Under Michigan law, which of the following scenarios would most likely support a seller's claim for compensatory damages that exceed the earnest money deposit after a buyer's breach of a purchase agreement?
Correct Answer
B) The purchase agreement had no liquidated damages clause and the seller suffered provable losses greater than the earnest money
In Michigan, when a purchase agreement does not contain a liquidated damages clause limiting the seller's recovery to the earnest money, the seller may pursue compensatory damages for all provable losses resulting from the buyer's breach. These losses can include the cost of relisting, carrying costs during the period the property was off the market, and any difference in the eventual sale price. If these losses exceed the earnest money, the seller may recover the full amount of proven damages.
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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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