Kelly v. Marx, 428 Mass. 877, 705 N.E.2d 1114 (1999)
Legal information, not legal advice. Verify against the cited opinion.
- Citation: Kelly v. Marx, 428 Mass. 877, 705 N.E.2d 1114 (1999).
- Court / Year: Supreme Judicial Court of Massachusetts, 1999.
- Topic tags: forfeiture | liquidated_damages | remedies
- Facts: Buyers (Kelly) agreed to purchase residential real estate from the Marxes for 17,750 (5% of the price). The purchase-and-sale agreement provided that if the buyers failed to perform, “all deposits made hereunder by the BUYER shall be retained by the SELLER as liquidated damages.” The buyers breached and did not close. The sellers shortly resold the property for $360,000 — i.e., suffered no net loss — and kept the deposit. The buyers sued to recover the deposit, arguing the clause was an unenforceable penalty because there were no actual damages.
- Holding: The liquidated-damages clause is enforceable, and the seller may retain the deposit, where — judged at the time the contract was made — actual damages were difficult to ascertain and the stipulated sum was a reasonable forecast of likely damages. Massachusetts adopts the “single look” (prospective) test and rejects the “second look” (retrospective) test: the court does not revisit enforceability based on what actual damages turned out to be at the time of breach. A 5%-of-price deposit was a reasonable estimate, so the sellers kept it despite reselling at a profit.
- Reasoning: A liquidated-damages provision is valid if, at formation, damages were difficult to estimate and the amount was a reasonable forecast; it is an unenforceable penalty only if the stipulated sum is “grossly disproportionate to a reasonable estimate of actual damages” made at the time of contracting. The single-look rule preserves the parties’ bargained-for certainty and avoids punishing the non-breaching party for mitigating well.
- Practical impact for CFD operators/buyers: Kelly is the controlling Massachusetts authority on retention of a defaulting buyer’s deposit/payments as liquidated damages. It governs the front-end deposit-forfeiture clause that appears in essentially every Massachusetts real-estate purchase and seller-finance agreement. It is not, however, a ruling on whether the accumulated principal payments under a long-term installment land contract may be forfeited in their entirety on default — a buyer who has paid down a substantial share of the price could argue that a total forfeiture is “grossly disproportionate,” but Massachusetts case law has not squarely decided the installment-contract scenario.
- Good-law status: Good law; the leading SJC statement of the single-look liquidated-damages rule (followed in NPS, LLC v. Minihane, 451 Mass. 417 (2008)).
- Source (retrieved): https://www.quimbee.com/cases/kelly-v-marx · official reporter copy at http://masscases.com/cases/sjc/428/428mass877.html · Verified: 2026-06-08
Jurisdictions that follow / cite: massachusetts; see forfeiture-vs-foreclosure.
Disclaimer. Legal information, not legal advice. Confirm the opinion is still good law before relying on it.