2011©Cengage Learning. All Rights Reserved.

Contracts and Damages 2011©Cengage Learning. All Rights Reserved.

Contracts An agreement between the parties to do or not to do something, which the law will enforce. 2011©Cengage Learning. All Rights Reserved.

NATURE AND CLASSIFICATION OF CONTRACTS Contracts requires an exchange of promises or acts, supported by consideration, and made by competent parties. The exchange of promises or acts is by itself insufficient & no contract is created. 2011©Cengage Learning. All Rights Reserved.

Bilateral and Unilateral Contracts In a bilateral contract each side exchanges a promise for the other side’s promise. In a unilateral contract one side exchanges a promise for an act. Real estate contracts are bilateral. 2011©Cengage Learning. All Rights Reserved.

Options an offer to sell property to another for a specified price and at set terms for a specific period. This is an unilateral contract, because the buyer has no obligation to complete the purchase. An option is supported by consideration. 2011©Cengage Learning. All Rights Reserved.

Express and Implied Contracts Express contracts exist when the contract’s terms are stated in words, either oral or written. Real estate contracts are express, and because of the statute of frauds, most real estate agreements (except leases for periods of one year or less) must be in writing to be enforceable. 2011©Cengage Learning. All Rights Reserved.

Express and Implied Contracts Implied contracts arise solely from the acts of the parties. The terms of the contracts are inferred from the parties’ conduct, because no actual terms have been spoken. 2011©Cengage Learning. All Rights Reserved.

Executed and Executory Contracts An executed contract is one that has been fully performed by both parties. An executory contract is one in which something remains to be done. 2011©Cengage Learning. All Rights Reserved.

Validity  Valid Contract  Void Contract  Voidable Contract 2011©Cengage Learning. All Rights Reserved.

Unenforceable Contract One that appears valid but is not enforceable by the courts. 2011©Cengage Learning. All Rights Reserved.

Illusory Contracts One that appears to be a contract but does not bind both parties. 2011©Cengage Learning. All Rights Reserved.

CONTRACT ELEMENTS  Mutual Assent  Offer  Acceptance  Consideration  Legal Object  Competent Parties 2011©Cengage Learning. All Rights Reserved.

An offer may be withdrawn anytime prior to acceptance. Once a party decides to accept offer, this acceptance must be communicated in the appropriate manner. 2011©Cengage Learning. All Rights Reserved.

Statute of Frauds Requires certain contracts to be in writing & executed by all parties to be valid. Real estate contracts that must be in writing including leases & other contracts that cannot be performed within one year. Without a written agreement the broker may not recover a commission. 2011©Cengage Learning. All Rights Reserved.

DISCHARGE AND UNENFORCEABILITY OF CONTRACTS Modification Rescission Novation Accord and Satisfaction Cancellation Statute of Frauds Bankruptcy 2011©Cengage Learning. All Rights Reserved.

BREACH An unjustified failure to perform by one party. 2011©Cengage Learning. All Rights Reserved.

BREACH REMEDIES Damages Specific Performance Rescission 2011©Cengage Learning. All Rights Reserved.

LIQUIDATED DAMAGES o An amount of money both parties agree to at the time that the contract is made that shall be paid in the event one party breaches the contract. 2011©Cengage Learning. All Rights Reserved.

GENERAL DAMAGES Minimal Damages General Damages Special Damages 2011©Cengage Learning. All Rights Reserved.