What is a Contract?
A Contract is a voluntary, legally enforceable promise between two competent parties to perform some legal act in exchange for consideration
Statute of Frauds
Everything in real estate has to be in writing, according to the Statute of Frauds
Essential Elements of a Contract
Mutual Assent (Meeting of the Minds)
Consideration (something of value)
Mutual Assent or Agreement
An essential element of a contract.
An essential element of a valid contract. A contract for an illegal purpose is voi
Anything of value that induces one to enter into a contract.
Factors affecting the enforceability of contracts
Executory vs. Executed
- A Purchase Agreement before it closes
- A Lease Agreement
- A closed transaction
Unilateral vs. Bilateral
- An Option Contract
- A Lease Option
- Exclusive Listing until there is an accepted offer
- Open Listing
Sales contracts and listings are examples of bilateral contracts.
- Exclusive Right Listing
- Purchase Agreement
Expressed vs. Implied
“Said” or in writing.
Requirements for validity
An expressed contract requires that the elements are specifically stated, including offer, acceptance and consideration. Examples include the sale of real estate, employment contracts and even a contract to perform a service.
Fast food drive through
Pay before you eat
Pay then pump gas
Shown by actions
If a customer enters a restaurant and orders food, for example, an implied contract is created. The restaurant owner is obligated to serve the food, and the customer is obligated to pay the prices listed on the menu for it.
Pay after you eat
Pump gas and then pay
A binding agreement or promise
Indemnify – Hold Harmless Clause
A provision in a contract that protects a party from damage or harm arising from the transaction.
Factors Affecting Enforceability
Void, voidable, unenforceable contracts
A contract that is enforceable by all parties to the contract in a court of law.
It looks valid but it can’t be done..
A flawed contract in which the innocent party has the power to either void or enforce, but that remains valid unless voided. Example: A minor (not legally competent) may enforce the contract even though the adult party cannot force the minor to perform.
Having no legal force or binding effect, not enforceable
Rights and obligations of parties to a contract
A contract with an unmarried minor is a Voidable Contract. At any time, the minor can change their mind. An adult cannot force a minor to complete a transaction.
Impossibility of Peformance (Frustration)
Void or Voidable Contracts
The threat of duress is used to force a party to sign a contract. The injured party may void an agreement signed under duress or menace.
The contract may be voided even if both parties do not sign.
Strong urging overwhelms a person, so they no longer act of their own accord. Contracts signed as a result of undue influence are voidable.
An untrue statement of material fact that induces a party to act. It may be intentional (fraud) or unintentional. A contract so signed is voidable by the injured party.
Mistake (Negligent Misrepresentation)
An error of fact by both parties may cause a contract to be voidable. Example: A contract’s legal description depicts a different lot than the buyer was shown.
Fraud – VOID
Intentional deception or misrepresentation – a material misstatement of fact.
Executory and Executed Contracts
To sign a document or to carry out a promised act or contract.
One that has been entirely performed. The closing executes the real estate purchase contract.
One that has not yet been entirely performed. (Example: when you are “under contract,” you have an executory contract.)
The inference that both parties are acting in good faith.
Breach of contract and remedies for breach
Breach of Contract
A violation or default of the terms and conditions stated in a contract.
Breach or violation of an agreement.
Those damages are specified by contract in advance (usually loss of earnest money) if the buyer defaults. If specified, liquidated damages are the seller’s only remedy against the buyer.
Actual damages refer to the financial amount that is paid to a victim that suffered loss that can be calculated. Actual damages are often known as real damages or, legally, as compensatory damages. These are damages that arose from the neglect or mistake of another party.
Damages above and beyond the actual cost of the loss, assessed to punish or set an example for others.
Termination, rescission, and cancellation of contracts
- performance – all parties fulfilled
- assignment and delegation – someone takes over for one party
- death impossibility of performance – not legal
- mutual agreement or Mutual Rescission – Agreement by both parties to abandon an executory contract.
- novation – new contract replaces an old one
- operation of law – some legal issue cancels the contract
- partial performance – accept incomplete work as fulfillment
- substantial performance – most of the work is done
The rescission of a contract is a return to the status quo.
If a buyer withdraws his offer before the seller accepts it, the buyer is entitled to his earnest money deposit.
To take back or annul. Until an offer is accepted and becomes a contract, the offering party may rescind the offer without penalty.
To recall or withdraw, such as withdrawal of an offer before acceptance by the offeree or offeror.
A promise for a promise, e.g., real estate purchase contracts. The buyer promises to buy; the seller promises to relinquish the title.
Only one person makes a promise..
In an option contract, the seller must sell, but the buyer is not forced into buying. It’s a unilateral contract.
A unilateral contract in which the optionor (property owner) promises to sell if and when the optionee (prospective buyer) chooses to buy – at a price and before a date set in the option contract
Electronic signature and paperless transactions
As of 2000, the ESIGN Act became a federal law that legally recognizes electronic signatures. This has had a powerful influence on real estate transactions.
Fulfillment of the Contract
The contract will end when all conditions are satisfied.
Impossibility of Performance
A contract cannot be completed because it’s impossible. Also called “frustration”.
When an investor wants to purchase a property to build a casino in a non-casino state, the contract will fail because of the Impossibility of Performance. When a person wants to buy an unlicensed whiskey store to run a whiskey store, the contract will fail for the Impossibility of Performance
State laws that regulate real estate securities are called blue-sky laws.
Confession of Judgment Provision 📍NEW
A confession of judgment is a way to circumvent normal court proceedings and avoid a lengthy legal process to resolve a dispute. Signing such a confession of forfeits any of the rights the defendant has to dispute the claim in the future.
Courtesy of Jack
An offer an acceptance (an agreement) may also be referred to as each of the following EXCEPT:
a)meeting of the minds
b)rescission 📍 📍📍