Breach

Key Takeaways

• A breach is the failure to perform a contract promise once performance is due and no legal excuse applies, such as a buyer who refuses to close on the agreed date.
• The injured party's usual remedies are money damages, specific performance to force the sale through, or terminating the contract and recovering what was paid.
• In Washington, a suit on a written contract must be filed within six years of the breach under RCW 4.16.040, while a contract that is not in writing carries a three year limit under RCW 4.16.080.
• In Washington, a written purchase and sale agreement can cap the seller's recovery for a buyer's breach at forfeited earnest money of no more than five percent of the purchase price (RCW 64.04.005).

What It Means

A breach happens when a party to a valid contract fails to do what the contract requires and has no legal excuse for the failure. The promise has to be due first. A buyer who has not yet reached the closing date has not breached anything, and a buyer whose financing Contingency failed on its own terms has an excuse written into the deal. Once performance comes due and does not happen, the other side has a claim.

Not every breach carries the same weight. A material breach goes to the heart of the bargain, such as a seller who refuses to deliver the Deed, and it lets the injured party stop performing and sue. A minor breach, such as leaving behind a shed that was supposed to be removed, supports a damages claim but does not release the other party from closing. Courts look at how much of the promised benefit the injured party lost and whether the failure can still be cured in time.

Breach and Default describe the same event in a purchase and sale agreement. Contract forms tend to say default because the word triggers a specific remedy paragraph, while court opinions and textbooks say breach.

How It Works in Washington

In Washington, the clock on a breach claim starts when the breach happens, not when the contract was signed. RCW 4.16.040 allows six years to sue on a written contract, and RCW 4.16.080 allows only three years on a contract that is not in writing. Because RCW 64.04.010 requires every conveyance of real estate to be by deed, a real estate purchase agreement is a written contract, so the six year window is the one that normally applies to a failed sale.

Washington also puts a ceiling on what a seller collects when a buyer walks away. RCW 64.04.005 makes a written earnest money or Liquidated Damages provision the seller's exclusive remedy against a buyer who fails, without legal excuse, to complete the purchase, and it limits the forfeited amount to five percent of the purchase price. A clause written above that ceiling falls outside the statute and is judged under common law instead. Our post on earnest money and contingencies in Washington shows how that clause is filled in on a live transaction.

Example

Dana lists a house in Tacoma at $540,000. Marcus offers $525,000 with $15,000 earnest money, Dana accepts, and the agreement sets closing for June 12 with the standard forfeiture clause included. Marcus waives his financing contingency on May 20 after his lender issues a commitment. On June 12 he decides he does not like the neighborhood after all and refuses to sign the closing documents.

That is a breach. Marcus had a promise that was due, no contingency left to lean on, and no legal excuse. Dana keeps the $15,000 deposit. Because $15,000 is 2.9 percent of the $525,000 price, it sits under the five percent ceiling of $26,250 that RCW 64.04.005 allows, so the forfeiture is enforceable. It is also all Dana gets, even though relisting cost her two months and a $12,000 price reduction. Had the agreement left the forfeiture clause out, Dana would have had to prove her actual loss in court to recover anything.

Common Mistakes and Exam Traps

• A contingency that fails on its own terms is not a breach, because the contract itself excuses performance when the condition is not met.
• Breach and default name the same failure to perform, so an answer that treats them as two different legal events is wrong.
• Anticipatory breach occurs before performance is due, when one party announces it will not perform, and it lets the other side sue immediately rather than wait for the deadline.
• In Washington the six year limitation period in RCW 4.16.040 runs from the date of the breach, not from the date the contract was signed.