The Kruse Foundation is a charity that operates a WWII and car museum. Kimball International donated a furniture factory and 43 acres to the foundation. However, the foundation had trouble with maintaining the property and paying the property taxes, utility bills, and insurance, as well as with thefts and vandalism. It therefore decided to sell the property. It held an auction and the terms of the purchase agreement were printed in the materials provided to each bidder. Each bidder had to sign the documents in order to participate. A provision stated that $400,000 of the purchase price would be deposited as earnest money and that if the buyer failed to complete the purchase with a reasonable time, the money would be forfeited and the seller could sue for specific performance. 

Gates, a professional and experienced real estate developer, was the highest bidder. Gates later found problems with the property’s title condition, and when another suitable buyer could not be found, sued for breach of contract, fraud, and conversion. Kruse countersued for breach of contract. Gates claimed the $400,000 was liquidated damages and that was the agreed-to remedy for the breach. Kruse argued it should get damages representing the difference between the purchase price it ultimately had to sell the property for, or $2,468,794. Was the $400,000 a liquidated damages agreement? Explain.