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Cintron v. Select Modular Homes, Inc.

2005 WL 2447771 (N.J. Super. App. Div. 2005) (Unpublished)

CONTRACTS; DAMAGES—Where, following a buyer’s breach of a contract, the seller experiences no loss other than speculative lost profit, the liquidated damages agreed-upon in the contract may be set aside by a court when it believes that it wasn’t really difficult to evaluate the losses with precision.

A buyer purchased a modular home and, pursuant to the contract, as amended, the modular home company was to acquire a selected piece of land, deliver the home, and install the home on the land. The buyer obtained a mortgage commitment for the purchase. He also agreed to pay a ten percent deposit and pay for certain appliances. The balance of the price was to be paid upon delivery of the unit. The contract provided that if the buyer wrongly failed to proceed to closing, the deposit would be forfeited as liquidated damages. “Despite several extensions of the scheduled closing date [the buyer] was unable to satisfy certain contractual contingencies and [the modular home company] was unwilling to extend the contract any further.” When the ultimately rescheduled closing date passed without completion of the transaction, the mortgage commitment expired and the modular home company declared the buyer in breach of the contract. About three months after the aborted closing, the company resold the property. The modular home company sued for damages including the cost of an engineering survey, construction-period interest charges, a loan extension fee, title charges, property taxes, a real estate commission, an insurance extension fee, and similar items. With the additional expenses incurred by the modular home company, it claimed that it lost profit on the resale and therefore the buyer was not entitled to his deposit monies. As a result, the buyer sued for the return of his deposit as well as the monies advanced for appliances.

The lower court concluded that the modular home company properly cancelled the contract and the buyer did not dispute that conclusion. The lower court also concluded that the modular home company “validly incurred costs beyond those it would have incurred in the transaction with [the buyer].” After subtracting the sum determined by the lower court to have been “legitimately spent in mitigation damages” from the resale price, the lower court calculated that the modular home company actually received slightly more upon the resale then the adjusted sales price under the buyer’s original agreement. Because there were no losses, the lower court “found that the contract’s liquidated damages clause did not apply, and, instead, the escrow belonged to [the buyer].” It refused to enforce the liquidated damage clause, holding that it was not relevant in this case. According to the lower court, “[l]iquidated damages clause[s], and all of the attendant to it, relate to circumstances in which it is difficult or impossible to estimate or define damages, and liquidated the damages, when reasonable in scope and amount, are considered as by contractual arrangement between the parties to replace that.” Here, the lower court believed that it was not “at all difficult to evaluate with precision the losses incurred because the losses [didn’t] exist.” The modular home company appealed, contending that the lower court could not properly calculate its “lost profits” and failed to enforce the contract’s liquidated damages and demurrage clauses.” Essentially, it admitted that it made a profit on the resale, but claimed it would have made a greater profit if the buyer had purchased the property. The Appellate Division disagreed. It held that lost profits can be awarded “if they can be established with a ‘reasonable degree of certainty.’” It pointed out that “[l]ost profits must be based on sound facts and not mere opinions.” It undisputed that the modular home company did not sustain a loss, the modular home company nevertheless insisted that its “lost profit” was miscalculated. It argued that it was entitled to recover office overhead, to be compensated for the time spent to secure a real estate broker and sell the property, and for watching and maintaining the property until its ultimate sale. The Appellate Division found the modular home company’s argument “far too speculative and lacking in credible factual support in the record.”

The Appellate Division also agreed with the lower court that the “liquidated damages clause did not apply inasmuch as [the modular home company] sustained no loss.” It found implicit within the lower court’s finding that “the clause was ‘unreasonable’ because it ‘does more than compensate [the modular home company] for [its] approximate actual damages caused by the breach.”

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