A breach can be material or minor. A material breach is a significant failure that defeats the purpose of the contract, such as a buyer failing to close on the agreed date or a seller refusing to convey the property. The non-breaching party has several remedies available: they can sue for monetary damages, seek specific performance to force the other party to complete the transaction, or rescind the contract and recover any deposits. An anticipatory breach occurs when one party announces in advance that they will not perform.
A buyer is scheduled to close on March 15 but fails to show up and refuses to complete the purchase. This is a material breach. The seller can keep the earnest money as liquidated damages (if the contract allows), sue for actual damages, or seek specific performance to force the buyer to purchase the property.
Know the three main remedies for breach: damages, specific performance, and rescission. The exam often asks which remedy a seller versus a buyer is more likely to seek. Sellers typically seek liquidated damages (earnest money), while buyers more commonly seek specific performance because each property is considered unique.
Related Terms
Related Concepts
A purchase agreement is a legally binding contract between a buyer and seller that outlines the terms and conditions for the sale of real property. It is also commonly called a sales contract, purchase and sale agreement, or earnest money agreement.
Offer and acceptance is the process by which one party proposes specific terms for a contract and the other party agrees to those exact terms, creating mutual assent. This mutual agreement, also called a meeting of the minds, is an essential element of every valid contract.
A counteroffer is a response to an original offer that changes one or more terms of the offer, effectively rejecting the original offer and creating a new offer. The party who makes the counteroffer becomes the new offeror.
Consideration is something of value exchanged between parties to a contract, making the agreement legally binding. It can be money, a promise to act, a promise to refrain from acting, or anything else of value.
Earnest money is a deposit made by the buyer at the time of the offer or shortly after to demonstrate good faith and serious intent to purchase the property. It is also called a good faith deposit.
Frequently Asked Questions
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