ch 6 Flashcards
Contract
A contract, commonly abbreviated as K by people in the legal profession, is a legally binding agreement. To form a valid contract, certain basic elements must be present.
Per the statute of frauds, contracts for the purchase and sale of real property must be in writing in order to be valid (i.e., legally enforceable).
Purchase and Sale Agreement
It is a type of contract
Seller – Buyer (Purchaser)
Contains the terms and conditions upon which the property will be transferred
Governs the rights and obligations between the parties
Covers the time the contract is signed through the closing date
closing date
day on which the transfer of property actually occurs
essential ingredients of contract
offer and acceptance; consideration; lawful purpose; legal capacity; legal authority
offer and acceptance
Offer = a proposed contractual arrangement made by an “offeror,” to an “offeree,”
Acceptance = the point at which the offeree notifies the offeror that the offeree agrees to the terms and conditions of the proposed transaction.
Meeting of the minds/mutual assent = the terms of the offer and acceptance match
Consideration
Each party must exchange something of value.
Examples = money, goods, services, and promises to do or to refrain from doing something
Legal Capacity
Minors (voidable contracts)- Mentally incompetent persons (void
Legal Authority
The four major areas in which the issue of legal authority may arise are discussed below. Business entities Executors of estates Trustees Powers of attorney
Purchase and Sale agreements
In writing per the Statute of Frauds
Abbreviated in these slides as “PSA”
The blueprint for a real estate transaction
Does not actually transfer ownership of real property from the seller to the buyer
Covenants
Legally binding promises.
- A failure to fulfill any covenants contained in a contract results in a party being in breach of contract.
Contingencies
Conditions to a party’s obligation to complete the transaction. No breach for failure of contingency
Provisions of a Typical Residential PSA
No set format for a PSA
Boilerplate provisions
Deal-specific provisions
Refer to sample PSA provided by instructor
Common Components of a PSA
Name of Parties Legal Description of Property Purchase Price Distribution of Closing Costs Earnest Money Seller Representations Regarding Property Condition Seller Representations Regarding Title Contingencies Closing Date, Transfer of Property Possession, and Closing Attorney Prorations Risk of Loss Warranties Transfer Survival Notice Provision Time is of the Essence Successors and Assigns Governing Law Exhibits and Amendments Special Stipulations Signature Blocks, Delivery and Acceptance Defined Terms
time is of the essence
means that all of the dates in a PSA are firm. If a time of the essence clause is not included, the dates in the PSA become approximate, rather than firm, leaving a court to determine what constitutes a reasonable amount of time for contractual performance beyond the dates set forth in the agreement
Successors and assigns
A common PSA provision makes the contract binding on each party’s successors, heirs and permitted assigns. For example, if a party to a PSA dies, the contract will remain binding on that party’s estate
Termination of Real Estate Contracts
mutual voluntary termination; impossibility of performance; material breech of contract; the closing
material breech of contract
An action or inaction that constitutes substantial noncompliance with the terms of the contract.
Closing
Any unfulfilled covenants that do not survive closing are no longer required to be fulfilled by the party who made the covenants
Mutual Voluntary Termination
All parties to the contract may agree in writing to cancel, or terminate, the contract
Impossibility of Performance
If an event such as a natural disaster occurs that is beyond the control of the parties, performance of the contract may be rendered impossible to perform
Remedies for Breach of Contract
Duty of injured party to mitigate damages- May also seek reimbursement of attorney’s fees
Breach of contract
Failure to uphold the covenants (promises) he has made in a contract
Parol Evidence Rule
, the court treat the PSA as being a fully integrated contract, meaning that the court will not consider any evidence of verbal or prior agreements that constitute additional or contradictory terms of the PSA. The parol evidence rule is sometimes referred to as the “four corners” rule, because the court will not look beyond the four corners of a written contract in establishing the terms of the contract.
Specific Performance
A court-ordered mandate that a party perform a specified act. Based on the premise that real property is unique and that money damages are not an adequate remedy.
