A Kentucky purchase agreement contains a liquidated damages clause stating that if the buyer defaults, the seller shall retain the $6,000 earnest money as full and complete liquidated damages. The buyer defaults after the inspection period, and the seller retains the earnest money. The seller later claims the property sold for $20,000 less than the original contract price and sues the buyer for the additional $14,000. Under Kentucky contract law, what is the likely outcome?
Correct Answer
C) The seller will not recover additional damages because the liquidated damages clause was accepted as the exclusive remedy for buyer's default
Under Kentucky contract law, a valid liquidated damages clause that specifies a predetermined remedy for breach is enforceable when the amount represents a reasonable estimate of anticipated damages and actual damages would be difficult to calculate. When a purchase agreement states that the seller's retention of earnest money is the 'full and complete' remedy for buyer default, the seller has agreed to accept that amount as the exclusive remedy. The seller cannot simultaneously retain the earnest money as liquidated damages and also sue for additional actual damages — doing so would result in a double recovery.
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Related Topics & Key Terms
Key Terms:
Related Concepts
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.
Consideration is something of value exchanged between parties to a contract, making the agreement legally binding. It can be money, a promise to act, a promise to refrain from acting, or anything else of value.
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