Orr v. Goodwin
157 N.H. 511, 953 A.2d 1190 (2008)
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Rule of Law:
When a contract contains a valid liquidated damages clause giving a non-breaching party the option to retain a deposit, that party's retention of the deposit constitutes an election of remedies that precludes a subsequent lawsuit for actual damages, unless the contract expressly permits recovery of both.
Facts:
- In October 2004, Suzanne Orr and Nelson Bolstridge (Sellers) executed a sales agreement to sell real and personal property to the Goodwin family (Buyers) for $1,020,000.
- The agreement contained a 'Liquidated Damages' clause stating that if the Buyers defaulted, their deposit could, at the Sellers' option, become the property of the Sellers as reasonable damages.
- The Goodwins paid a total deposit of $25,000.
- The sale was scheduled to close by October 15, 2005.
- In October 2005, the Goodwins informed Orr and Bolstridge that they could not sell their own home and therefore could not afford to purchase the property, thus defaulting on the agreement.
- Orr and Bolstridge retained the $25,000 deposit.
- There was virtually no further contact between the parties for nearly a year and a half.
Procedural Posture:
- In February 2007, Suzanne Orr and Nelson Bolstridge sued the Goodwins in the New Hampshire Superior Court (trial court) for breach of contract, seeking to recover actual damages.
- The Goodwins filed a motion for summary judgment, arguing that the liquidated damages clause was the sellers' exclusive remedy.
- The trial court granted the Goodwins' motion for summary judgment.
- Orr and Bolstridge's motion for reconsideration was denied by the trial court.
- Orr and Bolstridge, as appellants, appealed the trial court's grant of summary judgment to the Supreme Court of New Hampshire (highest court).
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Issue:
Does a seller's retention of a buyer's deposit under an optional liquidated damages clause in a real estate contract preclude the seller from later suing for actual damages resulting from the buyer's breach?
Opinions:
Majority - Galway, J.
No, a seller's retention of a buyer's deposit under an optional liquidated damages clause precludes a subsequent suit for actual damages. The court determined the liquidated damages clause was valid because it met the three required conditions: (1) the damages from the breach were uncertain, (2) the parties clearly intended to liquidate damages in advance, and (3) the $25,000 deposit was a reasonable amount and not a penalty. The court reasoned that liquidated damages and actual damages are mutually exclusive remedies. By choosing to retain the deposit, Orr and Bolstridge elected their remedy. This election became final, especially after they kept the funds for nearly eighteen months without communication before filing suit, which barred them from later pursuing a claim for actual damages.
Analysis:
This case clarifies the 'election of remedies' doctrine in the context of optional liquidated damages clauses in New Hampshire. It establishes that even permissive language like 'at the option of the Seller' does not create a right to cumulative remedies but rather forces a choice between them. The decision reinforces the purpose of liquidated damages clauses: to provide a pre-determined, efficient remedy and avoid protracted litigation over calculating actual harm. This precedent solidifies that once a non-breaching party chooses the liquidated damages path, they forfeit the right to prove and recover actual damages, thereby promoting contractual certainty.
