Generally, a party to a contract is entitled to recover the “benefit of their bargain” from a party that breaches the contract (i.e. the amount of money necessary to put the innocent party in as good of a position as if the contract had been performed). Where no valid contract exists, however, the courts are reluctant to award this type of damages. Instead, the Court looks to restitution damages when one party performed on an invalid or unenforceable contract. As a form of damages, restitution compensates parties for wrongful acts that result in unjust enrichment. In contrast to awarding the innocent party the benefit of its bargain, restitution damages restore the benefit that was wrongfully conferred.
Recently, the Washington Supreme Court reaffirmed that a buyer in an unenforceable land sale contract may not recover restitution damages without proving that the seller is unready, unwilling, or unable to perform under the terms of the contract.[i] In Kofmehl v. Baseline Lake, LLC, Kofmehl entered into an agreement with Baseline for the purchase of approximately 30.12 acres for the price of $1,650,000, including $50,000 in earnest money.
The agreement was contingent on, among other things, “accessibility of city sewer.” At the time Baseline submitted closing documents, the sewer line did not come up to the edge of the property. The City of Quincy, nevertheless, had confirmed the “availability of sewer” pursuant to an existing easement on the land that provided for sewer to the property.
Before closing, the deal fell apart. The parties disputed the amount of land that was covered by the sale agreement and whether there was accessibility of city sewer. Kofmehl refused to sign the closing documents, complaining that the land conveyed did not include the disputed land and that Baseline had failed to construct a sewer line to the property. Baseline argued that the original agreement specifically excluded the disputed land and that the easement providing for sewer to the property satisfied the condition of “accessibility of city sewer.”
Kofmehl sued Baseline and Baseline counterclaimed, both seeking an order compelling the other party to perform upon the contract as interpreted by it or, alternatively, damages for breach. Both parties sought summary judgment on their claims.
The trial court resolved the matter by finding that the sale agreement was unenforceable because it failed to include an adequate legal description of the land being sold (the sale agreement did not include the metes and bounds description, nor had the property been short platted). The trial court awarded Kofmehl $87,842.78 in restitution (including earnest money, engineering fees, and title fees), reasoning that “because neither party was clearly in breach, both parties were responsible for the failure of the contract, equity demanded that the parties be returned to their pre-Agreement state…”
The Court of Appeals affirmed the trial court’s holding that the agreement was unenforceable, but reversed its award of restitution. The Court reaffirmed a well-established principle that a buyer of land under an unenforceable agreement cannot recover payments made upon the purchase price if the seller “has not repudiated the contract but is ready, willing, and able to perform in accordance therewith…”[ii] The Court held that Kofmehl was not entitled to restitution because it had not established that the agreement included the sale of the disputed land or that Baseline’s construction of a sewer line to the property was a condition precedent to closing the deal. Kofmehl appealed, arguing that it was not his burden to prove that Baseline repudiated or was unready, unwilling, or unable to perform.
The Washington Supreme Court affirmed the Court of Appeals’ holding, finding that “whenever a contract is invalidated by force of statute, the restitution analysis must be keyed to the policy goals,” which protected the seller in this case. Thus, the Court reasoned that Kofmehl must prove that his interpretation of the agreement was correct and had failed to do so. Highly skeptical of Kofmehl’s interpretation of the contract, the Court found that nothing on the face of the agreement suggested any intention to include the disputed land and that the plain meaning of “accessibility” suggested that the sewer was legally capable of being reached through the City’s easement. Therefore, without proving that Baseline had breached the contract or been unready, unwilling, or unable to perform, Kofmehl was not entitled to recover restitution.
[i] Kofmehl v. Baseline Lake, LLC, 177 Wn.2d 584, 305 P.3d 230 (2013).
[ii] Schweiter v. Halsey, 57 Wn.2d 707, 359 P.2d 821 (1961).