Chapter 9 - Real Estate Contracts Flashcards
Chapter 9 Objectives
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.
Contract
A voluntary, legally enforceable promise between two legally competent parties, to perform some legal act in exchange for legal consideration.
Express Contract
(How created) A contract that has been put into words, either spoken or written.
Difficult to enforce an oral contract
Implied Contract
(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
Listing Contract
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.
Bilateral Contract
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
Unilateral Contract
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
Executed Contract
A contract that has been fully performed. A contract in the past
Executory Contract
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
Valid Contract
A contract that complies with all of the essential elements of a contact, and is enforceable and binding on all parties.
Void
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
Voidable
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.
Types of Contracts
Valid, Void, Voidable, Unenforceable
Unenforceable Contract
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’
Texas Essential Elements of a Valid Contract
- 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
Consideration
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.
“Time is of the Essence”
A condition of a contract expressing the essential nature of performance of the contract by a party in a specified period of time.
Assignment
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
Assignor
One who assigns or transfers property.
Assignee
Those to whom property or interests therein shall have been transferred.
Novation
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
Specific Performance
An action to compel performance of an agreement, ex: sale of land as an alternative to damages or rescission.
Ways to Discharge a Contract
- 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)
Breach of Contract (Default)
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
