A Tennessee purchase contract for a $250,000 property contains a liquidated damages clause designating the $7,500 earnest money as the seller's sole remedy for buyer default. The buyer defaults, and the seller discovers that her actual damages — including carrying costs, a reduced sale price on the eventual resale, and marketing expenses — total $22,000. The seller wants to sue for the full $22,000. What is the most likely outcome under Tennessee law?
Correct Answer
B) The seller may recover only the $7,500 earnest money, as the enforceable liquidated damages clause limits her recovery regardless of actual damages
Under Tennessee law, a valid and enforceable liquidated damages clause limits the non-breaching party's recovery to the agreed-upon amount, even if actual damages turn out to be higher. A liquidated damages clause is enforceable when (1) the actual damages were difficult to estimate at the time of contracting and (2) the specified amount was a reasonable pre-estimate of anticipated harm. Once the seller agrees to the liquidated damages provision, she generally cannot abandon it and sue for greater actual damages — the clause is her exclusive remedy.
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Related Topics & Key Terms
Key Terms:
Related Concepts
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.
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.
More Contracts Questions
Which of the following is required for a valid contract in California?
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A contract formed for an illegal purpose is considered:
After a residential purchase contract has been signed by both parties in Illinois, the buyer and seller verbally agree to change the closing date. What is the legally sound way to document this change?
Specific performance in North Dakota:
- → In a contract for deed (land contract), who retains legal title to the property until the purchase price is fully paid?
- → Which of the following is NOT required for a valid bill of sale?
- → A Nevada real estate salesperson is helping a buyer draft a purchase agreement. Which of the following is NOT a required element for a Nevada residential purchase agreement to be legally enforceable?
- → Sawyer Iverson is reviewing an Illinois issue in Joliet. The person assumes that attorney review automatically replaces every inspection, appraisal, or financing deadline in a standard Illinois residential contract. Which statement best applies?
- → Tom and Linda sign a purchase agreement for a home in Hartford, Connecticut. The agreement includes a financing contingency stating that if Tom cannot obtain a mortgage commitment within 21 days, either party may void the contract. On day 19, Tom's lender issues a written mortgage commitment. On day 22, Tom changes his mind and tries to void the contract by claiming the financing contingency was not satisfied. Which of the following best describes the legal status of the contract?
- → Avery Jenkins is reviewing an Illinois issue in Normal. The person asks what happens if neither attorney sends a disapproval or proposed change during the standard review period. Which statement best applies?
- → Under Montana law, a purchase agreement for residential real property becomes legally binding on the seller when which of the following occurs?
- → Johnny wants the seller's patio furniture included in his purchase of a house. Before the offer is signed and delivered to the seller, he asks his agent to attach a page covering the furniture to the offer. That attached page is best described as:
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- → A contract where one party uses threats to force the other party to sign is considered:
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