## Facts

- Sellers owned approximately 10 acres of undeveloped commercial property in Everett, Washington, and agreed to sell it for $1,520,000 under a purchase and sale agreement.
- The original buyer provided a $20,000 earnest-money note and had a feasibility period after which he could proceed toward closing.
- The agreement contained a liquidated damages clause permitting the sellers, upon buyer default, to retain earnest money as liquidated damages.
- Addenda allowed the buyer to extend closing in 30-day increments (later modified), requiring specified payments for each extension; the earnest money and extension payments were expressly “nonrefundable.”
- The buyer assigned his interest to Wallace Real Estate Investment, Inc., which ultimately paid a total of $260,000 in earnest money and extension payments.
- The parties set a final closing date of December 17, 1990.
- Four days before closing, Wallace sent a letter stating it could not close on December 17 and requested a later closing date; the sellers refused any further extension.
- The sellers proceeded with closing steps, then cancelled the sale and retained the $260,000 after Wallace did not close.
- Wallace sued to recover the $260,000, asserting the sellers breached by not delivering the deed on the scheduled closing date.

## Issues

1. Whether the contract’s liquidated damages provisions (earnest money plus nonrefundable extension payments) were enforceable or an unenforceable penalty.
2. Whether Wallace’s letter stating it could not close on the scheduled date constituted an anticipatory repudiation excusing the sellers’ performance and permitting retention of the payments.

## Decision

- The Washington Supreme Court affirmed the lower courts.
- The court held the liquidated damages provisions were enforceable because the amounts were a reasonable forecast of anticipated harm at the time of contracting, not a penalty.
- The court held Wallace’s letter was an anticipatory repudiation because it definitely and unequivocally stated an inability to perform on the required closing date.
- Because of Wallace’s repudiation, the sellers were excused from strict tender on the scheduled closing date and could retain the $260,000 under the agreed liquidated damages remedy.

## Legal Principles

- A liquidated damages clause is enforceable if, when agreed to, it reasonably estimates probable loss from breach; it is invalid if it functions as a penalty.
- The enforceability inquiry focuses on reasonableness at the time of contracting, not post-breach outcomes; the nonbreaching party need not show actual damages that match the liquidated sum.
- In a negotiated commercial transaction involving represented, sophisticated parties, courts give strong effect to the parties’ allocation of risk, including nonrefundable payment terms.
- Anticipatory repudiation occurs when a party clearly communicates an intent or inability not to perform a future contractual obligation; repudiation excuses the other party’s remaining performance obligations and permits pursuit of contractual remedies.

## Conclusion

The court enforced negotiated, nonrefundable earnest money and extension payments as liquidated damages in a commercial real estate sale and held that the buyer’s preclosing statement that it could not close on the required date was an anticipatory repudiation excusing the sellers’ strict performance and permitting retention of the agreed liquidated amount.


Wallace Real Estate Inv., Inc. v. Groves, 124 Wash. 2d 881, 881 P.2d 1010 (1994)