Teresa, a licensed Alabama salesperson, prepares a purchase agreement for her buyer client. The agreement contains a clause stating that if the buyer defaults, the seller retains the earnest money as the sole and exclusive remedy. The buyer later defaults. The seller wants to sue for additional damages beyond the earnest money. Which of the following best describes the legal effect of the liquidated damages clause?
Correct Answer
A) The seller is limited to retaining the earnest money as the exclusive remedy if the clause is enforceable as written
When a purchase agreement contains a valid liquidated damages clause designating the earnest money as the seller's sole and exclusive remedy upon buyer default, the seller is generally bound by that limitation and cannot pursue additional damages. Alabama courts enforce liquidated damages clauses in real estate contracts when the amount is a reasonable pre-estimate of damages and not a penalty.
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Related Topics & Key Terms
Key Terms:
Related Concepts
Contingencies are conditions written into a real estate contract that must be met before the transaction can close. If a contingency is not satisfied, the buyer can typically cancel the contract without penalty.
Contract termination occurs when a contract is ended or discharged, releasing both parties from their obligations. A contract can be terminated through performance, mutual agreement, operation of law, or breach.
A counteroffer is a response to an original offer that changes one or more terms of the offer, effectively rejecting the original offer and creating a new offer. The party who makes the counteroffer becomes the new offeror.
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