Dean v. Kruse Foundation, Inc., Dean Kruse and Kruse International v. Jerry W. Gates
2012 Ind. App. LEXIS 371
Ind. Ct. App.2012Background
- Foundation received a 42.79-acre West Baden property via donation to operate a WWII and automobile museum, incurring high carrying costs.
- Competing appraisals for the property produced wide value ranges, with an asking price of $5,750,000 set by the broker for sale by auction.
- The property was auctioned on July 12, 2006; Gates was the high bidder at $4,000,000 plus a 5% buyer's premium ($4,200,000 total).
- Purchase Agreement required $100,000 earnest money, refundable if the title was defective or the offer not accepted; otherwise forfeitable on purchaser breach, with specific performance as a remedy.
- Gates breached by notifying termination on August 9, 2006; Kruse Parties sought damages and later pursued additional sales efforts to resell the property.
- Trial court awarded $100,000 (earnest money) as damages, treating the clause as a liquidated-damages provision; Court of Appeals reversed and remanded for proper damages calculation.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether the forfeiture of earnest money is liquidated damages or a penalty | Kruse contends the clause is a penalty, not liquidated damages | Gates argues the clause is a valid liquidated-damages provision enforcing damages proveable by breach | Clause is an unenforceable penalty; remand for proper damages |
Key Cases Cited
- Mandel v. Owens, 330 N.E.2d 362 (Ind. Ct. App. 1975) (unclear whether earnest-money forfeiture is liquidated damages or penalty)
- Beck v. Mason, 580 N.E.2d 290 (Ind. Ct. App. 1991) (express labeling as liquidated damages governs interpretation)
- Rogers v. Lockard, 767 N.E.2d 982 (Ind. Ct. App. 2002) (liquidated damages vs. penalty analysis; certain damages framework)
- Showalter, Inc. v. Smith, 629 N.E.2d 272 (Ind. Ct. App. 1994) (measure of damages in real estate breach; market value guidance)
- Gershin v. Demming, 685 N.E.2d 1125 (Ind. Ct. App. 1997) (determinants for liquidated damages vs. penalty; proportionality factors)
- Patel v. United Inns, Inc., 887 N.E.2d 139 (Ind. Ct. App. 2008) (uncertainty of damages affects liquidated damages validity)
- Harbours Condominium Ass’n, Inc. v. Hudson, 852 N.E.2d 985 (Ind. Ct. App. 2006) (proportionality test for liquidated damages)
- Four Seasons Mfg., Inc. v. 1001 Coliseum, LLC, 870 N.E.2d 494 (Ind. Ct. App. 2007) (remedies not necessarily exclusive; contract interpretation)
- Kruse I, 932 N.E.2d 763 (Ind. Ct. App. 2010) (earliest decision discussing earnest-money forfeiture; remanded for damages)