## Facts

- Daniel and Catherine Lefemine contracted to buy Judith W. Baron’s residence for $385,000 and paid a $38,500 deposit.
- The contract’s default clause stated that if the buyer failed to perform, the deposit could be retained as liquidated damages “in full settlement of any claims,” or, at the seller’s option, the seller could proceed at law or in equity to enforce rights under the contract.
- The Lefemines failed to close because they could not obtain financing and sued to recover the deposit.
- Baron counterclaimed to retain the deposit under the clause; the broker cross-claimed against Baron for one-half of any recovery.
- The trial court found the Lefemines defaulted, treated the clause as a bona fide liquidated damages provision, found the amount not unconscionable, and awarded the deposit split equally between Baron and the broker.
- The district court affirmed; the Florida Supreme Court accepted review based on inter-district conflict.

## Issues

1. Whether a clause that lets the seller either retain the buyer’s deposit as “liquidated damages” or, at the seller’s option, pursue legal or equitable relief is enforceable as liquidated damages or is an unenforceable penalty.

## Decision

- The Florida Supreme Court quashed the district court’s decision.
- The Court held the clause was an unenforceable penalty because it allowed the seller, after breach, to choose between liquidated damages and pursuing actual damages or other enforcement.
- The Court reversed the judgment enforcing forfeiture of the deposit and remanded for further proceedings consistent with its ruling.

## Legal Principles

- Contracting parties may stipulate in advance to liquidated damages, but the clause must satisfy Florida’s two-part test: (1) actual damages were not readily ascertainable at contract formation, and (2) the stipulated sum is not grossly disproportionate to damages reasonably expected from breach.
- A provision is penal, and not a true liquidated damages agreement, when it gives the nonbreaching party a post-breach option to accept the stipulated amount or instead pursue actual damages or other enforcement; that structure indicates the sum operates as a minimum rather than a fixed settlement.
- Labels and facial reasonableness of the amount do not cure a structural defect that preserves a unilateral election between liquidated and actual damages.

## Conclusion

A real estate deposit provision is not enforceable as liquidated damages when it permits the seller to retain the deposit or, at the seller’s option, sue or otherwise enforce contractual rights for potentially greater recovery; such a dual-remedy clause is treated as a penalty and cannot support forfeiture of the deposit on that basis.


Lefemine v. Baron, 573 So. 2d 326 (Fla. 1991)