New York Real Estate Salesperson ExaminationContractsHard
An investor and a property owner enter into a contract for the sale of a dilapidated building. The contract includes a clause stating that the sale is contingent upon the investor obtaining a permit for demolition within 90 days. If the investor fails to obtain the permit within 90 days, and neither party takes further action, what is the likely status of the contract?
- AThe contract automatically terminates.
- BThe contract automatically becomes voidable by either party.
- CThe contract remains valid, and the investor is in breach.
- DThe contract is enforceable, but the investor can sue for specific performance.
Show answer & explanationAnswer & explanation
Correct answer: A. The contract automatically terminates.
If a contract contains a 'time is of the essence' clause or a specific contingency with a deadline that is not met, and the contract specifies termination upon failure, the contract automatically terminates. This means the obligations of both parties are discharged.
Why the other options are wrong
- B. Voidable implies one party has the option to enforce or cancel; automatic termination means it ceases to exist without further action.
- C. Without a 'time is of the essence' clause or explicit termination, breach might occur, but automatic termination is more likely with a clear contingency deadline.
- D. Specific performance would not be an option if the contract has terminated due to an unmet contingency.
Automatic Contract Termination
A contract may automatically terminate if a specified condition or contingency is not met by a defined deadline, especially when explicit language in the contract dictates such termination.
- Triggered by unmet conditions.
- No further action required by parties.
- Parties are discharged from obligations.
Memory trick: Contingency Clock Ticks Out: If the condition isn't met, the contract naturally dies.