The Farrell family agreed to sell their lakeside property in Skaneateles, New York to the White family for the $1.725 million asking price with a $25,000 deposit, and the balance was to be paid in cash at closing. All contingencies were subsequently removed from the contract in exchange for a $10,000 credit and the Farrell’s promise to do certain work, such as finishing construction of a draining system on the side of the house.

The Whites’ attorney subsequently terminated the contract as a result of issues relating to the drainage system. The Farrells’ attorney then sent a time of the essence notice to the Whites. The Whites did not respond to the letter and did not show up at the closing. After purchasing a nearby property for $1.7 million, the Whites sued the Farrells for the $25,000 down payment.

The Farrells sold the property for $1,376,550; and, as a result, sought $348,450 in actual damages – the difference between the original contract price ($1.725 million) and the eventual sales price ($1,376,550) – together with consequential damages (the carrying costs of the property before the time of the essence closing date).

After a bench trial in White v. Farrell, the New York Supreme Court concluded that “the Whites had breached the contract and so were not entitled to their $25,000 down payment.” The trial court, using a standard of damages as the difference between the contract price and the market value of the real property at the time of breach, found that the property’s market value at the time of the Whites’ breach was, in fact, the same as the contract price. Therefore, the Farrells did not suffer any actual damages on account of the Whites’ breach. The Appellate Division affirmed; and the Court of Appeals granted leave to appeal.

The Court of Appeals noted that they “have never before considered the measure of damages for a buyer’s breach of a contract to sell real property.” The Court reviewed decisions by the various appellate divisions made as early as 1916 to as recently as 2008. Upon such consideration, the Court rejected “the Farrells’ invitation to put aside settled law and adopt a new rule whereby a seller’s damages for a buyer’s breach of contract to sell real property is the difference between the contract price and the resale price (assuming the property is resold in an arm’s length transaction some time before the conclusion of the lawsuit for breach of contract).”

After what it characterized as a “Cook’s tour” of Appellate Divisions decisions, the Court of Appeals adhered to the longstanding “time of the breach rule” as “consistent with the general contract principle that damages ‘are property ascertained as of the date of the breach.’” The Court of Appeals nevertheless cautioned that: “This is not to say that resale price is irrelevant to the determination of damages; in fact, the resale price, in a particular case, may be very strong evidence of fair market value at the time of the breach. This is especially true where the time interval between default and resale is not too long, market conditions remain substantially similar, and the contract terms are comparable.”

White v. Farrell, 2013 NY Slip Op 01870 (March 21, 2013).