Chapter 10 · National foundations
Contract Formation, Performance, and Remedies
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What makes a contract enforceable?
A contract is a legally enforceable agreement. Common formation concepts are capable parties, mutual assent, lawful purpose, and Consideration Bargained-for legal value supporting an agreement. See Chapter 10. Glossary. Some contracts must also satisfy a writing or other formal requirement. An enforceable agreement depends on the applicable law and all Material fact Information significant to a transaction decision under the applicable legal standard. See Chapter 12. Glossary, not on a mnemonic alone.
Consideration is a bargained-for exchange of legal value. Mutual promises can be consideration. An earnest-money deposit is not invariably necessary for a purchase contract to exist when valid promises already support the agreement. A gift promise and a completed gift raise different issues.
Capacity concerns legal ability to contract. A minor's agreement is often Voidable Subject to avoidance by a party with a legally recognized right to do so. See Chapter 10. Glossary rather than automatically Void Having no legal contractual effect. See Chapter 10. Glossary, with exceptions. Mental incapacity, guardianship, and intoxication present jurisdiction-specific questions. A corporation or trust acts through properly authorized representatives. S13
Offer and acceptance
An offer must be sufficiently definite and communicated. Acceptance Assent to an offer in the required manner without a material change that creates a counteroffer. See Chapter 10. Glossary must conform to the offer and be effective under its terms and governing law. An acceptance that changes a material term generally operates as a Counteroffer A materially changed response proposing different terms instead of conforming acceptance. See Chapter 10. Glossary, not an acceptance of the original offer. A question or request for information is not necessarily a counteroffer.
An offer can end through rejection, counteroffer, revocation, expiration, or other recognized events. Revocation generally must be communicated effectively, subject to Option A right, not an obligation, to enter the specified transaction under agreed conditions. See Chapter 11. Glossary contracts and other exceptions. Contractual delivery provisions matter. Do not assume a seller's private decision to accept creates a contract before required communication occurs.
Worked sequence
A buyer offers $300,000, with acceptance required by 5 p.m. Friday. The seller proposes $310,000 instead. That is a counteroffer on the stated facts. The buyer cannot assume the original $300,000 offer remains open for later acceptance by the seller. Now suppose the seller merely asks, “Would the buyer consider $310,000?” Whether that communication is a counteroffer or inquiry depends on its wording and context.
Electronic signatures and records can satisfy applicable legal requirements, but a casual text exchange is not automatically sufficient for every real estate transaction. Required content, intent, authentication, authority, and the relevant statute still matter. S13
The classification pairs
Bilateral versus unilateral: In a Bilateral contract An agreement formed through an exchange of promises. See Chapter 10. Glossary, parties exchange promises. In a Unilateral contract A contract based on an offer seeking acceptance through requested performance. See Chapter 10. Glossary, an offer seeks Acceptance Assent to an offer in the required manner without a material change that creates a counteroffer. See Chapter 10. Glossary through the requested performance. Classify the obligations described rather than relying on the document's label alone.
Express versus implied: An express contract uses stated terms, written or spoken. An implied-in-fact contract arises from conduct. A legal obligation imposed to prevent unjust enrichment is not simply another express agreement.
Executed versus executory: For performance classification, an Executed contract For performance classification, a fully performed contract; in signing contexts, the word can mean signed. See Chapter 10. Glossary has been fully performed; an Executory contract A contract with performance still outstanding. See Chapter 10. Glossary still has performance outstanding. In document practice, “executed” can also mean signed. Read the question's usage.
Valid versus Void Having no legal contractual effect. See Chapter 10. Glossary versus Voidable Subject to avoidance by a party with a legally recognized right to do so. See Chapter 10. Glossary versus unenforceable: A valid contract meets legal requirements. A void agreement has no legal effect as a contract. A voidable contract can be avoided by a party entitled to do so, unless properly affirmed or otherwise barred. An unenforceable agreement may have the substance of an agreement but lack an enforceable remedy because of a legal defense or missing formality. S13
Writing requirements and time limits
The Statute of frauds Writing requirements for specified agreements. See Chapter 10. Glossary requires specified agreements to be evidenced by a legally sufficient writing. Contracts conveying interests in land and certain leases commonly fall within it. Exceptions, required signatures, and the period that makes a lease subject to a writing rule vary.
The Statute of limitations A time limit for bringing a legal claim. See Chapter 10. Glossary concerns the time allowed to bring a legal claim. It is not the same as the statute of frauds. A four-year lease question about missing signatures concerns a writing requirement; a suit filed too many years after Breach Failure to perform an enforceable obligation without a valid excuse. See Chapter 10. Glossary concerns a limitations period.
A time-is-of-the-essence clause emphasizes timely performance of contractual obligations. Even without one, deadlines are not meaningless. Notice, cure rights, extensions, waiver, and governing law affect enforcement. S13 S14
Assignment, delegation, and novation
An Assignment Transfer of contractual rights; not necessarily release of the original party's obligations. See Chapter 10. Glossary transfers contractual rights, subject to restrictions. A delegation transfers responsibility for performance but does not necessarily release the original obligor. Novation Consented substitution of an obligation or party with release of what is replaced. See Chapter 10. Glossary substitutes an obligation or party with the necessary consent and releases the replaced obligation or party as agreed.
Example: A buyer assigns a purchase agreement to an investor. The original buyer is not automatically relieved of liability merely because the investor agrees to perform. A novation or other effective release would be a separate issue. Some contracts prohibit assignment or require consent. S13
Conditions, breach, and discharge
A condition precedent must occur before a specified duty becomes due. A financing Contingency A contractual condition affecting obligations or available remedies. See Chapter 11. Glossary is a familiar example. A condition subsequent can terminate an existing obligation when a specified event occurs. Concurrent conditions involve performances due together.
A contract can be discharged by performance, mutual Rescission Undoing a transaction under a recognized legal or contractual right. See Chapter 10, Chapter 16. Glossary, a valid release, an applicable contingency, or other legal grounds. Breach Failure to perform an enforceable obligation without a valid excuse. See Chapter 10. Glossary is failure to perform a required obligation without a valid legal excuse. Anticipatory repudiation concerns an unequivocal indication that a party will not perform when due. Failure of a contingency and breach of a promise are not automatically the same event.
Potential remedies include compensatory damages, enforceable Liquidated damages An agreed damages amount subject to enforceability rules. See Chapter 10. Glossary, rescission, restitution, and Specific performance A discretionary court remedy ordering promised contractual performance. See Chapter 10. Glossary. Liquidated damages are an agreed measure of damages subject to enforceability rules; an unlawful penalty is different. Specific performance is a court order requiring performance and is discretionary, not an automatic right every disappointed buyer receives. Mitigation concerns reasonable efforts to avoid unnecessarily increasing losses. S13
Agents should explain transaction procedures within their competence, use authorized forms appropriately, and refer legal disputes or custom legal drafting to an attorney. They should not promise that an earnest-money deposit will certainly be forfeited or returned before the contract, facts, and applicable law are evaluated.
A buyer transfers contract rights to someone else. Does that alone necessarily release the original buyer from obligations?