## Facts

- A ranch seller and prospective buyers executed a written purchase agreement for $380,000, including $5,000 earnest money due at opening of escrow.
- The agreement (drafted by the seller’s attorney) included a liquidated-damages clause stating that, if the buyer defaulted, actual damages would be difficult to calculate and the earnest money was a reasonable approximation; upon default the seller could terminate and receive the earnest money.
- The buyer did not close on the original closing date because he lacked funds.
- The parties extended the closing date and negotiated modifications, including increasing the price to $404,000, substituting the buyer’s corporation as purchaser, and requiring interim ranch management by the buyer.
- The buyer again failed to close, and the parties executed additional written extensions without altering the liquidated-damages clause.
- The seller ultimately declared a breach and resold the ranch for substantially less, claiming losses far exceeding $5,000.

## Issues

1. Whether a seller in a real-estate sale is bound by and limited to a contract’s liquidated-damages provision upon buyer default, or may instead recover greater actual damages.
2. Whether the earnest-money liquidated-damages clause operated as the exclusive remedy and remained effective despite later extensions and modifications that did not change that clause.

## Decision

- The Arizona Court of Appeals affirmed summary judgment for the buyers.
- The court held the seller was limited to the $5,000 earnest money specified as liquidated damages and could not pursue additional actual damages.
- Because the liquidated-damages term was enforceable and unchanged by later extensions, there was no triable issue preventing summary judgment.

## Legal Principles

- A liquidated-damages clause is enforceable when, at the time of contracting, actual damages are difficult to ascertain and the stipulated amount is a reasonable forecast of anticipated loss.
- Reasonableness is assessed at contract formation, not by comparing the liquidated amount to the loss ultimately experienced.
- When a contract states the earnest money is a reasonable approximation of damages and specifies payment of that sum upon buyer default, the clause may be treated as the agreed measure of damages, limiting the seller to that amount.
- Contract extensions and related modifications do not displace a liquidated-damages limitation absent an agreed change to that term.

## Conclusion

The court enforced the earnest-money liquidated-damages provision as the parties’ agreed measure of damages for buyer default, limiting the seller’s recovery to $5,000 and rejecting an attempt to recover substantially greater actual damages after resale at a lower price.


Roscoe-Gill v. Newman, 937 P.2d 673 (Ariz. Ct. App. 1996)