What Eventually Happens To The Deposit Given When A Purchase Agreement Is Executed

Parties in California may agree on an alleged amount of damages (i.e., lump sum damages) incurred as a result of a breach if it is impossible or extremely difficult to calculate the actual damages of a future breach. See Cal. Article 1671 (b) of the Civil Code provides that “a provision of a contract that liquidates damages for breach of contract is valid unless the party seeking to invalidate the provision determines that the provision was inappropriate in the circumstances existing at the time of the conclusion of the contract”. In general, a lump-sum indemnification clause is considered inappropriate if it is disproportionate to the range of actual damages that the parties might have expected to result from a breach. See Ridgley v. Topa Thrift & Loan Assn. (1998) 17 Cal.4th 970, 977. With respect to the section 1671 analysis, the buyer did not attempt before the court of first instance to prove that the non-refundable deposit provision was inappropriate at the time of its signature. .