Guthman

In this case we are called upon to determine whether a clause in which a buyer of residential real property agrees to pay liquidated damages is unenforceable as a matter of law when the clause is not separately signed or initialed by buyer and seller pursuant to California Civil Code section 1677.

While the Legislature has not provided any express guidelines for the enforceability of a clause which fails to meet the formal requirements in that section, we hold that the Legislature did not intend such clauses to be rendered unenforceable as a matter of law. We further hold that section 1677 was enacted solely for the protection of the buyer and therefore a clause which fails to meet the statutory formalities is voidable only at the buyer’s option.

Facts

The stipulated facts establish that in March 1981, sellers and buyers executed escrow instructions for the purchase of sellers’ residence for the sum of $800,000. Thereafter, amendments to the escrow instructions were proposed. Among the clauses contained in the amendments was one for liquidated damages. This clause was prepared and included at sellers’ request. It provided: “In the event one party fails to close escrow,…