4.2 Contract Performance, Breach, and Enforceability

Performance and Validity Status

Two separate questions matter: has the contract been performed, and is it legally enforceable?

Executed contract - fully performed by both sides (the deed is delivered and the funds are paid).

Executory contract - signed but not yet completed. A ratified purchase agreement is executory until closing.

Do not confuse executed (performed) with executed meaning merely signed; on the exam, executed means the obligations are done.

Table: Validity Status

Breach and Remedies

A breach is a failure to perform a contractual duty. Typical breaches: a buyer who cannot fund closing without a financing contingency, or a seller who refuses to convey marketable title. The non-breaching party may pursue one of these remedies:

• Rescission - cancel the contract and return both parties to their pre-contract position, including refunding the deposit. Common when a contingency genuinely fails.
• Damages - money to cover the loss. Compensatory damages cover actual losses; liquidated damages are a pre-agreed amount, often the forfeited earnest money.
• Specific performance - a court order compelling the breaching party to perform. It is frequently sought in real estate because each parcel is unique, so money may not make the buyer whole.

Worked example: a buyer defaults on a $300,000 purchase where the contract sets earnest money of $9,000 as liquidated damages. The seller generally keeps the $9,000 rather than proving actual loss, because the parties agreed in advance that this sum measures the damage.

Time Is of the Essence

Time is of the essence is a clause stating that deadlines are strict. When present, missing a closing or contingency date is itself a breach, with no grace period. When the clause is absent, courts often allow a reasonable extension. Exam tip: if the fact pattern stresses a missed date and includes this phrase, the late party has likely breached.

Statute of Frauds

The statute of frauds requires certain contracts to be in writing and signed to be enforceable. For real estate this includes:

• Contracts for the sale of real property.
• Option contracts on real property.
• Leases longer than one year (the exact line varies by state).

An oral agreement to sell land is therefore unenforceable, even though it may meet every other element. The defect is the lack of a signed writing, not a lack of consent.

Electronic Signatures

Under federal E-SIGN (Electronic Signatures in Global and National Commerce Act) and state UETA (Uniform Electronic Transactions Act) adoptions, electronic signatures are generally as valid as ink when the parties consent and the signature can be attributed to the signer.

Exam Traps

• Confusing void (never had effect) with voidable (cancelable by one party).
• Assuming damages, not specific performance, is the usual real estate remedy.
• Believing an oral land-sale contract is enforceable.

Ways a Contract Ends Without a Breach

Not every termination is a breach. A contract can end cleanly by:

• Performance - both parties do what they promised; the contract is now executed.
• Mutual rescission - both agree to cancel and walk away.
• Novation - the parties substitute a new contract or a new party for the old obligation, releasing the original.
• Assignment - rights are transferred to a third party; unlike novation, the original party may remain liable unless released.
• Impossibility - performance becomes objectively impossible, such as the property being destroyed before closing.

Liquidated Damages Versus Actual Damages

A liquidated damages clause fixes the amount owed in advance so the parties avoid litigating actual loss. Courts enforce it when the amount is a reasonable estimate of harm, not a penalty. In residential sales the forfeited earnest money is the common liquidated figure. If the contract is silent, the injured party must prove actual (compensatory) damages instead.

Worked example: a buyer defaults and the contract has no liquidated damages clause. The seller must now prove real losses, such as carrying costs and a lower resale price, rather than simply keeping the deposit.

Enforceability Checklist for the Exam

When a question asks whether a contract can be enforced, confirm: a signed writing exists where required, the parties are competent, all essential terms (parties, property, price) are present, and no time-is-of-the-essence deadline was missed. A failure on any line points toward unenforceable or breach.

Material Breach Versus Minor Breach

Not every failure lets the other party walk away. A material breach goes to the heart of the bargain, such as a seller who cannot deliver marketable title; it excuses the injured party and supports rescission or specific performance. A minor (partial) breach is a small slip, such as leaving behind a few personal items, and usually supports only a claim for the cost to cure, not cancellation of the whole contract. The exam rewards recognizing which failure is serious enough to justify ending the deal.

Assignment in Practice

Most real estate contracts are assignable unless they say otherwise, because the seller usually cares about getting paid rather than who pays. Personal-service contracts and listings, which depend on a particular party's skill, are generally not assignable. When a buyer assigns a purchase contract, the assignee takes the rights, but the original buyer often stays liable unless the seller signs a novation releasing them.