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Buyer Loses his Deposit
A buyer loses his deposit when he declines a mortgage contingency clause and then doesn’t obtain financing that he likes, according to a Connecticut Appellate Court opinion to be officially released on February 16, 2016.
In Tsiropoulos v. Radigan, plaintiff entered into a contract to buy defendant’s residential property. He made a $30,000 deposit but not have a mortgage contingency clause. When he didn’t get the financing he wanted, he told defendant he couldn’t close and encouraged her to sell the property to someone else. Three weeks later defendant did just that, for $4,000 more than plaintiff was going to pay. Plaintiff demanded his deposit back. Defendant declined to return it, relying on the liquidated damages provision of the contract. The liquidated damages provision said that seller gets to keep the deposit if buyer is unwilling or unable to perform.
Plaintiff commenced an action for breach of contract and unjust enrichment. Defendant asserted the special defense of wilful termination, among others, and a counterclaim to retain the deposit.
The trial court found that the liquidated damages clause was enforceable and rejected defendant’s breach of contract and unjust enrichment claims. The trial court also found that plaintiff wilfully breached the agreement and ordered that defendant keep the $30,000 deposit. Plaintiff appealed. The Appellate Court affirmed.
Plaintiff’s Main Arguments on Appeal
Plaintiff claimed that the trial court erred in finding (i) the liquidated damages clause enforceable; (ii) plaintiff wilfully terminated the contract; and (iii) defendant was not unjustly enriched.
Appellate Court Concludes Buyer Loses his Deposit
The Appellate Court noted that a liquidated damages clause is not an unenforceable penalty “if three conditions are satisfied: (1) The damage which was to be expected as a result of the breach of the contract was uncertain in amount or difficult to prove; (2) there was an intent on the part of the parties to liquidate damages in advance; and (3) the amount stipulated was reasonable in the sense that it was not greatly disproportionate to the amount of the damage which, as the parties looked forward, seemed to be the presumable loss which would be sustained by the contractee in the event of a breach of the contract.”
The court concluded that the liquidated damages clause met the three conditions. In doing so, it rejected plaintiff’s argument that defendant was not damaged because she promptly sold the property, and for $4,000 more than plaintiff was going to pay.
As to willfulness of the breach, the Appellate Court noted that “[t]he contemporary view is that the court must consider not only the deliberateness of the breach, but also other factors in determining whether to apply the court’s equitable jurisdiction. . . . These factors include, among others, the degree of innocence of the breach, the amount of the detriment to the breaching party and the amount of the benefit conferred upon the nonbreaching party.”
The court rejected plaintiff’s argument that he terminated the contract because he couldn’t obtain financing, which was not wilful on his part. The court concluded that plaintiff’s wilfulness didn’t derive from not obtaining financing. Rather, plaintiff “wilfully waived a financial contingency [i.e., the mortgage contingency clause] that put not only him, but also the defendant, at financial risk.” In other words, plaintiff wilfully assumed the risk that he would lose his deposit if he didn’t get the financing he wanted and that’s exactly what happened.
The Appellate Court didn’t say much about plaintiff’s final argument that defendant was unjustly enriched. It noted that “[i]t was the plaintiff’s burden to ‘demonstrate that the property could, at the time of [his] breach, have been resold at a price sufficiently higher than [the] contract price to obviate any loss of profits and to compensate the seller for any incidental and consequential damages.'” The Appellate Court couldn’t say that the trial court’s conclusion that defendant was not unjustly enriched was clearly erroneous.
Other Things to Note
Defendant claimed her attorney’s fees pursuant to a contract provision and the trial court awarded them. The parties stipulated to the amount of $20,000.
About the Photo
It’s for a property in Georgia — that’s not haunted.
