## Facts

- Michael and Joanna Schrenko (buyers) agreed to buy James and Jean Mazareas’s single-family home in Marblehead, Massachusetts, for $360,000 and paid a $16,000 deposit when signing the July 24, 1985 purchase-and-sale agreement.
- The agreement contained a deposit-forfeiture clause stating that if the buyers failed to perform, “all deposits … shall be retained by the seller as liquidated damages unless within thirty days after the time for performance … the seller otherwise notifies the buyer in writing.”
- Title was to pass on November 11, 1985, and time was of the essence; because November 11 was a holiday, the performance date effectively became November 12, 1985.
- As the closing date approached, the buyers sought an extension; the sellers offered an extension on terms the buyers did not accept.
- On November 12, 1985, the buyers did not close and were treated as in default.
- The sellers put the property back on the market and, on November 18, 1985, signed an agreement to sell to new purchasers for $385,000.
- On the same date (November 18), the sellers’ attorneys (Theodore C. Regnante and others), who had been holding the $16,000 deposit in escrow as attorneys for the sellers, released the deposit to the sellers.
- On December 2, 1985, the sellers’ attorneys wrote to the buyers stating it was the sellers’ “present intention to retain” the $16,000 deposit “as liquidated damages” and also to hold the buyers liable for “any additional damages” caused by the failure to close.
- The substitute sale closed on December 19, 1985, at $385,000—$25,000 more than the buyers’ contract price. By that date, the sellers asserted out-of-pocket expenses tied to the default totaling $10,581.62.
- In the litigation, the sellers asserted damages approaching $19,000 while not crediting the $25,000 resale gain.
- The buyers sued (1) the sellers for return of the deposit and (2) the sellers’ attorneys under Mass. Gen. Laws ch. 93A based on the attorneys’ release of the escrowed deposit and related conduct.
- A Superior Court judge granted summary judgment for all defendants; the buyers appealed.

## Issues

1. Whether the sellers were entitled to summary judgment allowing them to retain the entire $16,000 deposit as liquidated damages when the sellers resold the property shortly after the breach for $25,000 more and had identified out-of-pocket expenses of about $10,581.62.
2. Whether the sellers’ attorneys committed an unfair or deceptive act or practice under Mass. Gen. Laws ch. 93A by releasing the deposit from escrow to the sellers after the buyers’ default and by asserting the sellers’ intent to retain the deposit and seek further damages.

## Decision

- The court **affirmed** summary judgment for the sellers’ attorneys on the ch. 93A claim.
- The court **reversed** summary judgment for the sellers on the buyers’ claim for return of the deposit and **remanded** for further proceedings.
- The court held that the trial judge erred by effectively disregarding post-breach events (including the profitable resale) when assessing, on summary judgment, whether retention of the full deposit would operate as an unenforceable penalty or windfall in the circumstances.
- The court concluded that, given the resale at a higher price and the sellers’ claimed expenses, the sellers’ entitlement to keep the full $16,000 deposit could not be resolved as a matter of law on the record presented.

## Legal Principles

- Liquidated-damages provisions are enforceable only to the extent they are a reasonable measure of damages and do not function as a penalty.
- In evaluating whether a deposit-forfeiture clause may be enforced in a given case, a court may consider post-breach events (such as a prompt resale and the seller’s actual net position) when deciding whether summary judgment is proper.
- A seller’s quick resale at a higher price can create a factual question whether keeping the full deposit bears a reasonable relationship to loss or instead produces an improper windfall.
- Attorneys who hold a deposit in escrow as part of a real estate transaction and release it to their clients in accordance with the contract and their clients’ stated position, without deceptive conduct, do not violate Mass. Gen. Laws ch. 93A merely because the parties later dispute the client’s legal right to retain the funds.

## Conclusion

The Massachusetts Appeals Court held that the buyers were entitled to further proceedings on whether the sellers could keep all or part of the $16,000 deposit as liquidated damages, because the sellers’ prompt resale at a $25,000 higher price and their claimed expenses made the reasonableness of full forfeiture unsuitable for summary judgment; the court also held the sellers’ attorneys did not engage in unfair or deceptive conduct under ch. 93A by releasing the escrowed deposit to the sellers and communicating the sellers’ position.


Schrenko v. Regnante, 537 N.E.2d 1261 (1989)