4.2 Contract Performance, Breach, and Enforceability

Once a valid contract exists, the exam shifts to two questions: how is it performed or discharged, and what happens when someone breaches? This section covers the validity and performance status labels, the statute of frauds, breach remedies, and the ways contracts can be modified, assigned, or terminated.

Expect several questions that hand you a fact pattern and ask for the correct status label or the appropriate remedy. The trick is that performance status and validity status are different axes; a contract can be executory and valid at the same time, or executed and voidable.

Performance and Validity Status

Distinguish performance status (how far along) from validity status (legal effect).

• Executory - not yet fully performed. A signed purchase contract before closing is executory.
• Executed - fully performed by all parties. Do not confuse "executed" with merely "signed."
• Valid - binding and enforceable on both parties.
• Void - no legal effect from the start (illegal purpose, total lack of capacity).
• Voidable - valid until the protected party elects to cancel (minor, fraud, duress).
• Unenforceable - valid between the parties but a court will not enforce it (oral land sale, time-barred claim).

The Statute of Frauds

The statute of frauds requires certain contracts to be in writing and signed to be enforceable. In real estate it captures contracts for the sale of real property, leases longer than one year, and most listing agreements in many states.

The exam point is the consequence: an unwritten land-sale agreement is unenforceable, not void. A part-performance exception exists in some states when a buyer pays and takes possession, but you should answer the default rule unless the question tells you otherwise.

Breach and Remedies

When a party fails to perform without legal excuse, the other party may pursue a remedy. The exam wants you to match the right remedy to the right facts, especially recognizing that land is treated as unique.

Because real property is considered unique, specific performance is the classic remedy a disappointed buyer seeks against a seller. A seller faced with a defaulting buyer typically keeps the earnest money as liquidated damages when the contract provides for it. Liquidated damages must be a reasonable estimate of loss, not a punitive penalty.

Modification, Assignment, and Discharge

Contracts can change hands or end in several ways, and the exam tests the exact term.

A novation substitutes a new contract or a new party and releases the original obligor. An assignment transfers contract rights to another, while a delegation transfers duties; absent a release, the original party stays liable. An accord and satisfaction settles a dispute by agreeing to accept different performance.

A non-breaching party also has a duty to mitigate damages by taking reasonable steps to limit the loss. A landlord whose tenant abandons cannot let rent pile up indefinitely and then sue for the full amount; the duty to re-rent reduces recoverable damages. Contracts can also be discharged by full performance, mutual agreement, or impossibility.

Several defenses can excuse non-performance entirely. Impossibility (the subject property is destroyed before closing), illegality arising after formation, and the running of the statute of limitations all bar enforcement. The exam may frame these as the reason a party "does not have to perform," so read the call of the question to separate a true defense from an ordinary breach.

Watch the difference between rescission and cancellation. Rescission unwinds the contract and restores both parties to where they started, including returning any deposits. A simple cancellation or release ends future obligations but does not necessarily reverse what has already happened. Choosing the wrong term is a common distractor on remedy questions.