# Question 49: The Deposit After the Missed Closing

## Your role

You represent Adrian Cole, the buyer of a residential property in the fictional State of Kepler. Adrian failed to close after his financing contingency expired. The seller seeks to keep the earnest money and recover additional resale loss. Determine the enforceability and exact amount of the liquidated-damages remedy.

## Governing law

Assume the following Kepler rules apply:

1. A liquidated-damages clause is enforceable when, at contract formation, actual loss from breach was difficult to estimate and the stated amount was a reasonable forecast rather than a punishment.

2. A stated amount not exceeding 10 percent of the purchase price is presumed reasonable for a residential sale when the parties negotiated at arm's length and the seller removed the property from the market.

3. A clause is not invalid merely because actual damages later prove higher or lower than the forecast. The focus is reasonableness at formation.

4. When the contract states that liquidated damages are the seller's sole remedy for buyer default, the seller may not also recover actual resale loss, carrying cost, or specific performance.

5. When the required liquidated amount exceeds the earnest-money deposit, the seller may retain the deposit and recover the stated shortfall if the clause expressly says so.

6. A financing contingency protects the buyer only if the buyer applies by the stated date, uses diligent efforts, and gives timely termination notice. After the contingency expires without termination, financing failure does not excuse closing.

7. The seller must mitigate only if seeking actual damages. Mitigation does not reduce an enforceable sole-remedy liquidated amount.

## Facts

Adrian agreed to buy a house for $1,800,000. He deposited $90,000. The negotiated contract states:

> "If Buyer defaults after expiration or waiver of all contingencies, Seller's sole and exclusive remedy shall be liquidated damages equal to six percent of the Purchase Price. Seller may retain the earnest-money deposit and recover from Buyer any shortfall between the deposit and the liquidated amount. The parties agree that actual damages would be difficult to estimate because of market movement, carrying cost, and lost opportunities."

Adrian's financing contingency required a complete loan application within five days and permitted termination within 20 days if financing was denied. Adrian waited 12 days to apply. His lender denied the loan on day 24. Adrian did not terminate before the contingency expired and failed to close.

The seller removed the property from the market for 55 days. It later sold for $1,620,000 and claims $180,000 in price loss plus $22,000 in carrying expenses. It demands the $90,000 deposit, an additional $112,000 in actual damages, and attorney fees. The contract contains no attorney-fee provision and no other supplied rule authorizes fees.

Adrian argues that the seller's actual loss proves the clause unreasonable and that the deposit alone is the maximum remedy.

## Assignment

Analyze:

* Adrian's financing-contingency defense.
* Whether the six-percent clause is an enforceable liquidated-damages provision or a penalty.
* The effect of later actual damages.
* The exact liquidated amount.
* The amount already held and any additional shortfall Adrian owes.
* Whether the seller may recover resale loss, carrying cost, specific performance, or attorney fees.
* The concrete settlement and litigation position Adrian should take.

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