CH 4 Executory Contracts Flashcards
What are covenants in a contract?
Ongoing obligations that begin at execution and remain through closing. They can be affirmative (promise to do something) or negative (promise not to do something..
Affirmative covenants promise to do something, while negative covenants promise not to do something, such as maintaining insurance or not selling the property.
Examples of covenants?
Will not change the premises
Must maintain insurance
No other sales of this property
What are representations and warranties?
Promises made at the time the contract is executed, concerning aspects like environmental conditions, ownership, zoning, and authority to enter into an agreement.
They serve as assurances regarding the state of the property and the authority to enter into the agreement.
What is the difference between buyer and seller perspectives on representations and warranties?
Buyer wants broad representations; seller wants strict representations.
For example, a buyer might want a warranty that there are no environmental substances, while a seller might limit this to no known material environmental substances.
Example of what a buyers wants from warranties and reps:
There are no environmental substances present and will maintain the property
Example of what a seller wants from warranties and reps:
There are no known material environmental substances and will maintain the property in all material respects
What is an example of a provision to protect clients in a contract regarding warranties and reps?
Insert a provision stating that seller/buyer warrants, represents, and covenants now and as of the closing date…and at closing, seller/buyer shall deliver to buyer/seller a sworn and notarized affidavit dates as of the closing date, stating the foregoing representations, warranties, and covenants are true as of the closing date.
This includes delivering a sworn and notarized affidavit at closing stating that the representations, warranties, and covenants are true.
What does ‘as is where is with all faults excepted’ mean?
No warranties, representations, or covenants regarding physical characteristics of the property. (can still warrant to ownership and authority, no other leases, no government consent necessary, no lawsuits/liens on property).
This clause is often included to limit liability for the seller.
What are common examples of conditions in contracts?
- Obtaining financing
- Re-zoning approval
- Inspection approval
- Attorney approval
Failure to meet these conditions often results in termination of the contract.
What happens when a party fails to meet a conditions of the contract?
it gets terminated.
In La. Real Estate Comm’n v. Butler, what was the issue regarding the deposit?
The buyer wanted his deposit back after failing to obtain financing at a specified rate. But it didn’t matter because the contract did not specify a monetary amount.
The court ruled that the condition was met since there was no evidence he could not obtain any financing.
What is a purchase money mortgage (PMM)?
A transaction where the buyer obtains financing from the seller, documented as a mortgage.
In PMM situations, the seller has priority because the transaction could not occur without their financing.
What does ‘time is of the essence’ mean in a contract?
Time periods set forth in the contract are material and must be adhered to.
Without this clause, time limits inherently include a ‘reasonable’ amount of time.
What can happen if a party fails to meet a condition in a contract?
It most often results in the termination of the contract.
What was determined in ALH Holding Co. v. Bank of Telluride regarding vendor liens?
Parties can agree to subordinate the vendor’s lien to that of a third-party lender.
This is significant in cases where the seller provides financing for the purchase.
What happens when there is no “time is of the essence clause”?
Time limits in the contract are a “reasonable” amount of time.
In Sterling v. Taylor, statute of frauds was/was not satisfied when there were different interpretations to the pricing formula?
Was not
In Moran v. Erk, when the buyers wanted out of the contract and had their attorney deny the contract (when an attorney approval was contingent) was the move proper?
Yes, there were no restriction on the attorney’s discretion. The court found there was no breach because the attorney could reject for ANY reason.
