A Reminder from the Fresh Prince: Nonrefundable Deposits are Not Always Nonrefundable

April, 2009

When a real estate purchase agreement provides that a buyer’s deposit is nonrefundable, one might expect the deposit to be nonrefundable under any circumstance. The California Court of Appeal has recently ruled otherwise. In commercial and residential transactions alike, it is a long-standing principle of contract law that the nonrefundable character of such a deposit may depend on whether the seller actually suffered damages as a result of the buyer’s breach. This principle applies even when the “nonrefundable” deposit is described as such in a properly drafted liquidated damages provision.

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