Chapter 9 - Real Estate Contracts

Question 1

Chapter 9 Objectives

Answer 1

1) Explain the difference between an express and implied contract, and provide at least one example of each.
2) List the essential elements of a valid contract, and identify these elements in the post assessment.
3) Identify at least three ways a contract can be performed, and provide an example of each.
4) Explain the difference between an executory and executed contract.

Question 2

Contract

Answer 2

A voluntary, legally enforceable promise between two legally competent parties, to perform some legal act in exchange for legal consideration.

Question 3

Express Contract

Answer 3

(How created) A contract that has been put into words, either spoken or written.

Difficult to enforce an oral contract

Question 4

Implied Contract

Answer 4

(How created) An agreement that has not been put into words, but is implied by the actions of the parties.

Ex: valet parking when handing over your keys

Question 5

Listing Contract

Answer 5

an express contract between a client and a broker.
A contract in which a property owner employs a real estate broker to market the property described in the contract.

Question 6

Bilateral Contract

Answer 6

A contract in which each party promises to do something. (“BI” means two)

Ex: sales contract - the seller promises to sell, the buyer promises to buy.
Most real estate contracts are considered this

Question 7

Unilateral Contract

Answer 7

When one party promises to do something if the other party performs a certain act, but the other party does not promise to perform it; the contract is formed only if the other party does perform the requested act. (“UNI” means one)

Ex: offer of a reward (wanted posters). Promising the money in order to induce someone to bring in the bad guy. You cannot compel someone to perform/ the other side doesn’t have a promise to uphold

Question 8

Executed Contract

Answer 8

A contract that has been fully performed. A contract in the past

Question 9

Executory Contract

Answer 9

A contract in which something remains to be done by one or both of the parties.

A contract in progress. Can be signed but where obligations are not yet met

Question 10

Valid Contract

Answer 10

A contract that complies with all of the essential elements of a contact, and is enforceable and binding on all parties.

Question 11

Void

Answer 11

To have no force or effect; that which is unenforceable. Does not meet the essential elements

Ex: for an illegal purpose

When a seller rejects an original offer, then it becomes void

Question 12

Voidable

Answer 12

That which is capable of being adjudged void, but is not void unless action is taken to make it so.

Ex: a seller is selling to a buyer of 17 years of age. The buyer (not of age) may terminate and walk away without any penalties. But, the buyer has the option to make it valid or void.

Question 13

Types of Contracts

Answer 13

Valid, Void, Voidable, Unenforceable

Question 14

Unenforceable Contract

Answer 14

has all elements of valid contract except neither party can sue to enforce the contract

Ex: listings must be in writing (but oral listings are unenforceable) i.e. ‘gentlemen’s agreements’

Question 15

Texas Essential Elements of a Valid Contract

Answer 15

• Competent: of legal age (18, married, minority status removed by court) and free of any mental handicap (could be intoxicated)
• Offer and Acceptance: “meeting of the minds” objective intent to enter in binding agreement. Requires that a contract be voluntary
• Consideration: an act or promise offered to another party to enter in a contract (ex: sales price) can even be intangible (love & affection)
• Legality of the contract: contains no illegal purpose
• In writing and signed: statue of frauds for periods in excess of 1 year be in writing to be in enforceable

real estate contracts must also contain a legal description of the property

Question 16

Consideration

Answer 16

Anything given or promised by a party to induce another to enter into a contract, ex: personal services or even love and affection. It may be a benefit conferred upon one party or a detriment suffered by the other.

Question 17

“Time is of the Essence”

Answer 17

A condition of a contract expressing the essential nature of performance of the contract by a party in a specified period of time.

Question 18

Assignment

Answer 18

A transfer of benefits and obligations within a contract to a 3rd party who is not originally a party to the contract.

Ex: purchase of house subject to an existing mortgage would be an assignment (purchaser assume payment of existing loan) - most mortgages prohibit this in this example

If one of the parties to a contract wants to withdraw without terminating the contract, this can be used

Question 19

Assignor

Answer 19

One who assigns or transfers property.

Question 20

Assignee

Answer 20

Those to whom property or interests therein shall have been transferred.

Question 21

Novation

Answer 21

The substitution or exchange of a new obligation or contract for an old one by the mutual agreement of the parties.

Novation = substitution
Ex: buyer is behind on monthly mortgage payments and the company modifies the existing note to create a new re-payment

Question 22

Specific Performance

Answer 22

An action to compel performance of an agreement, ex: sale of land as an alternative to damages or rescission.

Question 23

Ways to Discharge a Contract

Answer 23

• The contract has been performed/carried out
• Someone defaults (breached contract)
• Substantial Performance (one party has substantially performed but not every little detail)
• Partial Performance
• Impossibility of Performance
• Mutual agreement
• Operation of Law (minor)

Question 24

Breach of Contract (Default)

Answer 24

A violation of the terms or conditions of a contract without a legal excuse.

Ex: seller chose not to deliver title to buyer under terms of contract. The non-defaulting party then gains rights

Question 25

Liquidated Damages

Answer 25

Damages benefiting the non-defaulting party as a result of a default of a contract.

Question 26

Statute of Limitations

Answer 26

A law establishing the time period within which certain lawsuits may be brought. rights are forfeited if not done within this time

initiated within 4 years from date of breach
DTPA lawsuits must begin within 2 years

Question 27

Sales Contract

Answer 27

A contract by which a buyer and seller agree to the terms of a sale.

Question 28

Counter Offer

Answer 28

A response to an offer to enter into a contract, changing some of the terms of the terms of the original offer. A counter offer is a rejection of the offer (not a form of acceptance), and does not create a binding contract unless accepted by the original offeror.

Question 29

Remedies for Non-Defaulting Party in Contract

Answer 29

1) File suite for specific performance - to force the completion of contract from other party
2) Terminate the contract and receive earnest money (liquidated damages) - if fails to provide earnest money then can be liable to 3x the amount + earnest itself + attorney fees + all cost associate with the suite to file damages

Question 30

3 Ways for an Offer to End

Answer 30

1) Person making the offer withdrawals
2) Person receiving rejects it
3) Person receiving accepts then moves into a binding contract