Contracts Flashcards
Chapter 5
Contracts
A Voluntary agreement between competent parties who promise to do or refrain from doing some legal act, support by legal consideration. If there is a breach the law usually provides a remedy. Minors can be considered but desirable for all parties to be over 18 and of sound mind, not under the influence of alcohol or drugs
Elements of a Real Estate Contract
Competent Parties, Offer & Acceptance, Consideration, Description,Legality of Purpose, Statute of Frauds
Types of Consideration
Good : intangibles such as love and affection or a promise to act or not to act. Good consideration is often mention in a gift deed. It is not sufficient to support a contract. Valuable: cash or something that can be converted into cash ($, land, stock,car, etc.). Generally required of good consideration by the court
Earnest Money
indication of the purchasers seriousness, not a requirement of a sales contract. A broker cannot put the clients funds in with his own funds (no commingling).
Bilateral Contract
Two parties making a promise on a contract. (seller promises to sell the property, buyer promises to buy the property)
Commingling
A very serious offense. A broker cannot put the clients funds in with his own funds. If the broker-in-charge needs to put his/her own in an escrow account to open it or maintain a required balance, the funds must be clearly identified
Statute of Frauds
required that contracts be written and signed to be enforceable. Usually not binding until written.
Parol Evidence
Oral evidence. It will generally not be allowed to alter, contradict, or replace a written contract. It may be allowed if it is deemed necessary by the court in order to show fraud or undue influence, or if the written contract is ambiguous to incomplete.
Contracts can be..
Implied, Expressed, Unilateral, Bilateral
Implied Contract
by acts & conduct. (Paying someone to cut your grass on a continuous basis for a period of time.)
Expressed Contract
the terms and conditions are expressed in words, either oral or written
Unilateral Contract
only one party must act.
Executed Contract
Either means a contract where all parties have fulfilled their promises and have fully performed the contract or may refer to the contract just being signed by all parties
Executory Contract
a contract that has not yet been fulfilled. (A sales contract is executory until closing. Then the buyer receives the deed and title.)
Valid Contract
all essential elements are met and the contract is binding and enforceable on all parties.
Void
no legal force or effect. It does not contain essential elements of a contract. It is entered into by a person who has been adjudicated insane and under the care of a guardian.
Voidable
valid but may be rejected later in a court of law by one of the parties (minor, influence of drugs, mentally ill person not under guardian care)
Unenforceable
valid but neither party can sue to force performance. (An oral contract of sale is unenforceable as well as a contract where the Statute of Limitations has expired
Non-performance
does not complete the details as details by the contract
Mutual Agreement
parties simply agree to terminate the contract, usually utilizing a written release form
Operation of Law
voiding of contract by a minor, termination as a result of fraud or because a contract was altered without the written contest of all parties involved.
Rescission / Rescend
means to cancel or terminate a contract as if it had never been created. The buyer in a contract of sale for example would be entitled to have his/her earnest money returned
Statute of limitations has expired
a specified statutory period after which a claimant is barred from enforcing his claim by suit.
Accord and Satisfaction
carry out the provisions of the contract
Assignment
transfer of rights and duties under a contract to another party
Novation
substitution of a new contract in place of an old one. An example would be an assumption of a loan by a new purchaser
Reasons for termination
Counter Offer, Rejection by offeree (seller), lapse of time, revocation, death, substantial destruction of property.
Counter-Offer
any change in the terms of the offer. It may be called a “qualified acceptance”. However, a counteroffer in no way binds the party who receives it.
Offer Rejection Form
The SC Real Estate Commission form that must be used when the seller does not want to counter or accept an offer. This only happens on the first offer. (If multiple offers occur, multiple forms have to be sent out)
Equitable Title
the interest held by a purchases (vendee) who has a signed valid contract or a land contract. It is the right to obtain ownership when the title is in someone else’s name
Reformation
if there is a technical error in the contact it may be reformed either informally by the parties or formally by the court
Pre-printed Material
will not be given precedent over handwritten or typed copy. numerals do not have as much weight as numbers written as words. Everything that is hand written is more recent & takes priority.
Compensatory Damages
If a party suffers a loss as a result of a breach of a contract by the other party, the affected party may sue to recover actual damages equal to the loss
Punitive damages
intended to punish the defaulting party for his or her behavior (fraud). These are damages that exceed actual damages usually decided by a court
Liquidated damages
Liquidated damages are those amounts stipulated in the contract and are to be paid if the contract is breached. Forfeiture of earnest money if the buyer default is one common example
Listing Agreement
an agency and employment contract - is an instrument used by a broker to legally represent principal, open, exclusive agency, exclusive right to sell, net, MLS listings
Listing Agreement Must haves
Owners name, property identification, lot size (frontage and depth), fixtures & real & personal property, #of rooms, Selling price in dollars and type of payment, schools, construction and age of building, taxes, date of occupancy or possession, nature and type of agency, expiration date, safety extension clause, utilities and average payment, commission, type of financing, pro rating provisions, signature of seller, signatures of BIC, zoning, dates, provisions for default.
Contract of Sale
Begins as an offer to purchase. If it is accepted and ratified, then it becomes a Sales Contract. All offers to purchase seal be promptly delivered to the seller.
Contract of Sale Elements
Identification of the buyer & statement, Type of Deed, “subject to” clauses, description of property, exact purchase amount, exact terms of payment, real and personal property, provisions for title evidence, time limit on closing, acknowledgement of deposit (earnest money), commission, possession date, time limit for acceptance, other provisions and/or contingencies, provisions for default.
If a buyer defaults, the seller …
- Declares the contact forfeited and demand the earnest money. 2. rescind the contract and return the money 3. sue for specific performance, 4. sue for actual or punitive damages
If the seller defaults, the buyer may….
- Rescind the contract and demand he return of earnest money, sue for specific performance, sure for compensatory and/or punitive damages
Contract of Sale Elements Cont’d
Signature of purchaser(s), Megan’s Law clause, Lead based paint clause for pre 1978 property, sellers acceptance, dates of offer and acceptance, latent defects for pre 1978 property, time is of the essence clause.
Time is of the essence
failure to perform within indicated dates will discharge contracts
Types of Contingencies
Mortgage Contingency, Property Sale Contingency, Inspection Contingency
Mortgage Contingency
The contract is conditioned upon the buyer being able to obtain financing as specified in the contract. If the buyer cannot qualify for the loan, normally the earnest money is returned to the buyer and the contract is terminated. If the buyer makes no attempt to obtain the financing, the earnest money is forfeited to the seller due to breach of contract
Property Sale Contingency
the contract is conditioned on the sale of the purchasers current home. This protects the buyer from owning two homes at the same time.
Inspection Contingency
Makes the contract conditioned upon obtaining the results of various inspections, such as termites, lead based paint, radon, septic systems, and the condition of the structure and mechanical systems of the home
Escape Clause
When contingencies take time to reach satisfaction, it may slow the sales process, so this permits the seller to continue marketing the property to other buys. The seller may sell the property to another buyer who does not impose any contingencies.
Installment Contract
(contract for deed or land contract) utilized as a means of financing a buyers purchase of land. The seller receives a nominal down payment and regular periodic payments (usually monthly) over a number of years
Assignments
The transfer A contract betweenfer in writing of interest in a bond, mortgage, lease, or other instrument
Binder
An agreement that may accompany an earnest money deposit for the purchase of real property as evidence of the purchasers good faith and intent to complete the transaction
Consideration
- That received by the grantor in exchange for his or her deed 2. Something of value that induces a person to enter into a contract.
Contingency
A provision in a contract that requires a certain act to be done or a certain event to occur before the contract becomes binding
Covenant
A written agreement between two or more parties in which a party or parties pledge to perform or not perform specified acts with regard to property:usually found in such real estate documents as deeds, mortgages leases and contracts for a deed
Duress
Unlawful constraint or action exercised upon a person whereby the person is forced to perform an act against his or her will. It is voidable
Equitable title
The interest held by a vendee under the contract for deed or installment contract; the equitable right to obtain absolute ownership to property when legal title is held in another name
Execution
The signing and delivery of an instrument. Also a legal order directing an official to enforce a judgement against the property of a debtor
Implied agreement
A contract under which the agreement of the parties is demonstrated by their acts and conduct
Parole Evidence Rule
A rule of evidence providing that a written agreement is the final expression of the agreement of the parties, not to be varied or contradicted by prior of contemporaneous oral or written negotiations
Parole Evidence
oral or verbal evidence
Statute of limitations
The law pertaining to the period of time within which certain actions must be brought to court
Subletting
The leasing of premises by a lessee to a third party for part of the lessee’s remaining term
Unenforceable Contract
A contract that has all the elements of a valid contract, yet neither party can sue the other to force performance of it.
