Contracts Flashcards
Contracts
- Legally binding agreements between two or more parties
- Must be written to be enforceable
- Essentials of a contract: offer and acceptance, legal object, consideration, and reality of consent and competence
Consideration
anything of value exchange between two parties
Offer and acceptance
A presentation of terms, shortened letter version as a binder or letter of intent and serves similar process.
-Mutual Agreement, evidenced by either signatures or action
Legal object
The purpose of the contract must be legal. anything illegal is not really a contract
Reality of Consent and Competence
Consent means freedom from misrepresentation, fraud, undue influence, or physical injury; the parties to the contract must also be competent
Valid Contract
has the essential elements (offer and acceptance, consideration, legal object, reality of consent and competency
Void or Voidable Contract
are not legally binding, lack of one of the first three essentials (offer and acceptance, consideration, or legal object)
Statute of Frauds
Law that requires certain type of contract to be written in order to be enforceable
another way that a contract might be unenforceable; the law that requires that certain types of contracts, including real estate contracts, be in writing in order to be enforceable
Doctrine of Laches
Idea that you lose your rights if you fail to assert them within a reasonable timeframe can also be used to claim a contract unenforceable; consulting an attorney is advisable
Statute of Limitations
a hard legal limit on when you can bring a certain claim to court. Can’t be enforceable after the limit
in MA you have up to 20 years to file a lawsuit after someone violates a contract
-Unilateral or Bilateral
Unilateral
contract where one party makes a promise to do something, while the other does not necessarily make any promise
Bilateral
Promise in a contract where there is simultaneous exchange of promises
Executory contracts
Contracts that have been agreed to, but not yet completed
Executed contracts
Are completed and finished (example you’ve moved out of your leased apartment and all the terms have been satisfied)
not to be confused with term accepted (signed)
Assigned Contracts
transfer of party’s rights and obligations to another party. Assignor is not relieved of their obligations should the assignee fail to perform under the contract (example sublease)
Breach of Contract
when one of the parties doesn’t do what they agreed to, violation of contract
Doctrine of Privity
give the parties in the contract the right to sue for a breach of that contract
List Contract Violation actions in the event of a breach of contract
- Recession
- Specific Performance
- Damages
- Liquidated Damages
- Forfeiture
Recission
cancelation of contract; both parties sign mutual release papers, relieving each other of their obligations under the contract
Specific Performance
A court order forcing the party in violation of the contract to comply with its terms (commonly used if a buyer attempts to back out of a sale)
Damages
Monetary compensation for the harm suffered as a result of the breach of contract
Liquidated Damages
A pre-agreed amount of money paid in the event of a breach of contract
Forfeiture
A violation consequence when there is a breach in contract
- liquidated damages where you lose your deposit.
Common Clauses (List 3 types)
stipulations in contracts
- Ironman Merger Clause
- Severability Clause
- Contingency Clause
Ironclad Merger Clauses
state there are no prior agreements in place, and any other agreements outside of the current written contract shall not have any force or effect
Severability Clause
if any part of the contract that is illegal will be voided but the remainder of the contract remains in effect
Contingency Clause
Makes the contract agreement contingent reliant, on something occurring; contingencies that need the approval of a third party should have short deadlines to prevent unnecessary delays.
Listing (selling) Contracts (name 4 types)
Contract used to hire an agent to sell a home; multiple listings clause permits cooperation with other agents via MLS
- Flat Fee Listing
- Open Listing
- Exclusive Agency
- Exclusive Right to Sell
Flat Rate listing (Entry Only Listing)
- simply listed in the MLS
- A contract where the agent is paid a fixed fee
- rather than a percentage of the sales price
- agent does not show a property or negotiate
Open Listing
A listing where the seller hires multiple agents and they work
competitively to earn the commission based on the terms specified
- can be written or verbal
- if the seller finds a buyer without agent’s help no one earns a commission
Exclusive Right to Sell
One agent is hired to sell a property and they will earn a commission even if the owner sells the property during the contract term without the agents’ assistance.
Buyer’s Agency Contracts
An exclusive contract focused on the buyer, not payment. The buyer’s agent is compensated by the listing agent commission. Split commission between buyer’s agent and seller’s agent, negotiable
Exclusive Agency
Seller hires one agent who will earn the commission.
Offers
- Listing is a solicitation for offers
- the listing is non-binding
- the seller does not need to accept any offer received
- seller signs the written offer to enter into a purchase and sale contract within a certain time frame (10-14 days)
- before signing offer may also be terminated
Ways in which offer can be terminated
- Time limit stated in the offer ends
- Death of either party in the offer
- Destruction or object of offer (house burns down)
- withdrawal of offer before it has been accepted in writing
- a counteroffer by the seller
Purchase and Sale Contract
agreement about how the sale will take place; outline the obligations of the buyer and seller
Basics of a valid purchase and Sale:
- The names of the buyers and sellers
- Legal description of realty
- Offer and acceptance (in writing per the
Statute of Frauds)
- The terms and conditions negotiated by the
buyer or seller
- The date of performance (closing)
Options
- A written contract where the owner of a piece of property (option) in exchange for consideration
- Grants another party (optionee) the right to purchase or lease the property within a certain timeframe; the optionee can use it or not
Rights of First Refusal
- Gives BUYER the right to match any offer made on a property and to purchase the property at the offered price in lieu of the original offeror.
- OWNER can refuse offer based on the track of the market to ensure fair market value
- DISADVANTAGE for sellers if offerors see delay an uncertainty creates potential steering away from buyer making offer
Typically sellers can grant the right of refusal if they are kind and if they are being compensated for the sale
Rights of First Offer
Gives buyer the right to make an offer to purchase a property before anyone else. Seller and buyer reach a fair deal before putting it on the open market.
Power of Attorney
- a written document that allows someone to act in a legally binding way on behalf of someone else
- allows real estate agent to attend a closing and sign documents on behalf of the client.
Notes from Quiz
When you sign a contract it is:
Accepted ; term of the contract is executory ; when contract is complete it is executed
What makes a contract voidable
A contract is voidable when it does not meet REALITY AND COMPETENCE essential is missing
Party who is harmed can make a claim against a contract
What makes a contract void
If is missing any of the first threes essentials
- Legal object
- Offer and Acceptance
- Consideration
Severability Clause
One portion of a contract may be voided while leaving the rest of the contract intact
Difference between Exclusive Agency vs exclusive right to sell
Exclusive right to sell listing agreement means seller hires one agent and agrees that all buyers will go through that agent
The agent earns commission regardless of who finds the buyer
