Kelly v. Marx

The Kellys (plaintiffs) contracted to buy the Marxes' (defendants) property for $355,000 and paid a $17,750 deposit under an agreement letting the Marxes keep the deposit if the Kellys failed to perform; the Kellys, unable to sell their own house, breached the agreement and sued to recover their deposit. Meanwhile, the Marxes resold the property to a third party for $360,000 — more than the original contract price. The superior court granted the Marxes summary judgment, but the appeals court reversed, reasoning the clause amounted to a penalty since the Marxes suffered no actual loss; the state supreme court granted review.