## Facts

- Sellers Milton and Ruth Kutzin agreed to sell their Haworth, New Jersey home to buyers Duncan and Gertrude Pirnie for $365,000 using a standard realtor form contract.
- The buyers paid a $36,000 deposit (a $1,000 initial deposit plus $35,000 within seven days).
- The contract contained a three-day attorney-review clause but did not include a liquidated-damages or forfeiture provision governing the deposit upon buyer default.
- The buyers refused to close, breaching the contract.
- The sellers resold the property about six months later and proved total losses of $17,325 (including resale price difference and carrying costs).
- A dispute arose over whether the contract had been rescinded during attorney review and, if not, whether the sellers could retain the entire $36,000 deposit.

## Issues

1. Whether the attorney-review clause rendered the contract rescinded or otherwise unenforceable absent clear, timely notice of disapproval.
2. Whether, when a buyer breaches a real-estate contract lacking a liquidated-damages or forfeiture clause, the seller may retain the entire deposit even if it exceeds actual damages.

## Decision

- The Supreme Court of New Jersey held the contract was valid and enforceable; proposed attorney changes and negotiations did not constitute rescission without clear, timely disapproval.
- The court held that, absent an enforceable forfeiture or liquidated-damages term, the breaching buyers were entitled to restitution of the deposit to the extent it exceeded the sellers’ actual damages.
- The court reinstated the trial court’s damages calculation: the sellers could keep $17,325 and had to return $18,675 of the deposit to the buyers.

## Legal Principles

- An attorney-review clause in a standard real-estate form permits counsel to disapprove within the review period, but negotiations or proposed revisions alone do not void the contract; effective disapproval requires clear and timely notice.
- When a buyer breaches a real-estate contract that lacks a valid liquidated-damages or forfeiture clause, the seller may retain deposit funds only up to the amount of the seller’s provable loss caused by the breach.
- Retaining deposit amounts materially exceeding actual damages constitutes unjust enrichment and functions as an impermissible penalty rather than compensatory relief.
- A deposit operates as security for the seller’s actual damages unless the parties expressly and validly agree to a different remedial allocation (such as reasonable liquidated damages).

## Conclusion

The court enforced the home-sale contract but applied restitution principles to limit the sellers’ recovery to their proven damages, requiring return of the excess deposit because the agreement contained no enforceable provision authorizing forfeiture or liquidated damages.


Kutzin v. Pirnie, 124 N.J. 500 (1991)