Chapter 3- Introduction to Contracts

There is not generally a binding executory contract until

(1) a written offer has been made (2) there is a written acceptance by the offeree (3) the offeree has notified the offeror of the acceptance.

Unilateral Contract

- One sided contract - One party makes a promise to entice a second party to do something. The second party is not legally obligated to act. However, if the second party does comply, the first party is obligated to keep the promise. ex: An owner gives a tenant an option to purchase the property the tenant is leasing within a certain time period. The tenant is not obligated to purchase the property, it is the tenant's choice whether to exercise the option. This is a unilateral contract.

Bilateral Contract

- both parties promise to do something; one promise is given in exchange for another. ex: real estate sales contract

Elements of a contract for legal validity

- offer and acceptance - Consideration (money) - Mutual agreement - Legal purpose - Legally competent parties

to give more protection to purchasers, closing and delivery of a deed will occur more than ________ days after execution

180 Executory contracts under this definition include contracts for deed, lease-purchase, or lease-option transactions. TREC does not promulgate contracts for any of these

Which of the following is considered an executory contract? A) A lease-option contract B) A contract for deed C) All of these D) A lease-purchase contract

C) All of these

A contract that complies with all the basic requirements may still be voidable. To be valid, the contract must have A) underwriter approval. B) title approval. C) mutual agreement. D) one essential element.

C) mutual agreement.

is it legally required for offers and counter offers to be in writing?

No, but it is heavily encouraged

Third-Party Financing Addendum

This addendum makes the contract contingent on the buyer getting buyer approval (assets, income, credit history) for financing within a certain date. Similarly, the contract is contingent on property approval (property has satisfied lender's underwriting requirements for the loan). In both cases, the buyer may choose to terminate the contract and receive the earnest money therefore making the contract voidable.

Addendum for Back-up Contract

This addendum is used when a Back-Up Contract is executed on a property where there is an existing contract. The Back-Up Contract is binding on the parties and is conditioned on the first contract terminating by a certain date. If the first contract does not terminate by that date, the Back-Up Contract terminates (is voided) and the earnest money is refunded to the buyer.

Addendum for Sale of Other Property by Buyer

This addendum is used when the buyer needs to sell an existing home. The addendum creates a contingency that lets the buyer terminate or waive the contingency if the buyer's property is not sold by a date certain. In this case the contract is voidable as the buyer can choose to waive the contingency

Actual Authority

authority that the principal has expressly or impliedly given to an agent who has accepted it

Contingencies

conditions which if not met, give the buyer (and sometimes the seller) the option to take some other action, such as extend the contract closing date, extend the time to complete the act, waive the contingency, or to terminate the contract and be paid the earnest money.

executory contract

exists when one (or both) party still has an act to perform. ex: A sales contract is an executory contract from the time it is signed until closing; ownership has not yet changed hands, and the seller has not received the sales price. At closing, the sales contract is executed.

Unenforceable

has all legal elements and is enforceable only between the parties

Voidable

has all legal elements and may be rescinded or disaffirmed

Void Contract

lacks one or all elements and has no legal force or effect

Apparent Authority

may be found if a principal's actions lead third parties reasonably to assume that the agent has authority.

Undue influence

occurs when one party takes advantage of another person using a position of power, trust or a confidential relationship to enter into a contract

Mutual mistake

occurs when the parties to a contract are both mistaken about the same material fact within their contract.

executed contract

one in which all parties have fulfilled their promises; the contract has been performed.

Implied Contract

A contract formed in whole or in part from the conduct of the parties.

Express Contract

A contract in which the terms of the agreement are fully and explicitly stated in words, oral or written.

A valid legal contract must have A) legally competent parties. B) acceptable offer. C) consent of at least one of the parties. D) earnest money.

A) legally competent parties.

Once a sales contract is completed with all parties fulfilling their promises, the ownership changing hands, and the seller receiving the sales price amount, the sales contract is A) a valid contract. B) an executed contract. C) a voidable contract. D) an executory contract.

B) an executed contract.

A couple starts celebrating the sale of their home after their listing agent calls them with the news that they've received an acceptable offer. The listing agent says he is coming over to get their acceptance and signatures. However, by the time the agent arrives the sellers are completely inebriated. The agent has them sign the contract and then takes it to the title company. This contract is A) illegal. B) void. C) voidable. D) lacking legal consideration.

C) voidable.

Addendum Concerning Right to Terminate Due to Lender's Appraisal

Creates an appraisal contingency. Under the addendum, the buyer has three choices regarding the appraisal that is part of the property approval in the Third Party Financing Addendum attached to the contract. The buyer may choose to waive his right to terminate the contract under the Property Approval Clause of the Third Party Financing Addendum if property approval is not obtained based on the appraisal; the buyer may choose a partial waiver if Property Approval is not obtained based on the appraisal and the appraised value is a stated amount or more; or the buyer may choose to terminate the contract within a set number of days after the effective date if the appraised value is less than a stated amount and the buyer delivers a copy of the appraisal to the lender. The buyer may choose one option only.

A license holder uses a TREC-promulgated residential contract to create a contract for deed. Which statement is TRUE? A) The license holder will have a valid contract for deed, but the buyer may not like the format. B) The license holder is at risk for criminal prosecution. C) The license holder is following the proper legal procedure for creating a contract for deed. D) The license holder is at risk of having his license suspended or revoked for engaging in the unauthorized practice of law.

D) The license holder is at risk of having his license suspended or revoked for engaging in the unauthorized practice of law.

A person approaches an owner and says, "I'd like to buy your house." The owner says, "sure," and they agree on a price. What type of contract is this? A) Implied B) Void C) It is not a contract D) Unenforceable

D) Unenforceable

A contract must meet certain minimum requirements to be considered legally valid. All of the following are essential elements of a valid contract EXCEPT A) legally competent parties. B) consideration. C) mutual agreement. D) earnest money.

D) earnest money.

When a contract appears to be valid but may be rescinded or disaffirmed by one or both parties based on some legal principle, it is A) enforceable. B) unperformable. C) valid. D) voidable.

D) voidable.

Valid Contract

Has all legal elements and is legally enforceable

One to Four Residential Contract, Objections

If buyer objects to defects disclosed in the survey or title commitment and seller fails to timely cure the objections, buyer may terminate and receive the earnest money therefore making the contract voidable.

One to Four Residential Contract, Lender Required Repairs and Treatments

If lender required repairs and treatments are more than 5% of the purchase price, buyer may terminate and receive the earnest money therefore making the contract voidable.

Seller Financing Addendum

If the seller has agreed to seller financing, this addendum makes the contract contingent on buyer timely providing financial information to seller and seller approving buyer for financing. If buyer fails to timely provide the information to seller, seller may terminate and the earnest money will be paid to seller. If buyer timely provides the information and seller determines that buyer's credit is unacceptable, seller may terminate the contract within seven days and buyer will be refunded the earnest money. In either case, seller may choose to terminate, therefore making the contract voidable.

One to Four Residential Contract, Commitment

If, due to factors beyond sellers control, the title commitment and exception documents are not timely provided to buyer, the buyer may terminate the contract and receive the earnest money making the contract voidable.

Short Sale Addendum

This addendum makes the contract contingent on the seller getting approval from the lender to sell the property and accept seller's net proceeds in full satisfaction of seller's liability under the mortgage loan. If the seller does not provide the buyer with notice of the lender's approval by a date certain or the lender gives timely approval and later withdraws it prior to closing and funding, the contract terminates and the earnest money is refunded to the buyer. Under this contingency, the contract terminates (is void) if the contingencies are not met.

Duress

the use of force or coercion by one party to induce the other party to enter into a contract. The coercion may be physical or mental, but it must deprive the other party of free will.

A mutual mistake, misrepresentation, fraud, undue influence, or duress would make a contract

voidable