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Wallace Real Estate Investment Inc. v. Groves1/31/1994
Wallace Real Estate Investment, Inc. (Wallace) appeals the dismissal of its claim for the refund of $260,000 in earnest money and extension payments retained as liquidated damages under a real estate purchase and sale agreement. We affirm.
I
On August 1, 1989, Roddy Cox, Wallace's assignor, and Joanna Groves, James Siler, and Charles Siler (the sellers)
executed a real estate purchase and sale agreement and first addendum whereby Cox agreed to pay $1,520,000 for 10 acres of undeveloped property located in Snohomish County, Washington.
The sellers and Cox, the assignor-purchaser, negotiated the purchase price. At the time of contracting, property values were escalating and were in considerable flux. With this in mind, the sellers established the purchase price to encourage a quick cash sale. The agreement and first addendum required a $20,000 earnest money deposit. A standard form liquidated damages provision applied to the deposit:
DEFAULT AND ATTORNEY FEES
In the event of default by Buyer, Seller shall have the election to retain the earnest money as liquidated damages, or to institute suit to enforce any rights Seller has. In the event that either the Buyer, Seller, or Agent shall institute suit to enforce any rights hereunder, the successful party shall be entitled to court costs and a reasonable attorney's fee. In the event of trial, the amount of the attorney's fee shall be as fixed by the court. . . .
The first addendum provided for 12 monthly extension periods and required a $15,000 payment for each extension. Although the first addendum did not specifically mention liquidated damages, paragraph 7 stated: "The $20,000 deposit and subsequent extention [ sic ] payments are nonrefundable . . . ."
The sellers sought the extension payments as compensation for the delay in closing. Specifically, the $15,000 amount represented the lost investment value of the purchase price, calculated at 12 percent simple interest of the $1,520,000 purchase price.
Although Cox was the initial purchaser, he negotiated the agreement with the intention of assigning his interest to Wallace, which he did in September 1989. During the negotiation process, Cox consulted with William Wallace, the president of Wallace Real Estate Investment, Inc., about the
sellers' objectives and terms, including the purpose of the extension payments.
In a January 29, 1990, letter to Wallace, Joanna Groves explained the purpose of the $15,000 extension payments: "The payments, as you know, represent the appreciation in value that we estimated was being lost for the period of time we were to hold the property for the purchaser."
After the last $15,000 extension payment, the parties negotiated a second addendum to the purchase and sale agreement. During the negotiations, Wallace and the sellers exchanged at least three versions of the second addendum before Cox and the sellers actually executed the final version on September 19, 1990. The second addendum provided for two $30,000 extension payments for October and November 1990 and established December 17, 1990, as the new closing date. William Wallace countersigned the second addendum.
The nonstandardized liquidated damages provision to the second addendum provided:
Liquidated damages: The parties hereto agree that in the event Buyer or its assign fails to comply with the terms of this Agreement, as amended and compromised, Seller shall retain all payments made to date (earnest money and extension payments) as liquidated damages and not as penalty, in order to indemnify the Seller against loss as a resul
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