Chapter 6 - Contracts Flashcards
Elements (ingredients) to a contract
What makes it enforceable in court?
Competent Parties (legal age & sound mind)
Offer and Acceptance
Description of the property (legal description / address)
A legal object (legal purpose for the contract)
**—– you can’t have a contract for illegal doings - won’t hold up in court)
Consideration (anything of value offered and exchanged, can include money)
- TO BE ENFORCEABLE in court, must be in writing / signed
- If not, we don’t say it’s not valid (but it may not be enforceable)
Expressed Contract
Clearly stated in words, orally or in writing
Implied Contract
Brought about by actions of one or more parties. Some of the terms are not expressed in writing. It’s implied.
When does an offer become a contract?
When can someone back out?
When does a broker submit an offer(s)?
When does an offer become null & void?
an offer = a proposal
It becomes a contract when BOTH PARTIES AGREE on everything.
Either party can back out at any time they want BEFORE CONTRACT IS LEGAL AND BINDING.
Broker submits offer ASAP / if two, submit at same time
Offer becomes null & void as soon as there is a counter offer.
Offeror
The one who does the offering
Giver of the offer
Offeree
Receives the offer
Bi-lateral contract
(think bicycle)
Both parties to contract make promises and have to perform.
Sales contract is bi-lateral.
Uni-lateral contract
(think unicycle)
Only one party offers promise and has to perform.
ex: seller offers promise to sell if buyer buys. However, buyer can offer to buy but doesn’t have to.
Executory Contract
Pending Status
A contract at the signing and or prior to everything being completed
Executed Contract
Closed Status
A contract that has been performed fully
Statute of Frauds
fraudulent contract
All contracts must be in writing to be valid and enforceable.
Leases under one year do not have to be in writing, are still valid and enforceable.
Equitable Title
The equitable right to obtain ownership.
What buyer receives at signing.
Legal Title
*other name
Actual title the buyer receives at closing.
*Recorded Title
Void Contract
No legal force or binding effect
Voidable Contract
a contract that APPEARS valid and enforceable
But is subject to recission by one of the parties who acted under a disability
Disabilities: under age, under duress, undue influence etc.
*Doesn’t mean it WILL be voided, but could ne
Valid Contract
Has all essential elements of contract
Legally binding
Valid & Enforceable
Has all element and is in writing signed by all parties
Amendment or Addendum
Amendment - something is changed
Addendum - something is added
Novation
Cancel original agreement and draft a NEW contract
Assignment
*What types of contracts can’t be reassigned
Transferring rights of one party in a contract to a third party
Ex: transferring a home loan to a new lender
*Listing contracts cannot be reassigned
If buyer defaults on contract, seller could:
1) Rescind … both parties agree to cancel
2) Consider contract forfeited and keep earnest $ (liquid damages)
3) Sue for damages (repairs and $ spent on behalf of buyer)
4) File a SPECIFIC PERFORMANCE SUIT (court action) to make buyer buy because of breach
If seller defaults on contract, buyer could:
1) Rescind … both parties agree to cancel
2) Sue for damages
3) File a SPECIFC PERFORMANCE SUIT (court action) to make seller sell because of breach
Time is of the essence
legal terminology
Certain acts should be performing within the time periods stated
Option
(like placeholder for buyer)
Unilateral contract
a ‘maybe contract’
Seller is optionor (gives buyer option to buy)
Buyer is optionee (has right to decide later if they want to buy)
Choosing to buy = exercising the option
Choosing to buy
exercising the option
Installment sale contract
Seller retains legal title
Buyer retains equitable title, while living in property and paying off loan
Buyer doesn’t receive legal title until payments are fully made
*Risky for buyer (seller could be sued for house, the payments would be considered void)
Lease Purchase
You rent and get to decide to buy
Risky for seller because buyer may not buy.
T / F: Once option is given it can’t be revoked
True
Contingency clause
A clause in a contract that allows a party to back out because something did or didn’t happen
*loan contingency, appraisal contingency, inspection contingency
