Fisher Law Corporation’s Frequently Asked Questions

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Notice: The information contained in these articles is designed to provide accurate information in regard to the subject matters covered and is made available with the understanding that the information provided does not constitute the rendering of legal or professional services. All information is of a general nature, is specific to California law only, and is not intended to to replace professional or legal advice. Each person’s situation is unique and the information contained herein cannot be applied to any individual’s situation. If legal advise is required, the services of a professional should be sought.

What is an all-inclusive deed of trust? »

What is CERCLA? »

How does a condominium differ from a house? »

What are Covenants that run with the land? »

What is a deed in lieu of foreclosure? »

What are easements? »

What are Encroachments? »

How does escrow work? »

What is fire and flood insurance? »

How do foreclosures work? »

What are the different forms of doing business? »

What do trade terms mean? »

What are liquidated damages in real property contracts? »

What is a Lis Pendens? »

How do loan modifications work? »

What is a Mechanic’s Lien? »

How does a Multiple Listing Service work? »

What is an off-shore trust? »

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What is a Quitclaim Deed? »

What is RESPA? »

Who bears the risk of loss during escrow? »

What are second deeds of trust? »

What is the Statute of Frauds? »

What is Statute of Limitations on Debts Secured By a Mortgage? »

Does a buyer’s broker have a duty to inspect? »

What is The Parol Evidence Rule? »

What is Adverse Possession? »


Q. What are liquidated damages in real property contracts?

A. Except in the case of real estate marketing contracts where there are special rules, as a general rule a provision in a contract liquidating the damages for a breach is valid unless the party challenging the provision establishes that it was unreasonable under the circumstances that existed at the time the contract was made.

A liquidated damages clause in a contract for (1) the purchase or rental of personal property, or (2) services intended primarily for personal, family, or household purposes, or (3) a lease of residential real property to be occupied by a party or a person who is dependent on a party’s support, is void except that the parties may agree to an amount which is presumed to be the amount of damages upon default when, from the nature of the case, it would be impracticable or extremely difficult to fix the actual damage.

The objective of an agreement liquidating damages is to stipulate a pre estimate of damages in order that the contracting parties may know with reasonable certainty the extent of liability in the event there is a breach. It is distinguishable from a contractual provision that limits the total amount of a person’s liability where there is no need to establish impracticability of determining damages, because it is still necessary to prove actual damages within the limited amount.

The liquidated damages clause also is distinguishable from a contractual provision which merely allows a party the option of alternative performance of either performing the contract or paying a sum to terminate his future obligations. Also, the payment of option consideration to be retained by the seller if the option is not exercised is valid without satisfying the requirements of a liquidated damages clause.

Under the general rule a liquidated damages clause is valid when it was extremely difficult or impracticable to fix actual damages for a future breach at the time the contract was made, even though damages may be easy to prove after breach at the time of trial. Validity requires, however, not only the difficult task of prediction, but also that the amount specified be a reasonable estimate of the fair compensation which should be paid for any loss resulting from a breach. An arbitrary amount is an unenforceable penalty.

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