The Trusted Adviser January 2010 | Volume 3 • Number 1



Real Estate Contracts

Osborn v Dennison, 768 NW2d 20, 2007 AP 1799 (Wis, 2009).

Facts:Dennison offered to purchase the Osborns' home and deposited $2,000 in earnest money. Several hours before the closing was scheduled, Dennison went to the house and discovered that the Osborns had left personal property on the premises in violation of his purchase offer. The parties renegotiated a closing date. An inspection two days prior to the new closing date revealed that the Osborns had not fixed a water problem in the basement. As a result, the parties never closed.

That same month, the Osborns' attorney wrote to Dennison, expressing the Osborns' intent to sue him for actual damages suffered as a result of the failed closing. Dennison included in his response a request that his earnest money be returned to him, as specified in the offer. The Osborns refused.

Six months later, the Osborns filed suit against Dennison, alleging breach of contract and asking for compensatory damages. The contract gave the sellers three options following a breach of contract: (1) sue for specific performance and keep the earnest money as partial payment; (2) terminate the agreement and ask for the earnest money as liquidated damages; or (3) return the earnest money and sue for actual damages.

Dennison filed a motion to dismiss. He argued that the suit should be dismissed because the Osborns had already elected a liquidated damages remedy by not returning the earnest money could not then sue him for actual damages. Thereafter, Dennison refused the Osborns' attempt to return the money. The trial court determined that because the Osborns had refused to return the money to Dennison prior to filing suit, their remedy was limited to liquidated damages. The court of appeals affirmed.

Holding:Affirmed. The buyer-default provision in a Residential Offer to Purchase form gives the seller a remedy of liquidated or actual damages, but not both.

The contract does not allow the seller to both retain the down payment and to sue for actual damages. The seller cannot initially keep the earnest money and then use it to help satisfy whatever additional damages he can prove in court. To sue for actual damages, the seller must direct the return of the earnest money at or before the time he or she files suit.






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[Last update: 12-14-09]