The Real Estate Market
Driven By Contracts
by Dr. Larry Hasbrouck
A Contract Must Be
voluntary–no one may be forced into a contract
an agreement or a promise–a contract is essentially a legally enforceable promise
made by legally competent parties–the parties must be viewed by the law as capable of making a legally binding promise.
Contract Must Also Be
Supported by legal consideration–a contract must be supported by some valuable thing that induces a party to enter into the contract and that must be legally sufficient to support a contract; and about a legal act–no one may make a legal contract to do something illegal.
EXPRESS CONTRACT: Show their intentions in WORDS
IMPLIED CONTRACT: Demonstrated by ACTS and CONDUCT
H approaches his neighbor, B, and says, “I will paint your house today for $50.” B replies, “If you paint my house today, I will pay you $50.” H and B have entered into an express contract.
K goes into a restaurant and orders a meal. K has entered into an implied contract with the restaurant to pay for the meal, even though payment was not mentioned before the meal was ordered.
Real Estate Contracts Are:
BILATERAL or UNILATERAL
B puts up a sign that says, “If you paint my house today, I will pay you $500.” If H paints B’s house, B will be legally obligated to pay H. B and H have a unilateral contract. On the other hand, if H says to B, “I will paint your house for $500,” and H replies, “I will pay you $500 for painting my house,” they have a bilateral contract: a promise exchanged for a promise.
EXECUTORY CONTRACT: Something Still Needing To Be Performed.
EXECUTED CONTRACT: All Promises Fulfilled.
OFFER (Offeror): A promise made by one party requesting something in exchange for that promise.
ACCEPTANCE (Offeree): A promise to be bound by the exact terms of the offeror’s promise
TRANSMITTAL OF ACCEPTANCES & REVOCATIONS
Effective upon actual communication to the offeror or the offeror’s agent.An acceptance is effective upon actual communication to the offeror or the offeror’s agent.The offeror may expressly name an agent, or one may be implied. The law deems that an offeror impliedly invites acceptance from the offeree by the same mode of communication the offeror used to communicate the offer. This is known as the implied agency rule. If an offeror communicates an offer by mail, then the mailboxes would be the offeror’s implied agents.
TRANSMITTAL OF ACCEPTANCES & REVOCATIONSCONTRACTS can expressly state that acceptance is effective only upon actual receipt of the acceptance by the offeror.
Jan. 3 A offers by mail to sell Landacre to B for $2,000/acre
Jan. 4 B mails an acceptance
Jan. 5 A mails a letter to B revoking her previous offer
Jan. 6 B receives the letter of revocation
Jan. 7 A receives the mailed acceptance
A contract exists on January 4 since an effective acceptance was delivered to A’s implied agent prior to actual receipt by B of A’s letter of revocation.
The law of transmittal of acceptances and revocations is based upon fairness and establishes firm rules that a businessperson may rely upon in decision making.
Many jurisdictions have expanded the implied agency rule to apply to any reasonable mode of communication.
An offer may be revoked anytime before it is deemed accepted. Revocation is effective upon actual receipt by the offeree.
CONSIDERATION: Something of legal value offered by one party and accepted by another as an inducement to perform or to refrain from some act. There must be a definite statement of consideration in a contract to show that something of value was given in exchange for the promise.
Consideration must be “good and valuable” between the parties.
The courts do not inquire into the adequacy of consideration.
Adequate consideration ranges from as little as a promise of “love and affection” to a substantial sum of money.
Anything that has been bargained for and exchanged is legally sufficient to satisfy the requirement for consideration.
The only requirements are that the parties agree and that no undue influence or fraud has occurred.
Hamer v. Sidway (124 N.Y. 538, 27 N.E. 256) Court of Appeals of New York (1891). William Story, while attending his brother’s golden wedding celebration, promised his nephew, Hamer, that if he would refrain from drinking, using tobacco, swearing, and playing cards or billiards for money until he became twenty-one years of age, he would pay the nephew $5,000.
The nephew assented to this proposal and thereafter refrained form the specified activities. Upon reaching the age of twenty-one, the nephew wrote his uncle as follows:
“Dear Uncle – I am now 21 years old today, and I am now my own boss, and I believe, according to the agreement, that there is due me $5,000. I have lived up to the contract to the letter in every sense of the word.”
In response to this letter, Story admitted the indebtedness but at no time did he pay it. Story died, and this action was brought against Sidway, the administrator of his estate. The lower court rendered judgment for the defendant (Sidway).
The Court of Appeals Ruling: UPHOLD / REVERSE
(18 by court) A Married Minor is Legally Competent.
Understands the nature of their actions
The Following may make a contract VOIDABLE:
Decision Without Undue Influence
Must be within the law
Taking out a contract on someone, even by the Sopranos, is not a valid contract”.
All Real Estate Contracts Must Be In Writing To Be Enforceable.
“Time is of the Essence”: (Contract must be performed within the time limit specified).
BREACH OF CONTRACT: Violation of any of the terms or conditions of a contract without legal excuse.
SPECIFIC PERFORMANCE: Court requires seller to convey the property or give damages
LIQUIDATED DAMAGES CLAUSE:
Keep earnest money
Return of earnest money
Partial Performance: “Close Enough”
Substantial Performance: “Brass door knobs”
Impossibility: Can’t legally accomplish
Mutual Agreement: Both concur
Operation of Law: “A minor or fraud”
Rescission: Everything back to “square one”
CONTRACTS IN REAL ESTATE
Buyer Agency Agreements
LISTING / BUYER AGREEMENTS:
SALES CONTRACTS (In Writing)
Customary – not essential
Discourage buyer from defaulting
Compensate Seller for taking property off the market
Cover expenses of Seller if Buyer defaults
Buyer acquires an Interest in the Land when contract is signed by
Buyer and Seller. The Buyer has EQUITABLE TITLE.
Before the close the Seller has LEGAL TITLE.
Common Law – Buyer Beware (Caveat Emptor)
Uniform Vendor & Purchase Act – Seller Beware
ESCAPE CLAUSE – Continue to Market Property
CONTINGENCIES – Creates a Voidable Contract
DISCLOSURE – Part of Sales Contract
Owner gives option
Pays owner for the right to buy at a fixed price for a certain period of time.
(OPTION ENFORCEABLE BY OPTIONER ONLY
LAND CONTRACTS / INSTALLMENT CONTRACT
Seller not obligated to execute and deliver a deed until all terms of the contract are met.