## Facts

- Pacific Bellevue Developments (PBD) agreed to sell commercial real estate to Lind Building Corporation (Lind) for more than $4 million under a written purchase-and-sale agreement.
- Lind paid $20,000 into escrow as an initial earnest-money deposit.
- The agreement called for additional escrow deposits before closing, bringing the total called-for “deposit” under the original schedule to $70,000, and Lind made those additional deposits.
- The parties later extended the closing date more than once. As part of those extensions, Lind made further payments into escrow.
- By the final extension, Lind had deposited a total of $250,000 into escrow (including the initial deposit, later deposits, and extension-related payments).
- The contract stated that if the agreement was terminated due to Lind’s default, PBD could obtain “the deposit” from escrow and keep it as liquidated damages.
- The sale did not close by the final deadline. PBD refused additional extensions, treated Lind as in default, terminated the deal, and claimed the entire $250,000 from escrow under the liquidated-damages provision.
- PBD later sold the same property to a third party for about $5 million.
- Lind sued for return of the $250,000. The trial court ruled for PBD, allowing it to keep the $250,000 as liquidated damages and awarding PBD attorney’s fees. Lind appealed.

## Issues

1. Whether the contract’s liquidated-damages provision allowing PBD to keep “the deposit” permitted PBD to retain the full $250,000 held in escrow after the extensions.
2. Whether, given the later resale for a higher price and the absence of proven loss, enforcement of the $250,000 forfeiture operated as an unlawful penalty rather than valid liquidated damages under Washington law.
3. Whether the trial court’s attorney-fee award to PBD could stand after appellate review of the liquidated-damages ruling.

## Decision

- The Washington Court of Appeals (Division One) reversed the judgment permitting PBD to retain the $250,000.
- The court concluded that, on this record, keeping the entire $250,000 could not be justified as liquidated damages because PBD failed to show actual injury and had resold the property for more than Lind’s contract price.
- The court also reversed the attorney-fee award entered in PBD’s favor and directed that fees be reconsidered consistent with the appellate outcome.

## Legal Principles

- A liquidated-damages clause is enforceable only if it functions as a reasonable substitute for actual damages rather than a punishment for breach.
- In this case, the court evaluated enforceability in light of the seller’s real-world harm and treated the lack of actual injury—together with a higher resale price—as defeating retention of the forfeited sum.
- A seller may not use a liquidated-damages clause to obtain a windfall that places the seller in a better position than performance would have.
- Contractual fee shifting follows the prevailing party; when the judgment on the merits is reversed, the fee award tied to that judgment generally falls with it.

## Conclusion

The Court of Appeals held that PBD could not keep the $250,000 escrowed deposits as “liquidated damages” where PBD later sold the property for more and did not prove actual loss, and it reversed both the forfeiture judgment and the associated attorney-fee award.


Lind Building Corp. v. Pacific Bellevue Developments, 776 P.2d 977 (1989)