Victor contracted to purchase a Maryland home for $520,000 with a $15,000 earnest money deposit. The contract contained a liquidated damages clause. Victor's financing fell through because he lost his job after signing the contract, but the contract's financing contingency had already expired before his job loss. The seller, Gwen, declared Victor in default and claimed the $15,000 deposit. Victor argued the job loss was an unforeseeable event that should excuse his performance. Under Maryland law, what is the most likely outcome?
Correct Answer
B) Gwen is entitled to retain the $15,000 deposit because the financing contingency had expired and Victor has no contractual basis to terminate
Under Maryland contract law, once the financing contingency period expires without the buyer terminating the contract, the buyer assumes the risk of being unable to obtain financing. Victor's job loss, while unfortunate, does not constitute a legal excuse for non-performance under the doctrine of commercial impracticability in a standard real estate purchase contract. The contract remained enforceable, and Victor's failure to close constitutes a breach. With a valid liquidated damages clause in place, Gwen is entitled to retain the $15,000 earnest money deposit as her contractually agreed-upon remedy.
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Related Topics & Key Terms
Key Terms:
Related Concepts
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.
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.
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