Contract Law - Part 2 - Chapters 41-43 Flashcards
Advise a client on their options for responding to their receipt of a purchase offer or counteroffer which contains unacceptable terms
The preparation of a counter-offer allows a seller’s agent and seller to take control of negotiations a prospective buyer has commenced by submitting a purchase agreement offer. A seller’s agents duty owed to the seller on submission and review of a prospective buyers offer includes:
- advice on the seller’s obligation to disclose property condition
- a review of the contingency Provisions which effect closing
- disclosure of the likely net sales proceed offer will generate and
- if the property is other than the sellers personal residence, the agents knowledge about the profit tax liability the seller will likely incur on the sale.
Assist a seller or buyer to renegotiate an offer or counter offer they have received
By a thoughtful analysis of the buyer’s offer prior to meeting with the seller, the seller’s agent prepares to advise the seller on the use of a counteroffer to best respond to the offer. Thus, the agent seeks to reduce the uncertainties about the consequences of an unmodified acceptance of an offer.
The seller’s agent handling negotiations for a change in the terms of the buyers purchase offer needs to reduce the sellers counter-offer to a writing signed by the seller before it is submitted to the buyer. The sellers signed counter-offer manifest their intent to be bound by their offer to say, if the buyer accepts.
Prepare and submit a counteroffer from a seller or buyer
To counter an unacceptable purchase agreement offer by the buyer, the seller’s agent may:
- prepare the sellers offer on a new purchase agreement form
- prepare the sellers offer on a counter-offer form
- dictate escrow instructions based on an agreement orally negotiated with the buyer or buyers agent
- alter the buyers original written offer by deleting unacceptable provisions and entering the differing provision by the seller
- set up an auction environment by calling for the submission of all offers on a particular day and time
- orally advise the buyer’s agent about the changes required before the seller accepts the buyer’s offer
- let the offer expire, then resume negotiations with the buyer and their agent if the buyer still has an interest in the property.
counteroffer
A COUNTEROFFER is a response rejecting an offer received containing terms different from those of the offer received and rejected. For the seller’s agent, the counter offer gives rise to the special duty to care for and protect the seller, which includes:
- addressing property disclosures the seller needs to make to perfect negotiations before the seller enters into a purchase agreement with a prospective buyer
- clarifying any uncertainties about the buyers financial ability to close escrow and
- reviewing different terms or conditions sought by the seller from those offered by the buyer.
defacing
DEFACING is when a document is modified on its face, usually by striking copy and interlineation, after it is signed by one or both parties.
Sellers agents sometimes delete terms or provisions in a signed purchase agreement they have received by lining them out with a pen or covering them with white, call DEFACING, and then adding copy to the document to replace the deleted material, called interlineation.
However, this is IMPROPER CONDUCT since it alters the contents of an original document after it has been signed. Further, the change and initial method of preparing a counter offer often creates uncertainty as to when and who placed which terms in the agreement.
interlineation
INTERLINEATION is the process of modifying boilerplate wording in a form by inserting additional language between the printed lines.
Use contingency provisions when preparing a purchase agreement to condition the further performance or cancellation of the agreement by the buyer or seller
The contents of a purchase agreement are a collection of provisions generally called terms and conditions. While terms focus on the price and the terms for payment of the price, conditions address
- the performance by the buyer and the seller of their closing activities and
- the occurrence of events required before escrow is able to close.
When conditions are the subject of contingency provisions, the conditions are categorized based on whether they:
- are to occur (events and activities) called event occurrence contingencies or
- are to be approved (information, data, documents and reports) called further approval contingency
**The primary user of contingency provisions in purchase agreements is the buyer or buyer’s agent.
Categorize contingency provisions based on whether an event or activity is to first occur or be approved before further performing on a purchase agreement
Provisions containing conditions are classified by the sequence in which they are to occur or be performed by the buyer or seller. Thus, the occurrence or approval called for is either:
- a condition precedent or
- a condition concurrent
A condition precedent requires the occurrence of an event or the performance of an activity by one person to be completed before the other person is required to perform an activity. A condition concurrent requires the performance of an activity by a person without concern for the other person’s activities. Under any type of contingency provision, the buyer or seller benefiting from the contingency holds an option to “do away with” any further performance of the purchase agreement and escrow instructions, called cancellation.
Distinguish a condition precedent, requiring an event to occur before taking further action to close a purchase agreement, from a condition concurrent, requiring an activity to be performed without concern for the other persons performance
Note: all contingency Provisions are conditions, but not all conditions are contingencies.
CONTINGENCY PROVISIONS are unique as they deal with uncertainties. They authorize the cancellation of the purchase agreement, and excuse a party from any further performance towards closing the purchase agreement and escrow.
CONDITIONS are about events or activities which have to be made (performed) since they are not contingencies, in which case a failure to perform becomes a BREACH.
Determine how to eliminate or act on contingency provisions in a purchase agreement
Before escrow is able to close, contingency provisions have to be eliminated.
Contingency Provisions are eliminated by either:
- SATISFACTION APPROVAL of the condition/ approval of the info identified as the subject of the provision or
- WAIVER OR EXPIRATION of the right to cancel the transaction by the person authorized to cancel.
Further, conditions may be breached or excused on failure to occur. Some conditions are required to be performed, such as the sellers delivery title, making a failure to perform a breach of the purchase agreement. Other conditions which are the subject of contingency Provisions might not occur or be approved, thus excusing using one or both parties from further performing and closing escrow.
condition concurrent
CONDITIONS CONCURRENT is a purchase agreement provision requiring performance of an activity by a buyer or seller without concern for the performance of the other party. Conditions concurrent are non-contingent, mandatory performance Provisions calling for the buyer or seller to perform some required activity. If the activity does not occur, the purchase agreement has been BREACHED by the person who promised to perform or was obligated to cause the activity or event to come about, examples include the failure of the seller to:
- produced promised information, data documents and reports on the property
- deliver a clearance, grant deed or title insurance policy as agreed
Failure to deliver is a breach which allows the other person to either:
- terminate the transaction by notice of cancellation and recover their money losses
- pursue specific performance of the purchase agreement.
condition precedent
CONDITIONS PRECEDENT is a purchase agreement provision requiring the occurrence of an event or performance of an act by the other party before the buyer or seller is required to further perform. Conditions precedent are the subject of contingency Provisions calling for the occurrence or approval of an event or activity which may or may not occur. examples include:
- the buyer obtaining a written loan commitment
- the recording of a purchase assist loan
- approve investigations
- the sale or acquisition of other property.
Here the contingency provision may be eliminated by its occurrence and the transaction proceeds towards closing. Alternatively, when the event or approval is not forthcoming, the person authorized to cancel may exercise their right to terminate the transaction by cancellation, doing away with any further performance of the purchase agreement and escrow instructions.
event-occurrence contingency provision
An EVENT-OCCURRENCE CONTINGENCY PROVISION a purchase agreement provision requiring an event or activity to take place which is not subject to the approval of the buyer or seller.
further-approval contingency provision
A FURTHER-APPROVAL CONTINGENCY PROVISION is a provision in an agreement calling for the further approval of an event or activity as a condition for further performance or the cancellation of the transaction by the person benefiting from the provision.
Assist a client to eliminate contingencies, either by occurrence, sanctification or waiver, in an effort to perform on a purchase agreement and close escrow
Contingencies describe an event or condition which the buyer or seller feels needs to occur or be approved before the purchase agreement transaction can proceed to closing. These contingencies need to be eliminated before an otherwise binding purchase agreement becomes fully enforceable, obligating the buyer and seller to close the transaction.
