So, it is held in Marsh v. Johnston (1908) 125 App. Div. 597, 109 N. Y. Supp. 1106, affirmed without opinion in (1909) 196 N. Y. 511, 89 N. E. 1104, that where a person agrees that, upon performance by the other party to the contract, he will at his own expense execute, acknowledge, and deliver, or cause to be executed, acknowledged, and delivered, to the party of the second part, a proper deed containing warranties, etc., of the premises, the fact that the vendor did not at the time own the land, although he had a contract for the purchase of it, and that he was prevented from performing his own contract by the refusal of the vendor in the original contract to convey to him, would not defeat the second vendee's right to all the benefits of his bargain. The court said that the general doctrine that when a party voluntarily undertakes to do a thing, without qualification, performance is not excused because by inevitable accident or other contingency, not foreseen, it becomes impossible for him to do the act or thing which he agreed to do, is well settled. "It is the general rule that where a party sustains a loss by reason of a breach of contract, he is, so far as money can do it, to be placed in the same situation, with respect to damages, as if the contract had been performed, and this rule is applied to sales of real estate where the vendor has the title and for any reason refuses to convey it, as required by his contract, subject to this limitation or exception that if the vendor contracts to sell and convey in good faith, believing he has a good title, and afterward discovers his title is defective, and for that reason, without any fraud on his part, refuses to fulfil his contract, he is only liable to nominal damages for a breach of his contract. But the rule is different, or rather the general rule prevails, where a party contracts to sell lands which he knows at the time he has no power to sell and convey. If he violates his contract in the latter case he should be held to make good to the vendee the loss of his bargain, and it does not excuse the vendor that he may have acted in good

faith, and believed when he entered into the contract that he would be able to procure a good title for his purchaser."

Also, in Neppach v. Oregon & C. R. Co. (1905) 46 Or. 374, 80 Pac. 482, 7 Ann. Cas. 1035, it is pointed out that if the vendor knew, or was chargeable with knowledge, at the time the contract was made, of the condition of its title, and that the land which it agreed to sell to the plaintiff was included in the limits of a prior grant to a third person, it stood in the same situation as a vendor who had title to land, but refused to convey. In such case, the court said, the authorities are that the vendee may recover for the loss of his bargain, and that the measure of damages is the value of the land agreed to be conveyed at the time of the breach, less the amount, if any, of the purchase price unpaid.

So, it is held in Dunshee v. Geoghegan (1891) 7 Utah, 113, 25 Pac. 731, that, where the vendor knew at the time he entered into the contract of sale that he did not have title to the entire interest in the land, he is liable in damages for breach of the contract, the measure of which is the difference between the contract price and the actual value at the time of the breach, even though he may have acted in good faith, and believed when he entered into the contract that he would be able to procure a good title for the vendee.

The vendee is not restricted to proof of fraud or bad faith in order to bring himself within the rule allowing compensation for loss of his bargain, but it is sufficient in this regard if he shows that the vendor knew at the time of making the contract that his title was defective, or that he did not possess the power to convey a marketable title without the concurrence of a third person. In such case it is immaterial that the vendor may have acted in good faith, and believed that he would be able to procure a good title. Matthews v. La Prade (1925)

Va., 130 S. E. 788. The rule is stated in Key v. Alexander (1926) Fla., 108 So. 883, that, "when a man enters into a solemn contract in writ

ing whereby he binds himself to deliver good title to certain property, he is presumed to know whether or not he can carry out that contract, and the purchaser may assume to rely upon the good faith of the contract." In Greer v. Doriot (1923) 137 Va. 589, 120 S. E. 291, in considering the question of the measure of damage in cases of the kind under consideration, the court said: "In the jurisdictions in which the doctrine of Flureau v. Thornhill (1776) 2 W. Bl. 1078, 96 Eng. Reprint, 635, prevails, the distinction seems to be well established, certainly by the great weight of authority, that if the vendor, at the time he enters into the contract, knows that it will not be in his power to convey the title he contracts to convey unless he obtains the consent or conveyance of a third person, which at the time of the contract the vendor has no enforceable right to compel, the case does not fall within such doctrine. In such case, if the vendor makes an unconditional contract to convey a marketable title, he cannot escape liability for compensatory damages for failure to perform by showing that the lawful act of some third person prevented the performance of his contract. There are two cases which hold that, where the ability of the vendor to convey depends upon the contingency of the approval of the court of the sale of a portion of the interests in the land sold, and both vendor and purchaser knew this at the time of the contract of sale, and there are other peculiar circumstances, only nominal damages can be recovered by the purchaser for the failure of the vendor to convey, due to the refusal of the court to confirm the sale."

The rule is stated in Arensten v. Moreland (1904) 122 Wis. 167, 65 L.R.A. 973, 106 Am. St. Rep. 951, 99 N. W. 790, 2 Ann. Cas. 628, that where a vendor has agreed to convey land which he knew at the time he had himself previously conveyed to another, or to which he had no title, he is answerable in damages to his vendee for the loss of his bargain. In Lommen v. Danaher (1917) 165 Wis. 15, 161 N.

W. 14, where the measure of the vendee's damages for failure of the vendor to convey real estate according to the terms of an executory contract was fixed at the difference between the contract price and the market value at the time of the breach, with interest from the date of judgment, it appeared that the vendor did not own the property at the time he contracted to convey it, and had no reasonable assurance that he would be able to comply with the terms thereof. The court said that where "the executory seller fails to perform, having agreed to do what he had no right to do, taking his chances upon being able to acquire such right, is guilty of a species of bad faith, and, if not in an ordinary case of breach of such a contract, he is liable to make good to the opposite party the damages caused to him by the loss of his bargain." It is not in all cases essential that the vendor should know the state of the title to the land he bargains to sell, but, in order to hold him liable for the loss of the vendee's bargain, it must appear that he knew at the time he entered into the contract to convey the land that he did not own it, or that, after making the contract, he sold the land to another, or otherwise disqualified himself to make good his original agreement. MCFARLANE V. DIXON (reported herewith) ante, 1.

It is suggested in Ontario Asphalt Block Co. v. Montreuil (1916) 52 Can. S. C. 541, 27 D. L. R. 514, Ann. Cas. 1917B, 852, that the English rule ought not to apply to the case then before the court, because the vendor's defective title was so obvious that it must have been known to any layman.

In O'Neil v. Drinkle (1908) 1 Sask. L. R. 402, where the vendor did not have title to the land at the time he contracted to sell the same, but had an arrangement by which he could secure title to fulfil the contract, which, owing to a mistake, he was unable to procure, and he did not exercise his best endeavor to obtain the title, it was held that he was liable to the vendee for the difference between the contract price and the actual value of the land.

But it has been held that the fact that the vendor did not own the land at the time he contracted to convey it does not establish bad faith on his part where he had made arrangements to secure the title. Hamaker v. Bryan (1918) 178 Cal. 128, 172 Pac. 391. It is said in Dobson v. Zimmerman (1909) 55 Tex. Civ. App. 394, 118 S. W. 236, that the mere fact that the vendor, at the time of binding himself to convey, knew that he had no title, is not such fraud as would authorize the recovery of damages based upon loss of profits.

And the holding in Hopkins v. Grazebrook (1826) 6 Barn. & C. 31, 108 Eng. Reprint, 364, that the vendor was liable to the vendee for the loss of his bargain where he contracted for the purchase of an estate and put it up and sold it at auction, engaging to make a good title at a certain day, which he was unable to do because the vendor did not convey to him, was disapproved of in Bain v. Fothergill (1874) L. R. 7 H. L. (Eng.) 158. In this case the possessor of a mining royalty under a written agreement for a lease of which he had taken an assignment contracted to sell to another, and was unable to carry out the contract because the lessor would not consent to the assignment, and although the vendor knew that such consent was necessary at the time that he entered into the contract in question, and failed to inform the vendee thereof, it was held that nevertheless the rule of Flureau v. Thornhill (Eng.) supra, should apply, and the vendee was limited in his damages to a recovery of the amount paid for expenses he had incurred. And see Day v. Singleton [1899] 2 Ch. (Eng.) 320-C. A., where the doctrine of the Flureau Case was approved and applied in assessing the damages of an assignee of a lease, where the assignor was unable to procure the consent of the lessor to the assignment. In Sikes v. Wild (1861) 1 Best & S. 587, 121 Eng. Reprint, 832, affirmed in (1863) 4 Best & S. 421, 122 Eng. Reprint, 517, where the devisee of real estate in trust to sell put it up for sale knowing that he could not make a title free from encumbrance, 48 A.L.R.-4.

as by a marriage settlement the land was vested in trustees to secure an annuity to the widow of the devisor, but the devisee relied upon her parol promise that, in the event of the sale she would transfer her security to another property, he was held not liable for loss of profits to the purchaser, although he was unable to perform because of the refusal of the widow to carry out her parol agreement. It is to be noted that several New York cases are cited supra as supporting the rule that knowledge by the vendor of his lack of title is sufficient evidence of bad faith on his. part to render him liable to the vendee for loss of the latter's bargain as an element of his damage for breach by the vendor of his executory contract to convey real estate. The exact scope of these New York decisions is in some doubt by reason of the language used by that court in Northridge v. Moore (1890) 118 N. Y. 419, 23 N. E. 570, as construed by the court in Blate v. Clarry (1906) 50 Misc. 668, 99 N. Y. Supp. 463, holding that, where the vendor acted in good faith and believed when he entered into the contract that he would be able to comply with its terms and convey a good title to the vendee, he is not liable to the latter for compensation for loss of his bargain, although he did not have the legal title to the land, nor was he the owner thereof, at the time he entered into the contract. This case is directly opposed to the New York cases already referred to, and it cites as authority for the holding Northridge v. Moore (N. Y.) supra. This latter case may be distinguished on the ground that there the vendee knew at the time he entered into the contract that the vendor had no title to the land. The court apparently took this fact into consideration. It is pointed out: "At the time the contract was made the defendant had no title to the property, but relied upon the performance by another, who had by contract, made about the same time, undertaken to convey the premises to him, and it was by reason of the failure of that party to do so that the defendant was unable to make the conveyance to the

plaintiff. The defendant made the contract in good faith, and had the purpose to perform it, and the plaintiff then understood that the defendant did not have the title, but was informed and believed, at the time the contract was made, that the defendant would be able to procure it before the stipulated time for performance." The court stated the general rule to be: "The vendee in a contract for the sale of land is not ordinarily entitled, upon breach, on failure to convey, to recover of the vendor damages measured by the goodness of his bargain or the financial benefit which would result from performance, and it is only when the vendor is for some reason chargeable with bad faith in the matter that recovery beyond nominal damages on that account can be had. If the vendee has paid any of the purchase money he may recover that back, and he may also recover such expenses as he has reasonably incurred in examination of the title to the property." The New York rule was enunciated by the court in Pumpelly v. Phelps (N. Y.) supra, and this case is referred to in Margraf v. Muir (1874) 57 N. Y. 155, which involved, a case where the vendor had no title to the land, but the vendee contracted with her for the conveyance with knowledge of this fact. In fact, the vendee apparently was the moving party in securing the contract. In these circumstances the court held that the vendee was not entitled to recover, as an element of damage, compensation for loss of his bargain. Referring to the Pumpelly Case, the court said: "The case of Pumpelly v. Phelps (N. Y.) supra, is the widest departure from the general rule of damages in such case that is to be found in the books. In that case it was held that where the vendor, in an executory contract for the conveyance of land, knew at the time he made the contract that he had no title, although he acted in good faith, believing that he could procure and give the purchaser a good title, he was yet liable for the difference between the contract price and the value of the land. But there are two features which distinguish this

case from that. In that case, the vendee did not know that the vendor had no title. Here, he did know it, and he knew, also, that she could get no title without imposing upon some court. Here, also, even if she could have procured the authority of some court to convey, she still would have been unable to give such a title as her contract called for, on account of the outstanding tax title, which was unknown to her when she contracted, and which she could not procure."

1. Effect of knowledge by vendee of defect in title.

The rule is stated in Downey v. Levenson (1924) 247 Mass. 358, 142 N. E. 85, that "if one enters into a written agreement for the purchase of real estate from another, free from encumbrances, and knows before he makes the agreement that the estate is subject to a mortgage, lease, attachment, or other encumbrance, such knowledge does not affect his right to a conveyance in accordance with the agreement, as the seller may cause the encumbrance to be removed before the time expires for the carrying out of the contract."

According to the rule in several jurisdictions, however, knowledge by the vendee of the vendor's lack of title at the time of entering into the contract may affect the damages recoverable. Thus, it has been held that where the vendee knew at the time of entering into the contract for the purchase of land that the vendor had no title thereto, and there was no fraud upon the part of the vendor, the vendee can recover only the amount he has paid on the contract, if any, and such special damages, not including the loss of his bargain, as he may allege or prove. Garcia v. Yzaguirre (1919) — Tex. —, 213 S. W. 236. So, in Northridge v. Moore (1890) 118 N. Y. 419, 23 N. E. 570, the vendee's damages were limited to a recovery of the amount paid upon the purchase price and the expense of investigating the title, although, at the time the vendor entered into the contract to sell, he knew he had no title to the property, where he made the contract in good faith with

the purpose to perform it, and the vendee understood that the vendor did not have title; he was, however, informed, and he believed, at the time the contract was made, that the vendor would be able to procure the title before the stipulated time for performance. And it is also held in Margraf v. Muir (1874) 57 N. Y. 155, that the rule holding the vendor liable to compensate the vendee for loss of his bargain, where he contracts to convey real estate of which he has no title, does not apply where the vendee knew of this fact at the time of securing the contract.

In Sawyer v. Warner (1873) 36 Iowa, 333, where the measure of the vendee's damage for a breach by the vendor of his contract to convey was limited to the amount paid on the purchase price, with interest thereon

from the date of payment, it appeared that, at the time the agreement was made, the vendee was informed that the vendor did not own the lots. However, in Cullumber v. Winter (1912) 154 Iowa, 263, 134 N. W. 601, where the vendee was held entitled to recover compensation for the loss of his bargain, the breach of the contract was due to the fact that the vendor had no title to the land, and while it further appeared that the vendee knew that the vendor had no title, yet the latter represented to the vendee that he had secured such rights in and to the land that he could sell it absolutely upon the terms proposed. The court said he either had such rights, or believed he had them, else he was guilty of fraud or deceit.

Edgington

V.

Howland

But in (1923) 111 Neb. 171, 195 N. W. 934, where the measure of the vendee's damage was held to be the difference between the actual value of the land and the contract price, the vendor did not own the land at the time that he contracted to convey it, and the vendee had knowledge of this fact. So, in Householder v. Nispel (1923) 111 Neb. 156, 195 N. W. 932, the vendee was held entitled to recover the difference between the contract price and the market value of the land at the time of the breach, plus the

amount the vendee had paid on the purchase price, where the vendors did not own the land at the time they entered into the contract for its sale, although the vendee was aware of this fact. It was found, however, that the vendors, by their own wrongful conduct, placed themselves in a position where they could not perform the contract on their part. And in Arensten v. Moreland (1904) 122 Wis. 167, 65 L.R.A. 973, 106 Am. St. Rep. 951, 99 N. W. 790, 2 Ann. Cas. 628, it is held that the vendee had a right to rely upon the agreement of the vendor to convey the complete title to the land, including the timber thereon, even if he knew at the time of making the contract to purchase that the vendor had no title to either, and the fact of such knowledge does not relieve the vendor from liability to the vendee for compensation for the loss of the latter's bargain.

g. Where breach is due to refusal of vendor to convey.

Where the vendor is in a position to perform his executory contract for the sale of real estate, and without justification refuses to do so, the rule restricting his liability, where he has acted in good faith, has no application, and in jurisdictions where this rule obtains, as well as those where it is denied, the vendor who wilfully, and for purposes of his own, refuses to perform his contract for the sale of real estate, will be held liable to the vendee for the loss of his bargain.