Who said legal opinions have to be boring? Not Judge Terrence L. Michael of the U.S. Bankruptcy Court for the Northern District of Oklahoma, who last week issued a colorful opinion rejecting a home builder’s creative claim for breach of contract damages. Here’s what happened:
The builder, Executive Homes, and the buyers, David and Gloria Potts, entered into a contract for the purchase and sell of a new home and the underlying real estate for the price of $517,000. Before closing on the transaction, the Pottses filed for bankruptcy and defaulted on the contract with Executive. Fortunately, Executive was able to sell the property to another buyer at a higher price – $524,900. Like many other states, Oklahoma law measures damages in this scenario as the contract price ($517,000) minus the market value of the property at the time of the breach. The best evidence of market value at the time of breach? That would be the price paid by the other buyer, $524,900. Because the market value at the time of the breach was more than the contract price, Executive would not be entitled to recover any damages under Oklahoma law.
That’s where Executive decided to get creative. It argued that the measure of damages set forth in Oklahoma statutory law was merely a guideline or “template” that the court was not required to follow. Instead of following the statutory formula for the buyer’s breach of a real estate contract, Executive sought to recover the profits it stood to make off its contract with the Pottses (even though it realized those profits in the sale to the other buyer). According to Executive, it is a “volume builder” of homes, which means it has an unlimited ability to construct homes and an equally unlimited supply of buyers for every home it builds. Given this infinite capacity, Executive claimed to be entitled to the lost profit on every contract for the sale of a home, regardless of whether that home is ultimately sold to another party.
Judge Michael rejected this “volume seller of real estate” theory with an equally creative (and entertaining) legal opinion. He found that Executive’s argument “use[d] the wrong tool for the job,” had “numerous cracks in the foundation,” did not hold water or pass inspection, and had “no more substance than the proverbial house made of straw.” He also rejected the premise that the contract was for construction of a home, not for the sale of real estate, noting that the contract was entitled “Purchase Agreement for Sale of New Home and Real Estate” and quipping that “[i]f it walks like a duck, quacks like a duck, and swims like a duck, it is most likely a duck.”
Judge Michael’s colorful opinion disallowing Executive’s claim can be found here. Enjoy.