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This Florida lawyer has written legal forms, books & articles for West,
ALI-ABA & the Fla. Bar Journal and is rated AV by Martindale-Hubbell. James W.
Martin consults from his St. Petersburg, Tampa
Bay, Florida, law office on contract, business, corporate, probate, wills,
trusts, real estate and lawsuit matters. |
AREAS OF PRACTICE
Business & Corporate |
Wills, Trusts & Probate
Nonprofit |
Real
Estate |
Litigation
Contracts |
BE CAREFUL USING FORM REAL ESTATE
CONTRACTS
Copyright 2004 by James W. Martin, Esq.
Published in
The Florida Bar News, May 1, 2004
Florida lawyers frequently use the real estate sales
contract forms sold by the Florida Bar and the Florida Association of Realtors,
commonly known as the FAR/Bar and FAR contract forms. Both contract forms
include a default clause that allows a non-breaching seller a choice of
remedies: retain the buyer's deposit or pursue other remedies. An April 2004
First District opinion found such a clause to be invalid and required the seller
to return the deposit based on a 1991 Florida Supreme Court opinion holding the
essentially identical clause to impose an unlawful penalty rather than
liquidated damages because the seller cannot have the right to choose between
liquidated damages and suing for damages.
Some of the same wording appears in the current FAR/Bar and FAR contract forms,
although the language is a bit varied. Whether a court will hold the specific
default clause in those contract forms to be invalid remains to be seen, but the
cautious practitioner will consider revising the default clause to delete the
seller's choice and instead provide either the remedy of retaining the deposit
or the remedy of suing for damages or specific performance under the contract.
The recent First District case is Cloud v. Schenck, 2004 Fla. App. Lexis 4550,
Case No. 1D03-2023 (Fla. 1st DCA, April 6, 2004) and its default clause reads as
follows: "If BUYER fails to perform this contract within the time specified, the
deposit paid by BUYER may be retained by or for the account of SELLER as agreed
upon liquidated damages, consideration for the execution of this contract and in
full settlement of any claims; whereupon BUYER and SELLER shall be relieved of
all obligations under contract; OR SELLER at SELLER's option, may proceed to
enforce SELLER's rights under this contract."
The 1991 Florida Supreme Court case is Lefemine v. Baron, 573 So. 2d 326 (Fla.
1991), and its default clause reads as follows: "If Buyer fails to perform the
Contract within the time specified, the deposit(s) made or agreed to be made by
Buyer may be retained or recovered by or for the account of Seller as liquidated
damages, consideration for the execution of the Contract and in full settlement
of any claims; whereupon all parties shall be relieved of all obligations under
the Contract; or Seller, at his option, may proceed at law or in equity to
enforce his rights under the Contract."
The current FAR/Bar contract default clause reads as follows: "If Buyer fails to
perform this Contract within the time specified, including payment of all
deposits, the deposit(s) paid by Buyer and deposit(s) agreed to be paid, may be
recovered and retained by and for the account of Seller as agreed upon
liquidated damages, consideration for the execution of this Contract and in full
settlement of any claims; whereupon, Buyer and Seller shall be relieved of all
obligations under this Contract; or Seller, at Seller's option, may proceed in
equity to enforce Seller's rights under this Contract."
As one can see, the 1991 contract form allowed the seller the option of keeping
the deposit or suing "at law or in equity", which meant the seller had a choice
of keeping the deposit or suing for damages. The current FAR/Bar form omits the
remedy of suing "at law" and leaves only the remedy of suing in equity (specific
performance, rather than damages). Thus, the current FAR/Bar contract form seems
to pass muster with the test in Lefemine and, therefore, the test in Cloud.
Unfortunately for the seller in the recent Cloud case, the clause in that case
does not limit the seller to its rights in equity.
The Cloud case is a friendly reminder for Florida lawyers that forms are just
the starting point; the lawyer must exercise independent professional judgment
when using them.
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