On June 3, 2010, the Wisconsin Supreme Court, in Ash Park, LLC v. Alexander & Bishop, Ltd., held in a unanimous decision that sellers of real estate may seek specific performance of the contract and interest on the purchase price without first pursuing other remedies when buyers breach the contract. This case underscores the importance of understanding all provisions in the contract, namely the available remedies, before entering into the agreement.

Facts of the case 

In this case, Alexander & Bishop (“the Buyer”) entered into a contract to purchase vacant land to develop into a shopping mall from Ash Park, LLC (“the Seller”). The contract specified that the Buyer could terminate the contract by a certain date if the Buyer could not find an anchor tenant. Under the contract, the Buyer could extend the notice date by two months if the Buyer paid a fee for the extension. Ultimately, the Buyer was unable to secure an anchor tenant. However, rather than notifying the Seller in writing before the notice date, as required by the contract, the Buyer notified the Seller of this information after the notice date. The parties were unable to negotiate a compromise and the sale did not close as set forth in the agreement. The parties used the WB-13 Vacant Land Offer to Purchase, which authorizes the seller to sue for specific performance if the buyer fails to perform under the contract. Accordingly, the Seller sued for specific performance and interest calculated from the date the property was to close to the date of the court’s ruling. The circuit court ruled in the Seller’s favor, awarding both specific performance and interest. The court of appeals affirmed the circuit court’s decision. 

The ruling 

On appeal to the Wisconsin Supreme Court, the Buyer made several arguments as to why the Seller should not have been awarded specific performance and interest. First, the Buyer argued that specific performance should not be awarded in cases where monetary damages are an available remedy. Second, the Buyer maintained that the Seller was first required to pursue other legal remedies, such as a judicial sale of the property, before seeking specific performance of the contract. Lastly, the Buyer argued that the Seller should not be entitled to interest on the purchase price or, in the alternative, should be required to attempt to sell the property to another party after the breach has occurred as a way to mitigate damages and offset any interest owed on the purchase price. 

The supreme court rejected these arguments and upheld the circuit court’s decision to award specific performance of the contract and interest on the purchase price. While the court cited various reasons for rejecting these arguments, the primary reason was that the contract identified specific performance as an available remedy and the Buyer essentially wanted the court to re-write the contract, which the court was unwilling to do. Specifically, the court held:

• A seller may seek specific performance of the contract when the contract specifically provides that specific performance is an available remedy. 
• A seller is not required to demonstrate that other remedies are inadequate as a prerequisite to an order for specific performance. Although a judicial sale and deficiency judgment may be a means of effectuating an award of specific performance, the court concluded that this procedure is not mandatory. Rather, it depends on the facts and equities of the case.
• A seller does not have a duty to mitigate damages when asking for interest in addition to specific performance Because a duty to mitigate would be contrary to an award of specific performance and would pose practical difficulties for the non-breaching seller, the court declined to require mitigation when a seller asks for interest in addition to specific performance. 

Why this case is important to REALTORS® 

According to REALTORS^® around the state, buyers often believe that they can enter into a contract and walk away from the deal without incurring any penalty. Apparently, some buyers believe that sellers, in such situations, will not go through the hassle of pursuing any legal recourse because of the related time and expense. In a strong real estate market, this may be true.

This case, however, serves as a strong reminder that contracts often contain severe penalties for those who are in breach. In addition to the WB-13 Vacant Land Offer to Purchase, specific performance is an available remedy to both buyers and sellers in almost all state-approved real estate forms if the other party defaults under the contract, the WB-11 Residential Offer to Purchase (lines 281-300), WB-12 Farm Offer to Purchase (lines 268-287). When a buyer or seller refuses to perform a contractual obligation, REALTORS^® should continue to encourage both parties to seek advice from legal counsel regarding their rights and obligations under the contract. 

Because the outcome of this case had a direct impact upon the real estate industry and the interpretation of state-approved real estate forms, the WRA filed an amicus brief in this case arguing that sellers should be able to seek specific performance and interest when a buyer breaches the contract. For more information, please contact Tom Larson at tlarson@wra.org or at 608-240-8254.

Tom Larson is Director of Regulatory and Legislative Affairs for the WRA.