Woodbridge Place Apartments v. Washington Square Capital

965 F.2d 1429 (1992)

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Woodbridge Place Apartments v. Washington Square Capital

United States Court of Appeals for the Seventh Circuit
965 F.2d 1429 (1992)

  • Written by Whitney Kamerzel , JD

Facts

Woodbridge Place Apartments Limited Partnership’s general partner, Robert Jarrett, wanted to replace the financing on Woodbridge Place Apartments (Woodbridge) (plaintiff). Woodbridge therefore executed a mortgage application with Washington Square Capital (Washington) (defendant) in which Washington agreed to finance the loan and Woodbridge agreed to pay a standby deposit and inspection fee. The agreement provided that the deposit would be refunded only after the loan was funded or if Washington wrongfully refused to fund the loan. The loan agreement also contained a condition that required Woodbridge to obtain a 93 percent minimum apartment occupancy at the time the loan closed. Woodbridge did not obtain the required occupancy and sued Washington for the return of the deposit, arguing that the deposit was an unenforceable penalty clause. Washington argued that the standby deposit was consideration for an option contract, a nonrefundable commitment fee, or alternatively, a reasonable liquidated-damages clause. The district court held that the deposit was an unenforceable penalty clause and returned the deposit to Woodbridge. Washington appealed.

Rule of Law

Issue

Holding and Reasoning (Wood, J.)

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