Under Oregon law, a material breach of contract is one that “goes to the very substance of the contract and defeats the object of the parties entering into the contract.” Material breaches are important because a material breach excuses the other party’s performance. Thus, if the buyer fails, without excuse, to perform a promise that “goes to the very substance of the contract and defeats the object of the parties entering into the contract,” the seller can refuse to sell. Similarly, a material breach by the seller would excuse the buyer’s obligation to purchase.
Whether a particular breach is material is a question of fact and depends on the circumstances in which the breach takes place. This makes predicting whether a breach is material or not complicated and difficult. It is for that reason that real estate agents should never offer an opinion on whether some failure to perform is or isn’t a material breach.
Unfortunately, agents offer such opinions all the time. Worse, they often do so without understanding the difference between material and non-material breaches. Evidently, somewhere in the distant past some lawyer taught real estate agents that the buyer’s failure to perform strictly as required by the contract meant the buyer was “out of contract.” According to the myth thus created, being “out of contract” excused the other party’s obligation to perform.
There is no such thing as “out of contract” as far as the law of contracts is concerned. There is just breach. Thinking in “out of contract” terms can cause great harm if you believe “out of contract” automatically means material breach. That is not the case.
Real estate sale contracts contain dozens of promises. Few are material. That is the case because a real estate contract is performed over weeks or even months. A simple missed deadline (in circumstance where performance is not due for weeks or months) will not usually defeat the purpose of the contract. Take, for instance, the buyer’s promise to make the loan application within three days of acceptance. No reasonable person would believe that a delay of a few days in making a loan application “defeats the object of the parties entering into the contract.” It follows that the buyer’s breach of the promise to make application within three days would not be considered material unless application was so delayed as to actually affect the closing date.
This result is often startling to real estate agents but it is the law. One of the consequences of the way the law treats breach is that form contracts often contain “time is of the essence” clauses. A “time is of the essence” clause is used to make a deadline material. As of January 2008, Oregon residential real estate forms make not only the closing date but all of the deadlines “of the essence.” Courts, however, are quick to find a “time is of the essence” clause waived if not enforced. Once waived, a deadline can be reinstated only by giving the other party notice and a reasonable time in which to perform.
All of this causes the more literal of agents to complain that deadlines don’t mean anything. That, however, is not the case. Courts are very interested in enforcing the intent of the parties as expressed in the contract. They are far less interested in technicalities or loopholes that one party might later try to use to “get out of the deal.” When parties enter into a contract for the sale and purchase of real property, their object is to transfer title, not assure every ancillary step required to accomplish that end. Courts will enforce the original intent to transfer unless something happens that defeats that purpose.
A real estate licensee should never counsel a client on how to get out of a contract or offer an opinion on whether a party has materially breached or the other party is entitled to terminate. Real estate licensees are employed to aid in performance, not to give advice on non-performance. When a client starts talking about non-performance of the contract in circumstances that raise issues of breach, it is time to advise the client to seek legal advice. Clients have to understand that there is no such thing as a weasel clause under Oregon law even if sometimes, like cheating on taxes, people do weasel out of contracts.
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