Sarah and Tom entered into a Michigan residential purchase agreement for a home listed at $285,000. Sarah deposited $5,000 in earnest money with the listing broker. Two weeks before closing, Tom discovered he could not secure financing and notified Sarah that he was backing out. The purchase agreement contained a liquidated damages clause designating the earnest money as the seller's sole remedy. Under this clause, what is Sarah's most appropriate course of action?
Correct Answer
B) Retain the $5,000 earnest money as full satisfaction of her damages
When a Michigan purchase agreement contains a valid liquidated damages clause specifying that the earnest money is the seller's sole remedy upon buyer default, the seller is entitled to retain the earnest money deposit and that retention constitutes full satisfaction of the seller's damages. Sarah may not pursue additional remedies beyond what the contract specifies as the sole remedy.
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Related Topics & Key Terms
Key Terms:
Related Concepts
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.
A purchase agreement is a legally binding contract between a buyer and seller that outlines the terms and conditions for the sale of real property. It is also commonly called a sales contract, purchase and sale agreement, or earnest money agreement.
Specific performance is a court-ordered remedy that compels the breaching party to fulfill their obligations under the contract rather than simply paying monetary damages. It is an equitable remedy used when monetary damages would be inadequate.
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