Chapter 13

contract

a legally enforceable promise or set of promises

—includes two parties: promisor, promisee

promisor

the person who made the promise

—active

promisee

the person to whom the promise was made

—passive, receiving

elements to make a real estate contract

must have all elements to make a contract

—agreement between parties

—consideration

—capacity

—legality

—in writing (statute of frauds says real estate contracts MUST be in writing)

—signature of parties

—adequate description of property

agreement between parties

includes offer and acceptance

offer

the initial communication in contract formation that, if accepted, results in the formation of a contract

—has two parties: offeror, offeree

offeror

the person making the offer

offeree

the person to whom the offer is being made

acceptance

the action of the offeree in agreeing to terms of an offer that results in a binding contract

counteroffer

an offer made in response to the offeror by the offeree

consideration

the legal detriment given by each party to the contract

—what each person/side gives up

—both people have to give up something, otherwise it will be considered a gift, not a contract

—the amount is not important, so long as it isn’t none

—in the deed you will see $10 as this in order to keep information private

—ex: Ben’s consideration will be $1,000; Jake’s consideration is the vehicle

capacity

refers to the person’s ability to understand the nature and effect of an agreement

—mental ability to understand what a person is doing

—no minors (must be 18 and up)

—not mentally incompetent (ex: severely low IQ, has down syndrome)

—not under influence (must not be drunk or high)

legality

the topic of the contract has to be legal

—ex: an assassination contract or a drug contract can’t be legally enforced

signature of parties

every party has to sign the contract

—in the case of joint owners, you need both owners to sign it

adequate description of property

can be done with:

—metes and bounds

—plat map

—government survey

condition precedent

when, in a contract, there is a requirement that has to be done before the contract can be performed

—things that have to be done before house can be sold

three conditions precedent

—property condition reports

—condition of premises

—marketable title

property condition reports

includes:

—clean termite report (property is free from termite damage)

—soil report (ground stable enough to hold buildings and/or not environmentally contaminated)

—geological reports (not on floodplain, area where it floods a lot/fault line, etc.)

condition of premises

sell house/premises in same condition it was in when it was shown

—must stay the same or get better, but they can’t get worse

marketable title

a form of title generally required to be delivered in the sale of property

—it signifies property that is free from liens and there are no defects in title other than those noted or agreed to

—a title that is free from encumbrances

—the ownership is free from these problems or the problems have been disclosed; it is good to sell to market

good title

legal ownership that is free from liens and has no defects

encumbrance

a burden or claim on the property, like a mortgage

purchase contract clause

shows the absence of these other than those noted or agreed on:

—liens (ex: a mortgage on the property)

—easements

—restrictions (ex: zoning or building restrictions)

breach

when a person didn’t perform like they said they would in a contract

remedies for breaches

—liquidated damages

—actual damages

—specific performance

—recission

liquidated damages

damages that are specific in formula or in an amount in the written and signed agreement of the parties

—must have a clause in the contract in order to get this; if it’s not in the contract then you will never get these damages

—done to deter someone from breaching

—language: “in case of a breach, the breaching party will pay the nonbreaching party $15,000 in liquidated damages, in addition to any actual damages”

actual damages

actual/specific amounts it cost/damaged someone because of the breach

—if buyer breached: seller can get costs of repairs, lost rental income because house stayed vacant, etc.

—if seller breached: buyer can get costs of appraisals, property condition reports, etc.

specific performance

an equitable remedy that required a party to a contract to perform the contract promise or promises

—judge orders someone to perform/act in a specific/certain way

recission

the right to treat a contract as if it never existed

—like scissors; cutting it up like it never existed

—buyer given back compensation (buyer gives money back)

—seller has no obligation to sell (seller doesn’t have to sell house)

misrepresentation

giving incorrect or misleading information to a party in contract negotiations or failing to disclose relevant information

—gives false information or doesn’t tell important information

—defense if someone is suing you because you breached a contract in some way

what you win if you sue for misrepresentation

—recission

—actual damages

—punitive damages

punitive damages

punish the defendant and deter other similar harms in the future from others

—in real estate you can only get these damages if fraud is involved

fraud

being wrongful or criminal deception intended to result in financial or personal gain

—someone lied to get money out of someone else