## Facts

- Sellers Suzanne Orr and Nelson Bolstridge agreed in October 2004 to sell real and personal property in Madbury, New Hampshire to the Goodwins for $1,020,000.
- The buyers paid a $10,000 deposit at signing; a February 2005 addendum increased the total deposit to $25,000 and set a closing date of October 15, 2005.
- The purchase-and-sale agreement included a “Liquidated Damages” clause allowing the seller, at the seller’s option, to keep the deposit as “reasonable” if the buyer defaulted.
- In October 2005, the buyers notified the sellers they could not close because they were unable to sell their own home.
- The sellers retained the $25,000 deposit and had minimal further contact with the buyers until 2007.
- In February 2007, the sellers sued seeking damages beyond the deposit, including carrying costs for the property and costs associated with purchasing and carrying other property.

## Issues

1. Whether the agreement’s liquidated-damages clause was enforceable or an unenforceable penalty.
2. If enforceable, whether the sellers could retain the $25,000 deposit and also recover additional damages for the buyers’ failure to close.

## Decision

- The Supreme Court of New Hampshire affirmed summary judgment for the buyers.
- The liquidated-damages clause was enforceable because the sellers did not show the stipulated amount was unreasonable or greatly disproportionate to presumable loss.
- After electing to retain the deposit under the clause, the sellers could not obtain additional damages on this record.

## Legal Principles

- A liquidated-damages clause is enforceable if: (1) anticipated breach damages are uncertain or difficult to prove; (2) the parties intended to liquidate damages in advance; and (3) the amount is reasonable and not greatly disproportionate to presumable loss.
- Reasonableness is evaluated both prospectively (at contracting) and retrospectively (in light of actual damages); if actual damages are easily ascertainable and the stipulated sum is unreasonable and grossly disproportionate, the clause is treated as a penalty.
- In land-sale contracts, the usual measure of damages is the seller’s loss of bargain (contract price minus property value at breach).
- Contract damages are limited to harms that were reasonably foreseeable at the time of contracting; unforeseeable costs are not used to assess the reasonableness of liquidated damages.
- When a contract gives the non-breaching party an option to keep a deposit as liquidated damages and the party exercises that option, recovery is limited to the stipulated amount in the circumstances presented.

## Conclusion

The court upheld the deposit-based liquidated-damages remedy in a failed real estate sale and held that the sellers, having chosen to keep the $25,000 deposit, could not recover additional damages beyond the amount the contract designated for buyer default.


Orr v. Goodwin, 157 N.H. 511, 953 A.2d 1190 (N.H. 2008)