1 Chapter 7
CHAPTER 7: Contract Law
I. Explain how a Contract is created Stress the importance of contracts. It’s probably
A. Define Bilateral Contras the area of the law most commonly encountered
B. Define Unilateral Contract by students yet the one they know the least
about.
C. Define Forbearance
D. Differentiate Valid, Void, Voidable
II. Explain Essentials of a Valid Contract
A. Define Competent Parties Emphasize how real estate licensees should be
extremely
1. Power of Attorney cautious in dealing with someone who may be
incompetent
2. Corporations, etc. There is also excessive paperwork required to
transfer
B. Discuss Mutual Agreement title, which may be extremely di”cult and time
consuming.
1. How to achieve it through Offer and
Acceptance
2. Discuss counteroffers
3. How to avoid it through Fraud
4. Innocent Misrepresentation
5. Mistake
6. Explain Contractual Intent
7. Necessity for lack of duress, menace,
undue influence
C. Define Lawful Objective
D. Discuss Consideration
1. Exchange of Promises
2. Valuable Consideration
3. Good Consideration
4. Multiple meanings of the word
consideration
E. Contract in Writing Emphasize the purpose of the Statute of Frauds to
prevent
1. Purpose perjury in important transactions like real estate.
2. Parol Evidence Rule
3. Executory, Executed, and Execute
III. Discuss the Performance and Discharge of
Contracts
A. Define Novation
B. Deceased Parties, effect on contract Emphasize that death does not terminate a
contractual
C. Effect of Property Damage during the con– obligation (it does terminate an offer, though,
remind the
tract period students).
IV. Breach of Contract
A. Partial Performance Re-emphasize here the complexity of litigation
and the
B. Unilateral Rescission need for advice from a competent real estate
attorney.
C. Lawsuit for Money Damages
D. Lawsuit for Specific Performance
Bring to class samples of contract forms used in your area
for class discussion. Can also use the Internet as a resource.
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105 103 Opening Remarks Start this chapter by stressing that all contracts are not enforce
able, e.g., when people who have little or no knowledge of con-
tractual law agree to do something and then write a “contract,”
the result is often unenforceable.
105 103 Expressed Contract Stress: Contract may be created with written or verbal words.
105 103 Implied Contract Stress: Created by actions.
105 104 Bilateral Contract Stress: Promise for a promise, e.g., sales contract.
106 104 Unilateral Contract Stress: Promise for performance, e.g., listing contract, option to
buy, mortgage note.
106 104 Valid, Void, Voidable Stress: The differences (with examples).
Valid = binding and enforceable (a cash agreement, no
contingencies)
Void = no effect (listing signed by child of the owner, in the
absence of holding a power of attorney)
Voidable = able to void (subject to financing clause)
107 105 Competent Parties Local Distinction: Discuss your state’s
1. Age for majority
2. Minor’s ability to enter lease contracts
3. Minor’s ability to dispose of property
107 105 Unsound Mind Stress: Persons of unsound mind are treated basically the same as
minors.
107 106 Power of Attorney Stress: An individual can give another person the power to
act on her behalf: for example, to buy or sell land or sign a lease.
111 107 Exchange of Promises Common Misconception: The offeror’s earnest money (binder or
downpayment), is not the consideration in the typical sales
contract.
111 111 Contract in Writing Stress: All of these instruments mentioned convey real property
interests. Remind of Statute of Frauds. Discuss use of faxes and e-mail.
112 112 Esign Stress: The government has preempted all rules by authorizing
electronic signatures and documents..
115 115 Liquidated Damages Stress: Amount of damages agreed to in advance. In real estate,
earnest money is not consideration, rather available as liquidated
damages.
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116 116 Statute of LimitationsLocal Distinction: Learn the various limitations of
your state.
Consult an attorney. Research information on Internet.
117 117 Wrap-Up 1. Name the essentials of a valid contract.
(Competent Parties,
Mutual Agreement, Lawful Objective,
Consideration,
Written–in some cases)
2. Name four ways that a party may be discharged
from a
A contract is a legally enforceable agreement
to do (or not to do) a specific thing. In this
chapter we will see how a contract is created
and what makes it legally binding.