Chapter 10 - Real Estate Contract Law Flashcards
According to contract law, every valid contract is also
enforceable or unenforceable
A seller immediately accepts a buyer’s offer but waits 8 days before returning the accepted document to the buyer. Meanwhile, the offer has expired… the buyer
has no obligations to the seller whatsoever
The guardian for a mentally incompetent party enters into an oral contract with another party to buy a trade fixture. This contract
is possibly valid and enforceable
The purpose of the statute of frauds is to
require certain conveyance-related contracts to be in writing
A contract may be defensibly terminated without damages if
it is impossible to perform
The statute of limitations requires that parties to a contract who have been damaged or who question the contract’s provisions…
must act within a statutory period
A contract is an
agreement between two or more parties who, in a “meeting of the minds,” have pledged to perform or refrain from performing some act.
A valid contract is one that is
legally enforceable by virtue of meeting certain requirements of contract law
In terms of validity and enforceability, a court may construe the legal status of a contract in one of four ways:
valid
valid but unenforceable
void
voidable
A valid contract is one which
meets the legal requirements for validity
A valid contract that is in writing is enforceable within a statutory time period. A valid contract that is made orally is also generally enforceable within a statutory period
Valid but unenforceable.
State laws declare that some contracts are enforceable only if they are in writing
while an oral contract may meet the tests for validity, if it falls under the laws requiring a written contract, the parties will not have legal recourse to enforce performance
A void contract is an agreement
that does not meet the tests for validity, and therefore is no contract at all. If a contract is void, neither party can enforce it.
A voidable contract is one which initially
appears to be valid, but is subject to rescission by a party to the contract who is deemed to have acted under some kind of disability.
A voidable contract differs from a void contract in that the
latter does not require an act of disaffirmation to render it unenforceable.
A contract is valid only if it meets:
-competent parties
-mutual consent
-valuable consideration
-legal purpose
-voluntary act of good faith
The parties to a contract must have the
capacity to contract, and there must be at least two such parties
Capacity to contract is determined by three factors:
legal age
mental competency
legitimate authority
Mutual consent, also known as
offer and acceptance and meeting of the minds, requires that a contract involve a clear and definite offer and an intentional, unqualified acceptance of the offer
A contract must contain a two-way exchange of
valuable consideration as compensation for performance by the other party. The exchange of considerations must be two-way. The contract is not valid or enforceable if just one party provides consideration.
The content, promise, or intent of a contract must be
lawful. A contract that proposes an illegal act is void.
The parties must create the contract in
good faith as a free and voluntary act. A contract is thus voidable if one party acted under duress, coercion, fraud, or misrepresentation.
a contract that conveys an interest in real estate must:
be in writing
contain a legal description of the property
be signed by one or more of the parties
The statute of limitations restricts
the time period for which an injured party in a contract has the right to rescind or disaffirm the contract. A party to a voidable contract must act within the statutory period.
The statute of frauds requires that
certain contracts must be in writing to be enforceable.
The mutual consent required for a valid contract is reached
through the process of offer and acceptance:
An offer expresses
the offeror’s intention to enter into a contract with an offeree to perform the terms of the agreement in exchange for the offeree’s performance.
An offer gives the offeree the power of accepting. For an acceptance to be valid, the
offeree must manifestly and unequivocally accept all terms of the offer without change, and so indicate by signing the offer, preferably with a date of signing.
By changing any of the terms of an offer, the offeree creates a
counteroffer, and the original offer is void
An offer may be revoked, or withdrawn, at any time before
the offeree has communicated acceptance. The revocation extinguishes the offer and the offeree’s right to accept it.
Any of the following actions or circumstances can terminate an offer:
acceptance: the offeree accepts the offer, converting it to a contract
rejection: the offeree rejects the offer
revocation: the offeror withdraws the offer before acceptance
lapse of time: the offer expires
counteroffer: the offeree changes the offer
death or insanity of either party
A real estate contract that is not a personal contract for services can be
assigned to another party unless the terms of the agreement specifically prohibit assignment
Listing agreements, for example, are not assignable, since they are personal service agreements between agent and principal
State laws define the extent to which real estate brokers and agents may
legally prepare real estate contracts. Such laws, referred to as “broker-lawyer accords,” also define what types of contracts brokers and agents may prepare.
Oral vs. written contracts
A contract may be in writing or it may be an oral, or parol, contract. Certain oral contracts are valid and enforceable, others are not enforceable, even if valid
For example, most states require listing agreements, sales contracts, and leases exceeding one year to be in writing to be enforceable
An express contract is one in which
all the terms and covenants of the agreement have been manifestly stated and agreed to by all parties, whether verbally or in writing.
An implied contract is an unstated or unintentional agreement that may
be deemed to exist when the actions of any of the parties suggest the existence of an agreement.
A bilateral contract is one in which
both parties promise to perform their respective parts of an agreement in exchange for performance by the other party.
In a unilateral contract,
only one party promises to do something, provided the other party does something. The latter party is not obligated to perform any act, but the promising party must fulfill the promise if the other party chooses to perform.
An executed contract is one that
has been fully performed and fulfilled: neither party bears any further obligation.
An executory contract is one in which
performance is yet to be completed
Termination of a contract, also called cancellation and discharge, may occur for any of the following causes:
-performance
-infeasibility
-mutual agreement
-cooling-period rescission
-revocation
-abandonment
-lapse of time
-invalidity of contract
Forms of contract
termination: Performance
partial performance, if the parties agree
sufficient performance, if a court determines a party has sufficiently performed the contract, even though not to the full extent of every provision
Forms of contract
termination: mutual agreement
Parties to a contract can agree to terminate, or renounce, the contract.
novation
Forms of contract
termination: cooling-period recission
is the act of nullifying a contract. In many states, parties to certain contracts are allowed a statutory amount of time after entering into a contract, or “cooling period”, to rescind the contract without cause
Forms of contract
termination: revocation
is cancellation of the contract by one party without the consent of the other
Forms of contract
termination: abandonment
Abandonment occurs when parties fail to perform contract obligations.
Forms of contract
termination: lapse of time
If a contract contains an expiration provision and date, the contract automatically expires on the deadline
Forms of contract
termination: invalidity of contract
If a contract is void, it terminates without the need for disaffirmation. A voidable contract can be cancelled by operation of law or by rescission.
A breach of contract is
a failure to perform according to the terms of the agreement. Also called default, a breach of contract gives the damaged party the right to take legal action.
The damaged party in a breach of contract may elect the following legal remedies:
rescission
forfeiture
suit for damages
suit for specific performance
Breach of contract: Recission
A damaged party may rescind the contract. This cancels the contract and returns the parties to their pre-contract condition, including the refunding of any monies already transferred.
Breach of contract: forfeiture
A forfeiture requires the breaching party to give up something, according to the terms of the contract. For example, a buyer who defaults on a sales contract may have to forfeit the earnest money deposit.
Breach of contract: Suit for damages.
A damaged party may sue for money damages in civil court. The suit must be initiated within the time period allowed by the statute of limitations.
If the contract does not specify the amount, the damaged party may sue in court for
unliquidated damages
When a contract states the total amount due to a damaged party in the event of a breach, the compensation is known as
liquidated damages.
