Jessica places a $30,000 deposit on a $750,000 home in Irvine that she intends to occupy. The C.A.R. RPA includes a liquidated damages clause initialed by both parties. Jessica later defaults on the contract. Under California Civil Code §1675, how much of the deposit can the seller retain as liquidated damages?
Correct Answer
A) $22,500
Under California Civil Code §1675, liquidated damages for residential property (1-4 units, buyer-occupied) are presumed valid up to 3% of the purchase price. 3% of $750,000 = $22,500. Even though Jessica deposited $30,000, the seller can only retain $22,500. The remaining $7,500 must be returned to Jessica.
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Related Topics & Key Terms
Key Terms:
Related Concepts
Novation is the substitution of a new contract for an existing one, or the replacement of one party with a new party, with the consent of all parties involved. The original party is completely released from all obligations.
Offer and acceptance is the process by which one party proposes specific terms for a contract and the other party agrees to those exact terms, creating mutual assent. This mutual agreement, also called a meeting of the minds, is an essential element of every valid contract.
An option contract gives one party the exclusive right, but not the obligation, to purchase or lease a property at a specified price within a specified time period. The buyer pays option consideration to keep the option open.
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