A Minnesota purchase agreement contains a clause stating: 'In the event of buyer's default, seller's sole remedy shall be to retain the earnest money of $7,500 as liquidated damages, and seller waives all other claims against buyer.' The property fails to sell for 90 days after the buyer's default, and the seller ultimately sells the home for $25,000 less than the original contract price. The seller now wants to sue the buyer for the $25,000 loss in addition to retaining the earnest money. Under Minnesota law, which outcome is most likely?
Correct Answer
A) The seller may retain the $7,500 earnest money but is barred from recovering the additional $25,000 loss because the purchase agreement's sole remedy clause limits the seller to the liquidated damages
Under Minnesota contract law, when a purchase agreement contains a valid liquidated damages clause designating the earnest money as the seller's 'sole remedy,' the seller is contractually bound by that limitation. The seller cannot retain the earnest money AND also sue for additional actual damages. The 'sole remedy' language is a contractual waiver of other claims. Minnesota courts enforce such clauses when they represent a reasonable pre-estimate of damages. The seller's decision to include the sole remedy clause was a bargained-for term, and the seller is bound by it even if actual losses exceed the liquidated amount.
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Related Topics & Key Terms
Key Terms:
Related Concepts
A financing contingency makes the purchase contract conditional upon the buyer obtaining mortgage approval within a specified time period. If the buyer cannot secure financing, they can cancel the contract and receive their earnest money back.
An inspection contingency gives the buyer the right to have the property professionally inspected within a specified time frame and to negotiate repairs or cancel the contract based on the findings.
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.
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