Real Estate Principles and Practices Chapter 6 Contracts and Business Law © 2014 OnCourse Learning.

Real EstateReal Estate Principles and Practices Principles and Practices

Chapter 6Chapter 6

Contracts and Business LawContracts and Business Law

© 2014 OnCourse Learning


Key TermsKey Terms

Bilateral contract

Consideration

Contract

Dual contract

Duress

Executed contract

Executory contract

Express contract

Fraud

Implied contract

Latent defect

Misrepresentation

Novation

Offer and acceptance

Option

Parole evidence rule

Patent defect

Rescind


Key TermsKey Terms

Specific performance

Statute of frauds

Undue influence

Unenforceable contract

Uniform Commercial Code

Unilateral contract

Valid contract

Voidable contract

Void contract


Definition and Types of Definition and Types of ContractsContracts

Contract: Contract: voluntary agreement between two or more parties to perform or abstain from performing a legal act on which the parties reached a meeting of the minds



Created by an act

Ostensible contract Ostensible contract

Not enforceable

May be written or oral

All written contracts are express



Promises by both parties

Promise by one party



Not completed

Performance has been completed



Two contracts for the same property with different terms

Illegal


Elements of a ContractElements of a Contract

Offer and acceptanceOffer and acceptanceMeeting of the minds

ConsiderationConsiderationGood or valuable

Capacity of the partiesCapacity of the partiesCapable

Legality of the objectLegality of the objectLegal purpose

Written and signed contractWritten and signed contractBy law



Agreed by mutual consent to terms

Terms must be clearly defined



Mutual exchange of promisesEarnest-money shows good faith

Does not represent consideration

Consideration in a real estate contract is something of value



Good or valuableGood or valuable

Good consideration: an act given for consideration

ValuableMoney for property



Must be able to understand and carry out terms

Must be at least the age of majority (18-21)Minor (under age of majority) may rescind the contract

Until the age of majority and a reasonable time thereafter

Other party is bound



Mentally incompetent person cannot enter into a contract

Guardian or conservator

Borderline incompetent

Intoxicated or chemically dependent Court may annul within a reasonable

time



Purpose must be lawful

Court may intervene to avenge the injured party

Rescind: Rescind: cancel



Statute of frauds: certain contracts must be in writing to be enforceable

Signed by parties against whom enforcement is sought

Memorandum

Lease of less than one year


Statute of FraudsStatute of Frauds

All real estate transfers must be in writing and signed

Avoid fraud

To be enforceable

Oral contract to buy or sell would not be upheld in court


Parole Evidence RuleParole Evidence Rule

Prior written or verbal evidence may not alter a written agreement

An executed written document supersedes all prior negotiations and stipulations


Uniform Commercial CodeUniform Commercial Code

Laws covering chattel salesConditional sales contracts and chattel mortgages

Stocks and commercial paper

Sale of personal propertyBill of sale

Real estate when fixtures are involved


Uniform Commercial CodeUniform Commercial Code

Chattel purchased and financedFinancial statement is recorded

If not paid – property can be repossessed

Bulk transfers are regulated by UCC


Validity of ContractsValidity of Contracts

All essential elements

Enforceable in a court of law



No legal force

Results when:Illegal purpose

Operation of law prevents completion

Act of nature prevents completion



One party may cancel

Minor

Party acted under duress or undue influence



Unenforceable Contract: Unenforceable Contract: Appears valid but cannot be enforced

Misrepresentation: Misrepresentation: false statement not meant to deceive but has an effect on the finalization

Courts rule against agents who knew or should have known

Seller may be sued for withholding pertinent fact



Damaged party may rescind or collect damages

MistakeMistake

One party changes their mindBound by contract

Mutual mistakeMay agree to rescind

Fraud: Fraud: knowingly making a false statement regarding a material fact on which the other party relied and suffered damage



Duress: Duress: Coercion, threat, or force

Voidable by party threatened

Undue Influence: Undue Influence: unfair advantage preventing a party form using their own judgment

Voidable by party coerced


Carrying Out Terms of a Carrying Out Terms of a ContractContract

When performance will transpire

Purchase contract: closing date

Lease: length and termination

No date: reasonable time

Performance of a ContractPerformance of a Contract



All contracts are assignable unless stated to the contrary

Assignor: Assignor: holder of contract

Assignee: Assignee: receiver of contractRights, privileges, and obligations

Assignment of a ContractAssignment of a Contract

Personal obligations may not be assigned without consent



Novation: Novation: substitution of a new contract for the existing one

Novation of a ContractNovation of a Contract



Discharge: terms fulfilled

Complete performance failed:1. Damage to the property

2. Death

3. Recession by mutual agreement

4. Partial performance

Discharging of a ContractDischarging of a Contract



Latent defect: Latent defect: hidden

Patent defect: Patent defect: visible

Buyer may rescind if seller does not disclose

Latent and Hidden DefectsLatent and Hidden Defects


Breach of ContractBreach of Contract

Specific Performance: Specific Performance: compelling the defendant to carry out the terms of the contract.

Rescind: Rescind: and receive the earnest money

Sue: Sue: for damages

Breach of ContractBreach of Contract


Option to PurchaseOption to Purchase

Option: Option: contract granting the exclusive right to buy for a limited time

Optionee: Optionee: prospective purchaser

Optionor: Optionor: owner




Consideration is forfeited if optionee does purchase (carry out option)

Ownership rights remain with the owner during option term

Optionee may assign option

Unilateral contract




Option contract vs. Contract to purchase

1. Option gives the right but not the obligation to buy

2. An accepted purchase contract is binding



Commonly Used ContractsCommonly Used Contracts

1. Listing contract1. Listing contract

2. Purchase agreement2. Purchase agreement

3. Option contact3. Option contact

4. Lease4. Lease

5. Property management contract5. Property management contract

6. Mortgage6. Mortgage

7. Deed of trust7. Deed of trust

8. Land contract8. Land contract


Commonly Used ContractsCommonly Used Contracts

ContactContact BuyerBuyer Owner/Owner/SellerSeller

LenderLender Third Third PartyParty

TenantTenant

Purchase agreementPurchase agreement granteegrantee grantorgrantor

land contractland contract vendeevendee VendorVendor ownerowner

optionoption optioneeoptionee optionoroptionor

assignmentassignment AssigneeAssignee assignorassignor

offer to purchaseoffer to purchase offerorofferor offereeofferee

mortgagemortgage MortgagorMortgagor mortgageemortgagee

deed of trustdeed of trust trustortrustor beneficiarybeneficiary trusteetrustee

leaselease lessorlessor lesseelessee

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