Covington v. Robinson
Court of Appeals of Tennessee
723 S.W.2d 643 (1986)
Covington and Hurt (plaintiffs) agreed to buy 1,500 acres from Robinson (defendant) for roughly $2 million, posting a $100,000 deposit forfeitable on breach, but failed to obtain full financing and refused to close even after Robinson lowered the price to accommodate their shortfall; when Robinson resold the property months later for $2 million (less than the original contract price), the buyers sued for the return of their deposit or the price difference, and the trial court upheld Robinson's retention of the deposit as breach damages.
Whether a liquidated damages clause is enforceable if it appears that, at the time the contract was executed, (1) the parties contemplated that a failure to close may result in injury, (2) such damages would be indeterminable or difficult to calculate, and (3) the amount represents a reasonable proportion of the contemplated injury.