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Why would you owe them anything for damages? What damages?
Emotional damage, they thought they finally unloaded the damn domain
That depends on the legislation, where it happens.
In my country, you owe the full amount of 1 million because that's the price you have agreed. The fact that you don't have so much money does not change your duties.
Then you can go to court and say it was an error. Probably the judge decides for you (but not sure). Then you owe them damages only for all the efforts they have made in relation to this business have been in vain, and this may yet become very extensive.
So, if I go to a car dealership and tell them I want to buy a $50k car,
they run a credit check and find out I have $5 in my account and my credit rating is NOPE,
...then according to you I now owe them $50k because I asked to buy the car?
If you are legally adult, and agree to buy the car by entering a contract, you owe them $50k whether or not you have it and they owe you a car whether or not you can pay.
This is why car dealerships usually check your credit before agreeing.
If either of you can't hold up the agreement, them the contract is broken and you must find some middle ground that works out, frequently via the court system. Usually you would return the car and pay them for their trouble.
Contracts are usually roughly that, but there can be stipulations on payment before delivery or how contract break is handled, etc.
A contract becomes binding after both parties agreed to it.
Going back to the example with the domain, the domain holder simply won't agree to the sale before you can prove that you can pay.
So there is no legally binding contract, there is no sale, there are no debts or damages. You'll just be told to fuck off.