CH 8 FBE 427
Simon offers to sell Bryshawn one acre of land for $10,000. Bryshawn responds with a counteroffer that he will pay $9,500 for the acre of land. If Simon rejects the counteroffer of $9,500, Bryshawn cannot accept the offer of $10,000 because what termination of offer?
Counteroffer
Day 1- "I would be interested in buying you property" John Day 2- "I might consider selling it" Mo Day 3- "I could offer $3.2 million" John Day 4- "I'll sell" John When was the offer? Day 1, 2 ,3, 4, or none?
Day 4
Bill wants to sell his property to Fayud, and they want to draft their own agreement. What are common terms included in a contract for the sale of real estate?
Identification of the parties to the contract, Proper description of the property, including handling of any related personal property, Purchase price and payment terms, Brokerage relationships and commissions to be earned, Amount of deposit or down payment, Quality of the title to be transferred When the purchaser may take possession, Allocation of costs of closing, Buyer's inspection rights, Closing date, "As Is" provision, Risk of loss provision, Contingencies
If a homeowner tells his neighbor that he will sell his house for $175,000 unless he changes his mind, what type of promise is this?
Illusory Promise; Because the homeowner can elect not to perform, the promise is illusory and not valid consideration.
Bigger Grass Cutting, Co., had a verbal contract with Event Hotel, Co., to provide landscaping services to Event Hotel for two years at a rate of $500 per month. Before Bigger Grass begins landscaping, Event Hotel decides to change vendors and fires Bigger Grass. Bigger Grass sues Event Hotel for breach of contract. Who will win and why?
Event Hotel will win because the contract violated the statute of frauds because it cannot be completed within one year, and such a contract must be in writing in order to be valid. Statute of Frauds has to be written contract especially for a one year contract
ILSFDA
Interstate Land Sales Full Disclosure Act - Developer selling out-of-state must provide statement of record to HUD and property report to buyer. The ILSFDA has helped to curb abuse and fraud created by common p. 199promotional-purchase schemes for properties that offered little disclosure regarding the status and cost of road and utility installation
Sean finds a beautiful home and submits an offer to purchase. The seller accepts Sean's offer. Unbeknownst to Sean, the structural support beams in the attic had significant termite damage, and the seller concealed the damage by applying wood putty and painting over it. After Sean moved in, part of the attic collapsed due to the termite damage. Sean seeks to rescind the contract, but the seller says it's too late to rescind. Identify the available defense to the enforcement of the contract.
Misrepresentation
Jacob enters into an oral agreement to sell his home to Jennifer. Jennifer pays Jacob $150,000 for the property, and Jacob gives Jennifer the keys to the property and allows her to take possession of it. This is an oral contract satisfying what in the statute of frauds?
Part Performance Exception 1) the purchase price has been fully or partially paid (2) the party has received possession of the property (3) valuable improvements have been made to the property. 2/3 of the elements have to be met
The property will be conveyed with good and marketable title that is insurable by a reputable title insurance company at the regular rates, free and clear of all liens, encumbrances, and easements, excepting, however, the following: existing deed restrictions; historic perseveration restrictions or ordinances; building restrictions; ordinances; easements of roads; easements visible upon the ground; easements of record; and privileges or rights of public service companies. Why?
Quality of Title has to be marketable and free of any encumbrances or liens
Deeds, mortgages, easements, liens, or agreements affecting the use of real property must be in writing under what contract formation?
Statute of Frauds
A month-to-month lease does not need to be in writing to be enforceable; however, a lease longer than a year must be in writing to be enforceable, under what contract formation?
Statute of Frauds --> writing has to be over a year
Undue influence
arises when a person in a dominant position takes advantage of another person's mental, emotional, or physical weakness and persuades that person to enter into a contra
offer
expresses the intent to enter into a binding and enforceable contract. That intent may be stated orally, in writing, or by inference from the participants' conduct. Prospective buyer (offerer) Receives offer (offeree)
Contract
is a legally enforceable promise. One of the basic principles regarding contract law is the freedom to contract.
If a buyer breaches the contract to purchase a property for $350,000, and the seller can resell the property at $375,000, under monetary damages, the seller....
is not entitled to any damages.
Duress
occurs when one party, by means of wrongful threats or force, induces the other party to consent to a contract out of the other party's fear or apprehension.
Whom does the ILSFDA apply to?
only to the sellers or lessors of 100 or more lots or parcels of subdivided land who sell these lots by using the U.S. mail or any other instrument of interstate commerce (such as through television advertising, e-mail, websites, and national publications)
parol evidence rule
prohibits the admission of evidence of any prior or contemporaneous oral or written negotiations or agreements that contradict, modify, or vary the terms of a contract intended to be the complete and final expression between the parties
Colleen verbally agrees to sell her house to Karrie for $200,000. Karrie provides a down payment of $100,000, begins making payments on the balance, and takes possession. This example
satisfies the partial performance exception to the statute of frauds because Karrie performed part of the verbal agreement. She did 2/ 3 of partial
Sean lists a home for sale. Brittany tours his home at 9:00 a.m. and is quite interested in it. If Sean gives Brittany a one-week exclusive option to purchase the home, can Sean still revoke the option at any time?
yes! In this example, Brittany did not pay Sean for the option
Parole Evidence Exceptions
To establish a defense to the enforcement of the contract (that is, to show that the contract was entered into as a result of misrepresentation, fraud, duress, undue influence, or when consideration is lacking for the contract) To explain and interpret existing ambiguous language or terms.
Tina purchases a home from Jordan. During the negotiation, Tina asks Jordan if any issues have occurred with the swimming pool equipment. Jordan states that the pool equipment is "as good as new," but she is aware that the equipment needs significant servicing to fix several major repairs that would not be discovered during a reasonable inspection. What exception to the parol evidence rule?
To establish a defense to the enforcement of the contract (that is, to show that the contract was entered into as a result of misrepresentation, fraud, duress, undue influence, or when consideration is lacking for the contract). --> would allow for the admission of Jordan's oral statement to Tina in a suit against Jordan for the misrepresentation.
Buyer acknowledges and agrees that: (i) buyer has been given the opportunity to inspect the property; (ii) buyer will accept the property in its "AS IS CONDITION WITH ALL FAULTS" as of closing; and (iii) buyer is relying solely on its inspections and not on any statement, information, and/or other material from seller with respect to the property.
"As is" Clause --> seller is still obligated to disclose latent defects (rains in winter and leaks)
Buyer enters into a contract with seller to purchase a property for $300,000. Buyer breaches the contract, and seller is able to sell the property to a new purchaser for $290,000. What monetary damages may the seller seek against the buyer? Monetary Damages?
$10,000
Identify the ways in which an offer can be terminated.
1. Lapse in Time 2. Rejection of counteroffer 3. Revocation 4. Death 5. Destruction 6. Counteroffer DDRRLC
Exemptions of ILSFDA
1. Lots in a subdivision with fewer than 25 lots 2. Lots in a subdivision of 20 acres or more in size 3. Sales of securities by a real estate investment trust (REIT) 4. Land owned by the government 5. Cemetery lots
Offer has 3 elements
1. Objective Intent 2. Definite & Reasonable certain terms 3. Communicating the offer to the offeree
ILSFDA makes developers
1. Provide for a personal on-the-lot inspection of the lot purchased or leased 2. Disclose to the buyer who has responsibility for building and maintaining roads, water, and sewer utilities, and when they will be completed 3. Provide that the agreement may be revoked within seven days of its execution
Remedies to a Breach in Contract (4)
1. Specific Performance - buyer tells seller that they have to go through 2. Liquidated Damages- 3% of purchase price, a clause that whatever the buyer breeches has to be compensated (exclusive remedy) 3. Monetary Damages- If the buying party does not provide LD clause then the specific performance is not required and they have to pay 4. Rescission of a contract- the action to cancel a contract ex: when they find out there are structural damages on the property
Valid Real Estate Contract consists of what?
Agreement (offer and acceptance) Consideration Capacity of Parties Legal Purpose Satisfaction of Statute of Frauds (writing or evidence)
Identify, define, and explain the various elements of a valid contract, giving an example for each. COAaLS
Agreement—requires the parties' have mutual consent. This occurs when an offer is made by one party and accepted by the other party. Consideration—the bargained for exchanged given by both parties in a transaction. Both parties must give something up for what they receive in exchange. Legal capacity of the parties—both parties must be of sound mind and proper age in order to enter into a valid contract. (A person who is intoxicated does not have legal capacity.) Legal purpose—the contract cannot be for something that violates the law. Statute of Frauds—certain contracts must be evidenced by a writing or a memorandum in order to be enforceable. (The conveyance of property is subject to the statute of frauds.)
What is an option contract?
An option contract is a contract that limits the power of the offeror to revoke the offer prior to an acceptance for a limited period of time. Option contracts must be supported by separate consideration in order to be valid. The buyer cannot revoke their offer. They buyer compensates the seller to keep the listing open.
What types of real estate contracts must be in writing?
Contracts conveying interests in real estate contracts that cannot be performed within one year must be in writing.
If a homeowner placed a sign on her front lawn that stated, "For Sale by Owner, $200,000 cash, as is, 30 days to close escrow," that promise, although not made to a specific person, that would be what offer qualification?
Definite and Reasonably certain terms
Elliot offers to sell his house to LaFonda for $200,000. LaFonda waits for one year and then sends Elliot a formal acceptance of the offer. Elliot still owns the house but refuses to sell the house to LaFonda. Which of the following statements best describes the contract status between Elliot and LaFonda?
Elliot and LaFonda do not have a contract because LaFonda did not accept the offer within a reasonable period of time. An offer must be accepted within a reasonable time.
Elliot offers to sell his house to LaFonda for $200,000. LaFonda accepts. Elliot later learns that the house is really worth $400,000. Given this new information, Elliot refuses to sell the house. Which statement best describes the contract status between Elliot and LaFonda?
Elliot and LaFonda have a contract because Elliot cannot revoke the contract based on his original selling price being too low. Principle of consideration
Larry wants to sell his home but must first make some improvements, such as painting the entire exterior of the home. Larry contacts a painter, Maxine, to submit a bid for the painting job. During the inspection by Maxine, she says that she might be able to paint the house for $8,000, at most. Larry says that sounds like a fair deal. Later, when Larry receives a written bid from Maxine for $10,000, Larry asserts that there is a contract between Larry and Maxine for $8,000. Which of the following best describes the contract status between Larry and Maxine?
Larry and Maxine do not have a contract to paint the house for any price because there has been no manifestation of intent based on the objective intent of the parties. There is no objective intent to create a contract here because Maxine said she "might" be able to paint the house for a certain price, and Larry's response to an uncertain offer cannot constitute an acceptance. Larry has not accepted the $10,000 bid either.
If a real estate developer bribed public officials in connection with a proposed development, the resulting benefits obtained by the developer would be illegal, under what contract formation?
Legal Purpose
Megan tells her friend Ainsley that she will clean Ainsley's house for a fair price. Ainsley looks seriously at Megan and says, "I appreciate that. Yes." Which of the following best describes the contract status between Megan and Ainsley?
Megan and Ainsley have no contract because the contract lacks definite terms. contract lacks definite terms.
If a buyer breaches the contract to purchase a property for $350,000 and the seller can resell the property at $325,000, the seller is entitled to damages of $25,000 (that is, the difference in price between that stated in the original contract and the price at which the seller was able to resell the property) Under what breech of contract?
Monetary Damages
Sarah, currently living in Portland, Oregon, has inherited a property in South Dakota from her mother. Sarah has no desire to live on the property and lists it for sale. She accepts an offer to sell the property for $50,000. If Sarah later discovers that the property was worth significantly more and wants to rescind the contract because the consideration paid was too low, can she do so?
No a court would not set it aside because of the failure to price it at fair market value.
Rebecca offers to sell her land to Billy for $25,000. Billy agrees but adds that the sale has to be completed within 14 days. Do they have a valid contract?
No contract has been formed because Billy's response is not an acceptance; it is a counteroffer. He added an additional term or condition to the sale, which means that the original offer is terminated and Billy's offer has become a counteroffer. An acceptance by Rebecca is now required in order to form a valid contract.
Sean lists a home for sale. Brittany sees the home at 9:00 a.m. and is quite interested in it. If Sean gives Brittany a one-week exclusive option to purchase the home, and Brittany gives Sean $100 to keep the option open for the week, can Sean revoke the option during the one-week option period?
No, Brittany compensated Sean $100 under the option contract
Buyer offers to purchase Seller's commercial property for $1,250,000. Seller rejects the offer and offers to sell the property for $1,500,000. Buyer believes the price is too high and offers to purchase the property for $1,350,000. Seller accepts and adds that closing must occur within 45 days. Is there an enforceable contract between the parties?
No, although the seller accepted the offer of $1,350,000, the seller added an additional term by requiring the closing to occur within 45 days. This does not satisfy the mirror-image rule.
If the offeror states, "I will sell you my vacant land for $25,000," and the offeree responds, "I accept so long as we can complete the transaction within 30 days." Is this an acceptance of offer?
No, the offeree's response is not in the exact same terms as the offer and is treated as a counteroffer and not as an acceptance.
Buyer enters into a contract with seller to purchase a property for $320,000. Buyer breaches the contract, and seller sells the property to a new purchaser for $325,000. What monetary damages may the seller seek against the buyer? Monetary Damages?
None --> Sold for more than original price so he cannot benefit
After finding yet another crack in the stucco of the house with a fair market value of $350,000, the angry homeowner shouts, "I hate all the problems this house has! I'd sell this house for $100 just to get rid of it." A nearby neighbor, hearing this statement, would not be able to accept this offer because it cannot be taken seriously because it does not follow what type of offer qualification Using the preceding example, if the homeowner, while speaking to a neighbor, complains about all of the issues of the house and, wearing a serious facial expression, states, "I'd sell this house for $300,000 just to get rid of it," the homeowner has created a valid offer
Objective Intent
Explain why the Statute of Frauds is required for some contracts but not others. Should all contracts be required to be in writing to be enforceable?
Partial Performance If you are selling the home yourself, to someone themself, you can have the oral agreement if you pass 2/3 of these: 1. possession of the property 2. payments of the purchase price 3. any improvements made on the home
fter purchasing a property, the buyer determines that the foundation has many structural defects yet the seller represented in the sale documents that the foundation was structurally sound. Instead of suing for the damages for the cost of repairing the foundation, the buyers may seek to....
Rescind the contract under breech of contract
Penalties for ILSFDA
Rescission Rights Civil and Criminal Penalties
Sam lists a home for $175,000. Brian submits an offer to purchase Sam's home for $175,000. However, before Sam accepts Brian's offer, Brian finds another home for sale by Sarah for $150,000. Before Sam can accept the offer, what can he do to terminate the offer?
Revoke
If any damage to any portion or destruction of the property occurs before the closing, the seller must elect either (a) to give buyer a credit for the entire amount of such loss and assign to buyer the right to collect any insurance proceeds with respect to such loss, or (b) to terminate this Agreement. If any damage to or destruction of the property occurs, the closing date will be extended until the amount of the insurance proceeds is determined and seller has made any election permitted under this paragraph, UNDER WHAT?
Risk of Loss
Buyer enters into a contract with seller to purchase a property for $300,000. Buyer breaches the contract, and seller sells the property to a new purchaser for $300,000. The contract contained a liquidated damages clause equal to the earnest money. Buyer put an initial deposit of $10,000 down on the property. What damages may the seller seek against the buyer?
Seller may obtain the earnest money deposit of $10,000.
Texas Incorporated listed a hotel to sell. Ramirez entered into a purchase agreement for hotel at $800,000. Ramirez paid $25,000 in earnest money. The agreement provided for liquidated damages if the purchaser for any reason failed or refused to complete the purchase. Ramirez included a financing contingency that the agreement was conditioned upon Ramirez finding satisfactory financing. Ramirez was not able to obtain satisfactory financing and decided not to purchase the hotel. Texas Incorporated demanded that Ramirez relinquish the earnest money deposit. Is Ramirez required to pay the liquidated damages?
Texas Incorporated will likely be able to keep the earnest money as liquidated damages but will not be able to sue Ramirez for breach of contract because Ramirez had included a financing contingency.
The Oyers bought a home "as is" from American Bank. The bank's real estate agent represented to the Oyers that the home was fundamentally sound and had no structural defects. The Oyers inspected the home and found no obvious defects. Following closing, the Oyers discovered significant structural defects and sued the bank for the cost of fixing the defects. The bank denied knowledge of the real estate agent's representations and denied that it had been aware of the home's condition. The bank asserted that a property sold "as is" meant that the bank made "no express or implied warranties of any kind" to the buyers. Should the bank be held liable for the costs of fixing the home's defects?
The bank should only be held liable if the Oyers can prove that the defects in the home were latent and known to the bank.
The preprinted text of a purchase and sale contract may have a provision of items included in the sale. This provision may include in the sale, for example, "fireplace inserts, gas logs, and grates." If the seller wanted to keep the gas logs, she might submit a counteroffer to a prospective buyer and strike through the term gas logs, then write in, "Gas logs are excluded from sale." In such a case, what would happen in the contract?
The gas logs would be excluded because the written words prevail over the preprinted words. Handwritten--> typed---> preprinted
Earnest money
a portion of the price of a home that the buyer deposits as evidence of good faith to indicate a serious purchase offer
Mrs. Fields (the founder of the cookie place) gave USC a written option on a piece of property she owned. USC paid $3,000 to keep the option open from Jan 3, 2018- April 3, 2018. On Feb 15, 2018, Mrs. Fields notified USC in writing that she was revoking her offer. Mrs. Fields then sold the property to Douglas.
USC is entitled to damages
If Buyer fails to complete this purchase because of Buyer's default, Seller shall retain, as liquidated damages, the earnest money deposit. The amount retained as liquidated damages shall be no more than 3 percent of the purchase price. Any excess shall be returned to Buyer.
Under Breach of Contract; Liquidated Damages
If an elderly person has dementia affecting his ability to understand or comprehend that he is selling real estate or the value of that real estate, a contract entered into by that person will be void, under what contract formation?
Under the Capacity of the Parties --> they need to be legally incompetent
Peggy is an elderly grandmother. All of her faculties are intact; however, she is very lonely, as her grandson is the only one who visits her. During one of the visits, Peggy's grandson tells her that he will stop visiting her unless she conveys a portion of her home to him for his time spent visiting her. Peggy, not wanting to be alone, agrees and conveys to her grandson 50 percent of the title to her home. Peggy's children and other grandchildren are upset by this conveyance and want it set aside Identify the available defense to the enforcement of the contract.
Undue Influence -->
Henry submits a written offer to purchase a home for $250,000. Later, Henry decides to revoke the offer and sends a written revocation to the seller. After Henry sends the written revocation but before it has been received, the seller calls Henry to accept the offer. Has Henry entered into a contract?
Yes, Henry has entered into a contract to purchase the home because the seller accepted the offer prior to her receipt of the revocation.
Sophia submits a written offer to purchase a real estate property for $500,000. A few days later, Sophia decides to revoke the offer by sending a written revocation letter. After Sophia sends the written revocation, but prior to it being received, the seller of the property calls Sophia to accept the offer. Has Sophia entered into a contract to purchase the property? Why or why not?
Yes, because the revocation must be communicated prior to the acceptance of the offer. Here, Sophia's revocation was not received by the seller until after he had already accepted her offer.