Question

Linnea contracts to buy Harriette's farm for $300,000 and puts $20,000 down. Then Linnea learns she is allergic to hay and repudiates the contract. If Harriette can sell the farm one month later for $290,000, she may:

Answer 1

Answer:

B) keep $10,000 of Linnea's down payment.

Explanation:

Since Linnea repudiated the contract, it is considered a breach. Therefore, Harriette is entitled to compensatory damages for the breach of the contract. Compensatory damages only cover the lost revenue from the contract, so if Harriette was able to sell her farm and only lost $10,000 due to Linnea's breach, then she must return the difference = $20,000 - $10,000 (lost) = $10,000.