Chapter 13 The Purchase Contract

Overview of Contracts Offer Acceptance Consideration Defenses Writing Required? Valid Contract Yes No No Contract Void or Voidable Contract Capacity Undue Influence Misrepresentation? Fraud? Duress? Illegality? Mistake?

Types of Offers Options 1. Paid-for offers 2. Consideration required 3. Irrevocable

Elements Covered in an Option Agreement Legal description of the property Proper names of the parties Signatures of the parties Length of the option Beginning and ending dates of the option period Amount of consideration to be paid (Continued on the next slide)

Elements Covered in an Option Agreement (cont.) Destiny of the consideration if the option is exercised: Can it be a down payment? What if the option expires without acceptance: Does the offeror retain the money? What if the option holder rejects prior to expiration: Will there be a prorated refund? What if the property is destroyed during the option period (Continued on the next slide)

Elements Covered in an Option Agreement (cont.) What if one of the parties dies? Recording of the option in the public records and its removal if not exercised Procedures and notifications required for exercise of the option All terms or provisions of the sales contract (Continued on the next slide)

Elements Covered in an Option Agreement (cont.) Marketable title (type of deed, insurance, and so on) Rights of lessees Presence of mortgages and new liens during the option period Assignability of the option

Termination of Offer Rejection* Counteroffer* - Common law - mirror image rule Revocation* *Effective upon receipt

Termination of Offers Death of offeror Bankruptcy Illegality

Overview of Contracts Offer Acceptance Consideration Defenses Writing Required? Valid Contract Yes No No Contract Void or Voidable Contract Capacity Undue Influence Misrepresentation? Fraud? Duress? Illegality? Mistake?

Acceptance - Common Law 1. Must be absolute, unconditional and unequivocal for common law 2. Mirror image rule is a zero tolerance rule 3. Must be by the party with the power of acceptance 4. Must be communicated to the offeror

Timing Rules for Acceptance Specified means (stipulated) Specified means used Mailbox RuleSpecified means used No means given Same or faster method of comm. When properly mailed (dispatched) Mailbox Rule applies Same method of comm. No means given Slower method of comm. When received if the offer is still open Different method of comm. Type of Offer UCC Method of Acceptance Acceptance Effective? Common Law Acceptance

Timing Rules for Acceptance (cont.) Prompt shipment Improper goods shipped Breach and acceptance N/A Specified means (stipulated) Specified means not used Counteroffer and rejection Specified Means not used Prompt shipment Proper goods shipped Upon shipmentN/A Type of Offer UCC Method of Acceptance Acceptance Effective? Common Law Acceptance

Timing - Acceptance February 1, A mails an offer to B February 2, B receives the offer February 3, A mails a revocation February 4, B mails acceptance February 5, B receives revocation February 6, A receives acceptance

Timing - Acceptance RESULT: Contract as of February 4 because same method of communication used; contract formed when acceptance sent

Problem of Multiple Offers Day 1: Buyer A submits an offer to seller. Day 2: Seller counteroffers to buyer A. Buyer B submits an offer to seller. Day 3: Seller counteroffers to buyer B. Buyer A accepts. Before seller can revoke, buyer B accepts. The seller in the example has formed two valid contracts and would have to convey the property to one buyer and pay damages for breach to the other buyer.

Overview of Contracts Offer Acceptance Consideration Defenses Writing Required? Valid Contract Yes No No Contract Void or Voidable Contract Capacity Undue Influence Misrepresentation? Fraud? Duress? Illegality? Mistake?

Consideration Amount - irrelevant, but whatever it is, it must be paid Bargained for exchange- promised induces the detriment and detriment induces the promise

Overview of Contracts Offer Acceptance Consideration Defenses Writing Required? Valid Contract Yes No No Contract Void or Voidable Contract Capacity Undue Influence Misrepresentation? Fraud? Duress? Illegality? Mistake?

Statute of Frauds Land OptionsOptionsContractsContracts LeasesLeasesMortgagesMortgages Exception: partial performance, possession, and/or improvements and payment

Requirements for Real Estate Contracts under Statute of Frauds That the contract be in the form of a record, such as a written agreement That the parties sign or authenticate the contract That the description of the property be adequate

Partial Performance Exception to Statute of Frauds That valuable improvements have been made to the property; or That there has been full or partial payment of the purchase price and that the party who has paid money has possession of the property.

Checklist for Negotiation of Real Estate Contracts (cont.) (Continued on next slide)

Checklist for Negotiation of Real Estate Contracts (cont.) (Continued on next slide)

Checklist for Negotiation of Real Estate Contracts

Marketable Title Would a reasonable and prudent person accept this title? Freedom from controversy

Marketable Title

Innocent Misrepresentation Basis of the bargain Fact or promise Rescission is the only available remedy

Proof Requirements for Misrepresentation A statement of material fact has been made or omitted –The type of information involved would affect the buying decision. There is reliance on the statement of fact –The buyer uses the fact in making the decision of whether to buy (see earlier discussion under “AS IS” clauses for disclosures about patent and latent defects). There is detriment –The buyer suffers through loss of property value or cost of repair.

Overview of Contracts Offer Acceptance Consideration Defenses Writing Required? Valid Contract Yes No No Contract Void or Voidable Contract Capacity Undue Influence Misrepresentation? Fraud? Duress? Illegality? Mistake?