Chapter 1: Contract Law Overview

Fraud

An act of deceit intended to cause someone to part with money or enter into a contract that he or she would not have entered into if the decision had been based on truth and accurate information.

Addendum

An addition to a contract; the contract must reference the addendum, and the addendum must reference the contract; listed in paragraph 22 of the TREC-promulgated contracts.

Valid

An agreement that meets all of the legal requirements of a contract.

Enforceable Contract

An agreement that meets all of the legal requirements to create a binding contract.

void and unenforceable.

An oral agreement of sale is

Default

Same as breach of contract: nonperformance of the legal terms of a valid contract.

Consideration

Something of value given by one party in exchange for something of value from another; money for a promise, money for money, a promise for a promise.

The statue of limitations varies for different legal actions, and any rights not enforced within the applicable time period are lost. In Texas, the statue of limitations for filing a legal suit on a written contract is four years. Remember that the statue of frauds requires agreements affecting title to or interest in real estate in Texas to be in writing to be enforceable, so the statue of limitations on a contract for the sale of real estate is four years.

State the statue of limitations for written and oral contracts in Texas.

Void

The absence of something.

Forbearance

Refraining from taking action.

the seller fails to provide and the buyer, or a previously occupied single-family residence, fails to receive the written seller's disclosure of property condition. homeowners association information and the Condominium Resale Certificate have not been provided to the buyer prior to creating a contract to purchase. the propperty is situated in a utility district or other statutorily created district providing water, sewer, drainage, or flood control (chapter 49 of the Texas Water Code), and the seller has not forwarded the appropriate notice prior to creating a contracgt to purchase.

A contract can be terminated at the option of the buyer when

Executed Contract

A contract that has been fully performed. Also used to identify the effective date of the contract when all parties have signed and the offeror has been notified of the acceptance of the offer.

Executory Contract

A contract that is in the process of being performed.

was once valid but no longer so.

A contract that is unenforceable

Voidable

A contract that may be set aside at the sole option of one of the contracting parties.

Unilateral Contract

A contract that requires one party to complete a performance before the other party is obligated to act; for example, a seller is not obligated to pay a brokerage fee until the agent produces a ready, willing, and able buyer.

Unenforceable

A contract that was valid but, for a variety of possible reasons, may no longer be enforced.

Binding

A contract where the agreement must meet certain requirements defined by Texas statues.

Bilateral Contract

A contractual agreement in which each party agrees to perform or forbear in exchange for the other party's promise to perform or forebear.

Performance

A contractual agreement or promise to do a particular act.

Option

A contractual right that obligates the seller to sell but gives the buyer the unrestricted right to proceed or terminate within a denied time frame and at an agreed upon price. To be valid in Texas, the buyer must deliver valuable consideration (money) to the seller and time is of the essence.

an assignment.

A document that transfers contract obligations to another party but does NOT release the first party's obligations is

Reasonable Time

A fair length of time, as determined by the court, for the performance of contractual obligations.

Lawful Objective

A lawful purpose.

Attorney-in-Fact

A legally competent and neutral party who is authorized by another to act in that individual's place as a fiduciary.

Mutual Agreement

A meeting of the minds between parties to a contract when no fraud, misrepresentation, or undue influence has been present in the negotiations.

Competent Party

A party who has legal capacity to enter into a binding contract.

Minor

A person who has not reached the ago of majority and, therefore, does not have legal capacity to transfer title to real property.

Legal Description

A property description that is of such certainty and accuracy that one can go to it and identify it; a description that is acceptable to the courts; a reference to a recorded plat or a metes-and-bounds description.

Amendment

A revision or change to a contract; the TREC contracts may be amended by using the TREC-promulgated amendment.

bilateral.

A sales contract in which a promise is exchanged for a promise is

Statute of Frauds

A state law that requires certain documents and agreements to be reduced to writing to be enforceable in a court of law.

Option to Purchase

A unilateral agreement that binds the property owner and prevents the property owner from selling the property to another party but does not bind the prospective purchaser to purchase.

Option to Terminate

A unilateral agreement that binds the property owner to release the prospective purchaser from all obligations if the buyer elects to walk away during the dined option period.

when the buyer sends an amendment to the seller asking for a change in the closing date.

Contracts can be discharged or terminated for all of the following reasons EXCEPT

An amendment is a change or modification to the existing content of a contract. An amendment is completed after a contract has been executed, but addenda are completed at the same time as the sales contract. An addendum contains additional information that is party of the original contract/agreement.

Distinguish between an amendment and an addendum, and describe how and when they are used.

Purchase contracts are bilateral contracts that involve a promise in exchange for a promise. The offer becomes valid and binding when acceptance is communicated. The seller in a purchase agreement agrees to deliver clear title, and the buyer agrees to deliver money. A unilateral contract involves a promise in exchange for an act. The seller agrees to pay the listing broker when and if the broker produces a ready, willing, and able buyer. An executory contract is generally defined as an enforceable contract that is in the process of being performed or fulfilled. An executory contract is one that is fully negotiated and signed by the parties.

Distinguish between bilateral and unilateral, and executed and executory contracts.

An unenforceable contract is an agreement that had all six elements at the time it became an executory contract, but due to a change in conditions, no longer meets the requirements of law and no longer can be upheld by a court. A void contract was never enforceable; an unenforceable contract was valid but is no longer.

Explain the differences in valid, void, voidable, and unenforceable contracts.

1. Competent Parties 2. Consideration 3. Mutual Agreement 4. Lawful Objective 5. In writhing and signed by the parties 6. Contain a legal description

Identify the essential elements of a valid contract.

A contract is discharged when the agreement is terminated. The most desirable case is when a contract terminates because it was completely performed, with all its terms fulfilled. A breach of contract is a violation of any of the terms or conditions of a contract without legal reason. Other reasons for termination include: partial performance of the terms, substantial performance, impossibility of performance, mutual agreement, operation of law, and rescission.

List reasons for termination of a contract, including breach of contract.

Liquidated Damages

Monetary damages to be paid by agreement of the parties in the contract when a default occurs.

Breach

Nonperformance of the legal terms of a valid contract.

executed.

Once the duties in a contract are completed by both parties, the contract is executed.

Incompetent Party

One who does not have the legal capacity to enter into a legally binding contract; a minor, or one who is under the influence of alcohol or other mind altering substances, or one who has been declared mentally incompetent by a court.

Time is of the Essence

The contracting parties agree that strict adherence to the time frames recited in the contract is an essential part of their agreement.

Earnest Money

The initial and additional cash deposits tendered by the prospective buyer of real property to show good faith. Earnest money and additional earnest money are addressed in paragraph 5 of the TREC-promulgated contracts and in the TREC Addendum for Back-Up-Contract.

Statute of Frauds

The law that requires the contract to be in writing and signed by the parties is the

Rescission

The practice of one party canceling or terminating a contract, which has the effect of returning the parties to their original positions before the contract was made.

Novation

The substitution of a new contract for an existing one or the substitution of a new party to an existing obligation.

Assignment

The transfer of one's legal rights to another party.

Amendment.

When the parties agree to change a contract that has already been agreed upon, the proper for to use is the

Earnest money

Which of the following is NOT an essential element of a valid contract?