RELU Hot Sheet -Breaking Developments in Real Estate Law
02.16.2005
Earnest Money Damages Limitation Provision Requires Exact Compliance
When making a significant purchase like real estate, most people are careful about what they
sign. But did you know that what the seller does or does not sign could have big financial
consequences for you? This was precisely the expensive lesson learned by the purchaser in the
case of Chrisp v. Goll, which was recently decided by the Washington Court of Appeals. The
court ruled that the substantial compliance doctrine did not apply to the Earnest Money
Forfeiture Statute.
Here's what happened: The parties signed an Earnest Money Agreement, which included a
limitation of remedies for the seller's rights to collect damages against the purchaser in the event
of a forfeiture. Unfortunately for the purchaser, the seller did not initial the specific provision
that would limit the seller's sole and exclusive remedy to the earnest money deposit of the
purchaser. The trial court found that because the seller had initialed each page of the document,
there was substantial compliance with the statute limiting the seller's remedies. However, the
Court of Appeals found that there must be exact compliance and remanded the case
What's the lesson? Purchasers must make sure that the seller initials the liquidated damage
provision in any real estate contract if they intend to limit the seller's remedies to the amount of
the earnest money deposit. As an additional note, the total earnest money deposit must not
exceed five percent of the purchase price if the seller has no actual damages. Be sure to avoid
this trap for the unwary.
The following is a link to Washington State's RCW 64.04.005 statute, which you may find
helpful: http://www.leg.wa.gov/RCW/index.cfm?fuseaction=section&section=64.04.005
For further information about the statute or for guidance in your real estate matters, e-mail
Kenneth B. Kaplan (kaplank@lanepowell.com), or call him at (206) 223-7086.
Lane Powell PC
(206) 223-7000 Seattle
(503) 778-2100 Portland
www.lanepowell.com
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