incurred in defending any claim brought by S. Aside from the
possible application of the rule in Bain v. Fothergill to any claim
for damages by S against P, the subpurchaser’s action would yield
nominal damages only if the market price remains the same as the
subcontract price. But P has still been troubled by having to litigate
two claims instead of just one. In addition, an award of damages
instead of specific performance will deprive S of the land itself.
Although P may well have required the premises for commercial
purposes, no such characteristic necessarily attaches to S, who may
have purchased the land for personal use and enjoyment. For these
reasons, then, it is suggested that, even in these circumstances,
damages are an inadequate remedy, and that a decree of specific
performance is preferable.
D. Calculation of damages where market value is greater than
resale price
If the market value of the property when the conveyance is due
to S from P has dramatically risen to $25,000, it would appear that
P should be able to recover $5,000 (being the difference between
P’s contract price with V and the market value) against V if the
latter refuses to transfer title to the former. It would seem rather
strange, however, if an award of damages were to have a greater
173Hill v. Barwis (1908) 7 W.L.R. 428 (Alta S.C.). But cf. McEachern v.
Corey (1916) 10 Alta L.R. 478, 489 per Harvey C.J., rev’d on other grounds
(1916) 10 Alta L.R. 490 (C.A.); Hammond v. Bussey (1888) 20 Q.B.D. 79 (C.A.)
(sale of coal); Royal Trust Co. v. Fairbrother & Valentine [1922] 1 W.W.R. 8
(Alta C.A.); Pflug & Pflug v. Collins [1952] O.R. 519 (H.C.). See also McGregor,
supra, note 171, 493-525.
McGILL LAW JOURNAL
[Vol. 24
value than a decree of specific performance. Indeed, there appears
to be little reason why P should pursue specific performance if a
claim for damages against V is worth more. The reason that P
would in fact attempt to obtain specific performance from V is
that S would sue P to recover the difference between the subcon-
tract price ($23,000) and the market value of the land ($25,000).
P is under an obligation to do his or her best to remove those
defects in title which prevent performance, and is therefore obligat-
ed to sue V if V wrongfully refuses to convey.’74 In order to avoid the
additional difficulties associated with two actions, it seems that P
would institute proceedings for specific performance against V
rather than limit his or her claim to damages only.
Would damages be considered adequate so as to preclude specific
performance in these circumstances? If P is awarded the normal
measure of damages (namely, the difference between the contract
price of $20,000 and the market value of $25,000), it will be because
the court has concluded that the actual resale to S by P was not
within the contemplation of the parties as constituting “special
circumstances” for the purposes of the “second rule” in Hadley v.
Baxendale. In Brading v. McNeill & Co.,175 the resale price of a
lease together with a commercial enterprise (which was regarded
by Evershed J. as involving real property) was less than the market
value. Evershed J. nevertheless refused to award the difference bet-
174 Even if the rule in Bain v. Foihergill is invoked, both English and
Canadian courts have refused to apply that rule to the situation under dis-
cussion, although the reason that P cannot convey to S is a “defect in title”
and therefore nominally within the rule’s ambit. See Engell v. Fitch, supra,
note 164; Bain v. Fothergill, supra, note 158, 209-10 per Lord Hatherley;
Royal Bristol Permanent Bldg Soc’y v. Bomash (1887) 35 Ch. D. 390; Day
v. Singleton [1899] 2 Ch. 320 (C.A.); Re Daniel, Daniel v. Vassall [1917] 2
Ch. 405; Braybrooks v. Whaley [1919] 1 K.B. 435; Thomas v. Kensington [1942]
2 K.B. 181; O’Neill v. Drinkle, supra, note 160; Ontario Asphalt Block Co.
v. Montreuil, supra, note 160; Miller v. Hostyn (1913) 5 W.W.R. 543 (Alta
S.C.); Goodchild v.,Bethel (1914) 8 Alta L.R. 98
(C.A.); Lobel v. Williams,
supra, note 158; Armstrong v. Graham, supra, note 39; Trenholm v. Hicks,
supra, note 161; Pitcher v. Shoebottom [1971] 1 O.R. 106 (H.C.); Farantos
Dev. Ltd v. Canada Permanent Trust Co., supra, note 166.
Where, on the other hand, the vendor covenants for title in the con-
veyance or transfer document itself, but because of a defect in title is
unable to convey that which was purportedly conveyed, the rule in Bain v.
Fothergill has been held not to apply. See, e.g., Lock v. Furze (1866) L.R.
1 C.P. 441; Ellam v. Acadia Trust Co. (1914)
(B.C.C.A.);
Bowra v. Henderson [1942] O.R. 734 (H.C.); Aaroe & Aaroe v. Seymour (1957)
7 D.L.R. (2d) 676 (Ont. C.A.).
6 W.W…
‘ Supra, note 171 per Evershed J. (as he then was).
1083
1978] SALE OF LAND PURCHASED FOR RESALE OR INVESTMENT
557
ween the contract price and the resale price, preferring instead to
be guided by the market value of the property (a greater amount)
at the date of repudiation.”‘ Thus if it is not possible to resort to
the actual price obtained on the resale to S (and this appears to be
the case where there is no particular resale contemplated), P will
be able to recover $5,000 by way of damages although he or she
is bound to resell the property to S for only $3,000 more than was
paid to V for the land. Leaving aside any discussion of P’s liability
to S for more than nominal damages if the latter sues P ‘for failure
to convey title, it appears that damages are -far more than an
adequate remedy. Should specific performance be refused, P is
$2,000 better off than he or she would be if the equitable remedy
had been decreed. However, S may now sue P for damages, being
the difference between the subcontract price ($23,000) and the in-
creased market value ($25,000).177 Thus P is left with the benefit
of the bargain, but remains subject to an action for damages by S.
By refusing to award specific performance in P’s claim against V, P
is permitted, indeed compelled, to breach the resale contract with
S. Accordingly, it is suggested that damages are not an adequate
remedy on these facts. The abrogation of the rule in Bain v. Father-
gill at least ensures that S is able to recover substantial damages
from P; otherwise, S would be deprived of both the land (if specific
performance is refused in P s claim against V) and significant
damages for its loss.
On the other hand, the circumstances surrounding the resale
by P to S may have been within the parties’ contemplation as in.
170 Reliance was placed on Rodacanachi v. Milburn (1887)
18 Q.B.D. 67
(C.A.) and Williams v. Agius [1914] A.C. 510 (H.L.). Both cases concerned the
sale of goods.
17 If Bain v. Fothergill applies to a claim by S against P, failure to order
specific performance in P’s action against V enriches P at S’s expense –
which is not to suggest that S could maintain- an action against P based
on restitution or unjust enrichment, unless favoured by a particularly
innovative court. The principal hurdle for S to overcome is that the “benefit”
received by P has resulted from an impersonal price increase in the market
value of the property beyond the subcontract price, rather than from a trans-
fer of any benefit by S to P (beyond any purchase moneys). Another major
to
problem is that the rule in Bain v. Fothergill was equally applicable
claims for damages for breach of contract and those for rescission. If S
is unable to obtain substantial damages because of this admittedly ano-
malous rule, utilization of any restitutionary principle or cause of action
if expectalion damages were awarded.
would circumvent its application
Now that the Bain v. Fothergill rule has been discarded, this argument is less
significant.
McGILL LAW JOURNAL
[Vol. 24
terpreted and understood by an application of the Hadley v. Baxen-
dale principles. Normally a plaintiff would :attempt to invoke the
“contemplation” criterion in order to benefit from any increase in his
or her resale price beyond market value. But the question remains
as to whether a defendant may in turn rely on knowledge of a
particular resale contemplated by the plaintiff to -limit the latter’s
claim in damages to the difference between the two contract prices
if the subcontract price is less than market value. In McEachern
v. Corey, Harvey C.J. stated:
The profit on a resale is not ordinarily something that can be allowed,
but in the present case it is, I think, the real measure of damage, because
the plaintiffs having made a re-sale, they could not have realized any
more out of the land than the profit on such re-sale and consequently
their failure to obtain the title from the defendant resulted in the loss
of that profit, but no more.i’ts
However, it must be conceded that in McEachern v. Corey there
was no evidence to assist in determining the market value of the
land in question.179 In Biggin & Co. v. Permanite Ltd,’8 Devlin J.,
although dealing with a contract for the sale of goods, acknow-
ledged that the principle could operate in favour of the defendant
rather than the plaintiff:
It has often been held … that the profit actually made on a subsale which
is outside the contemplation of the parties cannot be used to reduce the
damages measured by a notional loss in market value. If, however, a
subsale is within the contemplation of the parties, I think that the
damages must be assessed by reference to it, whether the plaintiff likes
it or not.181
As McGregor on Damages8 2 indicates, similar observations have
fallen from the lips of Lord Pearce in Koufos v. C. Czarnikow Ltd,1′
and Denning L.J. in Trans Trust S.P.R.L. v. Danubian Trading Co.184
178 Supra, note 173, 488.
179 Ibid., 487. It also does not appear whether Harvey C.I. was considering
the problem of a resale price less than market value.
18 0 Supra, note 171; rev’d on other grounds [1951] 2 K.B. 314 (C.A.). See
also McGregor, supra, note 171, 134.
181 Supra, note 171, 436, per Devlin J.
1 8 2 Supra, note 171, 134.
183 [1969] 1 A.C. 350, 416 (H.L.): “‘Additional or ‘special’ knowledge, how-
ever, may extend the horizon to include losses that are outside the natural
course of events. And of course the extension of the horizon need not always
increase the damages;
it might introduce a knowledge of particular cir-
cumstances, e.g., a subcontract, which show that the plaintiff would in fact
suffer less damage than a more limited view of the circumstances might
lead one to expect.” [emphasis in text]
184 [1952] 2 Q.B. 297, 306 (C.A.): “The buyers knew that the sellers could not
obtain the goods at all unless the credit was provided. The foreseeable loss
1978] SALE OF LAND PURCHASED FOR RESALE OR INVESTMENT
559
Both of these cases, like Biggin & Co. v. Permanite Ltd, dealt with
contracts for the sale of goods. There seems to be no reason
why this principle should not apply to similar circumstances
involving realty rather than personalty. Should the court decide not
to award specific performance, P’s claim in damages, limited as
it is by the subsequent resale price of $23,000 to S, would be for
$3,000. However, P is still subject to an action by S in damages
for breach of contract if P is unable to convey legal title when
required. Where the subcontract price to S is exceeded by the
market value, S will now succeed in a claim for the difference –
in this case, $2,000.1s1
was the loss of profit, no matter whether the market price of the goods went
up or down. It is, therefore, the proper measure of damages.”
185 Some early authorities support S in an action for substantial damages
where P (a purchaser to an uncompleted contract) enters into a subsequent
contract of sale knowing that the legal title remains outstanding. See
Hopkins v. Grazebrook (1826) 6 B. & C. 30, 108 E.R. 364 (K.B.); Robinson
v. Harman (1848) 1 Exch. 850, 154 ER. 363; Vallier v. Walsh (1857) 6
U.C.C.P. 459; Hutchison v. Schleuter (1908) 8 W.L.R. 682 (Sask. S.C.). This
“exception” to the rule in Bain v. Fothergill was rejected: Hopkins v. Graze-
brook was expressly overruled by the House of Lords in Bain v. Fothergill.
See also Moody v. McDonald (1906) 4 W.L.R. 303 (Man. S.C.); McAndie v.
Jackson, supra, note 160; Black v. Magill, supra, note 160; Maitland v.
Mathews, supra, note 158; Besnard v. La Corporation Episcopale Catholique
Romaine De Saskatchewan, supra, note 158; Rotman v. Pennett, supra,
note 158.
In Bain v. Fothergill, Lord Chelmsford left open another avenue
an action for deceit. Assuming that the misrepresentation
to
is
recovery –
as to a fact and is fraudulent, expectation damages for loss of bargain
resulting from the tort of deceit are not awardable: Derry v. Peek (1889)
14 App. Cas. 337 (H.L.); Parna v. G. & S. P’ties Ltd (1969) 5 D.L.R. (3d) 315
(Ont. C.A.). (But cf. Watts v. Spence [1975] 2 W.L.R. 1039 (Ch.), criticized in
Note (1975) 91 L.Q. R. 307.) Rather, damages are calculated to place the plain-
tiff in the position that he or she would have occupied had the misrepresenta-
tion never occurred. See also Bedard v. Junkin [1956] O.W.N. 287 (C.A.); Hepting
v. Schaaf [1964] S.C.R. 100. For an interesting argument in favour of permitting
a purchaser to recover damages for loss of bargain where fraud is proved, see
McGregor, supra, note 171, 472-73.
Where V has refused to specifically perform by executing a conveyance
when he or she can do so, substantial damages may be awarded. A possible
exception may exist in Ontario: see The Vendors and Purchasers Act, R.S.O.
1970, c. 478, s. 4(c). Standard form agreements for the sale of land frequently
contain terms purporting to limit the vendor’s liability for damages where
the vendor is either unwilling or unable to remove otherwise valid objec-
tions to title. The terms provide that the agreement shall be null and void,
and the deposit money returned to the purchaser without interest. Courts
this type of term (and the
have utilized two techniques
operation of Bain v. Fothergill itself). First, it is said that the rule – and the
to overcome
McGILL LAW JOURNAL
[Vol. 24
Whether P is awarded $5,000 or $3,000 in damages against V,
S will be able to obtain damages for his or her loss of bargain, due
to the abolition of the rule in Bain v. Fothergill; otherwise, S would
be left without the land or compensating damages. If P’s suit -against
V for specific performance is denied, S thereby fails to obtain the
land, and P is exposed to an action for breach of contract by S.
Accordingly, it must be concluded that whether the subsequent
resale price is less than, more than, or equal to the market value
of the property in question, damages are not an adequate remedy;
to refer again to Evans Marshall & Co. y. Bertola S.A., 186 “it [does
not seem] just, in all the circumstances, that [P] should be con-
fined to his remedy in damages”) 1 7
VI. Conclusions
The refusal to decree specific performance where real property
has been acquired for the purposes of investment, speculation, or
resale is contrary to the weight of authority in the United States,
Canada and Australasia. Those cases supporting the opposite view
do not generally pay sufficient attention to the considerations gov-
erning the award of damages at common law where a contract for
the sale of land has been breached. Where ‘land is purchased for
nonpersonal purposes, the overall characterization of the contract
as “investment” or “speculative” prevents discriminating analysis.
In those cases where the purchaser has effected a resale, serious
problems emerge in assessing the quantum of damages to be award-
ed in lieu of the equitable decree.
Whilst the court should attend primarily to the dispute between
the immediate parties to the litigation, it should ‘be recognized that
the decision not to decree specific performance adversely affects
the subpurchaser. If specific performance is awarded, however, mul-
extend only to excuse defects in title and not problems
contractual term –
of conveyancing (although this distinction is not always free from difficulty):
Farantos Dev. Ltd v. Canada Permanent Trust Co., supra, note 166. Secondly,
and perhaps inconsistently, it is said that a vendor may not rely on the
term (or indeed the rule) when no reasonable attempt to remove the defect
in title has been made: Mason v. Freedman [1958] S.C.R. 483; Farantos
Dev. Ltd v. Canada Permanent Trust Co., ibid. Now that Bain v. Fothergill
is no longer authoritative, a vendor’s attempt to preserve the effect of the
restriction by including a term to similar effect in the contract would meet
with the same obstacle.
386 Supra, note 28.
187 See text, supra, p. 519.
1978] SALE OF LAND PURCHASED FOR RESALE OR INVESTMENT
561
tiplicity of proceedings will be avoided, the subpurchaser will obtain
the property contracted for1 8S (or substantial damages in lieu there-
of) ,189 and the purchaser will not be unduly penalized or enriched,
as might have occurred with an award of damages.
Where the rights of a third party are not involved because the
purchaser has not yet effected a subsale, the problems associated
with calculation of damages are not dissipated, for Hadley v.
Baxendale may still be invoked by the plaintiff to claim damages
in excess of the difference between contract price and market value
when the defendant is fixed with the requisite degree of knowledge.
However, the rights of subpurchasers not requiring consideration,
the analysis may be simpler with respect to the amount of damages
awardable should the decree be refused. It is at this juncture that
distinctions based on the precise purpose for the acquisition need
to be drawn. Where the vendee purchases realty in order to create
a unique development opportunity by holding the premises over an
extended period and changing the character of the land, the court
will generally be unable to estimate his or her loss. At the other ex-
treme, a purchaser who acquires property solely in order to hold it
for a very short time before selling at a profit is much more -likely
to be adequately compensated by an award of damages.
The very concept of ‘tmarket value” (which is invoked in the
assessment of damages when specific performance is unavailable)
implies substitutability. Yet “market value” and monetary compen-
sation are not invoked when a purchaser desirous of securing a
certain plot of land for personal occupation claims the equitable
remedy. Why should “uniqueness” be confined to a noncommercial
context? In an extreme situation, such as that found in Prittie,190
completely substitutable property might be obtainable. Subject to
this caveat, it is submitted that damages are seldom adequate as
an alternative to the specific performance of contracts for the sale
of land.
188 Courts have refused to decree specific performance when to do so
would require the defendant to breach a contract with a third party: Will-
15 Ch. D. 96, 107 per Fry J.; Warmington v. Miller
mott v. Barber (1879)
[1973] 2 W.L.R. 654, 660-61 (C.A.) per Stamp L.J. Conversely, a court should
decree specific performance when to refuse to do so would require the
plaintiff to breach a contract with a third party.
189 The subpurchaser, unlike his or her vendor who perhaps is not entitled
‘equitable’ damages, may well qualify for the more generous award
to
under the rubric of Wroth v. Tyler, supra, note 162.
10o Supra, note 32.
