- Contract: voluntary agreement between two or more legally competent parties supported by consideration wherein the parties agree to do or refrain from some legal act.
- Governed by the Statute of Frauds.
- Oral agreements for the sale of reala estate and oral leases for longer than three years are enforceable provided that the party seeking damages can prove the contract by "clear and convincing" evidence.
- A real estate broker's authorization must be in writting and signed.
TYPES OF CONTRACTS
- Unilateral or bilateral.
- Valid, void or voidable.
- Enforceable or unenforceable
- Executed or executory
- Express or implied.
- An option is an example.
- One party
- A contract that satisfies all the legal requirements of a contrcat.
- A contract that has no legal effect and is not a contract at all.
- Missing 1 or more of the essential elements required by law or written for an illegal purpose.
- A contract that can be enforced or rejected and, at the same time, is unenforceable against that same party,
- Examples are minors who sign contracts with non-minors.
- Can be made void.
- A valid contract that cannot be enforced.
- Examples include statute of limitations, oral contracts that are required to be in writing, and contracts with terms that are considered unconscionable.
Executed and Executory Contracts
- Executed Contracts: Refers to a contract where both parties have performed all that is required of them by the contract.
- When a deed is deliverd in exchange for the purchase price, the parties have performed under the contract of sale and the contract is said to be "executed"
- Executory Contracts: A contract under which one or more parties has not yet performed.
Express or Implied Contracts
- Express Contracts:
- Implied Contracts: When agreement is based upon acts and/or conduct rather than by words.
- Ordering a meal ---> food for payment.
ESSENTIAL ELEMENTS OF A CONTRACT
- Offer and acceptance
- Competent parties
- Reality of consent
- Legal purposes
- Description of property
- Singature of the party to be charged
Offer and Acceptance
- An offer is deemed accepted whent he acceptance has been communicated back to the offeror.
- A counteroffer is considered a rejection of the original offer.
- An offer is terminated by the death of either party.
- An offer can be withdrawn at any time prior to acceptance.
- A rejected off is a dead offer.
- Each party must exchange something of value.
- Earnest money is NOT essential to a valid contract.
- All parties to a valid contract must have legal capacity in order for the contract to be binding.
- Contracts are voidable by the incompetent party but not by the other party.
Reality of Consent / Mutual Consent
Meeting of the Minds
- The parties must enter into an agreement knowingly and voluntarily and must mutually consent to be bound by its terms.
- This mutual consent is referred to as a Meeting of the Minds.
- A Unilateral Mistake may be voidable by the injured party.
- Stupidity or ignorance of the law is no excuse or grounds for rescission.
- If there is a mutual mistake, a meeting of the minds never took place and the contract would be void.
- A contract is voidable whenever the is material misrepresentation.
- Contract becomes VOIDABLE
- The Statute of Frauds does not require the contract to be singed by all parties.
- It needs to be signed only by the party being charged - sued.
- The signature of the party seekign enforcement is not required.
ASSIGNMENT OF CONTRACT
- Contracts are assignable unless their terms specifically forbid it or unless its a personal service agreement.
- Option: A written contract supported by consideration under which a prospective purchaser (optionee) is given the right to purchase the property, for a stated price and terms, within a fixed period of time, but without imposing any obligation to purchase.
STATUTE OF LIMITATIONS
- Six years.
- Must be reported to the IRS must be made within 15 days or receipt of cash and records retained for 5 years,
THE REAL ESTATE SALES CONTRACT
- Parties to a contract are called the vendor (seller) and the vendee (purchaser).
- Equitable Title: the law recognizes some ownership rights of the purchaser even though he is not yet the owner of record.
- Seller is responsible for the risk of loss or damage until the closing.
- Its frequently called a binder.
BREACH OF CONTRACT
Breach by Seller (Buyer Remedies)
- Rescission of Contract: The minimal remedy available to the purchaser if the seller defaults is to rescind the contract and recover the deposit under the contract.
- Purchaser is entitled to be reimbursed for reasonable expenses of the title search.
- Sue for Compensatory Damages: The loss of bargain damages consist of the difference between the contract price and the market price at the time of the seller breach.
- Compensatory damages may also include the additional cost of acquiring a substantially equivalent property.
- Specific Performance: The most common reason courts grant specific performance is that the subject property is unique.