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Corner Property Investments, LLC v. Winderman

A-0276-10T1 (N.J. Super. App. Div. 2011) (Unpublished)

CONTRACTS; DAMAGES; LIQUIDATED DAMAGES — Where a contract provides for liquidated damages and the amount called for is a reasonable estimate of otherwise unpredictable future damages, the amount so stipulated will be accepted by a court in lieu of any other subsequent calculation.

An investment company was in the business of buying and flipping houses. It entered into a contract with a homeowner who wanted to sell her home. It then assigned its rights and interest in the sales contract to an assignee. The assignment contract required the assignee to pay a specified amount at the closing as well as a $5,000 deposit. The assignee was barred from making further assignments or entering into a sales contract without the consent of the investment company. The assignment agreement stated that if the assignees failed to close or otherwise was in default of the agreement, the investment company had the right to terminate the contract and declare the assignee in default. It also provided that the company could keep the $5,000 as liquidated damages and all right, title, and interest pursuant to the sales contract would automatically revert to the company without notice.

The assignee assigned its rights to a third party who then assigned its rights to yet another third party. The last of these parties issued a deposit check and showed proof that it had sufficient funds for the closing. The original closing date was then pushed back at the request of this third party. However, when the adjourned closing did not occur, the investment company sent a letter to the assignee stating that the failure to close would be a breach of the assignment and they would be held liable for any and all damages due to their failure to perform.

The investment company entered into a new contract to sell the property to another buyer. It incurred additional costs to maintain the property and needed to pay brokerage commissions. It claimed it was entitled to compensatory damages reflecting the difference between its anticipated profit from the original assignment and the actual profit it received from the new sale. The lower court held the $5,000 deposit did not reflect a reasonable foreseeable estimate of what the costs would be if the assignee defaulted. So, it found in the favor of the investment company in an amount in excess of $5,000.

On appeal, the assignee argued that the assignment contract contained an unambiguous, clear, and reasonable liquidated damages provision limiting the assignee’s recovery to $5,000. The Appellate Division agreed. The contract already included a provision that required proof of the ability to consummate the transaction, which had to be shown within twenty-four hours of the assignment’s execution. That provision supported the investment company’s claim that it was trying to screen out people who were not serious about the transaction. The liquidated damages provision spoke explicitly to a failure to close or some other breach of the assignment. According to the Court, the provision was only susceptible to one interpretation and that was if the assignees failed to close or otherwise breach the Assignment, the investment company could declare a default, terminate the assignment, keeping the $5,000 deposit as liquidated damages. The Court also found $5,000 to be reasonable to the extent that it approximated the loss anticipated at the time of the making of the contract. At the time the contract was made, it was difficult to determine damages, thereby making the liquidated damages clause more likely reasonable. Therefore, according to the Court, the lower court had erred in not limiting the investment company’s claim to the agreed-on liquidated damages amount of $5,000, and its judgment was reversed. The matter was then remanded to the lower court for entry of judgment in favor of the investment company for only $5,000.

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