Breach of Contract
Definition
A breach of contract occurs when one party fails to perform their obligations under the contract without a legal excuse. The non-breaching party is entitled to legal remedies including damages, specific performance, or contract rescission.
Example
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.
Exam Tip
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 Contracts Terms
Purchase Agreement / Sales Contract
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
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.
Counteroffer
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
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 Deposit
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.
Contingencies
Contingencies are conditions written into a real estate contract that must be met before the transaction can close. If a contingency is not satisfied, the buyer can typically cancel the contract without penalty.
Frequently Asked Questions
Test Your Contracts Knowledge
Practice with exam-style questions to make sure you can apply Breach of Contract and other contracts concepts.