The Proper Remedy For Breach Of Purchase Option Is The Difference Between The Option Price And The Property's Value
LOUIS AND KAREN METRO FAMILY, LLC v. LAWRENCEBURG CONSERVANCY DISTRICT (July 29, 2010)
Louis and Karen Metro Family, LLC is a limited liability company owned by Louis and Karen Metro. The company owns a number of parcels of property in Ohio and Indiana. One such parcel sat on a bank of Tanners Creek and was home to a pizza parlor. Because Tanners Creek had a long history of flooding, the City of Lawrenceburg and the Lawrenceburg Conservancy District agreed to jointly build a floodwall along the creek. The District notified Metro Family of its intent to acquire the Tanner Creek property through eminent domain. It offered $417,000 -- the appraised fair market value. Metro Family refused the offer but eventually agreed on the sale of the property for $417,000 plus an irrevocable option to purchase 1.4 acres back for $269,490. The option was exercisable for 18 months after completion of the floodwall. Unfortunately, the floodwall was never built. The City withdrew from the project and the District could not complete it on its own. The District conveyed the Metro Family parcel to the City. The property was converted to highway use. Metro Family brought suit against the City and the District for breach of contract. Magistrate Judge Hussman (S.D. Ind.) concluded that there was a breach but that Metro Family was entitled to no monetary recovery. Instead, he ordered reformation of the contract and gave Metro Family 18 additional months within which to exercise the option. The City and the District appeal. Metro Family cross-appeals.
In their opinion, Judges Cudahy, Wood, and Evans vacated and remanded. The only issue on appeal was the remedy for the breach. In Indiana, reformation of the contract is available when there is a mutual mistake. The Court noted that the problem was not really a mutual mistake but a failure to allocate risk in the event the underlying project was canceled. Nevertheless, the Court believed that an Indiana court would use the mutual mistake concept -- that the parties shared a common assumption regarding a fact that was the essence of the agreement -- to find for Metro Family. Therefore, the Metro Family is entitled to the value of the option. The Court opined that the magistrate judge's reformation approach would have been appropriate if the option parcel was still undeveloped. Since exercising the option is no longer a viable alternative, however, the Court concluded that the next best approach was to compare the option price ($269,490) with the appraised value of the option parcel prior to the construction of the highway. Metro Family is entitled to the excess (if any) of the appraised value over the option price.
