4.2 Contract Performance, Breach, and Enforceability
Key Takeaways
- Executed means fully performed (post-closing); executory means performance is still pending (the contract before closing).
- Specific performance is the signature real estate remedy because each parcel of land is legally unique and money may not make a buyer whole.
- A time-is-of-the-essence clause turns a missed deadline into a breach; without it, courts allow a reasonable extension.
- The statute of frauds makes most real estate contracts unenforceable unless written and signed by the party to be charged.
- Liquidated damages let the seller keep a pre-agreed earnest money sum without proving actual loss, if the clause is reasonable.
A contract that is valid on formation still has to be carried out. The exam separates two questions: how far along is performance, and will a court enforce the deal at all.
Performance Status: Executed Versus Executory
An executory contract is one where something is still owed. A signed purchase agreement sitting in escrow is executory - the deed has not been delivered and the price has not been paid. Most real estate contracts spend their whole life as executory documents.
An executed contract is fully performed. After closing, when the deed is delivered and funds disburse, the purchase contract is executed. Do not confuse "executed" in this sense with "signed"; in contract-status questions, executed means finished.
Validity Status Recap
Table: Contract Status Comparison
| Status | Meaning | Example |
|---|---|---|
| Executed | Fully performed | Deed delivered, funds paid |
| Executory | Performance pending | Contract before closing |
| Valid | Meets all elements, enforceable | Signed, written sale |
| Void | No legal effect | Illegal purpose |
| Voidable | One party may cancel | Contract with a minor |
| Unenforceable | Valid but court will not enforce | Oral land sale |
Breach and the Three Core Remedies
A breach is a failure to perform a contractual duty without legal excuse: a buyer who walks away with no contingency, or a seller who refuses to convey clear title. The non-breaching party chooses a remedy.
- Rescission unwinds the contract and restores both parties to their pre-contract positions; the earnest money typically returns to the buyer.
- Damages are money. Compensatory damages cover proven losses. Liquidated damages are a pre-agreed sum - usually the earnest money - the seller keeps without proving actual loss, valid only if the amount was a reasonable estimate when signed.
- Specific performance is a court order forcing the breaching party to perform. Because every parcel of land is legally unique, courts grant it readily in real estate, especially to compel a reluctant seller to convey.
Damages Snapshot
Table: Damages Types
| Type | Purpose | Typical use |
|---|---|---|
| Compensatory | Reimburse actual proven loss | Carrying costs, lost resale margin |
| Liquidated | Pre-set, no proof of loss needed | Forfeited earnest money |
| Punitive | Punish bad conduct | Rare in pure contract disputes |
Worked example: A buyer breaches a $400,000 deal with a 1% earnest money deposit of $4,000 and a liquidated damages clause. If the clause is reasonable, the seller keeps the $4,000 and cannot also sue for the full loss, because liquidated damages are the agreed exclusive money remedy.
Time Is of the Essence
When a contract states time is of the essence, every deadline becomes a strict condition. A buyer who delivers loan approval one day late has breached, and the seller may cancel and pursue remedies. Without that clause, courts treat dates as targets and allow a commercially reasonable extension.
Statute of Frauds: The Writing Rule
The statute of frauds requires certain contracts to be in writing and signed by the party to be charged before a court will enforce them. Contracts that transfer an interest in land fall squarely inside it, so they must be written. Typical items:
- Purchase and sale agreements
- Option contracts on real estate
- Leases longer than one year (the cutoff varies by state)
An oral agreement to sell land is unenforceable, not void - it has substance but a court will not order performance. Some states recognize a partial-performance or estoppel exception when a buyer has paid and taken possession, but on the national exam the safe answer is that real estate contracts must be written.
Electronic Signatures
Under the federal E-SIGN Act and the state-level UETA, electronic signatures and records are generally as valid as ink, provided the parties consent to transact electronically and the signature is attributable to the signer. A clicked or typed signature on a compliant platform satisfies the statute of frauds.
Discharge, Assignment, and the Duty to Mitigate
Contracts end in ways other than performance. A novation substitutes a new party or new contract with everyone's consent, releasing the old obligor. An assignment transfers contract rights to a third party; a delegation transfers duties. Unless the contract forbids it or a release is signed, the original party stays secondarily liable after assigning.
Accord and satisfaction settles a dispute when one party agrees to accept different performance and the other delivers it.
The injured party has a duty to mitigate damages - to take reasonable steps to limit the loss. A seller whose buyer breaches should make a genuine effort to resell rather than let carrying costs pile up and then bill the breaching buyer for the whole amount.
Enforceability Checklist for Exam Questions
- Is the contract in writing where the statute of frauds requires it?
- Are both parties competent and the purpose legal?
- Are the essential terms present: parties, price, and property?
- Was a deadline missed under a time-is-of-the-essence clause?
A "no" on any line points toward unenforceable, voidable, or breach.
Common Exam Traps
- Calling an oral land contract void when it is unenforceable.
- Forgetting that specific performance, not damages, is the headline real estate remedy.
- Assuming a missed date is breach even without a time-is-of-the-essence clause.
A seller refuses to convey a one-of-a-kind lakefront lot after signing a valid written contract. Money damages will not give the buyer an equivalent property. Which remedy best fits?
Two parties have only an oral agreement for the sale of a house. The seller now refuses to proceed. Under the statute of frauds, the oral contract is generally: