1. Real Estate Principles and Practices Chapter 6 Contracts and Business Law © 2014 OnCourse Learning

2. Key Terms Bilateral contract Consideration Contract Dual contract Duress Executed contract Executory contract Express contract Fraud Implied contract Latent defect Misrepresentation Novation Offer and acceptance Option Parole evidence rule Patent defect Rescind

3. © 2014 OnCourse Learning Key Terms Specific performance Statute of frauds Undue influence Unenforceable contract Uniform Commercial Code Unilateral contract Valid contract Voidable contract Void contract

4. © 2014 OnCourse Learning Definition and Types of Contracts Contract: Contract: voluntary agreement between two or more parties to perform or abstain from performing a legal act on which the parties reached a meeting of the minds

5. © 2014 OnCourse Learning Definition and Types of Contracts Created by an act Ostensible contract Not enforceable May be written or oral All written contracts are express

6. © 2014 OnCourse Learning Definition and Types of Contracts Promises by both parties Promise by one party

7. © 2014 OnCourse Learning Definition and Types of Contracts Not completed Performance has been completed

8. © 2014 OnCourse Learning Definition and Types of Contracts Two contracts for the same property with different terms Illegal

9. © 2014 OnCourse Learning Elements of a Contract Offer and acceptance Meeting of the mindsConsideration Good or valuable Capacity of the parties Capable Legality of the object Legal purpose Written and signed contract By law

10. © 2014 OnCourse Learning Elements of a Contract Agreed by mutual consent to terms Terms must be clearly defined

11. © 2014 OnCourse Learning Elements of a Contract Mutual exchange of promises Earnest-money shows good faith Does not represent consideration Consideration in a real estate contract is something of value

12. © 2014 OnCourse Learning Elements of a Contract Good or valuable Good consideration: an act given for consideration Valuable Money for property

13. © 2014 OnCourse Learning Elements of a Contract Must be able to understand and carry out terms Must be at least the age of majority (18-21) Minor (under age of majority) may rescind the contract Until the age of majority and a reasonable time thereafter Other party is bound

14. © 2014 OnCourse Learning Elements of a Contract Mentally incompetent person cannot enter into a contract Guardian or conservator Borderline incompetent Intoxicated or chemically dependent C ourt may annul within a reasonable time

15. © 2014 OnCourse Learning Elements of a Contract Purpose must be lawful Court may intervene to avenge the injured party Rescind: Rescind: cancel

16. © 2014 OnCourse Learning Elements of a Contract Statute of frauds: certain contracts must be in writing to be enforceable Signed by parties against whom enforcement is sought Memorandum Lease of less than one year

17. © 2014 OnCourse Learning Statute of Frauds All real estate transfers must be in writing and signed Avoid fraud To be enforceable Oral contract to buy or sell would not be upheld in court

18. © 2014 OnCourse Learning Parole Evidence Rule Prior written or verbal evidence may not alter a written agreement An executed written document supersedes all prior negotiations and stipulations

19. © 2014 OnCourse Learning Uniform Commercial Code Laws covering chattel sales Conditional sales contracts and chattel mortgages Stocks and commercial paper Sale of personal property Bill of sale Real estate when fixtures are involved

20. © 2014 OnCourse Learning Uniform Commercial Code Chattel purchased and financed Financial statement is recorded If not paid – property can be repossessed Bulk transfers are regulated by UCC

21. © 2014 OnCourse Learning Validity of Contracts All essential elements Enforceable in a court of law

22. © 2014 OnCourse Learning Validity of Contracts No legal force Results when: Illegal purpose Operation of law prevents completion Act of nature prevents completion

23. © 2014 OnCourse Learning Validity of Contracts One party may cancel Minor Party acted under duress or undue influence

24. © 2014 OnCourse Learning Validity of Contracts Unenforceable Contract: Unenforceable Contract: Appears valid but cannot be enforced Misrepresentation: Misrepresentation: false statement not meant to deceive but has an effect on the finalization Courts rule against agents who knew or should have known Seller may be sued for withholding pertinent fact

25. © 2014 OnCourse Learning Validity of Contracts Damaged party may rescind or collect damagesMistake One party changes their mind Bound by contract Mutual mistake May agree to rescind Fraud: Fraud: knowingly making a false statement regarding a material fact on which the other party relied and suffered damage

26. © 2014 OnCourse Learning Validity of Contracts Duress: Duress: Coercion, threat, or force Voidable by party threatened Undue Influence: Undue Influence: unfair advantage preventing a party form using their own judgment Voidable by party coerced

27. © 2014 OnCourse Learning Carrying Out Terms of a Contract When performance will transpire Purchase contract: closing date Lease: length and termination No date: reasonable time Performance of a Contract

28. © 2014 OnCourse Learning Carrying Out Terms of a Contract All contracts are assignable unless stated to the contrary Assignor: Assignor: holder of contract Assignee: Assignee: receiver of contract Rights, privileges, and obligations Assignment of a Contract Personal obligations may not be assigned without consent

29. © 2014 OnCourse Learning Carrying Out Terms of a Contract Novation: Novation: substitution of a new contract for the existing one Novation of a Contract

30. © 2014 OnCourse Learning Carrying Out Terms of a Contract Discharge: terms fulfilled Complete performance failed: 1. Damage to the property 2. Death 3. Recession by mutual agreement 4. Partial performance Discharging of a Contract

31. © 2014 OnCourse Learning Carrying Out Terms of a Contract Latent defect: Latent defect: hidden Patent defect: Patent defect: visible Buyer may rescind if seller does not disclose Latent and Hidden Defects

32. © 2014 OnCourse Learning Breach of Contract Specific Performance: Specific Performance: compelling the defendant to carry out the terms of the contract. Rescind: Rescind: and receive the earnest money Sue: Sue: for damages Breach of Contract

33. © 2014 OnCourse Learning Option to Purchase Option: Option: contract granting the exclusive right to buy for a limited time Optionee: Optionee: prospective purchaser Optionor: Optionor: owner Option to Purchase

34. © 2014 OnCourse Learning Option to Purchase Consideration is forfeited if optionee does purchase (carry out option) Ownership rights remain with the owner during option term Optionee may assign option Unilateral contract Option to Purchase

35. © 2014 OnCourse Learning Option to Purchase Option contract vs. Contract to purchase 1. Option gives the right but not the obligation to buy 2. An accepted purchase contract is binding Option to Purchase

36. © 2014 OnCourse Learning Commonly Used Contracts 1. Listing contract 2. Purchase agreement 3. Option contact 4. Lease 5. Property management contract 6. Mortgage 7. Deed of trust 8. Land contract

37. © 2014 OnCourse Learning Commonly Used Contracts ContactBuyerOwner/SellerLender Third Party Tenant Purchase agreement granteegrantor land contract vendeeVendorowner optionoptioneeoptionor assignmentAssigneeassignor offer to purchase offerorofferee mortgageMortgagormortgagee deed of trust trustorbeneficiarytrustee leaselessorlessee