A buyer and seller in Connecticut execute a purchase contract for a residential property. The contract contains a liquidated damages clause stating that if the buyer defaults, the seller retains the earnest money deposit as the sole remedy. The buyer subsequently defaults. The seller, believing the property has declined in value, wants to sue the buyer for the full difference between the contract price and the current market value. Under Connecticut law, can the seller pursue damages beyond the earnest money deposit?
Correct Answer
C) No, because the liquidated damages clause is enforceable and limits the seller's remedy to the earnest money deposit
Under Connecticut contract law, a liquidated damages clause is enforceable when: (1) actual damages were difficult to estimate at the time of contracting, and (2) the stipulated amount is a reasonable forecast of compensatory damages rather than a penalty. In residential real estate, both conditions are typically met. When a validly drafted liquidated damages clause designates the earnest money as the seller's sole remedy upon buyer default, Connecticut courts generally enforce that clause and limit the seller to the deposit. The seller agreed to this limitation when accepting the contract terms.
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Related Topics & Key Terms
Key Terms:
Related Concepts
An inspection contingency gives the buyer the right to have the property professionally inspected within a specified time frame and to negotiate repairs or cancel the contract based on the findings.
Liquidated damages are a predetermined amount of money specified in the contract that the non-breaching party is entitled to receive if the other party breaches. In real estate, the earnest money deposit typically serves as liquidated damages.
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.
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