Liquidated Damages versus Penalties. The Ivanovs, who were of ...

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Liquidated Damages versus Penalties. The Ivanovs, who were of Russian origin, agreed to purchase the Sobels' home for 300,000. A 30,000 earnest money deposit was placed in the trust account of Kotler Realty, Inc, the broker facilitating the transaction. Tiasia Buliak, one of Kotler's salespersons, negotiated the sale because she spoke fluent Russian. To facilitate the closing without the Ivanovs' having to be present, Buliak suggested they form a Florida corporation, place the cash necessary to close the sale in a corporate account, and give her authority to draw checks against it. The Ivanovs did as Buliak had suggested. Before the closing date of the sale, Buliak absconded with all of the closing money, which caused the transaction to collapse. Subsequently, because the Ivanovs had defaulted, Kotler Realty delivered the 30,000 earnest money deposit in its trust account to the Sobels. The Ivanovs then sued the Sobels, seeking to recover the 30,000. Was the clause providing that the seller could retain the earnest money if the buyer defaulted an enforceable liquidated damages clause or an unenforceable penalty clause? Discuss.

Question 2

In Bearden v. Wardley Corp, where Bearden sued Wardley because one of its agents, Gritton, bought a house from her and then cheated her on the transaction, the court held that:
 a. Gritton was liable for breaching his duty to Bearden, but Wardley had no knowledge of Gritton's actions so was not liable
  b. Gritton was liable for theft, but not for breach of his duty as an agent to Bearden, since that relationship expired before Gritton cheated Bearden
  c. Wardley was liable to Bearden because Gritton was its agent, but Gritton was not liable to Bearden because he had no legal obligation to her, only to Wardley
  d. neither party was liable to Bearden because the contract was legitimate and her claim that she had been cheated by her agent, Gritton, was unfounded
  e. none of the other choices

[FergA]

Answer to Question 1

Liquidated damages versus penalties
The court granted summary judgment to the Sobels, validating the clause as an enforceable liquidated damages provision. The Ivanovs appealed. The state appellate court affirmed, also holding that the liquidated damages clause was not an unenforceable penalty. The court reasoned that the 30,000 deposit was ten percent of the purchase price, and was not grossly disproportionate to any damages that the Sobels might reasonably expect to incur as a result of a default on a 300,000 dollar sale, and the Sobels could have intended only to induce full performance through the deposit amount.

Answer to Question 2

e

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Excellent

[Joy Chen]

Thanks for the timely response, appreciate it