Kelly v. Marx

705 N.E.2d 1114 (1999)

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Nature of the Case

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Facts

Ps signed an offer to purchase residential real estate in Worcester for $355,000 from D. Ds accepted the offer, and Ps gave $1,000 to Ds as a partial deposit. By early May 1994, the parties executed a purchase and sale agreement (agreement). Clause eighteen of the agreement read: 'If the BUYER shall fail to fulfill the BUYER'S agreements herein, all deposits made hereunder by the BUYER shall be retained by the SELLER as liquidated damages.' Ps provided a deposit of $16,750 to Ds once the agreement was signed, bringing their total deposit to $17,750, five percent of the purchase price. The offer set September 1, 1994, as the closing date. P never purchased the property. Ps were unable to sell their current home. On August 24, 1994, Ds accepted the offer of other prospective buyers to purchase and then signed a purchase and sale agreement with them on September 8, 1994. The new buyers purchased the property for $360,000 on September 20, 1994. Ps sued D to recover funds that they had paid as a deposit. The Superior Court judge granted the motion of Ds after concluding they were entitled to the deposit because the liquidated damages clause in their agreement was enforceable. The Appeals Court, in a two-to-one decision, reversed the judgment and ordered the deposit returned to Ps. Under the 'second look' doctrine, contained in Shapiro v. Grinspoon, 27 Mass. App. Ct. 596, 604, 541 N.E.2d 359 (1989), the court reached this conclusion by examining both the circumstances at the time of contract formation the actual damages suffered by the parties when the breach occurred. The court concluded that Ds were not entitled to keep the deposit because they suffered no actual damages, and, therefore, liquidated damages would serve as a penalty and not as compensation for a loss. Ds' appealed.