Ch 1 Section 3 Real Estate Contract Law Flashcards
What are the essential characteristics of contracts ?
- Legally competent parties
- Clearly identified property description
- Meeting of the minds as to the essential terms
- Consideration
- A legal purpose
- usually 18
Legally component parties
There must be two or more legally competent parties to a contract
A person with LIMITED capacity to contract may enter a valid contact under circumstances :
- Minors are persons under the legal age of majority according to state law ( in most states individuals under 18 years of age) and they have limited capacity to contract
- Persons who were intoxicated or influenced by drugs and who can establish incompetence at the time of the contract , may be permitted to void their contract, if they act promptly.
- People with no capacity to enter into a contract such as those who are adjudicated incompetent or insane, may be party to a legally binding contract
Clearly Identified Property Description
Real estate must be described so that all parties can clearly identify the subjects property
Meeting of the minds
Means that all parties clearly understand what the agreement is
Offers may be terminated in ways:
-acceptance, in which case a contract results.
-revocation by offer or caused by the offeror’s withdrawal prior to acceptance
-rejection by offerree
-counteroffer, in which case offered becomes new offeror
-lapse of time when the offeree has set a deadline for acceptance
-Death or insanity of either party prior to acceptance
Consideration
The contract must be supported by a valid or sufficient, lawful consideration
Valuable consideration
Usually consists of money or property, but. May also be an enforceable promise
Good consideration
Is often used for a gift deed and is frequently love and affection
Legal Purpose
Courts cannot be called upon to enforce contracts that require one to break the law.
Valid Contract
Is one that has all of the essential elements plus any additional, special details necessary to the contract.
Void Contract
Is one that has one or more of the five essential elements. Missing, and thus has no legal force or binding effect.
Voidable Contract
A contract that appears valid on its face, meaning that it appears to have all of the five essential elements, but that is subject to rescission by one of its parties.
Fraud
Is any form of deceit by which one party intentionally attempts to gain unfair advantage over another. Key word is “intentional”.
Misrepresentation
Is a false statement or concealment of a material fact.
Mistake
Is an error or misunderstanding
Puffing
A harmless statement of exaggeration that a reasonable person would be expected to recognize such as “This is the most beautiful house in the city.”
Undue Influence
(Such as taking advantage of grieving widow)
Duress
(The use of force of threatened force)
Statue of Frauds
Laws that require certain contracts must be in writing to be enforced.
State statue of fraud require:
-all real estate contracts involving the sale of land
-transfer of any ownership interest in land
-be in writing and signed in order to be enforced in a court of law
Statues of Limitations
Are state laws that prescribe time limits on legal actions, meaning that lawsuits seeking enforcement of contracts must be started within a specified period of time. Protect people against state claims.
Death of Parties
real estate sales contracts survive the death of the parties
-death of either party terminates a personal service contract such as a listing
-death of either party also terminates an offer that has not been accepted
Ways in which a contract may be discharged or terminated
-Performance
-Abandonment by one party or both partes
-Lapse of time, whether specified, or a reasonable time
-Revocation by a party legally entitled to revoke
-Breach by one party, giving the other party the right to terminate
-Rescission by a purchaser if exercised during the legally allowed time frame
Breach of Contract
Occurs when there is violation of any of the terms or conditions of a contract without legal excuse
Rescission
-Is a legal remedy that terminated the contract
and returns the parties to their original positions
-rescission period during which time they may rescind a contract for any reason whatsoever
It is usually from 3-10 days
-cooling off period
Federal Truth in Lending Law
Guarantees a rescission period as do most state time-share and condominium laws
Contracts
Voluntary agreements that conform in character to certain laws governing their creation.
Express Contract
Is one in which all terms and conditions are mentioned and agreed to in writing, orally ,or both.
Implied Contract
Is one in which certain terms have not been expressly stated, but they can be inferred from the nature of the transaction or the conduct of the parties
When is a contract unilateral?
When one party obligates to perform without receiving a promise of performance from the other party.
When is a contract bilateral?
When both parties make promises of performance
Examples of Bilateral Contracts
-a real estate sales contract where the buyer promises to buy and the seller promises to sell
-certain listing contracts signed by both seller and broker, where the seller promises to pay, and the broker also promises to do certain things such as advertise the property, use his best effort to sell the property, etc.
A contract is executory when:
-When one or both parties has not yet performed.
-example would be a sales contract where a seller has pledged to sell, a buyer pledged to buy, but neither has yet performed
A contract is executed when:
-There is nothing left to be done by either party.
-Example, a real estate sales contract becomes executed at closing, upon delivery and acceptance of the deed
Covenant
-A solemn promise intended as binding
-It is an agreement or a pledge between two or more parties
Condition
A condition is something that is established, or is agreed upon, as a prerequisite to the doing or taking effect of something else.
Restrictions
There are private restrictions that apply to property.
Private Covenants Conditions and Restrictions
-(Sometimes abbreviated as CCRs) may be imposed on the use of real property by owners.
-restrictive covenants written into real property instruments such as deeds, leases, and condominium declarations
Questions of Time
-If specific times have not been stated for
performance, the law
will imply that a razonable time was meant.
- Reasonable is what may be fairly allowed and required considering the nature of the act to be performed.
-When parties specify a definite time and further agree that time is of the essence.
Assignment
the substitution of a new debtor, or the substitution of a new creditor.
Novation
Novation is the substitution of a new legal obligation for an old one, such as the substitution of a new contract
What is an assignment?
-Is the transfer of the right, title, or interest of one person (assignor) to another (assignee).
-(mortgage contracts, trust deeds, contracts for sale, lease contracts, options)
Power of Attorney
-A power of attorney is a legal, written document in which one person appoints another to be his attorney-in-fact and authorizes him to act on his behalf (ex: to buy or sell land, or to sign a lease)
-may buy or sell a piece of real property for another without real estate license, provided the attorney-in-fact is not actually engaged in a brokerage business and purposefully trying to evade the state’s license law.
-A general power of attorney authorizes the attorney-in-fact to carry out a wide range of activities, whereas a specific or limited power of attorney would be limited to certain acts (usually one single act)
-remember that the power of attorney is the document; the attorney-in-fact is the person
Estoppel
Is a legal doctrine that stops, or prevents, a person from asserting certain rights, or stating certain facts, if such action is judged to be inconsistent with, or contrary to, a previous position.
Estoppel Certificate
(Certificate of no defense, estoppel letter) is a legal document that clarifies the exact amount of debt owed by one party to another party and/or the situation between the parties as of a certain, specified date.
Riders, Addenda, and Amendments
contract form are used frequently in real estate transactions.
A rider or addendum
-Is normally used to add a provision to a preprinted contract
-a rider or addendum could be used to add this provision
An amendment
Is used to change a provision in a signed contract
