The Purchase Contract

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?

CONTRACTS Option contracts 1. Paid-for offers 2. Consideration required 3. Irrevocable

CONTRACTS Option provisions –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)

CONTRACTS Provisions continued –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)

CONTRACTS Provisions continued –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)

CONTRACTS Provisions continued –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

CONTRACTS Offer –Objective intent –Certain and definite terms –Legally communicated

CONTRACTS Termination of offer –Rejection* –Counteroffer* - Common law - mirror image rule –Revocation* –Express terms of the contract –Lapse of time –Death of offeror –Bankruptcy –Illegality *Effective upon receipt

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?

CONTRACTS Acceptance – Must be absolute, unconditional and unequivocal for common law – Mirror image rule is a zero tolerance rule – Must be by the party with the power of acceptance –Must be communicated to the offeror –Control by express terms of the contract

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 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.

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?

CONTRACTS Consideration –Promise, action, or forbearance –Amount - irrelevant, but whatever it is, it must be paid –Bargained for exchange- promised induces the detriment and detriment induces the promise –Usually cash, debt, other property, or a combination –IRC Sec Like kind exchange

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?

CONTRACTS Statute of Frauds –Interest in real property purchase, sale, option, mortgage, lease, easement, etc. –Evidenced by a writing –That the writing be in the form of a record, such as a written agreement –That the parties sign or authenticate the writing(s) –That the description of the property be adequate –Exception- Doctrine of part performance Possession, improvements, part performance/payment

Checklist for Negotiation of Real Estate Contracts (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

CONTRACTS Misrepresentation (fraud is intentional, also a tort) –A statement of material fact (affect decision) has been made or omitted –There is reliance on the statement of fact –The buyer uses the fact in making the decision of whether to buy –There is detriment- loss of value, cost of repair –Issue of concealment –Issue of duty to disclose

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?