# MEMORANDUM

**To:** Adrian Cole
**Re:** Seller's demand following failed closing — exposure analysis and negotiating position
**Bottom line:** Your total exposure is **$108,000**. The seller already holds **$90,000**; you owe an additional **$18,000** shortfall. The seller's claims for $112,000 in actual damages, carrying cost, specific performance, and attorney fees all fail.

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## 1. The financing-contingency defense fails

The contingency was conditional on three things (Rule 6): (a) a complete loan application by the stated date, (b) diligent efforts, and (c) timely termination notice. You missed all three:

- **Application deadline.** Required within 5 days; you applied on day 12 — seven days late. This alone forfeits the protection.
- **Diligence.** A seven-day delay in submitting the application is the opposite of diligent effort, and it is the likely cause of the denial arriving late (day 24 rather than inside the 20-day window).
- **Termination notice.** The termination right expired on day 20. The denial came on day 24, and you never gave notice. Under Rule 6, once the contingency expires without termination, **financing failure does not excuse closing.**

Consequence: you were in default of an unconditional obligation to close, and — critically for the clause's own trigger language — you defaulted "after expiration … of all contingencies." Do not litigate this point; it is a loser and pressing it invites a fee-shifting or bad-faith argument elsewhere.

## 2. The six-percent clause is enforceable, not a penalty

Every element of Rules 1–2 is satisfied:

- **Difficulty of estimation at formation.** The clause expressly recites market movement, carrying cost, and lost opportunity — the classic hard-to-quantify residential-sale losses. This recital was negotiated, not boilerplate imposed on a consumer.
- **Reasonable forecast, not punishment.** Six percent of $1,800,000 = $108,000, which is **below the 10 percent safe harbor** ($180,000). Rule 2's presumption of reasonableness therefore applies.
- **Arm's length negotiation.** The facts state the contract was negotiated.
- **Property removed from the market.** The seller took the house off the market for 55 days, satisfying the second condition of the presumption.

Nothing rebuts the presumption. A clause set at roughly half the safe-harbor ceiling, supported by a factual recital, in an arm's-length residential deal, is enforceable.

**Strategic note:** this cuts in your favor. Enforcing the clause is what *caps* your liability. Attacking it as a penalty is affirmatively against your interest — if it fell, the seller would be free to prove actual damages of $202,000. Abandon that theory.

## 3. Later actual damages are legally irrelevant

Your argument that the seller's $202,000 in real loss ($180,000 price gap + $22,000 carrying cost) proves the clause unreasonable is foreclosed by Rule 3: a clause "is not invalid merely because actual damages later prove higher or lower than the forecast," and reasonableness is judged **at formation**. Hindsight cannot be used by either side.

Note the asymmetry: here actual loss *exceeds* the stipulated amount by $94,000. The clause is a bargain for you, not a penalty against you. Likewise, Rule 7 makes mitigation irrelevant — the seller need not mitigate because it is not entitled to actual damages, and mitigation cannot reduce an enforceable sole-remedy figure.

## 4. The exact liquidated amount

| Item | Amount |
|---|---|
| Purchase price | $1,800,000 |
| Liquidated damages @ 6% | **$108,000** |
| Earnest money already held by seller | ($90,000) |
| **Shortfall owed by Adrian** | **$18,000** |

The clause expressly authorizes retention of the deposit *and* recovery of "any shortfall between the deposit and the liquidated amount," which is exactly what Rule 5 requires for shortfall recovery. Your position that "the deposit alone is the maximum remedy" is therefore wrong by $18,000. Concede it early; fighting it costs more than it saves.

## 5. Everything else the seller demands is barred

The clause makes liquidated damages the seller's **"sole and exclusive remedy."** Rule 4 then bars the seller from also recovering:

- **Resale price loss — $180,000: barred.**
- **Carrying cost — $22,000: barred.**
- **Specific performance: barred.** (Also moot; the house has been resold.)
- **The seller's $112,000 "additional actual damages" claim: barred in full.**

**Attorney fees: barred.** The contract contains no fee provision and no supplied rule authorizes fees. Fees are unavailable to the seller in the American-rule default — and equally unavailable to you, so factor your own defense costs into the settlement math.

The seller's demand of $202,000 plus fees overstates its entitlement by at least $94,000. It is, in substance, an attempt to elect both the liquidated remedy and the actual-damage remedy — precisely the double recovery the sole-remedy language forecloses.

## 6. Settlement and litigation position

**Position to take (both in settlement and, if necessary, at trial):**

> "The liquidated-damages clause is valid and controls. Seller may retain the $90,000 deposit and recover the $18,000 shortfall — $108,000 total, nothing more. No resale loss, no carrying cost, no fees."

**Settlement plan:**

1. **Send a prompt, reasoned tender.** Offer the full $18,000 shortfall, conditioned on (a) a mutual general release covering the transaction, (b) express waiver of the $112,000 actual-damage claim and any fee claim, (c) written confirmation that the $90,000 deposit is applied to the $108,000 and the escrow is closed. A full-value tender of the undisputed amount is your strongest posture: it removes any equitable sympathy for the seller and any argument that you are stonewalling.
2. **Do not attack the clause.** Your defense *is* the clause. Any pleading should affirmatively plead the sole-remedy provision as a bar to the actual-damage counts, not challenge its validity.
3. **Do not litigate the contingency.** Effectively concede default (day-12 application, no termination notice) and pivot immediately to remedy limitation. This narrows the case to a pure contract-construction question you win.
4. **Cost discipline.** The genuine dispute is $18,000 versus $202,000+. Because no fee-shifting exists, litigating over the last $18,000 is irrational; litigating to defeat the $112,000 overreach is worth real money. Structure any escrow-release stipulation so the deposit is not disbursed beyond $108,000 while the excess claim is pending.
5. **If seller refuses.** Move early for judgment on the pleadings or partial summary judgment dismissing the resale-loss, carrying-cost, specific-performance, and fee claims. Those are decided on the contract's face under Rule 4, require no discovery, and their dismissal collapses the seller's leverage. Expect a resolution at or very near $108,000 total.

**Worst realistic outcome:** judgment of $108,000 (deposit + $18,000), each side bearing its own fees.
**Best realistic outcome:** the same number, reached in 30 days by stipulation, with a mutual release and minimal legal spend.