4.2 Contract Performance, Breach, and Enforceability

Two Axes of Contract Status

Questions about contract status combine a performance label with a validity label, and candidates lose points by blending the two.

Performance axis:

• Executory means the contract is signed but performance is still outstanding. A purchase agreement waiting on financing and closing is executory.
• Executed means every duty is complete: the deed is delivered and the money is paid.

Validity axis:

• Valid meets all elements and is enforceable.
• Void has no legal force from inception, as with an illegal object.
• Voidable is enforceable unless the protected party cancels (a minor's contract).
• Unenforceable met the elements but cannot be enforced in court because of a defect such as missing writing.

Status at a Glance

Breach and the Three Remedies

A breach is a failure to perform a contractual duty: the buyer cannot fund the purchase, or the seller refuses to deliver marketable title. The injured party has three classic paths.

• Rescission unwinds the deal and returns both parties to their pre-contract position, including refunding any deposit.
• Damages are money awarded to cover actual loss.
• Specific performance is a court order compelling the breaching party to perform, which buyers seek because no two parcels are identical.

Discharge by Means Other Than Performance

Not every contract ends in a clean closing. A contract can be discharged by mutual rescission, where both sides agree to walk away; by novation, where the parties substitute a new contract or a new party for the old one with everyone's consent; or by assignment, where one party transfers its rights to a third party. In an assignment, the assignor usually remains secondarily liable unless expressly released. Accord and satisfaction discharges a duty when a party accepts a substituted performance in place of the original. Knowing these labels helps you reject answer choices that misname how a deal was terminated.

A Worked Damages Example

A buyer defaults on a $480,000 purchase with no valid contingency. The contract holds a liquidated damages clause capping the seller's recovery at the $14,400 earnest money (3 percent of price). The seller relists and resells at $466,000 forty days later, a $14,000 shortfall, plus $2,300 in extra carrying costs.

Under the liquidated damages clause the seller simply keeps the $14,400 deposit and gives up the right to chase the remaining loss; that is the bargain liquidated damages strikes, certainty in exchange for a cap. Note the seller also had a duty to mitigate, meaning to make reasonable efforts to relist and resell rather than let losses pile up.

Time Is of the Essence

When a contract states that time is of the essence, every deadline becomes strict, and missing one is a breach in itself, even by a day. Without the clause, courts often allow a commercially reasonable delay. On the exam, the presence of the phrase is the trigger: treat the dates as hard.

Statute of Frauds

The statute of frauds requires certain contracts to be in writing and signed to be enforceable. Agreements conveying an interest in land are squarely covered, along with leases longer than one year in most states. An oral agreement to sell a house is therefore not void, just unenforceable, unless a recognized exception such as substantial part performance applies.

Electronic Signatures

Under the federal E-SIGN Act and the state-adopted UETA, electronic signatures and records generally carry the same legal weight as ink, provided the parties consent to transact electronically and the signature can be attributed to the signer. Real estate transactions routinely close on e-signed documents.

Traps

• Confusing void (no effect ever) with voidable (cancelable by one side).
• Saying an oral land contract is void; it is unenforceable.
• Forgetting the injured party's duty to mitigate damages.

Validity Spectrum and Remedies for Breach

Contracts fall along a validity spectrum the exam tests directly. A valid contract meets all elements and binds both parties. A void contract was never enforceable (an agreement for an illegal purpose). A voidable contract is valid until a protected party elects to disaffirm it (a contract signed by a minor, or one induced by fraud or duress). An unenforceable contract was valid but cannot be enforced in court (an oral agreement that violates the statute of frauds).

When one party breaches, the non-breaching party may pursue several remedies: sue for money damages; seek specific performance to compel conveyance, available because each parcel is unique; rescind the contract and return both parties to their pre-contract positions; or, if the contract so provides, retain liquidated damages (commonly the earnest-money deposit) as the agreed measure of loss. Mutual rescission ends a contract by agreement of both parties.