In an opinion that was issued last week the Wisconsin Appellate Court upheld a circuit court decision in which the plaintiff’s were not able to sue for actual damages in a failed residential real estate transaction because they did not return the earnest money to the buyer. The court ruled that they irrevocably elected liquidated damages as their remedy and forfeited their right to sue for actual damages when they refused to direct the return of the earnest money to the buyer.
What does this mean? The Wisconsin courts are saying to sellers that you need to make a choice as to whether to sue for actual damages or simply accept the earnest money, you cannot go after both when a buyer backs out of a deal. Earnest money is intended to be a form of insurance against buyers backing out of the offer. If you decide to keep the earnest money, then that is the extent of the damages that you can receive.
It seems that this decision will impact sellers in a couple of ways. One, there is now some incentive to require a higher earnest money amount from buyers. While this would not have been a problem a couple of years ago, sellers are no longer in the position to be especially picky about the offers that they will consider. The other is that we may see a chilling effect on the number of lawsuits for actual damages. This number is usually low anyway, but now that the earnest money must be returned prior to seeking actual damages many more people may choose to simply take the bird in the hand versus the two in the bush and accept the earnest money as liquidated damages and move on.
You can read the Appellate Court’s as yet unpublished decision at http://www.wisbar.org/res/capp/2008/2007ap001799.htm
Sean M. Sweeney is a shareholder at Halling & Cayo. His practice focuses on business litigation, offering flat fees for business litigation, and recovering investors losses as a result of stock broker fraud on contingent fees. Sean represents investors in FINRA Arbitrations and companies in Wisconsin, all over the United States, as well as internationally with clients in Canada, Germany, and Australia.
Email Sean: [email protected]
www.The-Securities-Lawyers.com : www.HallingCayo.com/Flatfee