A Michigan buyer signed a purchase agreement for a Flint home and deposited $6,000 in earnest money. The contract contained a liquidated damages clause making the earnest money the seller's sole remedy. Before closing, the seller discovered that the buyer had deliberately misrepresented his income on the mortgage application—a form of fraud. The seller wants to recover more than the $6,000 earnest money. Under Michigan law, which statement most accurately describes the seller's options?
Correct Answer
B) The seller may void the liquidated damages clause due to the buyer's fraud and pursue full compensatory damages
Under Michigan law, a contract clause—including a liquidated damages clause—can be voided or rendered unenforceable when it was induced by fraud, misrepresentation, or other wrongful conduct. If the buyer committed fraud (deliberately misrepresenting income on a mortgage application), the seller may have grounds to void the liquidated damages clause and pursue the full range of compensatory damages available at law. Michigan courts recognize that equitable principles can override contractual limitations when one party has engaged in fraudulent conduct.
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Related Topics & Key Terms
Key Terms:
Related Concepts
A time is of the essence clause in a contract means that all deadlines and dates specified in the agreement are strictly enforceable, and failure to meet them constitutes a material breach.
An appraisal contingency allows the buyer to cancel or renegotiate the contract if the property's appraised value comes in lower than the agreed-upon purchase price. This contingency protects buyers from overpaying.
An assignment of contract transfers one party's rights and obligations under a contract to a third party called the assignee. The original party, known as the assignor, transfers their contractual position to someone who was not originally part of the agreement.
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