Linda agrees to buy a townhouse in San Jose for $950,000 and deposits $35,000 in earnest money. The purchase agreement includes a liquidated damages clause per California Civil Code §1675. Linda fails to close due to a job relocation. How much of the earnest money must the seller return to Linda?
Correct Answer
D) $6,500 total
Under California Civil Code §1675, liquidated damages for a 1-4 unit residential transaction are capped at 3% of the purchase price. Calculation: $950,000 × 0.03 = $28,500. Linda deposited $35,000, so the seller retains $28,500 and must return $35,000 - $28,500 = $6,500 to Linda.
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Related Topics & Key Terms
Key Terms:
Related Concepts
An assignment of contract transfers one party's rights and obligations under a contract to a third party called the assignee. The original party, known as the assignor, transfers their contractual position to someone who was not originally part of the agreement.
A bilateral contract is an agreement in which both parties exchange promises and are both obligated to perform, while a unilateral contract is one in which only one party makes a promise and the other party is not obligated to act.
A breach of contract occurs when one party fails to perform their obligations under the contract without a legal excuse. The non-breaching party is entitled to legal remedies including damages, specific performance, or contract rescission.
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