Roscoe-Gill v. Newman - 188 Ariz. 483, 937 P.2d 673 (Ct. App. 1996)

Rule:

A seller in a real estate sales transaction cannot seek to avoid a contractual liquidated damages clause on grounds that it constitutes a penalty because it is too low.

Facts:

Plaintiff seller entered into a written agreement to sell a ranch to defendant buyers. The agreement, which was drafted by plaintiff’s attorney, provided for a $380,000 purchase price, $5,000 of which was to be paid as earnest money when escrow opened. The agreement contained a liquidated damage provision, which provided that if the buyer defaulted, actual damages to the seller will be difficult to calculate, but both parties agree that the Earnest Money was a reasonable approximation thereof. The buyers were unable to close on the contract. Consequently, plaintiff sellers filed an action against the buyers. The parties filed cross-motions for summary judgment on the issue of whether the liquidated damages clause limited plaintiff's damages to the $ 5,000 earnest money deposit. The trial court granted summary judgment to the buyers and awarded the seller only the amount of liquidated damages as specified in the contract. The seller challenged the decision, contending that she was entitled to damages above the liquidated amount because she subsequently sold the property at a price far below what the buyers had agreed to pay and that the liquidated damages provision was unreasonably low.

Issue:

Under the circumstances, was the seller entitled to damages above the liquidated amount? 

Answer:

No.

Conclusion:

The court affirmed the judgment and held that the liquidated damages provision was enforceable. The provision was drafted by the seller's counsel and represented the expressed agreement between the parties. The principal under which unreasonably excessive liquidated damage clauses were deemed punitive and therefore unenforceable did not apply to liquidated damage provisions that were claimed to be insufficient because the former were unenforceable on the basis of being and unreasonable penalty. No argument was made that the provision of the contract was an unreasonable penalty. Additionally, equitable estoppel did not apply because there was no evidence that the buyers made any affirmative misrepresentations of present facts when they requested extensions of the closing date. Accordingly, the seller's damages were limited to the amount of liquidated damages in the contract.