Legal Aspects of Real Estate Ch. 6; Laws of Contracts

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What type of contract is one in which both parties promise to perform their respective parts of an agreement in exchange for performance by the other party?

A bilateral contract A bilateral contract is one in which both parties promise to perform their respective parts of an agreement in exchange for performance by the other party.

Define bilateral and unilateral contracts.

A bilateral contract is one in which both parties promise to perform their respective parts of an agreement in exchange for performance by the other party. In a unilateral contract, only one party promises to do something, provided the other party does something. The latter party is not obligated to perform any act, but the promising party must fulfill the promise if the other party chooses to perform.

Statute of Limitations

a law that restricts the period of time within which an action may be brought to court

A contract

an agreement between two or more parties who, in a "meeting of the minds," have pledged to perform or refrain from performing some act. A valid contract is one that is legally enforceable by virtue of meeting certain requirements of contract law.

Void Contract

an agreement that does not meet the tests for validity, and therefore is no contract at all. If a contract is void, neither party can enforce it.

Contract reformation

an equitable remedy that allows the courts to "rewrite" contract provisions

Implied Contract

an unstated or unintentional agreement that may be considered to exist when the actions of any of the parties suggest the existence of an agreement. Consist of obligations arising from a mutual agreement and intent to promise where the agreement and promise have not been expressed in words. To establish the existence of an implied contract, it is necessary to show: an unambiguous offer, unambiguous acceptance, mutual intent to be bound, and consideration. However, these elements may be established by the conduct of the parties rather than through express written or oral agreements

Contract law

both common law and statutory rules that govern the creation, interpretation, and enforcement of contracts.

Bilateral Contract

both parties promise to perform their respective parts of an agreement in exchange for performance by the other party

Unilateral breach ex

common examples of broken unilateral contracts might include any situation in which the person promising to pay in exchange for a completed act refuses. For example, if $100 is offered for the return of one's dog, but then the dog owner refuses to pay thinking the person who brought the dog back stole the dog, the dog owner would likely be in breach of contract because of the broken promise to pay.

ambiguous contract

contains terms, but the terms are vague or can be interpreted and understood in more than one way.

Mutual Agreement

The full consent of all parties to a contract is mutual agreement. It is a meeting of the minds and is also referred to as mutual assent. When the parties mutually agree to voluntarily cancel a contract it is mutual rescission. Mutual agreement means that the parties have entered into contract with full and truthful information and have done so voluntarily. This decision must be based on accurate information.

What must parties to a contract do when a contingency is removed or satisfied?

The parties are required to perform according to the contract terms or be in breach of contract.

List ALL types of contracts that California's Statute of Frauds does NOT allow to be made orally

A contract for the sale or interest of real estate. An agreement authorizing or employing an agent, broker, or any other person to purchase or sell real estate. A lease of real estate for a term longer than one year. A special promise to answer for the debt or default of another. An agreement that is not to be performed within one year from the date of making the agreement. Loan agreements in excess of $100,000 made by financial institutions.

executory contract

A contract that has not yet been fully performed. A sales contract prior to closing is executory. While the parties have agreed to buy and sell, the buyer has yet to pay the seller and the seller has yet to deed the property to the buyer. The classic executory contract is the contract for deed (or land sales contact), which provides that the buyer gets title after making payments over a period of years. In most cases, until the two parties meet all the conditions within it, the agreement remains an executory contract. When all of the requirements of an executory contract have taken place, the contract becomes an executed contra

Explain assignment of a contract.

A real estate contract that is not a personal contract for services can be assigned to another party unless the terms of the agreement specifically prohibit assignment. Sales contracts are assignable because they involve the purchase of real property rather than a personal service.

Statute of Frauds

A state statute under which certain types of contracts must be in writing to be enforceable.

In its simplest terms, unilateral contracts involve what?

An action undertaken by one person or group alone

When all the requirements of an executory contract have taken place, the contract becomes what?

An executed contract

Define executed contract.

An executed contract is one that has been fully performed and fulfilled: neither party bears any further obligation.

Explain executory contract and give one example.

An executory contract is one in which performance is yet to be completed. A sales contract prior to closing is an example of an executory contract.

Define express and implied contracts.

An express contract is one in which all the terms and covenants of the agreement have been clearly stated and agreed to by all parties, whether verbally or in writing. An implied contract is an unstated or unintentional agreement that may be considered to exist when the actions of any of the parties suggest the existence of an agreement.

What type of contract is one that cannot be fully understood because important terms are missing?

An indefinite contract An indefinite contract is one that cannot be fully understood because important terms are missing from the contract.

Mutual Assent

An offer and acceptance which together form the terms of a contract.

What is needed to establish the existence of an implied contract?

To establish the existence of an implied contract, it is necessary to show an unambiguous offer, unambiguous acceptance, mutual intent to be bound, and consideration. However, these components do not need to be in writing or oral; they could be the actions of the parties. End of Page

Issues involving licensee non-disclosure to third parties is known as the law of torts

Tort is a civil wrong or wrongful act, whether intentional or accidental, that the law recognizes as grounds for a lawsuit.

Tort law attempts to remedy a wrong by providing monetary damages to the injured party

Types of damages that may be recovered are pain and suffering, emotional distress, personal property issues, loss of earnings, and reasonable medical expenses.

Bilateral breach ex

Bilateral contracts can also be breached. A bilateral contract might be broken if a coworker refuses to complete his or her portion of a job; when an employee does something prohibited by his or her job contract; or even when a customer prevents the contractor from satisfying the obligation or finishing the project at hand.

What works best?

Both unilateral and bilateral contracts are enforceable in court. For example, a unilateral contract is enforceable when someone chooses to begin fulfilling the act demanded by the promisor. A bilateral contract is enforceable from the get-go; both parties are bound by the promise.

How are bilateral and unilateral contracts alike?

Both unilateral and bilateral contracts can be breached. Consider the term 'breach' synonymous with 'break.' This means breach of contract can be defined as a broken contract, stemming from failure to fulfill any term of a contract without a justifiable, lawful excuse.

What are contingencies?

Contingencies are conditions that must be met in order for a contract to be performed. Contingencies are an important and powerful tool in real estate transactions, because they allow a party to obtain information or wait for an event to occur before being bound to perform under the contract. Typically, the party benefiting from the use of contingencies is the buyer or a third party, such as a lender. It's no surprise that sellers prefer receiving offers that have no contingencies, although, as we mentioned, that is not common.

Lawful Objective

Contracts are not valid that require performance that is unlawful (illegal). A contract with some legal parts and some illegal parts is usually still valid, however, only the legal parts are valid and the illegal parts are void. Further, if a contract is for legal purposes at the time it was executed, but becomes illegal prior to the performance of the contract, the contract becomes void. A lease, real estate contract, listing agreement, or buyer's agency agreement is not valid when entered into for the purpose of unlawful activity of any kind. Any agreement stating an illegal act is void.

How can contract interpretation issues be avoided?

Contracts should always be in writing, terms or phrases that could have more than one meaning should be clearly defined, and parties to a contract should review the contract closely before signing.

Default and Breach

Default is to fail to do something required by law or duty. California laws protect the rights of parties who have entered into valid contracts. Those who fail to perform are in default and may be sued by the other party. A breach is something torn or broken. In contract law, it means that someone has broken his or her wor

Steps to help execute a contract

Don't be fooled by technology If the contract has gone through several rounds of negotiation and revisions, don't assume that the last circulated "execution copy" is what is correct. Before the contract is signed by all parties, it is the licensee's duty to be one hundred percent sure that everyone understands all the provisions of the contract. Date the contract While a contract need not be dated to be valid and enforceable, it is kind of foolish to not date a contract. Dating helps to identify a contract years later and puts the contract into chronological context. 3. All parties must sign the contract The contract is not binding unless signed by both (all) parties. 4. Initial last minute handwritten changes to the contract Any last minute change to a contract that is done by hand should be initialed by the parties to the contract. However, it is much better to insist on a revised contract or amendment reflecting the change. 5. Check the other party's authority to sign For example, if the other party to the contract is a corporation, you want to be sure that the corporation is in existence, that the person signing on behalf of the corporation is authorized to do so, and, particularly in larger transactions, that the corporation approved the contract by consent of its shareholders or directors. 6. Get an original executed copy of the contract for company files Each party should have an original executed copy of the contract for their files. In other words, if there are two parties to the contract, there would be at least three identical executed contracts. One for the buyer, one for the seller, and one for the office. Most licensees make a copy of the office contract to retain in their files. End of Page

Are options always unilateral or bilateral contracts?

Unilateral

If an assignor does not receive a novation, what does this mean in regards to his or her obligations to a contract?

Unless the assignor receives a complete release from liability (a novation), the assignor would be secondarily liable if the assignee did not perform according to the contract terms.

In terms of validity and enforceability, a court may construe the legal status of a contract in one of four ways. What are the four ways?

Valid, valid but unenforceable, void, voidable

Example of voided contract

For example, a contract that does not include consideration is void. Likewise, a contract to extort money from a business is void. Void contracts and instruments are also described as "null and void."

Valid Contract

meets the legal requirements for validity. A valid contract that is in writing is enforceable within a statutory time period. six essential elements: competent parties, consideration, mutual agreement, lawful objective, must be in writing and signed by the parties, and contain a legal description. Under California law, a party must protect personal interests by reading a contract before signing it. Unless there is fraud, the person is not excused from the consequences of failing to meet this obligation. If a person signs a contract without knowledge of its contents, they are presumed to have consented to the terms of the contract.

To execute a document means to

sign it. People who refer to an executed real estate contract actually mean that the document -- the paper or digital copy of the contract -- has been signed. In this sense, the date of execution is the date on which all parties' signatures appear on the contract. It's the contract's starting date.

Consideration

the exchange of promises offered by one party to another to do or not do something. It is usually something of value being exchanged by one party to receive something of value from the other party. Consideration is not required to be of equal value, but it always must be legally sufficient. This means consideration must be either a legal benefit or a legal detriment. A legal benefit provides something to a party that he or she was not previously entitled to, and a legal detriment is something a party will do that he or she was not previously obligated to do. Earnest money shows the serious intent of the buyer and may serve as liquidated damages in the event of breach of contract. Liquidated damages are funds paid by the defaulting party to the non-defaulting party according to the terms of the contract.

Unilateral Contracts Examples

unilateral contracts involve an action undertaken by one person or group alone. In contract law, unilateral contracts allow only one person to make a promise or agreement. One of the most common instances is a reward contract. A person loses a wallet, places an ad online or in the newspaper offering a $50 reward. By offering the reward, this creates a unilateral contract. A promise to pay should anyone fulfill the obligation of returning the wallet. unilateral contract is with insurance contracts. The insurance company promises it will pay the insured person a specific amount of money in case a certain event happens. If the event doesn't happen, the company won't have to pay. The promisor makes a promise to whoever is willing to act on it. There is no promise until the action is complete and the exchange is made. Both of these contracts are enforceable More Examples Listing Agreement - Can be Unilateral. An open listing where a seller agrees to pay one or more brokers depending on who brings a buyer is unilateral. "IF you bring a ready, willing and able buyer, I will pay you a fee." Option to Purchase - Unilateral. This binds the seller and prevents the seller from selling to another party but does not bind the prospective buyer to purchase. Option to Terminate - Unilateral. This agreement binds the seller and prevents the seller from selling to another party, but the buyer is not bound to purchase the property during the term of the option. A tip to remember: options are always unilateral.

Define consideration.

Consideration is the exchange of promises offered by one party to another to do or not do something.

Doctrine of Laches

Legal loss of a right with the thought that "if you don't use it, you lose it."

What are the two commonly used legal descriptions in a contract?

Metes and bounds Reference to a platted subdivision (lot, block, section, and subdivision name)

The same criteria need to be proven to enforce a bilateral or unilateral contract in court. The four criteria needed are what?

The contract existed The contract was broken A loss was suffered The person challenged was responsible

List the six elements required of a valid contract.

Competent parties, consideration, mutual agreement, lawful objective, in writing and signed by the parties, contain a legal description

Performance and Forbearance

"performance" means to do what one agreed to do Example of Performance: A homeowner enters into a contract with a flooring company to have wood floors installed in his or her home. The company agrees to install certain materials within a certain timeframe and the homeowner agrees to pay a certain price at various stages of installation. Each party signs and the contract is dated. The homeowner and the company now must perform according to contract. Some contracts require a party to refrain from doing something and that is called "forbearance". Example of Forbearance: A tenant signs a lease for an apartment and agrees not to redecorate without management approval, not to park in driveways, not to leave trash on the sidewalk, and so on. The landlord agrees not to enter the apartment without appropriate notice. The tenant and the landlord must refrain from doing these things according to the lease contract.

(Contingency) Due Diligence

All parties to a contract are required to use reasonable due diligence to fulfill contingency requirements. For example, if a buyer with a financing contingency never submits the required paperwork to obtain the loan, the buyer is not using due diligence to satisfy the contingency. In this situation, the court could remove the financing contingency and require the buyer to perform according to the contract (assuming the buyer could actually qualify for the loan). Due diligence protects both the buyer and seller in a real estate transaction.

Valid But Unenforceable Contract

An oral long-term lease and an oral real estate sales contract are examples of contracts that may be valid but not enforceable. This means that if the parties fully execute and perform the contract, the outcome may not be changed. In some cases, a situation exists when the contract is signed, or occurs during the term of the agreement, that makes even a valid contract unenforceable in a court of law. Real estate contracts aren't enforceable unless the parties have exchanged something of value, called consideration. In most real estate contracts, the seller transferring title at closing serves as consideration. A sales contract is unenforceable if the seller fails to turn over the title. Statute of Frauds- Many states have a statute of frauds that protects consumers who enter into the types of contracts in which fraud is most likely to occur. Real estate and other contracts that fall under the statute must be in writing and they must be signed to be enforceable. Absence of Mutual Assent- A meeting of the minds, or mutual assent, means parties freely agree to the terms of the contract, exactly as the contract is written. In cases where there's been a mistake, a misrepresentation, a non-disclosure or fraud, there is no meeting of the minds. For example, if a seller makes an innocent mistake and discloses that he or she replaced the roof of the home five years ago when he or she actually replaced it seven years ago, this disclosure could render the contract unenforceable because the buyer thinks the roof they are getting is newer than it is. Duress and undue influence also affect assent. Bankruptcy- Listing agreements and other agency contracts are terminated if one of the parties enters bankruptcy. Impossibility- A situation beyond the parties' control that makes the transaction impossible or exceedingly difficult or expensive to close may be unenforceable. An example of impossibility is the sale of a home that was destroyed by a tornado while the buyer and seller were under contract. Illegal Performance a contract with performance that was legal at the time of the contract but then became illegal, releases the parties from their required performance. Breach of Contract A material breach of contract by one party may release the other party's performance obligations. A performance bond may be issued in some circumstances to insure one of the party's against loss if the other party fails to perform. Change of Contract Neither party can change the terms of the agreement to his or her benefit. If that occurs, the other party is released from the contract. Contingencies Contingencies are essentially conditions that must be met in order for the contract to be enforceable. Common contingencies in a real estate purchase agreement involve financing, inspections and disclosures, and seller providing marketable title

Unenforceable Contracts

An unenforceable contract is a contract which cannot be enforced in a court of law. This could happen because the terms of the contract are ambiguous, if one party has a voidable contract, or if the Statute of Limitations has expired. The Statute of Limitations requires that lawsuits be filed within a certain period of time following a breach. Another reason a contract might be unenforceable could be because of the Doctrine of Laches. This principal states that a court has determined a contract is unenforceable due to needless delay or neglect in filing a claim even though the Statute of Limitations may not have expired.

Real estate contracts aren't enforceable unless the parties have exchanged something of value. This value is called what?

Consideration

The Six Elements Required of a Valid Contract:

Competent parties Consideration Mutual Agreement Lawful Objective In Writing and Signed by the Parties Contain a Legal Description

Assignment and Delegation of a Contract

Assignor - The person, company, or entity assigning its rights to another (the assignee). Assignee - A person, company, or entity receiving rights from another (the assignor). Delegor - A person, company, or entity transferring its duties to another (the delegee). Delegee - A person, company, or entity receiving duties to perform from another (the delegor).

What is the difference between bilateral and unilateral contracts?

At first glance, the most obvious difference between bilateral and unilateral contracts is the number of people or parties promising an action. Bilateral contracts need at least two, while unilateral contracts only obligate action on one part. The other differences might be a bit more subtle. Look at what's being offered. In unilateral contracts, one offering the deal promises to pay when a certain act or task is complete, but bilateral contracts allow for an upfront exchange.

Common contingencies seen in California real estate purchase agreements include:

Buyer Financing - This contingency gives the buyer time to apply for and obtain financing for the property. This usually includes an appraisal of the home to ensure the property is valued at a specific amount. Home Inspection - A home inspection contingency gives the buyer a specific time to conduct home inspections and allows the buyer to cancel or renegotiate the contract terms based off the inspection results. Sale of Buyer's Property - This contingency gives the buyer time to sell his or her current property before being obligated to purchase another property. Preliminary Title Report - This confirms the seller can transfer clean title to the buyer. Lead-based Paint Disclosures and Inspection - Federal law gives all buyers 10 days to inspect for lead-based paint. Approval of Homeowners' Association Documents - This contingency allows buyers to approve the HOA Conditions, Covenants, and Restrictions.

The steps from executory offer to executed contract:

Buyers sign and initial a written offer in all required places. The offer is presented to the sellers. The seller agrees to the offer as written. Sellers sign and initial in all required places. Sellers notify the buyer of their acceptance. The effective date is written on the date of notification.

In the United States every contract for the sale of goods that involves an amount that exceeds $500.00 must be written to be legally enforceable.

California LAW

What does California law require the parties of a contract to do in order to fulfill a contingency.

California law requires all parties to a contract to use reasonable due diligence to fulfill a contingency requirement.

A voidable contract is one which initially appears to be valid, but is subject to what?

Cancellation by a party to the contract who is believed to have acted under some kind of disability

How Contracts become Voidable

Duress is the threat of economic or physical harm. Entering into a contract under duress means that the contracting party is only doing so to avoid the economic or physical harm to either him or herself or a third-party. Undue influence is similar to duress, but is a lesser degree of severity. Typically it involves one party dominating or controlling the free will of the other party. Fraud or concealment typically occurs when essential facts of the agreement are misrepresented or omitted, or by the falsification of a signature on a contract. Misrepresentation the misrepresentation was made to void the contract if he or she wishes. Types of misrepresentation seen in real estate transactions include knowingly giving a false impression about something or blatantly omitting pertinent information that would affect the other party's decision to agree to the contract. This misrepresentation could be from one of the parties in the agreement or an agent. Note If either party in a real estate transaction suffers a loss because of misrepresentation by a licensee, the licensee loses his or her commission and is liable for damages based off the misrepresentation. Mutual mistake occurs when both parties mistake a material fact. For example, a mutual mistake of fact could be having the incorrect legal description. However, it cannot relate to a mistake related to the law, such as a zoning ordinance.

In certain cases, a contract may have both executed and executory features.

Each stage of construction, when completed and paid for, forms an executed portion of the contract. Until all conditions have been met - the house finished according to specifications outlined in the contract and the final payment for the work duly rendered - the unmet portions of the contract remain executory.

Contingency example

Ex 1. buyer to qualify for a loan in the amount of $200,000". In order for the buyer to become obligated to perform according to the contract terms (purchase the home), he or she must actually qualify for the $200,000 loan. Once the buyer has obtained the qualification, the contingency is removed and the contract progresses. If the buyer cannot obtain the loan, the buyer is not obligated to the performance outlined in the sales contract. Another example would be a home sale contingency that states the buyer must sell his or her current property by a specific date in order to be obligated to purchase the property outlined in the sales contract. Thus, if the contingency states the buyer must sell his or her house by June 30th and that occurs, the contract remains valid. However, if July 1st comes and the buyer's property is not sold, the sales contract can be terminated. In both of these examples, if the contingency is satisfied the buyer must perform or be in breach of contract. However, if the buyer cannot obtain financing or does not sell his or her property in the time frame outlined, the buyer is not obligated to perform.

Unenforceable Contracts Examples

Example #1 Investor Bill bought a property from Barry through a written contract for sale. Seven years after the purchase, Barry wanted to claim that the contract was unenforceable. The Statute of Limitations for written contracts in California is four years and Barry would not be able to challenge the contract. Example #2 Julie bought a house from Craig using a written purchase and sale agreement. After taking possession, Julie discovers a small leak in a pipe in the crawl space of the house, but does not take any action against Craig for three years. The court decided that the contract was unenforceable because of Julie's delay, even though the Statute of Limitations had not expired. The court ruling was based on the Doctrine of Laches.

What term describes when damages were within the contemplation of the contract when made?

Foreseeability

Incompetent party

In California, mental capacity is met if the party understands the agreement at the time of entering into the contract. Thus, if a person enters into a contract but is later deemed incompetent, the contract is still valid. The law states that an incompetent party was either unaware he or she was entering into a contract or did not clearly understand the contract terms.

Breach of Contract

In California, the Statute of Limitations to sue for breach of contract is four years from the time the breach occurred. Rescission - A damaged party may rescind the contract. Forfeiture - Forfeiture requires the breaching party to give up something, according to the terms of the contract. For example, a buyer who defaults on a sales contract may have to forfeit the earnest money deposit. Suit for damages - A damaged party may sue for money damages in civil court. The suit must be initiated within the time period allowed by the Statute of Limitations. When a contract states the total amount due to a damaged party in the event of a breach, the compensation is known as liquidated damages. If the contract does not specify the amount, the damaged party may sue in court for compensatory damages Suit for specific performance- attempt to force the defaulting party to comply with the terms of the contract

Explain performance and forbearance in contracts.

In contract language, "performance" means to do what one agreed to do. Some contracts require a party to refrain from doing something and that is called "forbearance". Contracts may include both performance and forbearance requirements.

Bilateral Contract Ex

Independent Contractor Agreement - Bilateral. This agreement is between a salesperson and sponsoring broker. Upon receiving a salesperson license, a licensee must have a sponsoring broker before beginning to work. Listing Agreement - Bilateral. Most listing agreements are bilateral requiring the broker to perform certain services and the seller to perform certain responsibilities. Buyer Representation Agreement - Bilateral. This defines the obligations and responsibilities of both parties. Lease - Bilateral. Both the tenant and the landlord agree to perform certain things. Purchase Agreement - Bilateral. Purchase agreements are always bilateral since they require both parties to perform.

Contract Interpretation

Interpretation issues can occur before or after parties enter into an agreement. While it's ideal for the parties to ensure the terms and conditions of the contract are clear to all parties before the contract is signed, this doesn't always happen. Sometimes interpretation issues occur months or years after a contract has been executed, such as when the parties have a dispute and look to the contract to resolve the issue. In order to avoid interpretation issues, contracts should always be in writing, terms or phrases that could have more than one meaning should be clearly defined, and parties to a contract should review the contract closely before signing. Parties may even choose to hire a lawyer to assist in the review.

Parties to a contract can agree to terminate, or renounce, the contract. What is the term for this action?

Mutual Agreement

While a written agreement is required for real estate related business in California, there is no requirement the written document be formal or always be written on a specific form or in certain verbiage. It may be informal document as long as it has the following:

Names of the parties to the agreement Adequate property description or content of the agreement Terms and conditions of the agreement Shows consideration Is signed by the parties

If deliberate deception, fraud, or false information is present, the agreement is what?

Not enforceable

A contract terminates when fully executed by the parties. This is called what?

Performance

Discharge of a contract, also called cancellation and termination, may occur for any of the following causes.

Performance - A contract terminates when fully performed by the parties. Partial performance. When the defendant has failed to complete performance of an agreement according to its terms, the plaintiff may recover such damages as will compensate him or her to the same extent as though the contract had been completely performed. Sufficient performance, if a court determines a party has sufficiently performed the contract, even though not to the full extent of every provision Defective performance. Damages for defective performance of a contractual agreement are measured by calculating the difference in value between what is actually tendered and what is required as performance under the agreement. Infeasibility valid contract can be canceled if it is not possible to perform. Certain personal services contracts, for example, depend on the unique capabilities of one person which cannot be substituted by someone else. Mutual agreement - Parties to a contract can agree to terminate, or renounce, the contract. AKA a Rescission Novation- creation of a new or replaced contract

Assignment and Delegation

Sales contracts are assignable because they involve the purchase of real property rather than a personal service. However, listing agreements and agency agreements are not assignable since they are contracts that are personal in nature Generally contractual rights are freely assignable unless: The rights or duties to be assigned involve the performance of unique, non-standardized personal services; or The assignment would place a significantly greater burden or risk on the obligor in rendering the promised performance; or The assignment is not prohibited by law; or The contract itself prohibits assignment.

Operation of Law

Termination of an offer by the occurrence of certain happenings or events, which generally include lapse of time, death or incapacity of the offeror or offeree, destruction of the subject matter of the contract prior to acceptance, and supervening illegality. the rights and liabilities of parties to a contract may be changed by the application of law. Events that occur by operation of law do so because courts have determined over time that the rights thus created or transferred represent what the intent of the party would have been, had they thought about the situation in advance; or because the results fulfilled the settled expectations of parties with respect to their property; or because legal instruments of title provide for these transfers to occur automatically on certain named contingencies.

In Writing and Signed by the Parties

The California statute makes it clear that all real estate contracts, including listing agreements and sales contracts must be in writing and signed to be valid. There is one exception to the Statute of Frauds. Leases for one year or less may be oral and are enforceable. However, the most advisable way to conduct real estate transactions is to keep everything in writing.

Explain the Doctrine of Laches.

The Doctrine of Laches states that a court has determined a contract is unenforceable due to needless delay or neglect in filing a claim even though the Statute of Limitations may not have expired.

The same criteria must be proven to enforce a bilateral or unilateral contract in court. In each situation, the following will need to be established:

The contract existed The contract was broken A loss was suffered The person challenged was responsible

Loss of Bargain Damages

The standard measure of loss of bargain damages, for a total breach, would encompass the difference between the agreed contract price and the market value of the property on the date of breach. For instance, if a property was sold for $100,000 and at the time of the total breach by buyer, the property was worth $60,000, then the seller - as the non-breaching party - would presumably be entitled to $40,000 in losses. Likewise, if the value of the property had risen to $140,000 on the date of breach, if the seller is in total breach, the buyer is entitled to $40,000.

There are three scenarios that can occur when a contingency is not met:

The transaction is void. A contingency that was not met by the date outlined in the contingency voids the transaction. As agents, this is a scenario you don't want to see happen. Instead, talking with the parties and negotiating could help keep the transaction together. The contingency is waived. The party benefiting from the contingency can choose to waive it even if the condition was not met. For example, if a home sale contingency was not fulfilled, but the buyer wants to remove the contingency and still perform under the contract, he or she can do so. The agreement is revised. If a contingency was not satisfied, the parties can negotiate and revise the original agreement. This often occurs in relation to inspection reports where a buyer may not approve a report and the parties agree to a lower sales price for the property.

It's important to discuss and be clear on a few critical components of all contingencies.

Who is required to act? The person required to act is usually the party who benefits from the contingency, but that's not always the case. It should be clear if the buyer, seller, a third party (lender or inspector), or more than one party is required to act in regards to fulfilling the contingency. It is vital the wording is clear so all parties understand their responsibility. What should be done? This too should be clearly outlined in the contingency and not involve vague or ambiguous language. When must it be done? Every contingency should have a specific deadline. Without this, the decision of a "reasonable time" for the fulfillment of the contingency is left for a court to decide. It's much better to be clear from the beginning on the exact timeline the contingency must be satisfied. How is the contingency removed or satisfied? This is a critical component, because all too often an agent or buyer satisfies a contingency by being silent when an action was needed to have the contingency removed. This is why it's so important to know how the contingency is to be removed or satisfied to avoid inadvertently satisfying or removing a contingency.

List the four questions licensees should ask themselves to clearly understand a contingency?

Who is required to act? What should be done When must it be done? How is the contingency removed or satisfied?

Legal Description

a precise description of the location of the land is required so the parties know exactly what property is being transferred from seller to buyer. Today when the transfer of property occurs, certain elements including a legal description are written on a piece of paper termed a deed. A property address is not sufficient to transfer property. The exact location and boundaries must be included in the sales contract. A real estate contract that transfers property or any interest in property must include a legal description including leases, easements, right-of -ways, mortgages, time shares, and of course, sales. The legal description should be complete enough for an independent surveyor to locate and identify that specific parcel of land in the contract. The two commonly used types of legal description are: Metes and bounds Reference to a platted subdivision (lot, block, section, and subdivision name)

Competent Parties

has the legal capacity to enter into a contract and may be held to the promises made in the agreement. An incompetent party may not be held to the terms of the contract. The legal definition of competent party in California addresses age, literacy, mental capacity, existence, and legal authority. A person 16 or 17 years old may be emancipated and declared an adult with contractual capacity. If the person is pregnant, the emancipation age can be even younger. The party must have reached the age of majority. In California, the majority age is 18 years OR any married person even if under the age of 18. Illiterate persons are considered competent parties and may enter into binding written contracts. However, an illiterate person will have another person read the contract and then the illiterate person can sign as accepting agreement to the provisions. In order for a contract to be enforceable, a party entering into a contract must be identifiable and exist at the time of offer and acceptance. A person entering a contract for someone else must have the appropriate legal authority. A party may appoint an "attorney-in-fact" to serve as a fiduciary for him or her under a power of attorney.

Real estate contracts

legal agreements that underlie the transfer and financing of real estate, as well as the real estate brokerage business. Listing and representation agreements and real estate purchase agreements are the most commonly used real estate contracts. ex. property management agreements, rental and lease agreements, options, mortgages, and land sale contracts.

Important thing about contingency

once the contingency is satisfied, both parties are required to perform according to the contract terms or be in breach of contract.

Express contract

one in which all the terms and covenants of the agreement have been clearly stated and agreed to by all parties, whether verbally or in writing.

indefinite contract

one that cannot be fully understood because important terms are missing from the contract.

executed contract

one that has been fully performed and fulfilled: neither party bears any further obligation. A completed and expired lease contract is an executed contract. The landlord may re-possess the premises and the tenant has no further obligation to pay rent. completed their obligations in real-estate, that comes as closing

Voidable Contract

one which initially appears to be valid, but is subject to cancellation by a party to the contract who is believed to have acted under some kind of disability. Only the party who claims the disability may cancel the legal effect of the contract. For example, a party who was the victim of duress, undue influence, fraud, misrepresentation, or mutual mistake in creation of a contract and can prove it may disaffirm the contract. A voidable contract differs from a void contract in that the void contract does not require an act of disaffirmation to make it unenforceable.

unilateral contract

only one party promises to do something, provided the other party does something. The latter party is not obligated to perform any act, but the promising party must fulfill the promise if the other party chooses to perform.


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