Unit 1: Let's Talk Contracts
Hannah wasn't able to get the financing to open her boutique, so her mother became a silent partner and provided additional cash. Hannah and her mother have an agreement that states Hannah's mother can't be held financially or legally liable if there are any problems with the store. What type of contract clause is this?
Indemnification
Specifies the deadline past which lawsuits related to the contract can no longer be filed
Statute of limitations
promise to be bound by the exact terms made in the offer.
acceptance
both parties have copies of the signed contracts.
delivery
promise made by one party, requesting something in exchange for that promise. The party who makes it is the offeror
offer
Which element of a valid contract is established by getting the signatures of all parties?
offer and acceptance
five additional essential elements to a valid real estate contract
1. Legally competent parties 2. Offer and acceptance 3. Consent 4. Legal purpose 5. Consideration
Indicates that legal disputes are to be solved through arbitration
Arbitration
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 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
(T/F) The arbitration clause states that arbitration isn't a legal alternative to mediation or litigation in the event of any contract disputes.
F
(T/F) The time of performance clause tells the parties the timeframe in which a lawsuit related to the contract can be filed.
F
Jillian's lease for her apartment has a right of first refusal clause. What kind of obligation does this create for her landlord Kathy?
If Kathy decides to sell, she must offer it to Jillian for purchase first.
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.
Allows the aggrieved party to recover damages
Liquidated damages
What's the main point of the statute of frauds?
Real estate purchase and sale contracts must be in writing to be enforceable.
States that portions of the contract are enforceable even if one part is not
Severability
(T/F) If one part of the contract is found to be void or unenforceable, the severability clause points out that the remainder of the contract isn't affected.
T
(T/F) The choice of law clause indicates which law or laws will be used to interpret the contract provisions.
T
Consent is not present when _______.
The contract is signed under duress or undue influence
The right of first refusal process involves a specific order of events. Do you know what the order of events is? Which one of these is the LAST step in the process?
The holder of the right of first refusal must match the new party's offer, or allow the property to be sold/leased to the third party.
Indicates the deadline by which contract terms must be met
Time of performance
Gives electronic signatures and documents the same legal weight as paper writings and signatures
Uniform Electronic Transaction Act (UETA)
A contract that involves the parties exchanging promises to perform specific actions and that is two-sided, with both sides having certain obligations
bilateral contract
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 contract
Ex. After entering into a _________ in which they both had obligations, Cain agreed to sell his condo to Joshua, in return for Joshua's payment for the property.
bilateral contract
Describes the law under which the contract will be interpreted
choice of law
specific section within a contract
clause
The giving of something of value, which can include the agreement to not do something. Consideration is a required element of a binding contract.
consideration
A contract that meets all the criteria for validity, including compliance with local laws, and may be held up in a court of law.
enforceable contract
Sherman K. "Shep" Watson, 53, had fallen into a sweet deal when he'd been transferred to the 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
A contract in which all parties have met all contract terms.
executed contract
A contract in progress; one or more contract terms remains undone.
executory contract
A stated (written or oral) agreement between two or more parties that's expressed out loud or on paper
express contract
A contract based on the actions or behaviors of the parties, not on words, and implied by actions
implied contract
A contract in which one or more of the essential elements is missing
invalid contract
Allows the lessee (renter) the option to purchase the property at the end of the lease term
lease with option to buy
This option is often used by prospective purchasers who can't purchase immediately but intend to soon, and would like to buy the property they're renting.
lease with option to buy
With this option, the holder can decide when and whether to exercise the right to the property.
lease with option to buy
Ex. Because Mario wasn't actually the legal owner of the property that he'd swindled from another person, the contract to sell the property to Marissa lacked ________ and was unenforceable.
legal purpose
The idea that a contract must not propose to do anything illegal; such a contract would be unenforceable
legal purpose
Louellen is about to take out a mortgage loan from her credit union. The contract includes the following information: Louellen is offering her house as consideration, and the credit union is offering $350,000; and Louellen will pay the loan back over a certain number of months at a certain rate. Both Louellen's signature and the credit union representative signed it. What, if anything, is this contract missing in order for it to be legally binding, according to the statute of frauds?
nothing is missing
all parties are aware of the terms of the contract
notice
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
parol evidence rule
UETA supports the use of electronic documents and leaves the decision whether to use an electronic medium for agreements up to the _______.
parties
Provides a prospective buyer with the right to purchase a property if the seller decides to sell, or if another buyer comes along
right of first refusal
With this option, the holder must wait until an event occurs (another offer is made on the property by a third party) and then must decide whether to exercise the option, or let the property go.
right of first refusal
Ex. Clarisse is renting her home; her lease agreement contains a ______ clause she's planning to use if her landlord decides to sell the property.
right-of-first-refusal
Adopted by all states, the statute of frauds is a legal concept that all contracts involving the creation or conveyance of an interest in real property must be in writing to be enforceable
statute of frauds
Ex. Xavier promised Tom he'd purchase Tom's property in one month, but then reneged on his promise. Because they had not committed their agreement to writing, under the ______, the agreement was unenforceable.
statute of frauds
A contract that cannot be enforced in a court of law and that may be missing one or more elements for validity, or it may appear to be valid, but not comply with local laws, such as the state's statute of frauds
unenforceable contract
Ex. Stephan, a new real estate licensee, wrote a contract with uncertain terms. This makes the contract unenforceable.
unenforceable contract
A contract in which consideration (such as a promise) is given only by one party, and the other party is under no contractual obligation to perform or comply with the contract terms
unilateral contract
Ex. An open listing contract is a type of ________ because, if the sale goes through, the seller is obligated to pay commission to any licensee who brings a willing buyer, but the licensee is under no obligation to find a buyer.
unilateral contract
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.
unilateral contract
Starla, 35, and Gwen, 32, are going into business! Gwen is buying a share of Starla's franchise. Their attorneys drew up a contract that had Gwen providing $45,000 to Starla in return for 50% ownership. Gwen and Starla happily signed the contract, Gwen paid Starla the $45,000, and Starla presented Gwen with a notarized certificate showing Gwen's 50% ownership in the company. What type of contract is this?
valid
A contract that contains all essential elements of a contract, and is binding in a court of law
valid contract
Ex. Chuck asked his attorney if there were any way he could get out of his contract with the seller. His attorney reviewed the document and replied, "Sorry, Chuck. All the essential elements are there. It is a _________, and you are legally bound to its terms.
valid contract
A contract with no legal force or effect, often because it lacks one or more essential elements
void contract
Ex. Bobby's contract to buy David's house was a ________ because it outlined Bobby's plan to trade his collection of stolen paintings for the house.
void contract
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. This contract is for an in illegal purpose and is therefore void.
As part of the sales contract, Garth, the seller, was supposed to provide a copy of the seller's disclosure to the buyer, Melanie, but he failed to do so. What type of contract is this?
voidable
Ex. Kimber's real estate agent did not get her earnest money deposited within the contracted deadline. The seller has the option to void the contract; Kimber does not.
voidable
A contract that may be canceled by one or more parties for one of several reasons; a contract that is not automatically void, but being legally incomplete, may be declared void by one of the parties
voidable contract
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. Because Kimberly failed to meet the terms stated in the contract regarding the delivery of the earnest money, Mike has the option of terminating the contract. Kimberly's actions have made the contract voidable.
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?
voidable. This contract is voidable because neither party is sober and therefore not considered competent. It is therefore missing the essential element of legally competent parties.