What legal principle protects a buyer's earnest money in a contract?

The correct answer highlights the principle of good faith as it relates to the handling of earnest money in a real estate contract. When a buyer provides earnest money, it serves as a sign of their serious intent to proceed with the purchase of a property. The principle of good faith requires that both parties deal honestly and fairly with one another throughout the transaction.

In the context of earnest money, this means the seller or broker must handle the funds in accordance with the agreement and ethical standards. It’s essential for the protection of the buyer's earnest money that it is not misused, and that any contingencies outlined in the contract regarding the return or retention of that money are honored. This legal principle ensures that buyers can trust that their investment is protected as long as they meet their contractual obligations and the conditions of the agreement are fulfilled.

Other principles mentioned, such as physical possession, sale and leaseback, and implied warranty, do not pertain directly to the handling of earnest money in a contract. They relate to other aspects of real estate transactions but do not specifically address the trust and accountability required for managing earnest money.