June 7, 2010 – A court may order specific performance where a party breaches a contract for the sale of land, regardless of whether the non-breaching party has other adequate remedies at law, the Wisconsin Supreme Court recently held. In addition, the court held that a seller has no duty to mitigate damages when requesting interest in addition to specific performance.

In Ash Park, LLC v. Alexander & Bishop, ltd., 2008AP1735 (June 3, 2010), Alexander & Bishop (AB) breached a contract to purchase a parcel of real estate from Ash Park for $6.3 million when it failed to find an “anchor” tenant for a proposed retail shopping center. Specific performance was an express remedy pursuant to the contract.

The Brown County Circuit Court ordered specific performance of the contract with interest – 5 percent pre-judgment and 12 percent post-judgment – on the purchase price until the deal closed. The appeals court affirmed.

Specific performance is a proper remedy

AB argued the circuit court erroneously exercised its discretion to order specific performance without determining whether other legal remedies were available.

But the supreme court – in an opinion written by Justice Ann Walsh Bradley – held that “in the context of contracts for land … Wisconsin law does not require a seller to demonstrate the inadequacy of a remedy at law as a prerequisite to an award of specific damages.”

The supreme court rejected AB’s proposals to change Wisconsin law with a declaration that specific performance may not be ordered unless money damages are inadequate.

Granting or denying specific performance as a remedy, the court held, “is best left to the sound discretion of the circuit court on a case-by-case basis.”

Impossibility no defense here

AB also argued that performing the contract was impossible and “impossibility” is a defense to specific performance. But AB did not argue this point to the circuit court. Noting that “impossibility” is indeed a defense, the supreme court nevertheless passed on that issue because AB never asserted it as a defense in circuit court.

The litigant has a “responsibility to develop its case in the circuit court and to raise arguments on its own behalf,” the court wrote. “Our review is confined to the facts on the record.”

No mandatory judicial sale

The court rejected AB’s proposal to require mandatory judicial sale and money judgment for a deficiency once specific performance is ordered.

This proposal collapses actual damages and specific performance into one remedy, the court wrote, “and would make the particular benefits of specific performance unavailable to an innocent seller after the buyer’s breach.”

The court also noted that such a change would rewrite the parties contract, and a “contract that specifies remedies available in the event of breach” generally governs.

Contempt proceedings proper

AB argued that contempt proceedings for non-payment of money creates a “debtors prison” and is against public policy. But the court reiterated that contempt proceedings are proper when a debtor is unwilling, as opposed to unable, to perform. “There is no finding that [AB] is unable to perform,” the court wrote.

No duty to mitigate

The doctrine of mitigation should apply in a situation where the seller seeks interest in addition to specific performance of a contract, AB argued. The court disagreed.

The duty to mitigate damages in a situation where specific performance is ordered due to buyer’s breach “would create several practical difficulties,” the court wrote.

For one, a seller cannot market and sell to a third-party buyer where a court order requires specific performance of the contract, the court noted.

Interest proper based on equitable considerations

The circuit court erroneously exercised its discretion by ordering AB to pay interest on the purchase price, AB argued. But an allowance of interest in a case of equity, the court held, “is dependent upon the various equitable circumstances of the case.”

Motivating the parties to comply with the court’s order, the court wrote, “is a proper consideration when deciding to impose interest.”

AB also argued that awarding interest was improper because it is inequitable to permit a party to enjoy both the beneficial use of the property and use of the purchase money (interest) under Estreen v. Bluhm, 79 Wis. 2d 142, 255 N.W.2d 473 (1977). But Ash Park had no beneficial use of the property, the court found, because it could not rent the property without improvements and any appreciation in value would ultimately accrue to AB.

AB also argued the circuit erred when it ordered interest at the statutory rate under Wis. Stat. section 815.05.08, which establishes a 12 percent annual interest rate on judgments “for the recovery of money.” AB asserted that an order for specific performance is not a judgment “for the recovery of money.”

The supreme court agreed that orders for specific performance are not judgments “for the recovery of money” under the statute. But the rate ordered is proper, the court held, based upon equitable considerations – to motivate AB to perform, and to compensate Ash Park for the costs involved in holding the property.

“Although the circuit court was not required to set interest at the statutory rate, it did not erroneously exercise its discretion by doing so,” concluded the court, which affirmed the appeals court decision and remanded the case to the circuit court.

Valerie Bailey-Rihn, Jeffrey O. Davis, and Freya K. Brown of Quarles & Brady LLP represented Alexander & Bishop, Ltd. R. George Burnett and Patrick M. Blaney of Liebmann, Conway, Olejniczak & Jerry, S.C. represented Ash Park, LLC.