Performance, breach, remedies, and discharge of contracts

Performance and discharge

A contract creates duties; discharge ends them. Full performance discharges the duties performed. Tender is an offer of the required performance by someone ready, willing, and able to perform; it is not the same as completed performance. Check conditions and deadlines before calling a failure a breach. A buyer who properly exercises an available financing contingency may end the agreement without breaching it. A time-is-of-the-essence clause makes timely performance material.

A material breach defeats an important part of the bargain and may excuse the other party's remaining performance. A minor breach may support damages without ending the other party's duties. Anticipatory repudiation is a clear refusal to perform before performance is due, rather than a request to discuss a change.

Choosing a remedy

Compensatory damages address the injured party's proven loss from the breach, subject to limits such as causation, foreseeability, and reasonable mitigation. Mitigation means taking reasonable steps to avoid additional loss. Specific performance asks a court to order the promised performance; land's uniqueness can make money inadequate. It is an equitable remedy, not an automatic result of a signed purchase agreement. Rescission unwinds a contract, generally with restoration of benefits, and differs from enforcing the original bargain. Availability of a remedy depends on the contract and facts; a salesperson should refer disputed legal remedies to counsel.

California liquidated damages

Liquidated damages are an amount agreed in advance for a specified breach. An earnest-money deposit does not become forfeitable merely because a buyer defaults. Under California Civil Code section 1675, residential property means a dwelling with no more than four units that the buyer intends, when contracting, to occupy as a residence. Assuming the other statutory requirements are met, an amount actually paid of no more than three percent of the purchase price is valid unless the buyer proves it unreasonable. An amount exceeding three percent is invalid unless the party seeking enforcement proves it reasonable. Three percent is a burden-of-proof dividing line, not an absolute cap or an amount automatically owed. Reasonableness considers circumstances when contracting and a subsequent sale or sale contract within six months of default. Special accounting rules apply to certain initial sales of newly constructed attached condominiums.

California requires each party to separately sign or initial the liquidated-damages provision. In a printed contract, it must use at least ten-point bold type or contrasting red print in at least eight-point bold type. Later payments intended as liquidated damages require separate qualifying provisions for each payment, signed or initialed by each party, and the total must satisfy section 1675. The chapter concerns damages to a seller when a buyer fails to complete a purchase and does not affect any right a party may have to specific performance.

Other ways obligations end or change

Mutual rescission ends the agreement by consent. Modification changes terms; it does not necessarily release the parties from the remaining bargain. A novation substitutes a new obligation or party by agreement and releases the replaced obligation. An assignment transfers contractual rights and does not itself release the assignor from duties. An accord agrees on substitute performance, while satisfaction is its completion. Impossibility or operation of law can also discharge duties in qualifying circumstances; mere inconvenience or a less profitable deal is insufficient.