LIQUIDATED DAMAGES IN PURCHASE AND SALE

AGREEMENTS: ILLINOIS AND MASSACHUSETTS

MARK D. YURA is a Partner with DLA Piper LLP (US), in Chicago. He concentrates his practice in real estate transac-
tional matters. His clients include institutional lenders, private equity and opportunity fund investors, and developers.
He is a member of various housing trade associations, including the National Housing and Rehabilitation Association.
He is also active in numerous bar-related groups, including the Chicago Mortgage Attorneys Association, the Afforda-
ble Housing Forum of the American Bar Association. The author gratefully acknowledges the contributions made by
Miranda Stuart of Eversheds Sutherland US (LLP) and Dayle Comerford of DLA Piper LLP (US) to the case research and
analysis set forth in this article.

B ARBARA TRACHTENBERG is a Partner with DLA Piper LLP (US), in Boston. Barbara’s clients include developers,
institutional investors, REITs, pension funds, and investment advisors who invest in diverse asset classes including office,
multi-family, retail, industrial, self-storage, and data centers, many of whom invest through joint venture transactions.
Her experience includes representing buyers and sellers of CBD office towers, hotels, office buildings, multifamily prop-
erties, mixed use projects, and golf courses; representing institutional investors and developer partners in joint venture
acquisition, development, and financing transactions; representing borrowers and institutional lenders in primary, sec-
ondary, and mezzanine lending for all asset types; and representing landlords and tenants in leasing transactions of
office, retail, industrial, and laboratory space.

J OHN L. SULLIVAN is a Partner with DLA Piper LLP (US), in Boston. John has a broad-ranging practice that encompasses
all aspects of commercial real estate, with a particular emphasis representing public and private pension plans, opportunity
funds, investment advisors, and non-US investors in equity, debt, hybrid, and joint venture transactions throughout North
America. A significant portion of John’s practice involves representing institutional investors in real estate joint ventures,
including development and strategic or platform joint ventures. He has significant experience representing US fund spon-
sors of US real estate funds. He also has substantial experience representing both lenders and borrowers in complex real
estate loan workouts and restructurings throughout the US. In addition to being chair of the US Real Estate practice and
co-chair of the Global Real Estate Practice, John is a member of DLA Piper’s US Executive Committee.

The following two articles are part of a project under- state-by-state analysis of liquidated damage rem-
taken by the Acquisitions Committee of the American edies in real estate purchase and sale agreements,
College of Real Estate Lawyers to analyze on a state- prompted by the holding in Ravenstar, LLC v. One Ski
by-state basis the liquidated damage (and alternative) Hill Place, LLC, 401 P.3d 552 (Colo. 2017). In Ravenstar,
remedies available to sellers for breach of a commer- the Colorado Supreme Court upheld a clause, con-
cial real estate purchase and sale contract. These arti- tained in five separate contracts to acquire to-be-
cles summarize Illinois law and Massachusetts law as built condominium units, providing the seller with
to each of 13 questions posed by the Committee. an option to choose between liquidated damages
and actual damages.

ILLINOIS Ravenstar departed from what was considered to be

Mark D. Yura largely settled precedent, i.e., that an option to elect
DLA Piper LLP (US), Chicago either liquidated or actual damages would invali-
date an otherwise valid liquidated damages clause.
In 2018, the Acquisitions Committee of the American After all, if a liquidated damages provision repre-
College of Real Estate Lawyers (ACREL) undertook a sents an effort to pre-agree to a certain recovery

MAY 2020 THE PRACTICAL REAL ESTATE LAWYER | 11

 of damages where actual damages are difficult to rezoning, purchaser delivered notice of termination
ascertain, mustn’t the right to seek actual damages and sought the return of its earnest money deposit.
undermine the foundation upon which the liqui- When seller refused, purchaser filed a complaint for
dated damages remedy is based? declaratory and injunctive relief, seeking the return
of its earnest money and reasonable attorneys’ fees,
Stevens A. Carey, the chair of the Acquisitions Com- as provided under the agreement.
mittee of ACREL, recently examined that and vari-
ous other questions in connection with liquidated Seller counter-claimed, alleging that purchaser failed
damages in real estate purchase and sale agree- to act diligently. In its prayer for relief, seller asked in
ments in “Liquidated Damages in a Real Estate PSA: the alternative for the earnest money or “other rem-
a Closer Look” – The Practical Real Estate Lawyer, edies at law,” including the difference between the
January 2019. Steve’s article was motivated by cer- “value” and contract price of the property and all
tain questions arising from the holding in Ravenstar additional expenses which might result from a sub-
but quickly evolved to constitute a welcome and sequent sale of the property. Grossinger, at 741-742.
broad overview of how different jurisdictions have Three months later, well before trial, seller amended
considered the liquidated damages remedy. More its prayer for relief, seeking only the earnest money,
specifically, Steve’s article focused on thirteen dis- as liquidated damages, and attorneys’ fees. Notably,
tinct questions relating to liquidated damages. it is was subsequently learned that seller had resold
the property for $1,250,000 more than purchaser
Those same questions are the subject of this article,
had agreed to pay. Id. at 742.
which attempts to analyze them under Illinois case
law. It is hoped that, together with the Carey article, The trial court issued its opinion in seller’s favor. The
this article will provide practitioners representing
court held that purchaser indeed had breached its
parties to Illinois real estate purchase and sale trans-
obligation to act diligently in seeking the rezoning
actions with a more nuanced understanding of the
and awarded the earnest money to seller as liqui-
implications of their advice and drafting.
dated damages. In reaching this result, the court
Not surprisingly, the enforceability of liquidated first found that the liquidated damages provision
damage provisions has long perplexed Illinois courts. was enforceable, stating that the earnest money
As stated in one of the landmark cases, “[t]here is no amounted to only about two percent of the pur-
fixed rule applicable to all liquidated damage agree- chase price and that defendant had incurred sub-
ments, and each one must be evaluated by its own stantial carrying costs pending the outcome of
facts and circumstances.” Grossinger Motorcorp, Inc. the zoning application. Id. at 745. Secondly, the
v. American Natl’ Bank and Trust Co., 240 Ill. App. 3d court awarded attorney’s fees in an amount of over
737 (1992), at 749, citing Likens v. Inland Real Estate $49,000 pursuant to a standard prevailing party’s
Corp. (1989), 183 Ill. App. 3d 461. clause in the contract.

In Grossinger, which was cited in Ravenstar disap- Purchaser appealed. Seller cross-appealed (on the
provingly, Grossinger (an automobile dealership) basis that the amount of attorneys’ fees awarded
entered into an agreement to purchase unimproved was inadequate).
real estate from defendant land owners. Purchaser
deposited $100,000 as earnest money and the In issuing its opinion, the Illinois Appellate Court
agreement conditioned purchaser’s closing obliga- for the First District, Fifth Division disagreed with
tions upon its obtaining rezoning for its intended the lower court’s determination that the purchaser
operations. had breached the contract, finding that purchaser’s
failure to present its plan for rezoning was excused
Purchaser agreed to act diligently in pursuing by the fact that the contract had previously been
the rezoning. After failing to obtain the necessary properly terminated by purchaser. Further, the court

12 | THE PRACTICAL REAL ESTATE LAWYER MAY 2020

continued by stating that “[e]ven if we agreed with The following thirteen questions, and the corre-
the trial court’s findings that plaintiff was in breach sponding discussion under Illinois law, track the dis-
of its agreement, we would reverse [the lower court cussion points in the Carey article:
ruling for seller] on the independent ground that
the liquidated damages provision of the contract is 1.  May the seller choose specific performance
unenforceable.” Id. at 749. The court cited Section instead of liquidated damages (so that liquidated
356(1) of the Restatement (Second) of Contracts: damages are not an exclusive remedy)?
Damages for breach by either party may be liq- Generally speaking, the inclusion of a liquidated
uidated in the agreement but only at an amount damages clause in a purchase and sale agreement
that is reasonable in the light of the anticipated does not preclude a party from pursuing specific
or actual loss caused by the breach and the dif- performance (or other equitable remedies) under
ficulties of proof of loss. Id. at 749. Illinois law:

Purchaser argued in its appeal of the trial court’s When there is no misunderstanding or misrep-
ruling that the optional nature of the liquidated resentation between a purchaser and seller who
damages provision constituted a penalty. “Plaintiff enter into a contract for the sale of real estate,
would contend that by reserving the option to seek specific performance is granted as a matter of
compensatory damages, defendant intends for the right and the fact that there is a provision in
liquidated damages option to operate only where it the contract that provides for liquidated dam-
exceeds actual damages” Id. at 750. The appellate ages in the event of nonperformance does not,
court agreed, distinguishing the facts in Grossinger in and of itself, prevent the decree of specific
from other cases where the other remedies which performance.
were reserved to the aggrieved party were not
monetary in nature. O’Shield v. Lakeside Bank, 335 Ill. App. 3d 834, 841
(2002) (citing Kohrs v. Barth, 212 Ill. App. 3d 468, 471
Accordingly, since the liquidated damages provision (1991)); Rootberg v. Richard J. Brown Associates, Inc.,
was unenforceable, only actual damages might be 14 Ill. App. 3d 301, 303 (1973) (quoting same); see also
collected, and the ultimate sale of the property for Bauer v. Sawyer, 8 Ill. 2d 351, 358 (1956) (“In accord-
$1,250,000 more than the purchaser in Grossinger ance with our earlier and later decisions and with
was to have paid negated that remedy. The court the weight of authority elsewhere…even if the pro-
therefore held that purchaser was entitled to the vision in question is construed as one for liquidated
refund of its earnest money deposit since the liq- damages, the right to an injunction is not barred”);
uidated damages provision was unenforceable and Carr v. Butterworth, 219 Ill. App. 14, 20 (1920) (“When
seller suffered no actual damages. Id. at 752. a contract for sale contains a provision for liquidated
damages in case of breach, a court of equity will not
Finally, the appellate court held that because the for that reason, alone, decline to enforce it in a court
contract provided that the prevailing party was enti- of equity”); Koch v. Streuter, 218 Ill. 546, 553 (1905)
tled to payment of its legal fees, the trial court erred (“The mere fact that a contract stipulates for the
in its award of legal fees to the seller. “In light of our payment of liquidated damages in case of failure
decision which returns the earnest money to plain- to perform does not prevent a court of equity from
tiff, plaintiff cannot be considered the ‘unsuccessful decreeing specific performance”) (citing Lyman v.
party’ and defendant can no longer be considered Gedney, 114 Ill. 388, 398 (1885)).
the ‘prevailing party’ under the contract.” Id. at 753.
The case was remanded to the trial court for deter- However, a buyer and seller may agree to preclude
mination of the legal fees, if any, to be awarded to specific performance by including in the con-
the purchaser. tract clear language indicating that the liquidated

LIQUIDATED DAMAGES IN PURCHASE AND SALE AGREEMENTS: ILLINOIS AND MASSACHUSETTS | 13

 damages provision is to be the sole remedy in the advantage, specific performance will be granted
event of nonperformance. See O’Shield, 335 Ill. App. to either the buyer or the seller.”) (internal citations
3d at 841. See also Lobo IV, LLC v. V Land Chicago omitted).
Canal, LLC, 2019 IL App (1st) 170955, ¶ 80 (“Parties
may contract for an exclusive remedy under the 2.  May the seller choose actual damages instead
contract, and [o]nce made and agreed upon, this of liquidated damages (so that liquidated
remedy provision is binding on the parties and will
damages are not an exclusive damage remedy)?
be recognized and enforced by our courts.”) (citing
O’Shield, 335 Ill. App. 3d at 839). “Although there Recent cases conclude that inclusion of an optional
are no set or formulaic words…clear language that liquidated damages remedy violates the first prong
would bar specific performance includes phrases of the liquidated damages test (see the discussion in
that provide for ‘something more’ than the provi- Part 6, below) because it indicates that the parties
sion for liquidated damages itself—phrases stating, did not intend to stipulate or settle on agreed-upon
for example, that the contract will become ‘null and damages in advance. See Grossinger, supra; Catholic
void’ upon payment of a sum indicated, or that pay- Charities of the Archdiocese of Chi. v. Thorpe, 318 Ill.
ment is ‘in full of all claims of every kind and nature,’ App. 3d 304, 313 (2000); Kay Gee Amusement Co. v.
or that payment is the ‘sole and exclusive remedy’ Cave, 177 Ill. App. 250, 254-5 (1913); Resource. Tech.
upon a failure to perform.” O’Shield, 335 Ill. App. Corp. v. Congress. Dev. Co., 2003 U.S. Dist. LEXIS
3d at 841. (citing Davis v. Isenstein, 257 Ill. 260, 263 15418 at 14-15; M.L.G. Trust v. Government of the
(1913); McDonagh S.C. v. Moss, 207 Ill. App. 3d 62, 65 Republic of Indon., 1994 U.S. Dist. LEXIS 14147 at 9.
(1990); and Coney v. Commercial Nat’l Realty Co., 88 “[I]n essence, such an optional liquidated damages
Ill. App. 3d 1026, 1028 (1980)). provision fixes a minimum which must be paid from
the buyer to the seller, but leaves the door wide
Note that specific performance is generally availa- open to him to prove actual damage in addition to
ble not only to purchasers, but also to sellers, under the so called liquidated damage. This is no settle-
Illinois real estate purchase and sale agreements. ment at all and it permits the [seller] to have his cake
In Bissett v. Gooch, 87 Ill. App. 3d. 1132 (1980), the and eat it too.” Grossinger, 240 Ill. App. 3d at 751.
appellate court affirmed the trial court’s denial of
plaintiffs’ prayer for specific performance against Since Grossinger, Illinois appellate courts have
the defendants. The plaintiffs in this case agreed to generally relied on Grossinger to find that provi-
purchase a parcel from one of the named defend- sions that allow defendants the option to receive
ants, and that named defendant also agreed to con- liquidated damages or to seek actual damages are
struct a single-family residence on the parcel. Id. at unenforceable as a penalty. See, e.g., Karimi v. 401
1137. The plaintiffs alleged that the named defend- N. Wabash Venture, LLC, 952 N.E.2d 1278, 1287 (Ill.
ant who agreed to sell the parcel and construct the App. 2011). It should be noted, however, that there
house engaged in fraud and misrepresentation in have been no Illinois Supreme Court rulings on this
the contract and requested specific performance. Id. matter and some earlier Appellate Court cases have
at 1134. While the court ultimately denied the buy- held to the contrary. Gryb v. Benson, 84 Ill. App. 3d
er’s request for specific performance, the appellate 710, 712 (1980) (“The contract in the instant case
court asserted the availability of the remedy of spe- gave the plaintiffs as sellers an option to retain the
cific performance to both buyers and sellers, noting earnest money as liquidated damages. But plaintiffs
that this remedy is granted only with the court’s instead chose to sue for their actual damages. This
discretion. See id. at 1139 (“The remedy of specific was the prerogative of plaintiffs under the clear lan-
performance is not a matter of absolute right but guage of the contract.”); see also Lakshman v. Vec-
is within the discretion of the court. Where a con- chione, 102 Ill. App. 3d 629, 633-4 (1981), (“It is clear
tract for the sale of real estate has been entered into from the terms of paragraph 11 of the contract that
without misrepresentation, unfairness, or superior it is defendants’ option to retain the $3,000 earnest

14 | THE PRACTICAL REAL ESTATE LAWYER MAY 2020

money deposit or to pursue any other legal or equi- seller was not entitled to additional recovery if he
table remedy for breach of contract”). In Kohenn exercised the option. See Gryb, 84 Ill. App. 3d at 712.
v. Plantation Baking Co., 32 Ill. App. 3d 231, 236
(1975), the court did not strike down the optional 4.  If the seller may choose liquidated
liquidated damages provision as an unenforceable damages or actual damages, but not
penalty, but rather, denied seller’s counterclaim for both, when must it decide?
actual damages and only allowed the seller to retain
the earnest money. The court did not discuss the The few courts in Illinois that have enforced optional
optional nature of the liquidated damages clause in liquidated damages clauses do not expressly state
the contract. when a seller must decide between liquidated or
actual damages. However, in each case, the seller
elected its option before bringing suit (knowing,
3.  If the seller may choose liquidated damages
presumably, that its actual damages would exceed
or actual damages, may it have both? the stated liquidated damages). In Lakshman, the
Illinois courts have typically found that if a party is seller chose not to exercise its option of retaining
receiving liquidated damages, then it is not enti- the earnest deposit as liquidated damages (i.e.,
tled to seek additional monetary damages, even $3,000). See Lakshman, 102 Ill. App. 3d at 634. There,
where the contract expressly allows for the recov- actual damages would equal the amount of any
ery of damages beyond liquidated damages. See deficiency between the fair market value of the real
Grossinger; also see Morris v. Flores, 174 Ill. App. 3d estate on the date of the breach and the sales price
504, 505, 507 (1988) (where the contract stated that contracted for by the buyers, including reasonable
the liquidated damages “shall not be the exclusive costs and attorneys’ fees. Similarly, in Gryb, sell-
remedy of seller, and seller shall retain all monies ers chose to bring suit for their actual damages of
deposited without prejudice to his other remedies,” $3,000, which represented the difference between
the court allowed the seller to recover only liqui- the contract price and the resale price, rather than
dated damages, holding that “the ‘other’ remedies retaining their $1,000 earnest money deposit. See
refers to rights of a kind and character other than Gryb, 84 Ill. App. 3d at 711.
money damages” and that “[i]t would be inconsist-
ent to provide in the contract for liquidated dam- 5.  Is there an applicable statute addressing
ages and also allow a party to pursue other remedies liquidated damages clauses?
for money damages”); see also H&M Driver Leasing
There is no Illinois statute addressing liquidated
Services, Unlimited, Inc. v. Champion Int’l Corp., 181
damages clauses in contracts for the sale of real
Ill. App. 3d 28, 31 (1989) (“Where a contract provides
property.
that the breaching party must pay all damages
caused by the breach as well as a specified sum in
addition thereto, the sum so specified…constitutes 6.  What is the test for a valid
an unenforceable penalty”); Curtin v. Ogborn, 75 Ill. liquidated damages clause?
App. 3d 549, 555 (1979) (“[I]n the event of a default Illinois courts largely follow the liquidated damages
by the buyer, the earnest money may be retained test set forth in Section 356(1) of the Restatement
in full by the seller without reference to the actual (Second) of Contracts:
damages which may have resulted to the seller from
the buyer’s default, but [the] seller is not entitled to Damages for breach by either party may be liq-
any additional recovery”) (citing Kohenn, 32 Ill. App. uidated in the agreement but only at an amount
3d at 236). Further, in one of the few cases in which that is reasonable in the light of the anticipated
an Illinois court enforced an optional liquidated or actual loss caused by the breach and the dif-
damages clause, the court expressly held that the ficulties of proof of loss.

LIQUIDATED DAMAGES IN PURCHASE AND SALE AGREEMENTS: ILLINOIS AND MASSACHUSETTS | 15

 See, e.g., GK Dev., Inc. v. Iowa Malls Fin. Corp., 3 broadly and requires that the contract contain clear
N.E.3d 804, 816 (Ill. App. Ct. 2013); Inland Bank and and explicit language.” See Cutilletta v. Griffin, 2012
Trust v. Knight, 399 Ill. App. 3d 378, 383 (2010); Penske IL App (1st) 113429-U, ¶ 60 (2012) (unpublished opin-
Truck Leasing Co., L.P. v. Chemetco, Inc., 311 Ill. App. ion) (citing Newcastle Properties Inc. v. Shalowitz,
3d 447, 454 (2000). Other Illinois courts have artic- 221 Ill. App. 3d 716, 727 (1991) (finding that there
ulated this in slightly different terms. For instance, was an enforceable liquidated damages clause, but
the Grossinger court stated that “[i]n Illinois, courts only for the amount of the initial earnest money
will generally find a liquidated damages provision deposit ($1000) due to the contract not clearly and
to be valid and enforceable in a real estate contract, explicitly including the final earnest money agreed
when: (1) the parties intended to agree in advance to be deposited ($109,000) as liquidated damages).
to the settlement of damages that might arise from
the breach; (2) the amount of liquidated damages 7.  Who has the burden of proof?
was reasonable at the time of contracting, bearing
Illinois courts impose the burden of proof on the
some relation to the damages which might be sus-
party resisting the enforcement of the liquidated
tained; and (3) actual damages would be uncertain
damages provision to show that such provision is a
in amount and difficult to prove.” Grossinger, 240 Ill.
penalty and not enforceable. See Pav-Saver Corp. v.
App. 3d at 749; see also Dallas v. Chi. Teachers Union,
Vasso Corp., 143 Ill. App. 3d 1013, 1019 (1986) (“The
408 Ill. App. 3d 420, 424 (2011); Berggren v. Hill, 401
burden of proving that a liquidated damages clause
Ill. App. 3d 475, 480 (2010); Morris v. Flores, 174 Ill.
is void as a penalty rests with the party resisting its
App. 3d 504, 506 (1988); Jameson Realty Group v.
enforcement”). That was also the ruling in an Illinois
Kostner, 351 Ill. App. 3d 416 (2004); Bauer v. Sawyer,
Supreme Court case. Weiss v. United States Fidelity
8 Ill. 2d 351, 359 (1956); Gobble v. Linder, 76 Ill. 157,
& Guaranty Co., 300 Ill. 11, 16-17 (1921) (“The burden
159 (1875). In determining reasonableness, some
of proof in such case is on [the person being sued
Illinois courts have considered whether such pre-
for damages] to show that the contract provided for
determined damages would be “oppressive.” See
a penalty and not for liquidated damages, where
Karimi, 952 N.E.2d at 1290 (“The purpose of a liqui-
there is nothing upon the face of the contract that
dated damages provision is to provide parties with a
requires the court to make the legal finding that the
reasonable predetermined damages amount where
provision is for a penalty. Such a contract is prima
actual damages may be difficult to ascertain. Courts facie evidence that the parties have stipulated and
generally give effect to such provisions if the parties agreed on the actual amount of damages that ought
have expressed their agreement in clear and explicit to be recovered for a breach, and in the absence of
terms and there is no evidence of fraud or uncon- evidence to the contrary the damages will be held
scionable oppression”); J.B. Lyon & Co. v. Culbertson, to be liquidated damages”).
Blair & Co., 83 Ill. 33, 43 (1876) (the sum agreed to
be paid as liquidated damages must be reasonable
and not oppressive”); see also Scofield v. Tompkins,
8.  As of when is “reasonableness” tested?
95 Ill. 190, 194 (1880) (“It would seem incredible to Reasonableness is tested at the time of the making
believe that sane parties could have understood of the contract. See Karimi, at 1288. (“The reason-
and intended to pay as damages $22,770, simply for ableness of the amount, though, depends not on
a failure to pay that sum of money on a specified the actual damages suffered by the non-breaching
day…To believe so would be absurd, and it would party, but on whether the amount reasonably fore-
be highly oppressive to hold”). casts and bears some relation to the parties’ poten-
tial loss as determined at the time of contracting”);
Note, however, that Illinois courts have held that Christian Mills, Inc. v. Berthold Stern Flour Co., 247 Ill.
there are limitations on an overbroad construction of App. 1 (1927) (“The modern tendency of the courts
a liquidated damages provision. “[T]he law discour- seems to be to consider reasonableness as the final
ages interpreting a liquidated damages provision test, and that as of the time of the making of the

16 | THE PRACTICAL REAL ESTATE LAWYER MAY 2020

contract, and not as of the time of the breach”). decrease in property value defeats a claim for reim-
Certain of the courts which assert the three-part bursement.” Id. at 11. The court allowed the seller to
test above also provide that reasonableness is to retain $55,000 in liquidated damages for a purchase
be determined at the time of contracting. See, e.g., price of $130,000, but the court did not discuss the
Grossinger, 240 Ill. App. 3d at 749. reasonableness of such percentage or amount.

There is no reported case in Illinois that has consid-

9.  What percentage of the purchase price is
ered whether a lower percentage may be an appro-
likely acceptable as liquidated damages?
priate liquidated damages ceiling where the abso-
Several Illinois courts have considered this question. lute dollars of the purchase price involved are more
Generally speaking, there is a willingness to defer to significant, but that is a possibility.
the parties’ agreement with respect to the amount
of liquidated damages, provided, of course, that the
10.  Are actual damages relevant for
amount is not unreasonably large or a penalty. See
liquidated damages and, in particular,
Karimi, 952 N.E.2d at 1288, where earnest money of
$328,269.60 (or 15 percent of the purchase price)
will liquidated damages be allowed
was upheld to be a reasonable sum as liquidated
when there are no actual damages?
damages. Siegel v. Levy Organization Development Absent a contract provision to the contrary, Illinois
Co., 182 Ill. App. 3d 859, 860 (1989) (upholding as courts have found that actual damages are not
reasonable a liquidated damages provision where required in order to enforce a liquidated damages
the $320,000 earnest money deposit represented clause. See Hayden v. Keepper-Nagel, Inc., 62 Ill.
20 percent of the $1,600,000 purchase price); Curtin, App. 3d 828, 830-31 (1978) (finding that the subse-
75 Ill. App. 3d at 555 (finding that a liquidated dam- quent sale of real property to third parties for the
ages amount of just below 10 percent of the pur- same price as under a contract not consummated
chase price was reasonable, where $8,500 in prom- by purchasers did not extinguish the sellers’ claim
issory notes were delivered on account of a $87,000 for liquidated damages, it held that “the courts will
purchase price); Berggren, 401 Ill. App. 3d at 481 uphold a liquidated damages clause, even absent
(“The amount of five percent of the purchase price any proof of actual damages, where the parties
[$82,500] was reasonable at the time the parties have agreed to have the damages provided in the
signed the contract, and the fact that plaintiff sub- contract ascertained on a particular basis and such
sequently sold the property for a lower price does provision is reasonable at the time of contracting”)
not change that analysis.”). (citing Twentieth Century-Fox Film Corp. v. Woods
Amusement Corp. 304 F. Supp. 23 (N.D. Ill. 1969)).
There is also a recent case where an Illinois court This principle has been articulated by the Illinois
allowed the seller to retain earnest money pursu- Supreme Court, albeit in a different context, i.e., in
ant to a liquidated damages clause when the ear- a case construing a construction contract. Weiss v.
nest money represented approximately 42 percent United States Fidelity & Guaranty Co., 300 Ill. 11, 16
of the purchase price. See Gardner v. Dolak, 2016 (1921) (“Where a contract provides for liquidated
Ill App (3d) 140848-U (2016). Notably, the buyer’s damages at so much par day for delay in the perfor-
claim was found to be barred by laches because mance of a building contract…it is not necessary in
she waited six years to inform the seller that she an action for breach to allege actual damages from
was no longer interested in purchasing the prop- such delay, as plaintiff is entitled to rely on the con-
erty, when the contract had an approval period of tract to show that damages at the rate stipulated
only eighteen months. The court affirmed the trial will result from the breach”).
court’s holding that the buyer “forfeited the money
under the liquidated damages clause” and found Note, however, that where that intention is set forth
that the buyer’s “unreasonable delay coupled with a in the contract, the party seeking recovery may

LIQUIDATED DAMAGES IN PURCHASE AND SALE AGREEMENTS: ILLINOIS AND MASSACHUSETTS | 17

 have to prove actual damages. See Libby, McNeill collect the buyer’s earnest money deposit at the
& Libby v. Illinois Dist. Tel. Co., 294 Ill. App. 93, 100 time of executing the purchase agreement because
(1938) (“If no actual damage was suffered as a result the buyer had informed him that it was not in a posi-
of the breach, there could be no damage subject to tion to provide the earnest money deposit. At the
liquidation and the amount specified in the contract time of the buyer’s breach, the plaintiff had still not
would have to be held in that event to be a pen- “received” the earnest money, and thus the court,
alty…[b]efore plaintiff is entitled to recover liqui- applying Newcastle, did not allow the plaintiff to
dated damages it must show some actual damage recover it as liquidated damages given the language
as a result of defendant’s default”). In this case, the of the liquidated damages clause.
agreement provided that “it is hereby agreed if the
District Company fails to perform such service and 12.  Is a “shotgun” liquidated
such failure results in damage to the Subscriber… damages clause enforceable?
then in that event the District Company shall pay to
the Subscriber a sum equal to…as the fixed, settled, Shotgun clauses are generally not enforceable in
and liquidated damages of the Subscriber for such Illinois. See GK Dev., Inc. v. Iowa Malls Fin. Corp., 3
failure.” Id. at 96. N.E.3d 804, 822-23 (Ill. App. Ct. 2013) (citing Lake River
Corp. v. Carborundum Co., 769 F.2d 1284, 1290 (7th
Cir. 1985)). (“When a contract specifies a single sum
11.  Is mitigation relevant for in damages for any and all breaches even though it
liquidated damages? is apparent that all are not of the same gravity, the
There is no obligation to mitigate damages in the specification is not a reasonable effort to estimate
context of a liquidated damages provision insofar damages; and when in addition the fixed sum greatly
as requiring the seller to attempt to sell the prop- exceeds the actual damages likely to be inflicted by
erty. However, Illinois courts have found reasons a minor breach, its character as a penalty becomes
to disallow liquidated damage remedies where the unmistakable.”) Also see, Jameson Realty Group v.
claimant failed to take certain actions or to amounts Kostner, 351 Ill. App. 3d 416, 424 (2004) (“[T]he dam-
that the seller “receive[d].” In Newcastle Properties, ages contained in a liquidated damages clause must
Inc., v. Shalowitz, 221 Ill. App. 3d 716, 719 (1991), the be for a specific amount for a specific breach”). The
court held that the seller had “knowingly and inten- Seventh Circuit has also noted that under Illinois
tionally relinquished its right to collect $109,500 in law,”[i]f the amount of damages is invariant to the
liquidated damages” because it failed to collect the gravity of the breach, the clause is probably not a
earnest money by drawing upon a letter of credit reasonable attempt to estimate actual damages and
before it expired. Id. at 726-27. Although the court thus is likely a penalty.” Checkers Eight Ltd. Pshp. v.
found it unnecessary to address the mitigation doc- Hawkins, 241 F.3d 558, 562 (7th Cir. 2001). Neverthe-
trine, it explained that “if the seller had mitigated its less, if the sum in a shotgun clause is found to be
damages by presenting the letter of credit, $109,500 “reasonable in light of any losses that could have
would have been ‘theretofore paid’” and thus would been anticipated at the time of the contract,” then
have met the required terms of the liquidated it may be enforceable. See Siegel (upholding the
damages provision. Id. at 727. Because the earnest following clause where the parties believed that
money was only “payable” under the letter of credit the earnest money would be adequate to cover any
prior to its expiration (as opposed to “paid”), the potential losses under the contract: “If [P]urchaser
purchaser was not liable for the earnest money as defaults on any of purchaser’s covenants or obliga-
liquidated damages. Similarly, a bankruptcy court tions hereunder, then all sums theretofore paid to
applying Illinois law considered, in Brown v. Real seller (including without limitation earnest money
Estate Res. Mgmt., LLC (In re Polo Builders, Inc.), 388 and payments for Extras) by purchaser shall be for-
B.R. 338, 367 (2008), that the plaintiff (a trustee sell- feited as liquidated damages and shall be retained
ing a debtor’s real property) intentionally did not by seller”). 182 Ill. App 3d at 862.

18 | THE PRACTICAL REAL ESTATE LAWYER MAY 2020

 13.  Does a liquidated damages clause preclude CONCLUSION
recovery of attorneys’ fees by the seller? The cases demonstrate that Illinois courts will gen-
In Illinois, an unsuccessful party in a lawsuit is gen- erally enforce contracts as written and defer to the
erally not responsible for the prevailing party’s
clearly-stated intention of the parties. If, however,
attorneys’ fees, absent contractual language pro-
actual damages are expressly made available as a
viding for the award of such fees. See Grossinger,
240 Ill. App 3d at 751. Yet, even where the applicable remedy, then there is a strong likelihood that even a
contract includes express language providing for well-drafted optional liquidated damages provision
awarding legal fees, there is a surprising lack of uni- will be disallowed.
formity in the manner in which Illinois courts have
addressed this issue in the case of liquidated dam- As an additional irony, where the earnest money
ages clauses. Some Illinois courts have allowed the has been ordered to be refunded to the purchaser
recovery of both attorneys’ fees and liquidated dam- and is no longer available because of the inclusion
ages, while other Illinois courts have not. For exam-
of a provision entitling a seller to collect actual dam-
ple, in Penske Truck Leasing Co., L.P. v. Chemetco,
ages, it is certainly possible to imagine a scenario
Inc., 311 Ill. App. 3d 447, 453 (2000), the court upheld
a liquidated damages clause as well as the circuit where the seller is left empty-handed, because the
court’s calculation of 15 percent of that amount purchaser is an undercapitalized entity. Would a
being added for attorneys’ fees. However, in Curtin, court seek to avoid that result if the underlying facts
75 Ill. App. 3d at 355, the court reversed an award indicated that was a real possibility? I have found no
of $150 in attorneys’ fees, holding that the earnest
Illinois case which considers that, but this outcome
money, which constituted liquidated damages,
might serve as a strong argument to resist inclusion
should have included such fees. It is not clear from
the decision whether there was an express provision of actual damages as an additional remedy.
entitling the prevailing party to collect legal fees. In
Grossinger, attorneys’ fees in favor of seller were Indeed, in this author’s experience in representing
disallowed where the liquidated damages provision purchasers and sellers in real estate transactions,
was held to be unenforceable, but only because the it is hard to remember more than a small handful
seller was no longer the “prevailing party” under the of instances of contracts where actual damages
contract. Notably, the court remanded the case to were even available as a seller remedy. The notion
the trial court for determination of the amount of
that liquidated damages are an option or alterna-
attorneys’ fees to be awarded to the buyer under
tive to actual damages is not typically encountered
the terms of the contract. Id. at 753. In H&M Driver
Leasing Services, Unlimited, Inc. v. Champion Int’l in arm’s length commercial real estate contracts;
Corp., 181 Ill. App. 3d 28 (1989), the circuit court had most sophisticated buyers and sellers are content
awarded the plaintiff both liquidated damages and to negotiate an amount of liquidated damages that
attorneys’ fees, but the appellate court reversed on will fairly compensate the seller if the purchaser is
the grounds that the liquidated damages provision
unable, or unwilling, to perform.
was a penalty, and remanded the award of attor-
neys’ fees to be recalculated in accordance with Illi-
Regardless, in negotiating remedial provisions in
nois law. In Lakshman, 102 Ill. App. 3d at 635, where
purchase and sale agreements, knowledge of the
the contract contained an optional liquidated dam-
ages clause, but seller opted not to retain the ear- law and careful draftsmanship will limit disappoint-
nest money, the court allowed the seller to collect ment to clients and embarrassment to (and possible
attorneys’ fees. exposure on the part of) their counsel.

LIQUIDATED DAMAGES IN PURCHASE AND SALE AGREEMENTS: ILLINOIS AND MASSACHUSETTS | 19

 MASSACHUSETTS 1.  Are liquidated damages an exclusive remedy
Barbara Trachtenberg and John Sullivan or may the Seller also seek specific performance?
DLA Piper LLP (US), Boston Absent clear evidence of the intention of the par-
ties to the contrary, under Massachusetts law, the
This article discusses the enforceability of liquidated mere existence of a liquidated damages provision
damages clauses in purchase and sale agreements does not necessarily prevent an action for specific
governed by Massachusetts law, particularly in the performance. “Liquidated damages clauses do not
context of commercial real estate transactions. It is preclude other remedies available at law or equity
part of the ACREL Acquisitions Committee’s multi- under Massachusetts law, absent clear intention of
state review of the 13 questions set forth below. parties to the contrary.”8 It is the parties’ intention, as
expressed through the terms of the contract that is
Under Massachusetts law, there is a presumption
controlling in determining whether liquidated dam-
of the enforceability of liquidated damages provi-
ages provisions preclude other remedies.9 For exam-
sions in agreements involving sophisticated com-
ple, courts have held that claims for specific perfor-
mercial enterprises.1 The burden of establishing
mance and for statutory damages are not precluded
that a liquidated damages provision is unenforce-
on grounds that the liquidated damages clause
able rests with the party challenging enforcement
provides an exclusive remedy unless the liquidated
of the provision. 2 A party can meet this burden
damages provision includes a statement evincing
by showing either: (i) that at the time the contract
a clear intent to waive all other remedies.10 “Where
was executed, the actual damages that would be
the intent of the parties is that the liquidated dam-
caused by a breach of the contract were not diffi-
ages provision is security for the performance of the
cult to ascertain, or (ii) that the sum agreed upon
contract rather than an alternative to performance,
as liquidated damages did not, at the time that the
specific performance is not barred.”11 Further, under
contract was executed, represent a reasonable fore-
cast of damages expected to occur in the event of Massachusetts law, specific performance is avail-
a breach, and instead, operated as a penalty. 3 To able as a remedy regardless of whether the party
determine whether a liquidated damages provision requesting it is the buyer or the seller of real estate.12
was reasonable, Massachusetts courts look at the In order for specific performance to be granted, the
circumstances at the time of contract formation, not seller must prove that (a) there is a contract (includ-
the actual damages accruing upon a breach.4 Thus, ing its terms), or that a statutory right of first refusal
Massachusetts courts have rejected the “second has been properly exercised; (b) the contract was
look” approach where damages clauses are re-eval- signed by an authorized person in the appropriate
uated in light of later circumstances, even in cases capacity; and (c) the contract has been breached by
in which no actual damages were incurred and the the defendant.13 Breach can be established by show-
non-breaching party would receive a windfall as the ing (i) the defendant’s clear repudiation of the entire
result of enforcement of the liquidated damages contract with the plaintiff ready, willing and able to
provision.5 proceed to a closing, (ii) the plaintiff’s tender of per-
formance, or (iii) a demand for performance by the
In the context of commercial real estate transac- plaintiff with the plaintiff ready, willing, and able to
tions, Massachusetts courts have held that a five proceed to a closing.14 Furthermore, “it is axiomatic
percent liquidated damages clause is reasonable as that one must have behaved equitably in order to
a matter of law.6 Other acceptable liquidated dam- obtain equitable remedies,”15, and therefore inequi-
ages provisions have ranged from two percent to table conduct by the plaintiff can preclude a rem-
20 percent of the total purchase price, depending edy of specific performance, even if the inequitable
on the reasonableness of the amount at the time of conduct is insufficient to invalidate the contract.16
contract formation and the difficulty of assessing Specific performance might also not be available
actual damages.7 where it would impose “undue hardship” upon the

20 | THE PRACTICAL REAL ESTATE LAWYER MAY 2020

defendant, or if there has been a significant delay in 4.  If the Seller may decide between
commencing an action for specific performance or liquidated damages and actual damages,
bringing the action to trial.17 but not both, when must it decide?
If the contract allows the Seller to elect liquidated
2.  May the parties create an enforceable damages or actual damages (but not both), then
option for the Seller to pursue either under Massachusetts law, the Seller would likely
liquidated damages or actual damages? have to make that election before or at the time of
a default.25
The answer to this question is unclear. In a 2013
lease termination case, the Massachusetts Superior
5.  Does Massachusetts have a statute
Court, recognizing that Massachusetts courts had
addressing liquidated damages?
not spoken definitively on the issue, looked to other
jurisdictions and, similar to Florida, Illinois, and New There is no statute specifically addressing liquidated
York, held that “the existence of an option to sue for damages in this context.
actual damages has the effect of turning a liquidated
damages provision into an unenforceable penalty 6.  What is the test for a valid
provision.”18 However, in that case, the amount of liquidated damages clause?
the liquidated damages at the time the remedy was Under Massachusetts law, a clearly written liqui-
elected was disproportionate to the actual damages dated damages provision will usually be enforced
suffered by the non-breaching party.19 Other Massa- provided that: (i) at the time the contract was signed,
chusetts courts have held that parties may create the actual damages that would result from a breach
an enforceable option to pursue either liquidated were difficult to ascertain, and (ii) the sum agreed
upon as liquidated damages represents a reasona-
damages or actual damages.20 These courts have
ble forecast of damages anticipated to result from
expressed that although a contractual option can’t
a breach.26 Massachusetts courts have recognized
be used as a cover for the enforcement of a penalty,
that “actual damages in real estate transactions are
if it was intended to give a real option…the contract
particularly hard to ascertain at the time a contract is
may be enforced.”21 entered into because it is hard to predict when and
for what price a property will resell if the deal falls
3.  If the contract creates an option through.”27 Thus, liquidated damages provisions are
between liquidated damages and actual particularly appropriate in real estate purchase and
damages, may the Seller elect both? sale agreements.28

The Seller may not elect both remedies unless the

7.  Who has the burden of proof?
contract expressly permits it. When a party elects to
retain a deposit as liquidated damages, that party Under Massachusetts law, the burden of proof
regarding enforceability of liquidated damages
cannot in addition seek actual damages.22 “The law
clauses rests on the party seeking to set the liqui-
of contracts is intended to give an injured party the
dated damages provision aside.29 To be success-
benefit of the bargain, not the benefit of the bargain
ful, the challenging party must establish that the
and a windfall.”23 Courts have held that “liquidated
amount of liquidated damages is unreasonably and
damages and actual damages are, absent express grossly disproportionate to the actual damages
language permitting recovery of both, mutually from a breach or unconscionably excessive. 30 Any
exclusive remedies, [so] that where an election is reasonable doubt as to whether a provision con-
permitted, the election of one remedy bars pursuit stitutes a valid liquidated damages clause is to be
of the other.”24 resolved in favor of the aggrieved party. 31

LIQUIDATED DAMAGES IN PURCHASE AND SALE AGREEMENTS: ILLINOIS AND MASSACHUSETTS | 21

 8.  As of when is reasonableness tested? not take a “second look” at the actual damages after
a party breaches.”41 However, this does not make
Massachusetts courts have adopted the “single
actual damages irrelevant. Actual damages are rel-
look” approach to the enforceability of liquidated
damages clauses. 32 In determining whether the sum evant in so far as they provide a point of compari-
agreed upon represents a reasonable estimate of son in determining whether a liquidated damages
the anticipated or actual damages, the court exam- clause grossly overestimated or underestimated a
ines only the circumstances at the time of contract party’s damages at the time of contract formation.42
formation, regardless of what actual damages may
have accrued at the time of the breach. 33 Thus, where 11.  Is mitigation relevant for
liquidated damages clauses are concerned, Massa- liquidated damages?
chusetts courts reject the “second look” approach
Mitigation is not relevant for liquidated damages.43
where the clause is re-evaluated in light of later cir-
“Massachusetts follows the rule in other jurisdic-
cumstances. 34 Although there is no bright line sepa-
rating an agreement to pay a reasonable measure of tions holding that, in the case of an enforceable
damages from an unenforceable penalty clause, the liquidated damages provision, mitigation is irrel-
greater the difficulty either of proving that loss has evant and should not be considered in assessing
occurred or of establishing its amount with requisite damages.”44 When parties agree in advance to an
certainty, the easier it is to show that the amount amount they believe represents a reasonable esti-
fixed as liquidated damages is reasonable. 35 mate of potential damages, “they exchange the
opportunity to determine actual damages after a
9.  What percentage of the purchase price is breach, including possible mitigation, for the peace
likely acceptable for liquidated damages? of mind and certainty of result afforded by a liqui-
dated damages clause.”45
In terms of a percentage that safely falls within
reasonable limits, Massachusetts courts have held
that “5 percent of the purchase price in a contract
12.  Is a shotgun clause acceptable?
for the purchase and sale of real estate is reasona- A shotgun clause fixes a single large sum as the liq-
ble as a matter law.”36 While sellers have challenged uidated damages for any breach of the contract.
liquidated damages of a smaller percentage of the Whether this type of provision would be enforcea-
purchase price as being too small, those liquidated ble under Massachusetts law depends upon the cir-
damages clauses have been enforced. 37 Massachu- cumstances. If, in all of the circumstances in which
setts courts have also allowed liquidated damages the shotgun clause were to apply, the amount pro-
provisions as high as 20 percent. 38 However, there is vided for is reasonable, the shotgun clause may be
a limit, as “a provision setting an unreasonably large upheld. Thus, if the shotgun clause reflected the loss
liquidated damages amount is unenforceable on anticipated at the time the contract was executed,
public policy grounds as a penalty.”39 particularly if it was either difficult to prove that loss
occurred or to capture the amount of that loss, the
10.  Are actual damages relevant for clause will likely be enforced, irrespective of what
liquidated damages, and in particular, the actual loss ended up being. 46 In reality, however,
will liquidated damages be allowed it would likely be difficult to have a shotgun clause
when there are no actual damages? that provides for a reasonable amount of damages
In Massachusetts, liquidated damages are allowed in connection with all potential contract breaches
even if there are no actual damages.40 For purposes and, as a result, using the shotgun approach to liq-
of determining whether a liquidated damages provi- uidated damages may increase the chances that a
sion should be enforced, the “inquiry is limited to the Massachusetts court would find the provision to be
time of contract formation; Massachusetts courts do unenforceable.

22 | THE PRACTICAL REAL ESTATE LAWYER MAY 2020

 13.  Do liquidated damages preclude recoverable depends on the terms of the contract.
recovery of attorney’s fees? 48
However, the award of attorney’s fees in the con-
Liquidated damages do not preclude recovery tract must be reasonable and is a “highly discretion-
of attorney’s fees.47 Whether attorney’s fees are ary matter usually left to the judge.”49

Notes

1 See Guerin v. Stacy, 56 N.E. 892 (Mass. 1900) (stating that 19 Id.
“when parties say a sum is payable as liquidated damages, 20 See Kulakowski v. Leavitt, 1996 Mass.App.Div. 159 (Mass.
in general, they will be taken to mean what they say and Dist. Ct. 1996) (holding that a contract in which the seller
will be held to their word”). See also, Bose Corp. v. Ejaz, 732 had the option of accepting liquidated damages, the dif-
F.3d 17, 24–26 (1st Cir. 2013). ference between the purchase and sale agreement price
2 See Cummings Props., LLC v. Nat’l Comm. Corp., 869 N.E.2d and fair market value, or the actual out of pocket losses,
617, 622 (2007) was valid). See also, Schrenko v. Regnante, 537 N.E.2d
3 Id. 1261 (Mass. App. Ct. 1989) (stating that the contract at
issue gave the seller the right to consider the damages
4 See Kelly v. Marx, 705 N.E.2d 1114, 1117–1118 (Mass.
unliquidated and to seek additional damages beyond the
1999). See also, NPS, LLC v. Minihane, 886 N.E.2d 670
amount of the forfeited in the deposit) and North Am., 644
(Mass. 2008).
F.Supp. at 193 (stating that liquidated damages clauses do
5 See Id.; Perroncello v. Donahue, 859 N.E.2d 827, 832 (Mass. not preclude other remedies available at law or equity).
2007); NRT New England, Inc. v. Moncure, 937 N.E.2d 999,
21 See Blay v. Zipcar, 718 F. Supp. 2d 115 (Mass. Dist. Ct.,
1003 (Mass. 2010).
2010); Avery v. Hughes, 611 F.3d 690 (1st Cir. 2011).
6 See Kelly, 705 N.E.2d at 1117; NRT New England, 937
22 See SMS Financial V, LLC v. Conti, 865 N.E.2d 1142 (Mass.
N.E.2d at 1003 (stating that a liquidated damages clause
App. Ct., 2007) (holding that a liquidated damages provi-
in a real estate purchase and sale agreement permitting
sion “calling for a double recovery” is an unenforceable
seller to retain a deposit of 5 percent of the purchase price
penalty).
for buyer’s default was reasonable and enforceable as a
matter of law). 23 Perroncello v. Donahue, 859 N.E.2d 827 (Mass. 2007).
7 See Kunelius v. Town of Stow, 588 F.3d 1 (1st Cir. 2009). See 24 Avery v. Hughes, 661 F.3d 690 (1st Cir. 2011) (citing Orr v.
also, Edlow v. RBW, LLC, 688 F.3d 26 (1st Cir. 2012). Goodwin, 953 A.2d 1190, 1196 (2008)).
8 See North Am. Consol., Inc. v. Kopka, 644 F.Supp. 191, 193 25 See Zuckerman v. Vanu, Inc., 2013 WL 1799859 (Mass. Su-
(D. Mass. 1986); De Blois v. Boylston & Tremont Corp., 183 per. Ct. 2013) (holding that an option must be exercised at
N.E. 823 (Mass. 1933). or about the same time the breach occurs, and that where
9 See North Am., 644 F.Supp. at 193. a breach occurs long before a seller decides among con-
tractual remedies, it is unenforceable).
10 Id.
26 Cummings Props., 869 N.E.2d at 622; TAL Financial Corp.,
11 See De Blois, 183 N.E. 823; Rigs v. Sokol, 61 N.E.2d 538 844 N.E.2d 1085.
(Mass. 1945); Novelty Bias Binding Co. v. Shevrin, 175
N.E.2d 374 (Mass. 1961). 27 See Kelly, 705 N.E.2d.
12 See Cavanagh v. Cavanagh, 33 Mass. App. Ct. 240, 244 28 Id. at 881-82; NRT New England, Inc. v. Moncure, 937
(1992); Olszewski v. Sardynski, 316 Mass. 715, 717 (Mass. N.E.2d 999, 1003 (Mass. 2010).
1944) (finding that ownership of land is a significant bur- 29 See Town Planning Eng’g Assocs., Inc. v. Amesbury Spe-
den, and that it would often be inadequate for a seller to cialty Co., 342 N.E.2d 706 (Mass. 1976); Hastings Assocs.,
receive only the excess of price over value in the event of Inc. v. Local 369 Bldg. Fund, Inc., 675 N.E.2d 403 (Mass. Ct.
a breach by the buyer); Michael Pill, 28 Mass. Prac., Real App. 1997).
Estate Law § 3:44 (4th ed.). 30 See TAL Financial Corp., 844 N.E.2d 1085; Honey Dew As-
13 See Pill, supra socs., Inc. v. M & K Food Corp., 241 F.3d 23, 27 (1st Cir. 2001).
14 See id. 31 TAL Financial Corp., 844 N.E.2d 1085.
15 Galipault v. Wash Rock Investments LLC, 65 Mass. App. Ct. 32 See Kelly, 705 N.E.2d; Clean Harbors, Inc. v. John Hancock
73, 85 (2005). Life Ins. Co., 833 N.E.2d 611, 618 (Mass. Ct. App. 2005).
16 See Pill, supra 33 Id.
17 See Pill, supra; see e.g., Charles River Park, Inc. v. Boston 34 Id. See also, Perroncello v. Donahue, 859 N.E.2d 827 (Mass.
Redevelopment Authority, 28 Mass. App. Ct. 795 (1990) 2007); NRT New England, Inc. v. Moncure, 937 N.E.2d 999,
(denying specific performance in 1985 of an agreement 1003 (Mass. 2010).
made in 1960). 35 See TAL Financial Corp., 844 N.E.2d 1085; A-Z Servicenter,
18 Zuckerman v. Vanu, Inc., 2013 WL 1799859 (Mass. Super. Inc. v. Segall, 138 N.E.2d 266 (Mass. 1956); Perfect Solu-
Ct. 2013). tions Inc. v. Jereod, Inc., 974 F.Supp. 77, 83 (D. Mass. 1997).

LIQUIDATED DAMAGES IN PURCHASE AND SALE AGREEMENTS: ILLINOIS AND MASSACHUSETTS | 23

 36 Kelly v. Marx, 705 N.E.2d 1114 at 1117 (Mass. 1999); See 41 Kelly, 705 N.E.2d at 1117.
also, NRT New England, 937 N.E.2d at 1003 (enforcing a 42 Kunelius, 588 F.3d 1. See also, TAL Financial Corp., 844
liquidated damages clause in agreement for purchase and N.E.2d 1085 (stating that the disparity between the stipu-
sale of real estate providing for five percent of purchase lated sum and actual damages could not be ignored be-
price). cause it was known at the time of the agreement); Kelly,
37 See Howard, 811 N.E.2d at 1052 (holding that liquidated 705 N.E.2d at 1116 (holding that a liquidated damages
damages of $1000 was not unreasonably low consider- provision will not be enforced if it provides for an amount
ing this was to cover damages incurred over 11 day pe- “grossly disproportionate to a reasonable damages esti-
riod); See also, Kunelius v. Town of Stow, 588 F.3d 1 (1st mate made at the time of contract formation”).
Cir. 2009) (upholding a two percent liquidated damages 43 See NPS, LLC v. Minihane, 886 N.E.2d 670 (Mass. 2008)
clause since the “vendor failed to produce evidence that (holding that “as a matter of apparent first impression, in
the amount was grossly disproportionate to a reasonable the case of an enforceable liquidated damages provision,
estimate of her actual damages at the time of contract for- mitigation of damages is irrelevant”).
mation”).
44 Kelly, 705 N.E.2d
38 See Edlow v. RBW, LLC, 688 F.3d 26 (1st Cir. 2012) (holding
45 Id.
that a liquidated damages provision permitting condo-
minium developer to retain 20 percent of purchase price 46 See Colonial at Lynnfield, Inc. v. Sloan, 870 F.2d 761, 764
in event of breach by prospective purchaser did not con- (1st Cir. 1989); A-Z Servicenter, 138 N.E.2d 266 (Mass.
stitute an unenforceable penalty). 1956); Lynch v. Andrew, 481 N.E.2d 1383, 1386 (Mass. App.
Ct. 1985).
39 Colonial at Lynnfield, Inc. v. Sloan, 870 F.2d 761, 764 (1st
Cir. 1989). 47 See Kelley v. Weyerhaeuser, 422 N.E.2d 465, (Mass. App. Ct.
1981) (allowing recovery of attorney’s fees in a liquidated
40 See Perroncello v. Donahue, 859 N.E.2d (stating that even
damages case under a lease).
if the seller finds another buyer to purchase the property
for a price the same or higher than the original contract 48 See TAL Financial Corp., 855 N.E.2d (holding that although
price, liquidated damages provision is enforceable). See attorney’s fees can be awarded in conjunction with a liq-
also, Kelly, 705 N.E.2d at 1117 (enforcing a liquidated uidated damages provision, they must be reasonable in
damages provision where the seller sold the property at a light of the recovered damages).
higher price, and had realized an actual gain as a result of 49 Id.
the buyer’s breach).

24 | THE PRACTICAL REAL ESTATE LAWYER MAY 2020