1. Chapter 7

2. Georgia Real Estate An Introduction to the Profession Eighth Edition Chapter 7 Contract Law

3. Key Terms bilateral contract breach of contract competent party consideration contract counteroffer expressed contract fraud implied contract liquidated damages power of attorney specific performance unilateral contract void contract voidable contract © 2015 OnCourse Learning

4. How a Contract is Created An expressed contract occurs when the parties to the contract declare their intentions orally or in writing. An implied contract is created by actions of the parties. © 2015 OnCourse Learning

5. Bilateral Contract A bilateral contract results when a promise is exchanged for a promise. “I will do this and you will do that.” Purchase and sale agreements and leases are examples of bilateral contracts. © 2015 OnCourse Learning

6. Unilateral Contract A unilateral contract results when a promise is exchanged for performance. “I will do this if you do that.” An option to purchase is a unilateral contract. © 2015 OnCourse Learning

7. Essentials of a Valid Contract There are four essentials elements of any contract: 1.Legally competent parties 2.Mutual agreement 3.Lawful objective 4.Consideration © 2015 OnCourse Learning

8. Essentials of a Valid Contract Valid – an agreement that contains all the essential elements of a contract Void – an agreement that is missing one of the essential elements of a contract Voidable – because of a defect, one or more of the elements may be removed by the injured party © 2015 OnCourse Learning

9. Essentials of a Valid Contract Invalid – the agreement once had validity, but the validity has ceased Enforceable – a contract that a court would allow and uphold Unenforceable – a contract that a court would not allow or would not uphold © 2015 OnCourse Learning

10. Competent Parties For a contract to be legally enforceable, all parties entering into it must be legally competent. In Georgia, the age for entering into a legally binding contract is 18. © 2015 OnCourse Learning

11. Competent Parties A minor does not have the capacity to appoint someone to sell property. If a contract with a minor is required, the contract would be voidable at the option of the minor (the injured party). © 2015 OnCourse Learning

12. Competent Parties If there was a deliberate attempt to intoxicate a person involuntarily for the purpose of approving a contract, the contract would be void. If the contracting party was voluntarily drunk to the point of incompetence, the contract is voidable. © 2015 OnCourse Learning

13. Competent Parties A person who contracts will under the influence of legal or illegal drugs would also be considered an injured party. People who have been declared incompetent by a judge may not make a valid contract. © 2015 OnCourse Learning

14. Competent Parties Laches is the loss of a legal right due to failure to assert that right within a reasonable period of time. © 2015 OnCourse Learning

15. Competent Parties Individuals can give another person the power to act on their behalf with a power of attorney. The person holding the power of attorney is called an attorney-in-fact. © 2015 OnCourse Learning

16. Competent Parties The attorney-in-fact can act on the principal’s behalf so long as the principal is legally competent and as long as both of them are alive. © 2015 OnCourse Learning

17. Competent Parties Corporations are considered legally competent. The individual contracting on behalf of the corporation must have legal authority from the board of directors. © 2015 OnCourse Learning

18. Mutual Agreement Mutual agreement means that there must be agreement to the provisions of the contract by the parties involved. © 2015 OnCourse Learning

19. Mutual Agreement There must be no fraud, innocent misrepresentation, or mistake, and the agreement must be genuine and freely given. © 2015 OnCourse Learning

20. Mutual Agreement Offer and acceptance requires that the offeror make an offer to the offeree. If the offer is acceptable, the offeree must then communicate the acceptance to the offeror. © 2015 OnCourse Learning

21. Mutual Agreement Upon receiving the offer, the offeree has three options: to agree to it, to reject it or to make a counteroffer. An offer is said to be rejected if any change is made in the terms. © 2015 OnCourse Learning

22. Mutual Agreement Any change in the terms in considered a counteroffer. This makes the seller the offeror. © 2015 OnCourse Learning

23. Mutual Agreement An offer can be revoked by the offeror at any time prior to the offeror’s hearing of acceptance. An offer or counteroffer can be withdrawn at any time prior to communicating acceptance. © 2015 OnCourse Learning

24. Mutual Agreement A fraud is an act intended to deceive for the purpose of inducing another to part with something of value. Fraud can result from failing to disclose important information, inducing someone to accept an offer. © 2015 OnCourse Learning

25. Mutual Agreement If a real estate agent commits a fraud to make a sale the deceived party later rescinds the sales contract, the commission is lost. Georgia license law provides for suspension or revocation of a real estate license for fraudulent acts. © 2015 OnCourse Learning

26. Mutual Agreement Innocent misrepresentation is different from fraud in that the party providing the wrong information is not doing so to deceive another for the purpose of reaching an agreement. Mistake arises from ambiguity in negotiations and mistake of material fact. © 2015 OnCourse Learning

27. Mutual Agreement Ignorance of the law is not considered a mistake. © 2015 OnCourse Learning

28. Mutual Agreement The offer and acceptance must be freely and genuinely given. Duress, menace, or undue influence cannot be used to obtain agreement. A contract made under any of these conditions can be revoked by the aggrieved party. © 2015 OnCourse Learning

29. Lawful Objective To be enforceable, a contract cannot call for the breaking of laws. Such a contract is void. © 2015 OnCourse Learning

30. Consideration For an agreement to be enforceable, it must be supported by consideration. Consideration is usually something of value: a promise to do something, money, property, or personal services. © 2015 OnCourse Learning

31. Consideration Consideration that can be measured in dollars and cents is valuable consideration. Valuable consideration may be money, jewelry, goods, or services. Love and affection is good consideration. © 2015 OnCourse Learning

32. Consideration The seller agrees to sell on the terms agreed and the buyer agrees to buy the property on those same terms. © 2015 OnCourse Learning

33. Consideration Earnest money is not the consideration. Earnest money is an indication of the buyer’s intent and may become damages to the seller in the event the buyer does not carry out the promises. © 2015 OnCourse Learning

34. Contract in Writing The statute of frauds requires that most contracts for the sale of land, or an interest in land, be in writing and signed to be enforceable in a court of law. The sale of personal property in excess of $500 should be writing. © 2015 OnCourse Learning

35. Contract in Writing Listing contracts must be in writing. A written contract will supersede an oral contract. © 2015 OnCourse Learning

36. Contract in Writing The most common real estate contract that does not need to be in writing to be enforceable is a lease for one year or less. © 2015 OnCourse Learning

37. Contract in Writing The parol evidence rule permits oral evidence to complete an otherwise incomplete or ambiguous written contract. Courts presume that what the parties put into writing is what they agreed upon. © 2015 OnCourse Learning

38. Executory, Executed, Execute A contract that is in the process of being carried out is said to be executory. Once completed, it is said to be executed. Performance has taken place. © 2015 OnCourse Learning

39. Executory, Executed, Execute Execute refers to the process of completing, performing or carrying out something. You execute a document when you sign it. You execute the terms of the contract by carrying out its terms. © 2015 OnCourse Learning

40. Performance and Discharge of Contracts Unless prohibited by the contract, rights, benefits, and obligations under a contract can be assigned to someone else. The original party to the contract remains ultimately liable for its performance. © 2015 OnCourse Learning

41. Novation Novation is the substitution of a new contract between the same or new parties. With novation, the departing party is released from the obligation to complete the contract. © 2015 OnCourse Learning

42. Deceased Party If there is a valid purchase contract and one party dies, the contract is usually enforceable against the estate because the estate has the authority to carry out the deceased’s affairs. © 2015 OnCourse Learning

43. Property Damage If neither possession nor title has passed and there is material destruction to the property, the seller cannot enforce the contract and the purchaser is entitle to the money back. © 2015 OnCourse Learning

44. Breach of Contract When one party fails to perform as required by a contract and the law does not recognize the reason for failure to be a valid excuses, there is a breach of contract. © 2015 OnCourse Learning

45. Partial Performance Partial performance may be acceptable because the innocent party feels that the time and effort to sue would not be worth the rewards. © 2015 OnCourse Learning

46. Unilateral Rescission Under certain circumstances, the innocent party can unilaterally rescind a contract. The innocent party can take the position that if the other party is not going to perform contractual obligations, then the innocent party will not either. © 2015 OnCourse Learning

47. Lawsuit for Money Damages If the damages to the innocent party can be reasonably expressed in terms of money, the innocent party can sue for money damages. © 2015 OnCourse Learning

48. Lawsuit for Specific Performance A lawsuit for specific performance forces the breaching party to carry out the remainder of the contract according to the terms, price and conditions agreed upon. © 2015 OnCourse Learning

49. Monetary Damages vs. Specific Performance A threat of a lawsuit will often bring the desired results if the defendant knows that the law will side with the wronged party. © 2015 OnCourse Learning

50. Liquidated Damages Once a seller accepts an offer, if the buyer fails to complete the purchase, the seller may keep the buyer’s earnest money as liquidated damages. © 2015 OnCourse Learning

51. Mutual Rescission Mutual rescission relieves the parties to the contract from their obligations to each other. © 2015 OnCourse Learning

52. Statute of Limitations The statute of limitations limits the amount of time a wronged party has to seek the aid of a court in obtaining justice. © 2015 OnCourse Learning

53. Implied Obligations Caveat emptor – let the buyer beware © 2015 OnCourse Learning

54. Implied Obligations In Georgia, builders are liable for their work for one year. An individual agent is responsible for being competent and knowledgeable. A real estate agent will not be able to plead ignorance. © 2015 OnCourse Learning