Contract Law - Part 1 - Chapters 39-40 Flashcards
Recognize the elements of a legally enforceable contract.
A contract is an agreement between persons binding them to do or not do something. To form a contract, the agreement needs to be accompanied by the following elements:
- an offer
- an acceptance
- consideration - a bargain for exchange
- capable parties
- a lawful purpose.
While oral agreements are valid contracts, most agreements involving real estate or real-estate Services need to be formalized in a signed writing to be judicially enforceable.
Follow the life cycle of a contract used in negotiating a real estate transaction
The life cycle of a real estate purchase agreement is divided into four stages of activity
- the formation (offer and acceptance) stage
- the conditions (contingencies) stage
- the performance (closing) stage and
- the failure of performance (breach) stage.
A contract is formed when an offer to purchase is made and accepted. The Person who makes the offer is called the offeror, while the person to whom the offer is directed is called the offeree.
Manage the submission of an offer for the sale, lease or exchange of real estate
To be valid, and offer needs to:
- show a SERIOUS INTENT to enter into an agreement
- be DEFINITE AND CERTAIN in detailing the essential elements, such as price, terms of payment, property identification and conditions for performance, and
- be COMMUNICATED to the person who can accept the offer.
For an offer to be accepted and a binding contract formed the offers terms of payment and conditions of the performance need to be definite and certain.
Additionally real estate agents use a regular form in lieu of independently drafted forms to make an offer to buy or sell real estate.
NOTE: The following communications with respect to the purchase of real estate are NOT offers:
- listing agreements
- advertisements
- Letters of intent (LOI) to contract
- preliminary negotiations or letters of proposal.
Fulfill your agency duty to present all offers to a seller and maintain records of all offers presented
The seller’s agent has a duty to present every offer to purchase they receive to their seller, regardless of content or method of presentation. The agency relationship and a licensee’s fiduciary duty mandating the disclosure of any fact that would potentially affect their principles interest in a transaction, known as a material fact.
However, neither the seller nor their agent has any legal duty to respond to an offer.
Though not required, the DRE recommends providing written acknowledgment of the submission of every offer. For DRE auditing purposes and in compliance with California law, a copy of any document handed in a transaction needs to be kept for a minimum of three years.
If a buyer’s agent suspects a seller’s agent is not submitting an offer to their seller after the buyer’s agent has communicated their concerns, they may file a formal complaint electronically on behalf of their buyer. If investigators determine the subject of the complaint has violated real estate law, the agent may face disciplinary action from the DRE.
condition concurrent
A CONDITION CONCURRENT is a provision in agreement calling for the performance of an activity by a buyer or seller without concern for the performance of another person. in this case the buyer or seller needs to complete their Mutual performance obligations, called conditions concurrent, during the condition stage prior to closing. Mutual performance obligations of one person to the agreement are to be completed independent of and without concern for the other person first performing their Mutual performance obligations. These condition concurrent Provisions can be completed at the same time.
condition precedent
A CONDITION PRECEDENT is a provision in an agreement calling for the occurrence of an event or performance of an act by another person before the buyer or seller is required to further perform. In this case a condition needs to be performed before something else will occur.
contract
A CONTRACT is an agreement between two or more persons containing the Essential Elements of capable parties, mutual consent, a lawful object and consideration, and in a writing signed by the parties in real estate transactions to be enforceable. To form a contract, the agreement needs to be accompanied by the following elements:
- an offer,
- an acceptance,
- a consideration,
- capable parties, and
- a lawful purpose.
counteroffer
A COUNTER-OFER is a response to an offer which itself is an offer to perform on terms different from the offer received, a rejection of an offer.
fiduciary duty
FIDUCIARY DUTY is the duty owed by an agent to act in the highest good faith toward their client and not to obtain any advantage over the client by the slightest misrepresentation, concealment, duress or undue influence.
offer to purchase
An OFFER TO PURCHASE is a proposal made by a potential buyer to acquire property on the stated terms, which the property owner may accept or reject. A contract is formed when an offer to purchase is made and accepted.
option
An OPTION is an irrevocable right granted for consideration to purchase or lease a property on specific terms within a period of time, without obligating the person who acquires the right to purchase or lease the property.
Identify the steps taken which constitute the submission, acceptance and rejection of an offer regarding the sale of real estate
When an offer is received by a person, called communicated or submitted, the offer can either be:
- accepted prior to its termination or
- rejected.
An acceptance is the response to an offer which agrees, without qualification or condition, to the terms of the offer. Acceptance of an offer creates rights and obligations imposed on two people by forming a binding agreement.
Once the acceptance clause has been signed by the seller, the acceptance needs to be submitted to the buyer who made the offer. If the seller attempts to accept the buyers purchase agreement offer by first altering the terms in some way, called an interlineation, prior to signing the acceptance clause, the change of the terms in the offer on acceptance by the seller is a counter offer.
An offer is considered revoked:
- by the lapse of time for acceptance stated in the offers acceptance clause or
- if no time limit is stated, by the lapse of a reasonable time without communication of an acceptance.
Understand when a binding agreement to buy and sell real estate has been formed
An acceptance is the response to an offer which agrees, without qualification or condition, to the terms of the offer. Acceptance of an offer creates rights and obligations imposed on two people by forming a binding agreement.
Differentiate between a bilateral contract such as a buyers offer to buy and a unilateral contract such as a seller’s grant of an option to buy
All offers to enter into a contract fall into one of two categories based on the manner of acceptance called for in the offer for example
- the giving of a promise agreeing to perform as stated in the offer, called a bilateral contract or
- the performance of the act called for in the offer, called a unilateral contract.
Offers made by buyers in real estate purchase agreement signed and submitted to the owner form bilateral contracts when accepted. Conversely, an option to buy real estate, giving the buyer the power to accept the sellers irrevocable offer contained in the option granted to the buyer, is a unilateral contract.
acceptance
ACCEPTANCE is the act of agreeing or consenting to the terms of an offer thereby establishing the “meeting of the minds” that is an essential element of a contract.
Acceptance of an offer creates rights and obligations imposed on two people by forming a binding agreement. A “meeting of the minds” has occurred based on the terms offered and unconditionally accepted, resulting in the agreement.
