Specific Performance of Contracts to Convey Land When the Vendee Has Contracted to

Sell to a Third Person

Source: Columbia Law Review, Vol. 21, No. 1 (Jan., 1921), pp. 80-85
Published by: Columbia Law Review Association, Inc.
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 80 COLUMBIA LAW REVIEW

is true that in permitting the boy to board an

acted without the scope of his employment; yet
the servant was acting within the scope of his
outside the range of his duties, and then return
liability revives. When the mishap here occurr
ride, and at the same time furthering his mas
Where there is a dual motive, there is no questi
on the street could recover.14 The only differen
party is that here the boy is on the vehicle wro
the analogy of the Michigan doctrine as to tresp
him from recovering for injuries caused by neg
is known.15 A contrary view would lead to the
Michigan view, a "trespasser" without the servan
than one who was invited on the property by th
Some courts have made efforts to break awa
chusetts doctrine, by stretching the meaning of
malicious" so as to include facts obviously consti
cent case of Higbee v. Jackson, a boy was invite
fendant's auto truck, which the defendant's se
the boy was injured in a collision caused by th
court allowed a recovery on the ground that, alt
the range of his employment in inviting the boy
by the "wanton, willful and malicious" acts of
performance of his proper duties. In form this
setts doctrine, but the facts actually constituted
that there was no intent on the part of the driv
self was on the same vehicle; and accordingly
was either willful or malicious. This roundabout method of nullifying a well-
established doctrine, so common in the development of our law, produces unfortu-
nate results here. It. necessitates establishing degrees of negligence, a distinction
which has been severly condemned by the better authorities because of the practical
difficulties inv.olved.'7

SPECIFIC PERFORMANCE OF CONTRACTS TO CONVEY LAND WHEN THE VEN.DEE

HAS CONTRACTED TO SELL TO A THIRD PERSON.-In a recent case, Schmid v.
Whitten (S. C. 1920) 103 S. E. 553, it appeared that in 1917 the defendant
agreed to sell real estate to the plaintiff for $1150, payable in two installments.
The plaintiff took possession as a tenant. In February, 1919, he tendered the
proper amount to the defendant and in the latter part of the same year gave
X an option on the land for $1,900. X in turn contracted to sell to Y. In a

"Patten v. Rea (1857) 2 C. B. (N. s.) 606; Ritchie v. Waller (1893) 63 Conn.
155; Phelon v. Stiles (1876) 43 Conn. 426; 2 Mechem, Agency (2nd ed. 1914) ?1895.
15 But compare the opinion of Holmes, J., in Driscoll v. Scanlon, supra, footnote
11: "It was argued that we might look only to the later moment, when the plaintiff
was under the wheels; that it did not matter how he got there; and that the defend-
ant was liable for running over the plaintiff, if he would have been in case his car
had run over a third person when his driver was asleep. But it does make all the
difference in the world how the plaintiff got under the wheels. The defendant was
not bound to expect or look out for people falling from his cart, and persons who
got into it took the risk of what might happen as against him." This illustrates
sharply the issue between the Massachusetts and Michigan views.
l6 (Ohio, 1920) 128 N. E. 61.
17 Steamboat New World v. King (57 U. S. 1853) 16 Howard 474, 475; N. Y.
Central R. R. v. Lockwood (84 U. S. 1873) 17 Wall. 382-384; Union Traction
Co. of Ind. v. Berry (1919) 188 Ind. 514, 121 N. E. 655, rehearing denied, 124
N. E. 737. See (1919) 19 COLUMBIA LAW RiV. 166.

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 NOTES 81

suit for specific perf

will not enforce "suc
leave the plaintiff to his remedy at law. This case raises at least two interest-
ing questions: (1) Was there a gambling or a speculative contract, and if so,
should equity refuse to enforce it? (2) Should equity refuse to interfere on
the ground that the plaintiff, by giving a third party an option on the land,
has shown that he has no affection for the land and that legal damages would
therefore be adequate?l
I

It should be noted that the court does not distinguish between gambling
and speculative contracts. However, they are very different. A gambling
contract is a transaction in which there is no intention ever to acquire the
property and which is settled by a payment of the difference between the con-
tract price and the market value at the date of settlement.2 The very fact
that the plaintiff brought a bill for specific performance is strong evidence
that there was not a gambling contract. Such contracts are contrary to
public policy and are unenforceable both at law and in equity.3 It is therefore
difficult to understand how the court could term the transaction a gambling
contract and in the same breath refer the plaintiff to law for damages. A
speculative contract, on the other hand, is a transaction in which there is an
intention to acquire property.4 Both gambling and speculative contracts are
made in the hope of profit from an anticipated change in price. The latter are
of course enforceable at law.5 It remains to be seen whether or not they
should be enforced in equity.
Equity frequently denies specific performance of valid contracts on the
ground that the public would be injured or inconvenienced if relief were
granted.6 Such actions are dismissed without prejudice to the plaintiff's pursu-
ing his remedy at law. It does not seem that this group should include ordi-
nary speculative contracts, however, for the economists tell us that, far from
being prejudicial, they are actually beneficial to the community.' At any rate,

The court did not consider this question.

2Lowry v. Dillman (1884) 59 Wis. 197, 18 N. W. 4; Flagg v. Baldwin
(1884) 38 N. J. Eq. 219; see Dillaway v. Alden (1895) 88 Me. 230, 234, 33
Atl. 981.
3Flagg v. Baldwin, supra, footnote 2 (equity); Lowry v. Dillman, supra,
footnote 2 (law).
4Dillaway v. Alden, supra, footnote 2; see Flagg v. Baldwin, supra, footnote
2, p. 227.
5Dillaway v. Alden, supra, footnote 2.
6American Laundry Co. v. E. & W. Dry-Cleaning Co. (1917) 199 Ala.
154, 74 So. 58 (agreement not to engage in the laundry business in a certain
county for ten years); Conger v. New York, W. S. & B. R. R. (1890) 120
N. Y. 29, 23 N. E. 983 (agreement by a railroad to construct a station and stop
trains); Foll's Appeal (1879) 91 Pa. St. 434 (contract to sell shares of bank
stock when such shares would give the purchaser control of the bank). The
theory is that specific performance is an extraordinary remedy and should not
be invoked when it appears that paramount interests will be disturbed. See
Beasley v. Texas & Pac. Ry. (1903) 191 U. S. 492, 497, 24 Sup. Ct. 164.
TDewey, Contracts for Future Delivery and Commercial Wages (1886)
Preface; Seligman, Principles of Economics (1916) 364-368. It is true that
these writers are speaking of commodities and not of land. Professor Selig-
man points out that a real estate boom may be socially disadvantageous, as
the market price is driven high above the true value with resulting losses when
equilibrium is being restored. Op. cit., 361-362. It does not follow, however,
that every speculative transaction in realty is detrimental to the public. Specu-
lators often improve neglected lands and reclaim barren and worthless lands.
Surely the- are then doing a service to the public.

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82 COLUMBIA LAW REVIEW

most business transactions of every day occurrence are highly speculative.

Trade, which in its broadest sense includes the buying and selling of real
estate,8 has been said to be based upon speculation.9 If that is so, a court
which refuses to enforce a contract on the ground that it is speculative is
going counter to one of the established policies of equity, the fostering of
trade. ?
Perhaps there is no more common form of speculation than "selling short."
And certainly one who has either no title at all or a defective title to a piece
of land takes a risk in anticipation of profit when he contracts to convey the
land clear from incumbrances. Yet it is almost universally held that equity
will decree specific performance if the vendor can furnish a good title within
a reasonable time.' Indeed, a vendee has been compelled to accept a deed
from a third person. 1
In a recent Illinois case, the court declared that a bill for specific per-
formance of a contract to convey land was not wanting in equity because
plaintiffs would not have exercised their options if they had not been able to dis-
pose of the property at a profit. This was a perfectly legitimate business transac-
tion, said the court. It is believed that this view, which seems directly contrary
to that taken by the instant case, is sound.3

II

The court in the instant case might have based its decision upon the case
of Hazelton v. Miller.14 There the plaintiff vendee who had contracted to
purchase land from the defendant vendor, contracted to sell it to the United
States at a profit. The plaintiff filed a bill for specific performance and the
court denied relief on the ground that since the plaintiff wanted the land only
to enable him to meet his contract with the United States, he had an adequate
remedy at law. At first thought, this reasoning seems sound. But did he have
an adequate remedy at law?
In order to answer this question, it is necessary to survey briefly the law
of damages for breach of contracts to convey realty. In England and some
American jurisdictions, a vendor who contracts to convey real property in
good faith, believing he has a good title, is liable only for nominal damages if
he is unable to fulfill his contract because his title proves defective."1 The
weight of authority in America, however, holds that he is liable for substantial

8May v. Sloan (1879) 101 U. S. 231; Finnegan v. Noerenberg (1893) 52

Minn. 239, 53 N. W. 1150.
9See Smith v. Bouvier (1872) 70 Pa. St. 325, 328.
1?Keeler v. Taylor (1866) 53 Pa. St. 467; 2 Pomeroy, Equity Jurisprudence
(4th ed. 1918) ? 934. A contract in restraint of trade, even though so limited
in time and space as to be good at law, will not be enforced in equity.
American Laundry Co. v. E. & W. Dry-Cleaning Co. supra, footnote 6.
"McNally v. Palmer (N. J. 1917) 100 Atl. 335; Coleridge Creamery Co. v.
Jenkins (1902) 66 Neb. 129, 92 N. W. 123; (1903) 3 COLUMBIA LAW REv. 1, 7.
12MacDonald v. Bach (1900) 51 App. Div. 549, 64 N. Y. Supp. 831.
13 See Threlkeld v. Inglett (Ill. 1919) 124 N. E. 368, 369, 370. Specific per-
formance was refused on another ground, so what the court said amounts
only to a dictum.
4 (1905) 25 App. D. C. 337. For comments on this case see (1905) 5
COLUMBIA LAW Riv. 473; (1905) 18 Harvard Law Rev. 625; Clark, Equity
(1919) ? 43.
"Flureau v. Thornhill (1776) 2 Wm. Bl. 1078; Walton v. Meeks (1890)
120 N. Y. 79, 23 N. E. 1115; Stuart v. Pennis (1902) 100 Va. 612, 42 S. E.
667; see Yokom v. McBride (1881) 56 Iowa 139, 142, 8 N. W. 795; 3 Sedgwick,
Damages (9th ed. 1912) 2108.

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 NOTES 83

damages.16 Where t
wilfully refuses to convey, however, it is almost universally held that the
measure of damages is the difference between the contract price and the market
value at the date of the breach.l1 If the vendee, relying upon the promise of
the vendor, has contracted to sell to a third person, the general rule seems to
be that the vendee cannot recover damages for the loss of his bargain with the
sub-vendee18 unless the collateral contract was contemplated by the parties when
they entered into the original agreement.l And this rule seems perfectly sound
inasmuch as it would be a hardship to make the vendor liable for the breach
of a contract of which he had no knowledge. 2
Such being the rules of damages, it seems fitting to apply them to facts
similar to those of the instant case and of Hazelton v. Miller. Let us sup-
pose that the defendant vendor has agreed to sell land to the plaintiff vendee
for $1,200 and that he has contracted to sell to X for $1,900. If the plaintiff
can get specific performance, he will make $700. Now suppose that throug
an honest mistake the vendor is unable to convey a good title to the plaintiff.
Specific performance would of course be refused, as equity cannot force a man
to convey what he does not have. Besides, it would follow from the reason
ing in the Hazelton case that the plaintiff has an adequate remedy at law, in-
as much as he has contracted to sell to X. In reality the plaintiff gets six
cents if he is in a jurisdiction where the English rule applies. If he is in a
jurisdiction where that rule does not apply, or if the vendor has wilfully
refused to convey, as appears to be the case in Hazelton v. Miller, the plain-
tiff will recover the difference between the contract price and the market value
at the date of the breach.
Let us suppose the market value to be (1) lower than, (2) the same as,
and (3) higher than the sub-contract price, $1,900. (1) If the market value
were $1,500, the plaintiff would recover $300, i. e., the difference between
$1,200 and $1,500. Since he would have made $700 if equity had decreed
specific performance, his remedy at law is clearly inadequate. (2) If the
market value were by any chance the same as the sub-contract price, $1,900,
the plaintiff would recover $700. True, he has recovered the benefit of his
bargain, but he is still subject to an action by X, the sub-vendee. Supposing
the market value to remain $1,900, X will of course. recover only nominal
damages. But the plaintiff (in the first suit) is subjected to the trouble and
expense of defending an action. Furthermore, since he is the loser, he mus
pay costs. Estimating costs and other expenses at $200, that amount must be
deducted from the $700 recovered from the original vendor in order to
ascertain the net gain of the original vendee. It follows that he has made
only $500. And he has been involved in two suits. Obviously, damages are
inadequate. (3) If the market value had soared to $2,200, the plaintiff woul
recover $1,000, i e., the difference between $1,200 and $2,200. Now X will sue

1Vallentyne v. Immigration Land Co. (1905) 95 Minn. 195, 103 N. W.

1028; Doherty v. Dolan (1876) 65 Me. 87; Sedgwick, op. cit., 2121-2124.
" Bugajski v. Siwka (1918) 200 Mich. 415, 166 N. W. 863; Sawyer v.
Hawthorne (1916) 178 Iowa 407, 158 N. W. 665.
18Spaulding v. Smith (Tex. 1914) 169 S. W. 627; Lynch v. Wright (C. C.
1899) 94 Fed. 703; Merritt v. Adams County Land, etc. Co. (1915) 29 N. D
496, 151 N. W. 11 (semble); see Masterson v. The Mayor of Brooklyn (N. Y
1845) 7 Hill 61, 68.
"9See Lynch v. Wright, supra, footnote 18, p. 704.
20 In Engel v. Fitch [1868] L. R. 3 Q. B. 314, the plaintiff vendee was
allowed to recover expected profits on a resale, the court holding that th
vendor at an aucti6n sale must be taken to have contemplated a resale by his
vendee.

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84 COLUMBIA LAW REVIEW

and recover $300, 2 the difference between $1,900 and $2,200. This
net gain of the original vendee to $700, the benefit of his bargain.
as before, he must pay costs and other expenses which we have pre
mated at $200. So here again the plaintiff has actually made only $500. The
same result would be obtained if he were allowed to recover the benefit of his
bargain with the sub-vendee instead of the difference between the contrac
and the market value. The plaintiff would recover $700, but this would be
reduced to $500 after X, the sub-vendee, had recovered judgment. It results
that legal damages cannot be adequate in such cases as Hazelton v. Miller and
the instant case.
However, where A contracts to purchase land in his own name for the
defendant P from the defendant T, and P buys directly from T, A cannot
have specific performance, for he has an adequate remedy at law in an action
against his principal for compensation.2 Nor does the result reached by the
Hazelton case follow logically from the cases which hold that where the de-
fendant has made an alternative promise, i. e., either to convey land or pay
money, specific performance will be denied.23 In these cases, the plaintiff has
an adequate remedy at law, for he can sue for breach of the promise to pay
money. Where the defendant has agreed to convey to the plaintiff and he in
turn has contracted to sell to X, and X induces the defendant to convey
directly to him in violation of the defendant's contract with the plaintiff,
specific performance is refused on the ground that the plaintiff has an ade-
quate remedy at law.24 He can join the defendant and X as defendants in an
action for breach of contract and recover the benefit of his bargain.
Even if damages at law were adequate in the Hazelton case and in the
instant case, it would not follow that specific performance should be refused.
In the Hazelton case at least two law suits would ordinarily flow from such
refusal, while in the instant case there would be at least three. Specific per-
formance of the original contract would probably prevent such suits. Then,
too, by denying specific performance to the original vendee, the court has put
it beyond its power to grant adequate relief to the last vendee, whose damages

21 Inasmuch as the original vendee knew that he did not have the legal
title when he contracted to sell to X, the latter would probably get substantial
damages in any jurisdiction. Pumpelly v. Phelps (1860) 40 N. Y. 59.
22Thweat v. Jones (C. C. A. 1898) 87 Fed. 268; Clark, op. cit. It was
was understood that A should receive as compensation the difference between
the price at which he should purchase the land and $4.20 per acre.
23Davis v. Isenstein (1913) 257 Ill. 260, 100 N. E. 940; see Ketterling v.
Eastlack (1906) 130 Iowa 498, 502, 107 N. W. 177; The Amanda G. M. Co. v.
People's M. Co. (1901) 28 Colo. 251, 254, 62 Pac. 218.
24Marthinson v. King (C. C. A. 1906) 150 Fed. 48. Under similar facts
specific performance was granted in the case of Bird v. Hall (1874) 30 Mich. 374.
This case may perhaps be distinguished from Marthinson v. King. In the
latter, the plaintiff's claim against X had matured before the suit in equity was
decided; in Bird v. Hall, it had not. Unless an anticipatory breach could be
worked out, it is difficult to see how a law court culd give the plaintiff in
Bird v. Hail damages for the loss of his bargain with X. And so the court
properly concluded that the plaintiff did not have an adequate remedy at law.
However, the result reached in Bird v. Hall is believed to be sound. It may be
supported on three theories: (1) the nature of the original contract gave equity
jurisdiction which was not defeated by the subsequent acts of the parties; (2)
the plaintiff was entitled to hold the land as security for payment by X; (3)
X, being a purchaser with notice from the contract vendor, held the land im-
pressed with a constructive trust in favor of the plaintiff.
5McLennan v. Church (1916) 163 Wis. 411, 158 N. W. 73. The case of
Marthinson v. King, supra, footnote 24, has also been explained on the ground
that the plaintiff was the agent of the sub-vendee and could hence recover
damages as compensation for his services. Clark, op. cit.

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 NOTES 85

will
willbe betotally
totallyinadequate
inadequate
according
according
to the accepted
to the accepted
doctrine of
doctrine
equity and
ofwho
equity an
is
is innocent
innocent of of
anyany
intention
intention
to speculate.
to speculate.
There
Thereisisstill
still
another
another
theory
theory
upon which
upon specific
which specific
performance
performance
might have might
been granted in the cases under discussion. It is well settled that where a
vendor of land is unable to give a good title to his vendee, a court of equity
will give damages although the same relief could be obtained in a law court.26
The reason for such practice seems to be that equity regards the nature of the
original contract and not the subsequent status of the parties in determining
whether or not it will grant relief. If this be so, it follows that the fact that
the plaintiff vendee has contracted to sell to a third person should be imma-
terial. Furthermore, the courts, influenced by the practices of the business
community, hold that a contract vendee of land has something more than a mere
right in personam; he has a sort of property right.27 To deny him equitable
relief merely because he has exercised that right by contracting to sell to a
third person seems clearly inconsistent. The theory that the sole test of
equitable jurisdiction should be the nature of the original contract seems sound
in that it furnishes a good working rule and tends to increase the number of
instances in which equity will grant relief. Its adoption would obviate many of
the difficulties which have confused the courts and have led to inconsistent
and undesirable decisions.
It may be conceded that affection for a piece of land is a valid reason
for granting specific performance. The fallacy in the reasoning in the Hazelton
case lies not only in disregarding the nature of the original contract, but in the
assumption that where there is no affection, legal damages must be adequate.
That they were inadequate in the Hazelton case has already been shown. That
they are more or less speculative in any case is unquestionable, for the market
value of land, if there is such a thing, is based upon opinion and is extremely
difficult to ascertain.28

WAIVER AND ESTOPPrL AS DrFENSES TO CONTRACT ACTIONS.---The case of

United States Fidelity Co. v. Robert Grace Contracting Co.' raises some interest-
ing problems. The plaintiff was under a contract to build roads for the
defendant, which was in turn obligated on a bond to a county. Two points of
dispute arose: the plaintiff claiming (1) that it was entitled to receive monthly
payments based upon its own estimates and not upon estimates by the county
engineer; (2) that it was not bound to keep in repair during the period of
construction the finished portions of the roads. The plaintiff tendered a bill
based upon its own estimates which the defendant requested time to pay, but
as the latter defaulted in payment for some considerable time the plaintiff
repudiated the contract and sued on a quatntum meruit. The District Court sus-
tained the plaintiff's contentions, allowed a recovery and denied the defendant's
counterclaim for breach of contract. The Circuit Court of Appeals remanded
the case for a new trial on the ground that the lower court misconstrued the
contract.

26Maguire v. Heraty (1894) 163 Pa. St. 381, .30 Atl. 151; Cathcart. v
Robinson (U. S. 1831) 5 Pet. 264.
2 For example, if buildings are destroyed between the date of entering into
the contract and the time fixed for performance without the fault of the
vendor, the vendee bears the loss. Sewell v. Underhill (1910) 197 N. Y.
168, 90 N. E. 430; Brewer v. Herbert (1869) 30 Md. 301; contra, Good v.
Jarrard (1912) 93 S. C. 229, 76 S. E. 698. For a discussion of the rights of a
contract vendee, see (1901) 1 COLUMBIA LAW REv. 1.
'See Sloan v. Baird (1900) 162 N. Y. 327, 330, 56 N. E. 752.
1 (C. C. A. 1920) 236 Fed. 283.

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