Loveless v. Diehl

Supreme Court of Arkansas · Contracts

ContractsSpecific performanceOption contractsDamagesoption to purchaselease optionspecific performanceequitable discretion

Facts

The Lovelesses leased a 79-acre farm to the Diehls for three years, and the lease gave the Diehls an option to purchase the property at any time during the lease for $21,000. The Diehls made improvements to the property and also gave Loveless a promissory note for $1,440.95 for milking equipment. Near the option's expiration, the Diehls arranged to sell the property to Dr. Hart for $22,000, and the evidence showed Hart was able and willing to pay that amount before December 15, 1959. The court found that Loveless interfered with that transaction by disclaiming any intention to sell to Diehl, making any further tender of the $21,000 unnecessary.

Issue

When the holder of an option to purchase could only exercise the option through an immediate resale to a ready, able, and willing buyer, and the owner wrongfully interfered by refusing to honor the option, should equity grant specific performance or instead award damages equal to the lost resale profit? A related issue was whether Loveless was entitled to recover on Diehl's unpaid note and whether the parties' competing rent and property-loss claims were proved.

Rule

A court of equity has sound discretion in specific-performance cases to award clearly established damages in lieu of specific performance when those damages provide all the relief that a conveyance would have provided under the circumstances. In addition, where the seller interferes with the buyer's performance and disavows any intention to sell, further tender of the purchase price is unnecessary.

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One of 10 multiple-choice questions for this case. Pick an answer to see why.

Nina Flores leased a small orchard outside Salem, Oregon, from Owen Mercer under a lease giving her an option to buy the land for $180,000 any time before the lease ended. Nina could not finance the purchase herself, but before the deadline she arranged an immediate resale to Caleb Dunn for $188,000; Owen then told both of them he would not sell to Nina under any circumstances.

If Nina sues in equity seeking specific performance or, alternatively, damages, what is the most appropriate relief?

Explanation. The majority recognized that a court of equity has discretion to award clearly established damages instead of specific performance when damages provide all the relief the conveyance would have given. Here, Nina admitted she could only complete the purchase through the contemporaneous resale, and the seller's refusal prevented that deal. Her proven loss is the $8,000 resale profit, so damages in that amount are the appropriate substitute. (Derived from Loveless v. Diehl (n.d.).)