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? Additional Rules for Real
Estate Contracts 1.Statute of Frauds 2.Description of Property
Slide 3
Important clauses in real estate contracts Financing
arrangements/contingencies Apportionments Risk of Loss Closing date
and escrow Environmental contingency Marketable title 3
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Present Intent to Contract Mary: Ed, if you wanted to sell your
house, what would you ask for it? Ed: I suppose $400,000 dollars
would be a fair price. Mary: Ill take it, if you will have the
floors refinished. Ed: Sold. Consider 13.1, p. 318. An Offer? I am
very much interested in your lot, zoned C-2, which is located at
the south-eastern corner of Gilbert and Southern Roads. If the
price is $475,000 or less, I can pay cash. I will need it for
construction by 6/1/13.
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Present Intent to Contract Example - Do the parties have a
contract? January 4 Letter. I am interested in buying that lot you
showed me last Saturday. You talked about $40,000 as a price. That
sounds good to me. Lets meet Wednesday at Frisco Kids to iron out
the details. Offer? January 4 Reply (via fax). $40,000 is the
price. Cash only. Ill see you Wednesday at 5:30. Acceptance? Offer?
Property Sold to Another. Before the meeting another buyer paid
$40,000 cash. Lawsuit Over Who Bought Property.
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End-of-Chapter Q: 6, p. 356 Three writings Appointment of
Agent. The appointment contained details on the sale, including
price, tax payments, commission and title. Downpayment Check.
Signed by buyer for down payment on Mattushek land. Agent Drafted
Offer. I hereby agree to buy the Mattushek place in accordance with
the terms in the agreement between [the appointment of agent
agreement referenced above]. Issue Appointment writing only signed
by one party, the seller, does that matter? 6
Slide 7
Options How Are They Different? 1. Paid-for offers 2.
Consideration required 3. Irrevocable
Slide 8
Board of Control of Eastern Michigan University v. Burgess (#X)
206 NW2d 256 (Mich 1973) Burgess signed a 60 day option to sell his
home to Eastern Michigan University. The document drafted by
Burgess stated receipt of one and no/100 dollar ($1,00) and other
valuable consideration $1 never paid. Option with consideration
must remain open otherwise its an offer that can be revoked at any
time. Dispute as to whether offer revoked or not. Seller said she
called and revoked the offer shortly after signing it, buyer says
she never revoked offer. 8
Slide 9
Negotiations to Buy/Sell Farm. A entered into negotiations with
B to buy Bs farm. Option for 9 Months. B decided a selling price of
$750,000 was fair and agreed in exchange for $1,000 he would keep
that price open for nine months. Option Cancelled? After 6 months,
A wrote B that A was no longer interested. New Offer for $950,000.
Within days B wrote A that a new buyer C was now interested in the
farm for $950,000. B told A that he would still sell to A if A
raised the price to $875,000 and closed within 10 days. A Bought
Farm for $875,000 Then Sued for $125,000. A bought the farm and
then sued to recover the difference in the purchase price from the
options price. 9 Consider 13.2 p. 321: Does an options contract
remain open after revoked Option to Buy Farm
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Trengen v. Mongeon (#6) 206 NW2d 284 (ND 1973) Adequacy of
Consideration Consideration farm sold to son and daughter in law
for $38,400 plus $1,800 per year for the rest of the sellers lives.
Sister/Guardian Contested Sale. Adequate Consideration? Will Leaves
Son Nothing. 10 Dad and Mom Daughter/Guardian of Mom and Dad
Contests Contract Son and Daughter- in-Law Mom and Dads Farm
$38,400 plus $1,800/year
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Consider 13.3 p. 322 Adequate Consideration Parol Evidence Rule
Father to Son Option on Land. Contract: [i]n consideration for the
mutual promises made in this agreement. Parol Evidence. Mutual
promises included sons agreement to stay in the area the other son
had left the area. Son Exercises Option/Other Son Sues. Not a valid
offer/option because on consideration. 11
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Treatment of Unexpired Options Rejected by Offeree Offer ends
Offer ends if offeror refunds option payment Offer ends if offeror
pro-rates and refunds portion of option according to time used
Offer ends if option agreement provides Offer continues until
expiration of option period
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13 C onsider 13.4 p. 323: Whether a ceiling fan results in a
failed contract Sellers Did Not Want to Sell Ceiling Fan With
House. They told the agent they did not want to sell the original
Hunter ceiling fan in the home and the agent told them to take it
down and replace it. The sellers agreed to do so the next Saturday.
On Friday the for sale sign went up and a different agent showed
some buyers the home and they bought it. Seller Signed Contingent
on Fan. The sellers accepted all terms but put above their
signature: Ceiling fan in family room is not included. What
happens? Original Hunter Ceiling Fan
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Termination of Offer Rejection* Counteroffer* - Common law -
mirror image rule Revocation* Death of offeror Bankruptcy
Illegality *Effective upon receipt End-of-Chapter Q2, p. 354
Inspection Reveals Defects Contract Signed with Handwritten
Addendum. Closing is subject to buyers inspection of property by
him and his designated specialist and complete satisfaction of
specialist with property condition. Inspection Reveals Problems.
The roof would need to be replaced in a few years. Some wood needed
to be replaced. The buyer demanded that these items be fixed. The
seller said the clause allows the buyer out of the contract not the
right to have the problems fixed. Start here thursday
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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
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Acceptance - Conditional Misnomer: This is not acceptance I
accept provided that I accept on the condition that I accept if I
accept if and only if I accept but I must Counteroffer and
rejection
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Case Discussion 17 Consider 13.5, p. 324: How to accept
contracts fax? Oil and Gas Application. Gilmore filed an oil and
gas application. His application was accepted and he received a
letter stating: All Copies of the lease form must be properly
executed and filed in this office within thirty (30) days from your
receipt of this decision, which constitutes a compliance period.
Failure to do so will result in the rejection of your offer without
further notice. The Bureau of Land Management said it had to be a
holographic copy. Sent Executed Copies Via Certified Mail. Gilmore
sent signed copies via certified mail. However, the mail did not
arrive in time. The mail arrived after 8 days one day late. Sent
Fax Copy that Arrived in Time. He then tried to get a flight and
could not. He offered to send a fax and they said no. He sent a fax
to an attorney who hand delivered the forms in time.
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Anzalaco v. Graber Inspection Clause/Secondary Offer Seller
(Graber) to sell home to buyer (Lee). Subject to Inspection (a)
remove inspection contingency (b) Accept subject to seller agreeing
to have defectsfixedmust agree within three days of sellers receipt
of buyers request or contract is null and void (c) terminate the
agreement Buyer choice B, but seller refused to fixed anything.
Buyer then changed to choice A (within timeframe for having the
inspection completed). Seller found new buyer and entered into
secondary offer. New buyer sued for specific performance Issues:
Can a buyer switch choices from having defects fixed to removing
the contingency? Is the new buyer entitled to specific performance
even though seller could not deliver good title because Lee refused
to sign a release from Lees offer. 18
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19 Consider 13.6, p. 328: Timing of acceptances. Cynthia has
listed her home. She gets two offers: (1) for $283,000 and (2) for
$284,000. She responds to both she will sell for $285,000 This is
good until March 4, 2010, 6 PM Buyer A Accepts. Suppose Buyer A
accepts on March 3, 2010 and communicates the offer at 7 pm.
Cynthia then contacts Buyer B and says I revoke my offer. Buyer A
Accepts and So Does Buyer B. Suppose that before Cynthia contacts
B, B contact Cynthia and accepts at 2:15 pm (written form signed).
Buyer B Paid for Option. Suppose that B paid Cynthia $500 to hold
the offer open until March 4, 2010 at 6 pm? Case Discussion
Slide 20
Dhillon v Zions First National Bank Statute of Frauds
Negotiation Agreement. In the agreement the parties agreed that
email communications count as oral and not written communication.
Parties Strike a Deal on Email. Bank Sends Agreement Not Signed.
Buyer paid a $75,000 deposit per email instructions. Buyer Signs.
Bank refuses. Do they have a deal? 20
Slide 21
S Development v. Pima Capital Partners (#X) 31 P3d 123 (AZ App
2002), p. 343 AS IS. Two apartment buildings sold as is. Buyer had
an inspector inspect the buildings but did not find anything.
Patent/Latent Defect. The water pipes used were made from
poly-butylene which would leak under normal pressure with warm
water. Seller Refused Inspection To Damage Buildings. The water
pipe was buried 6 inches into the walls. All the water pipe that
was visible was copper. 21 poly-butylene water pipe
Slide 22
ARC Constr. v. Zelenak Implied Warranty of Habitability New
Home Purchase. Zelenaks purchased a new home from ARC. Defects.
Windows and doors were not installed correctly causing leaking. The
leaking caused mold and medical problems for the Zelenaks 8 year
old asthmatic son. Sued for Implied Warranty of Habitability
Applies to First Owner. Subsequent Owners Only for Latent Defects.
Home Foreclosed Zelenaks Lost Home. Standing Issue: Can Zelenaks
sue when no longer own the home? 22
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Liquidated Damages 23 Consider 13.13, p. 351: liquidated
damages. Liquidated Damages Law. Reasonable estimate of actual
damages Actual damages hard to estimate Agreement to Purchase Land.
Agreement to buy 18 lots over 12 months. Liquidated Damages Clause.
If the buyer shall fail to fulfill the buyers agreements herein,
all deposits made hereunder by the buyer shall be retained by the
seller as liquidated damages and this shall be the sellers sole
remedy at law and equity. Buyer Failed to Buy Remaining Properties.
Seller kept $50,000 down payment as liquidated damages. Seller Sold
Lots for More. Is it a penalty because seller was ultimately able
to sell the lots for more?
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24 Consider 13.14, p. 351: Square Footage As Material Contract
Provided: ANY REFERENCE TO THE SQUARE FOOTAGE OF THE PREMISES IS
APPROXIMATE..IF MATERIAL TO THE BUYER, IT MUST BE VERIFIED DURING
THE INSPECTION PERIOD. Sold as 3,792 Actual 3,605. Issue: Contract
Breach?
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Statute of Frauds Land OptionsOptionsContractsContracts
LeasesLeasesMortgagesMortgages Exception: partial performance,
possession, and/or improvements and payment
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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.
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Statue of Frauds/Part Performance 27 Statute of Frauds
question. Oral Contract. Hancock Construction claimed it had an
oral contract to purchase property. Reliance. Hancock had
engineering studies done based on the oral contract and arranged to
obtain a loan. Seller Refused to Sell Action for Specific
Performance.
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Financing Contingencies Condition Precedent 28 Consider 13.8,
p. 336: Financing Contingency Highlands Agrees to Buy Land Subject
to Financing of $750,000. Highlands Secures Financing With Second
Mortgage. Highland could not get a bank to finance the full
$750,000 but was able to get two banks to do so with a first and
second mortgage. Seller Refused Sale Stating Financing Contingency
Not Met. Why Is Financing Clause In Agreement? Protect buyer or
seller?
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Other common condition precedents? Environmental assessments
More? 29
Slide 30
Perroncello v. Donahue (#X) 859 NE2d 827 (Mass 2007), p. 344
Contract to Purchase Property. Signed a contract to purchase a
property for $2,250,000. Liquidated Damages Clause. If the buyer
shall fail to fulfill the buyers agreements herein, all deposits
made hereunder by the buyer shall be retained by the seller and
shall be sellers sole remedy at law or equity. $150,000 Deposit.
The buyer paid a $150,000 deposit. Buyer Missed Closing Date for
Lack of Financing. The buyer missed the date for the expiration of
the contract but was able to closed three weeks later. Seller Tried
to Sell Property To Another. Seller put a new for sale sign on the
property and kept the $150,000 Buyer Lawsuit. Buyer sued for the
$150,000 and specific performance. Seller Response. Also sought
specific performance but still wanted to keep the $150,000. Court
Held: Can either keep the $150,000 or seek specific performance not
both. 30
Slide 31
Reed v. King (#X) 193 Cal Rptr 130 (1983), p. 353 Multiple
murders committed at house must that be disclosed? Answer depends
on whether material and whether material depends on whether it
materially impacts the value of the house. 31 Consider 13.15,
Haunted house Noisy neighbors cause house to shake. Consider 13.11
p. 344: Problem with Golf balls hitting roof. Required to
disclose?
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Innocent Misrepresentation Basis of the bargain Fact or promise
Rescission is the only available remedy
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Proof Requirements for Misrepresentation 1. A statement of
material fact has been made or omitted The type of information
involved would affect the buying decision. 2. 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). 3. There
is detriment The buyer suffers through loss of property value or
cost of repair. Consider 13.12, p. 348: Fraud hypotheticals. The
test scores for this areas public schools are the highest in the
state. This roof has a 30-year warranty. This well could never run
dry. That easement is not recorded, but its valid. This property
was certified in 2006 as termite free. The crime rate is very low
here. The city has no plans for a stadium next to this house. The
value on this house just keeps going up. Basements in this area
dont leak.
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Home Warranties Implied Warranty of Habitability (statute
based) Purchased Home Warranty Disclaim Implied Warranty? 34
