Sect 17: WA Contract Basics

Express Contract

An express contract is one in which the terms of the contract are committed to words, either spoken or written.

Valid

Contains all essential elements

The Agency Disclosure form identifies who the broker represents in a given transaction.

T.

Enforceable

A contract that will stand up in court * In general, verbal contracts are con- sidered unenforceable, even if every other aspect of them is perfectly legal. When the contract transfers interest in real property, it must be in writing to be enforceable.

Unenforceable

A contract that won't hold up in court

Which of the following statements about electronic signatures in Washington is true?

A digitally signed purchase and sale agreement is considered an original document.

What is the statute of frauds?

A law requiring contracts conveying ownership in real property to be in writing to be enforceable

Bilateral

A mutual contract that involves an exchange of promises or other consideration between two parties

The pamphlet explaining the laws pertinent to real estate agency defines the agency relationship between a specific broker and a consumer.

F, The pamphlet describes the consumer's legal rights related to working with brokers and brokerage firms.

The Agency Disclosure form is required for all residential real estate transactions.

F, This form is required only when other representation or listing forms don't define the agency relationship

When the Buyer's Agreement -- No Agency is used, the broker owes the buyer fairness, reasonable care and skill, and confidentiality.

F.

Because using the appropriate form is essential to your role as a real estate professional, you'll need to know where to find them. In Washington, what's the single most common source of the forms most brokerage firms use?

Northwest MLS

Which of the following describes a unilateral contract?

One in which only one party is obligated

Sissy Redcap's litigious-happy grandmother coerced her into signing a contract that stated that Sissy would visit her grandmother every day and bring along a basket of goodies. In return, Sissy would receive a grandmotherly hug. After a week of visiting her grandmother, Sissy said, "The heck with this!" and played with her new friend, Winnifred Wolfe.

Partial performance

According to UETA, any law that requires a physical record will be satisfied by an electronic record, and any signature requirement can be met by an electronic ____________.

Signature

What's consideration with regard to a contract?

Something of value is given in exchange for something of value.

Consideration

Something of value, even a promise to do or not do something

Sellers of pre-1978 residential properties must provide lead-based paint information to prospective buyers.

T.

The Agency Disclosure form isn't a contract.

T.

When an Exclusive Sale and Listing Agreement is used, the listing brokerage earns a commission no matter who procures the buyer.

T.

When the Buyer's Agency Agreement is used, the broker represents the buyer and owes duties of loyalty, confidentiality, and disclosure.

T.

When the Exclusive Agency Sale and Listing Agreement is used, if the seller procures the buyer, the broker and brokerage firm receive no commission.

T.

Per the statute of frauds, which of the following agreements does NOT have to be written down in order to be legally binding?

The Lees rent out their basement to some college students for three months.

Which of the following states that, in certain cases, oral evidence can be used to support or complete an otherwise incomplete or ambiguous contract?

The parol evidence rule

What does the phrase "time is of the essence" mean with regard to a real estate contract?

The parties agree to proceed in good faith and not unduly delay the process.

If a party to a contract lacks legal capacity but enters into a contract anyway, which party may void the contract?

The party lacking legal capacity

performance of a contract

When all contract terms and conditions have been met Ex. Without full performance of the contract, Bill's house wouldn't sell.

Executory

A contract in progress; one or more terms of the contract remains undone

A contract for an illegal purpose is ______.

Void

Unilateral

A contract in which consideration (such as a promise) is only given by one party to the other

Executed

A contract in which the parties have met all terms of the contract

Which of the following best describes a bilateral contract?

A contract that involves an exchange of consideration between two parties

Contracts between a seller and a brokerage for the purpose of selling real estate are in the form of ______.

An express contract

Implied Contract

An implied contract is one in which the agreement is assumed based on circumstances.

Seller's property disclosure forms are prepared by the broker to disclose the condition of property being sold.

F, Sellers prepare the property disclosure form to inform buyers of the property's condition.

Examples of bilateral contracts:

- Listing agreement (exclusive right to sell and exclusive agency):The seller client agrees to pay the agent a commission in return for listing the property. - Buyer representation agreement: The buyer client agrees to pay the agent a commission in return for helping the client find and buy a property. - Purchase agreement: The seller promises to convey the property to the buyer in return for payment. Both parties promise to adhere to the terms specified in the contract and perform certain actions. - Lease agreement: In exchange for the promise of monthly payments, the landlord promises the use of the premises to the tenant for the term of the lease.

Unilateral Real Estate Contracts

- Listing agreement (open listing): The seller makes a promise to pay a commission to a licensee who finds the buyer, but the licensee is under no obligation to be the one who locates the buyer. - Option to purchase: The property owner can't offer the property to someone else until the potential buyer declines to exercise the purchase option. - Option to terminate: If the potential buyer decides to exercise the option to terminate the purchase agreement, the property owner must release the buyer from any further obligation associated with the sales contract

Washington Contracts and Forms

1. Buyer Representation - Buyer's Agency Agreement Broker owes fairness, honesty, reasonable care and skill, loyalty, confidentiality, and disclosure - Buyer's Agreement- No Agency Broker owes fairness, honesty, reasonable care and skill 2. Seller Representation Exclusive Agency Sale and Listing: - Agreement Seller owes commission to listing brokerage if any broker procures the buyer. - Exclusive Sale and Listing Agreement Seller owes commission to listing brokerage no matter who procures the buyer (including the seller). Most common type of seller representation. 3. Purchase and Sale Agreements Various forms specific to property type exist. - Residential - Multi-family - Condominium - Vacant land - Manufactured home - Co-op 4. Addenda - Addenda laddendums) add information to an original contract before it's signed; they're often used to include contract contingencies, as is the case with these Washington-specific addenda: - Financing Addendum - Escalation Addendum - Homeowner Insurance Addendum - Inspection Addendum - Title Contingency Addendum - Optional Clauses Addendum to Purchase and Sale Agreement (information about square footage, title insurance, personal property, etc.) 5. Amendment - An amendment changes some terms of the original agreement. - Amendment to Exclusive Listing Agreement - Optional Clauses Addendum to Purchase and Sale Agreement ("Other" section) 6. Pamphlet on the Law of Real - Estate Agency Describes legal rights of consumers related to working with real estate firms or brokers. Deliver to consumers before providing brokerage services. 7. Agency Disclosure - Not a contract - Identifies who a broker represents in a given transaction - Only used if other forms representation or listing forms\ don't define the agency relationship 8. Seller's Property Condition Washington has three s

You'll use addenda when you want to add terms to a sales contract. Based on your resource, which of the following three common addenda are used with the Washington purchase and sales agreement?

1. Inspection 2. Homeowner's insurance 3. Financing

Five elements are required for a valid contract:

1. Legal Competent Parties 2. Offer and Acceptance 3. Consent 4. Legal Purpose 5. Consideration

3 examples of considerations in a contact?

1. The seller's promise to sell the property to the buyer 2. The seller's commitment to transfer the property to the new owner 3. The property itself

Geraldine is purchasing the Bothwell's house. She wants to include an inspection contingency with her offer.

Addendum

Teresa is unsure if her current job is stable and doesn't want to be tied into a contract if she loses her job and can't get financing.

Addendum

Legally competent parties

Age of majority and mental soundness

Josephine and Roberto signed a six-month listing agreement. A month later, they decided that a nine-month agreement was more appropriate.

Amendment

Suzanne and Gary agreed to a purchase price of $295,000 and signed the sales contract. They later agreed to a purchase price of $282,000.

Amendment

Artist Lila Morgan signs an exclusive right-to-sell listing agreement with broker Megan Parker, paying the broker a commission when her house sells. Each party has specific obligations under the terms of their agreement. Which type of contract is this?

Bilateral

Banker Olivia Pope agrees to lease her four-bedroom, four-bath country home to author Fitz Grant for $2,000 a month. Both parties have specific obligations under the terms of their written lease. Which type of contract is this?

Bilateral

Desmond has a signed listing agreement with his clients, the Harpers. In exchange for helping the Harpers list, market, and sell their home, the Harpers have agreed to pay Desmond a commission. What type of agreement do Desmond and the Harpers have?

Bilateral

Jessica enters into a contract to acquire real property in return for some form of consideration. On the contract, Jessica is regarded as the ______.

Buyer

Bill and Mindy, who are neighbors, get into a disagreement about late-night noise. The two come to an agreement: Bill promises to stop having loud parties and Mindy promises to keep her dogs inside after 10 p.m. Their promises represent the ______ in their agreement.

Consideration

Two neighbors got into a disagreement about early-morning noise on the weekends. The two came to an agreement: One neighbor promised to not mow the lawn before 10 a.m., and the other neighbor promised to put bark collars on her dogs in the early morning hours. Their promises represent the ______ in their agreement.

Consideration

Which term describes a contract that will stand up in court?

Enforceable

Dwight tells his buyer Jamie that a nearby stream could possibly flood the basement, though it's never happened to him. After signing the contract, Jamie's home inspector shows proof that the basement flooded last year, when Dwight was still living in the home. What's true about this situation?

Dwight has committed fraud, which has invalidated Jamie's consent.

Jackie, 25, agrees to sell Betty, 54, her one-bedroom, one-bath cottage for $100,000. Both parties are sane and sober, both agree to the terms of the written agreement, and both sign the agreement. Both parties carry out their terms as set forth in the contract, which includes a legal description of the property. Is this contract enforceable or unenforceable?

Enforceable

Marketing director Sherman K "Shep" Watson, 53, had fallen into a sweet deal when he'd been transferred from his small town to the big city seven months earlier. He'd signed a lease-option agreement with traveling salesman, Francis Keane, on Keane's three-bedroom, three-bathroom home on a one-acre ranch just outside the city limits. Shep and Francis negotiated and agreed on the contract, and when the seven-month lease portion of the agreement was up, the two finalized the purchase. The property title went to Shep, the purchase price went to Francis, and everyone lived happily ever after. Which type of contract is this?

Executed.

School teacher Ramon Ramirez, 64, was looking forward to retirement—and never looking at another eye-rolling teenager for the rest of his life. The year before, while on vacation, he'd stumbled upon a sweet little fishing cottage that had his name all over it—and it was for sale! He knew it was meant to be his post-retirement home. The seller, 75-year-old Wayne Harris, had decided he was bored with the lazy life of a retiree and wanted to move to the Big Apple for a few years. The two signed a lease-purchase agreement. Under the written contract, which was drawn up by an attorney who specialized in such deals, Ramon would lease the property until the following May (a mere eight months away), when he would purchase it. Both parties have signed the agreement. Which type of contract is this?

Executory

Property owner Easton West, 50, had offered his three-bedroom, three-bath home as a lease-option. Buyer Jim Jarmashian, 34, was sold on the idea, because he wouldn't be financially able to buy it until the following March (10 months from the date they signed the lease-option agreement), when he turned 35, and the trust fund from his grandparents would be available to him. Easton and Jim have signed the written agreement—which was drawn up by a lawyer experienced in dealing with lease-options—and now it's a waiting game. Which type of contract is this?

Executory, all terms have not been met.

Linda wants to purchase her first home. She found the perfect place in Atlanta. The contract for purchase was signed, and she closed on the home within a month. What type of contract is this?

Express

Hank, a licensee, and Steve, a buyer, don't have a written agency agreement, but Hank continues to show him houses and answer his questions about negotiation and terms. What type of contract do Hank and Steve have?

Implied

If your aunt asks your sister to paint her house and pays her $1,000, asks your brother to plant her garden and pays him $1,000, and then asks you to build her deck and doesn't pay you, this would feel like a breach of which type of contract?

Implied

To meet the requirements of the statute of frauds, an agreement must clearly identify the contract's subject matter, present the contract's essential terms and conditions, and ______ to be enforceable.

Identify the contracting parties

Burt Samuels brings Breanna Arthur to a home that is For Sale by Owner. The seller lets Burt (the agent) show the house and negotiate a sale on the seller's behalf. What type of contract exists between the agent and the seller?

Implied, there's nothing in writing.

Legal purpose

Must be for a lawful reason

Void Contract

Has no legal force or effect

What does the parol evidence rule state?

In most cases, a written agreement is the final and comprehensive expression of the parties' agreement. It generally prohibits introducing oral or written evidence that contradicts that agreement.

Which of the following best explains how the statute of frauds protects consumers?

It provides requirements that certain contracts have to meet to be legally enforceable.

Jolene signs a contract to buy Harvey's home. Before closing, it's discovered that Jolene is only 16 years old. Because she's a minor, she's not considered legally competent to enter into a contract. Which of the parties can void the contract?

Jolene

Mika has borrowed $5,000 from her cousin Jun and not repaid it. Now, Mika is selling her house to Jun's nephew, Cheong. As Mika writes up the contract, Jun tells her that if she doesn't sell the house at a steeply discounted price, Jun will take the matter of the $5,000 to court. What is true about this situation?

Jun's influence is invalidating Mika's consent.

What does "performance of a contract" mean?

Meet all of the terms of a contract.

A legally competent party means that an individual has the capacity, legally and ______, to enter into a contract.

Mentally

Seller Tad has found a buyer, Minnie, for his property. The two of them are about to enter into a contract when Tad receives an email from Minnie. Turns out that Minnie's co-worker used to date Tad and told Minnie he'd cheated on his construction contractor licensing exam. Minnie threatens to spill the beans unless Tad comes down $10,000 on the sales price. Tad reluctantly agrees and they sign the contract. What is true about this situation?

Minnie used duress against Tad, so the contract is invalid.

Voidable Contract

Missing one or more essential elements and thus may be canceled by one or more of the parties

Consent

Must be entered voluntarily, without duress or undue influence

In order for an electronic signature to be valid in Washington, which of the following is true?

Parties to the contract must agree to the use of electronic signatures.

One day, Herman Yolk and his wife, Imelda, bought a goose. The pair entered into a contract with the goose that stated that as long as the goose continued to lay golden eggs each day for a month, the couple would not have the goose for dinner. The goose laid a golden egg each day for one month, and the Yolks ordered takeout.

Performance of contract

Drew and Hank were camping at Hank's riverfront cabin. Hank told Drew that he rarely used the cabin and was thinking of selling it. Drew said that he'd buy it from Hank for $80,000, which Hank agreed was a fair price. It's two months later, and Hank is upset that Drew now says he won't buy it. Why isn't this contract enforceable?

Real estate contracts must be in writing.

It must be in writing

Required for contract validity only when the nature of the contract is real property

Offer and acceptance

Requires mutual agreement of terms

Statute of Frauds

The statute of frauds was adapted from a 1677 English law for use as a defense in a breach of contract lawsuit. Each state has its own version of the statute of frauds, but, in general, the law prevents injury from fraudulent conduct in certain types of agreements, including property transfers. Other types of contracts that the statute of frauds requires to be in writing to be legally enforceable include: - Marriage contracts (including prenuptial agreements) - Contracts that, by their terms, can't be completed within one year (such as a lease of property that's for longer than one year) - Contracts by the executor of a will to pay a debt of the estate from the executor's own funds - Contracts for the sale of goods totaling $500 or more - Contracts in which one party agrees to pay the debt of another

What does the parol evidence rule say about contracts?

The terms agreed to in a written contract are the only terms relating to that contract

The Parol Evidence Rule

The word "parol" comes from the French term parole, meaning "word" or "formal promise." The parol evidence rule provides that in most cases, a written agreement is the final and comprehensive expression of the parties' agreement, and generally prohibits the introduction of previous verbal or written statements that contradict, augment, or otherwise change the written contract's terms.

In the eyes of the law, why do people under age 18 lack contractual ability?

They're minors.

Assignment of Contract.

Think of Oprah. She wants to buy a house. However, she doesn't want the seller to know who she is. She would still like to buy a house at the most affordable price. So she assigns it to an investor. Oprah remains responsible. An assignment of a contract occurs when a new party is substituted for one of the original parties. Unless it's done with the permission of both parties and provisions are included to release the original party from liability, the original party remains responsible to the terms of the agreement if the new party fails to live up to those obligations. The request to assign a contract is most often done at the time the offer to purchase is made. Although contracts for the lease or sale of real estate are generally considered to be assignable without permission of the seller or lessor, assignments may not have any adverse effect on the other party to the contract. In fact, many sale and lease contracts have a clause prohibiting assignment without the agreement of the seller or lessor.

Bruno, a tenant, and Becka, the landlord, have entered into a nine-month lease agreement. Per their agreement, Bruno will pay Becka a monthly amount in exchange for using the property. What type of contract is this?

This is an express contract because the specific terms of the agreement and consideration to be exchanged are defined in words.

Jack Nimble and Jill Quick entered into an agreement to open a candlestick shop. True to her name, Jill completed everything she needed to do to meet her part of the contract well within the agreed upon time frame. Jack, on the other hand, didn't jump to it, and his failure to meet deadlines caused the two to lose the store.

Time is of the essence

Which of these is the best meaning for "assignment of contract"?

To substitute a new party for one of the original parties stated in the contract

Property owner, Stephanie, 75, signs a contract with buyer Lula, 67. The written contract includes the legal description of the property and the terms and conditions of the sale; both parties sign it. Two days before closing, a tornado races through town and flattens the property. Is this contract enforceable or unenforceable?

Unenforceable

The statute of frauds states that if a contract transferring ownership of real property is not in writing, it's ______.

Unenforceable

Property owner Judy offers to pay a 4% commission to any licensee who brings her a buyer for her two-bedroom, one-bathroom house. Stan, a licensee, can bring her a buyer to earn the commission, but he's under no obligation to do so. Which type of contract is this?

Unilateral

Property owner Romi, 45, signs a six-month option agreement on her ranch with cowboy Tex, 55. Under the terms of an option agreement, Romi agrees to not sell her property to any other sellers for six months. Tex has no obligation to purchase Romi's property from her. Which type of contract is this?

Unilateral

A real estate contract written for an illegal purpose is ______.

Void

Gangster Mal Mapone needs to dispose of a particularly gabby former business associate, Benny the Bird. He agrees to sign over the title to an old property he owns to Johnny in exchange for Johnny's promise to make Benny disappear. What type of contract is this?

Void

Two drunk people, Earl and Merle, agree to swap houses—Earl's nice house on the Gulf for Merle's run-down shack in the middle of nowhere—if the Cowboys win their next three games. They write up the contract on a piece of paper and each sign it, with the bartender as their witness. They all drink to football, and within two hours, Earl and Merle are dragged off by the cops for being "drunk and disorderly." What type of contract is this?

Void, they are both not competent

Property owner Jacob Sladder, 32, signs a contract with 17-year-old Alfred Woodard in which Jacob agrees to sell his two-bedroom, one-bath home to Alfred for $110,000. Both parties sign the written contract, which Jacob's attorney had drawn up. The contract includes a legal property description, but not the street address. What type of contract is this?

Voidable

Property owner Mike and buyer Kimberly sign a written real estate contract for Kimberly to purchase Mike's house for $250,000. The contract contains both the legal description of the property and its street address. They both agree on the price and terms of the contract and sign it. In the contract, Kimberly stated that she would provide $10,000 in earnest money by a certain date but failed to do so. What type of contract is this?

Voidable

Sylvia, who's 15 years old, and her neighbor Marge, who's 24, sign an agreement that Sylvia will babysit Marge's toddler for the summer for $10 an hour. What type of contract is this?

Voidable

An unenforceable contract is one that ______.

Won't stand up in court

Can implied contracts be legally binding

Yes