Chapter 9- Contracts Flashcards
What are the 3 most common contracts used in residential real estate ?
Listing contract
Buyer agency contract
Agreement of sale
- includes lease, mortgage, option, property management agreement, installment contract
What is a Contract
Voluntary agreement between competent parties to perform or refrain from performing some legal act. Supported by legal consideration.
Which 6 components are necessary for a contract to be legal and enforceable?
(1) Written and signed as required by the statute of Frauds
*lease of 3years or less through oral discussion is considered by law to be a binding contract
(2) Legal Purpose- legality of object
(3) Specific identification of Property-
A way to distinguish a property from all others through either a property address, tax parcel number, deed book, legal land description
(4) Competent Parties- 2 or more parties legal age of 18 or older, not intoxicated via alcohol or drugs or insanity to point of mental incapacity
(5) Consideration- an exchange of something of value between the parties
(6) Mutual Consent- agreement between parties. “Offer and acceptance” “meeting of minds” “mutual agreement”
*** applies to any/all contracts
What is the “Statute of Frauds”?
Requires all contracts regarding the sale of real estate, and all documents regarding the transfer of title to real property, to be in WRITING and signed.
Courts stress rule of “Parole Evidence Rule” which indicates ______?
Oral statements CANNOT be used to change or contradict the terms of a clearly written contract.
Define a Valid Contract
Legal & Enforceable. Contains all the necessary components.
Define a Void contract
Not legal & UNenforceable. Missing 1 or more necessary components.
When is a contract “unenforceable”
When it cannot be carried out according to the law.
What makes a voidable contract?
When it is able to be made void.
Voidable if:
What is a Bilateral Contract?
Agreement between 2 parties in which both make promises, and each party can enforce the promises of the other party.
What is a Unilateral Contract?
Agreement in which one party promises ONLY if the other party acts in a certain way.
Example of this is an Option Contract.
Optionor must act if optionee exercises the option. If optionee fails to exercise option by the time limit, option money is typically forfeit to Optionor and the right to purchase ends. If optionee dies exercise option, Optionor must sell for agreed price in contract.
What is an Express Contract?
An agreement in which terms & conditions are clearly stated in words, in writing and/or orally.
Define an implied contract
Am agreement carried out through actions of a party.
Example: this occurs when a person gets his/her haircut at a barber/salon since that action implies the person will pay for the service.
What is the difference between an Executed Contract and an Executory Contract?
Executed: All parties have fulfilled their promises. Also refers to the signing of a contract.
Executory: parties have entered into contract and are in process of fulfilling contract but not yet completed all terms & conditions
Almost all contracts will contain a legal phrase such as “Time is of the essence”
Without inclusion of specific time limit, courts have indicated that a contract needs to be fulfilled within a reasonable period of time.