The%20Purchase%20Contract

1

• Chapter 13
• The Purchase Contract

2
Overview of Contracts
No
Offer
Yes
No Contract
No
Acceptance
Yes
No
Consideration
Yes
Void or Voidable Contract
Undue Influence
Yes
Defenses
Illegality?
Capacity
Misrepresentation? Fraud? Duress?
Mistake?
No
Writing Required?
Valid Contract
3
Types of Offers

• Options
• 1. Paid-for offers
• 2. Consideration required
• 3. Irrevocable

4
Elements Covered in an Option Agreement

• 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)

5
Elements Covered in an Option Agreement (cont.)

• 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)

6
Elements Covered in an Option Agreement (cont.)

• 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)

7
Elements Covered in an Option Agreement (cont.)

• 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

8
Termination of Offer

• Rejection
• Counteroffer - Common law - mirror image rule
• Revocation
• Effective upon receipt

9
Termination of Offers

• Death of offeror
• Bankruptcy
• Illegality

10
Overview of Contracts
No
Offer
Yes
No Contract
No
Acceptance
Yes
No
Consideration
Yes
Void or Voidable Contract
Undue Influence
Yes
Defenses
Illegality?
Capacity
Misrepresentation? Fraud? Duress?
Mistake?
No
Writing Required?
Valid Contract
11
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

12
Timing Rules for Acceptance
13
Timing Rules for Acceptance (cont.)
14
Timing - Acceptance

• February 1, 2008 - A mails an offer to B
• February 2, 2008 - B receives the offer
• February 3, 2008 - A mails a revocation
• February 4, 2008 - B mails acceptance
• February 5, 2008 - B receives revocation
• February 6, 2008 - A receives acceptance

15
Timing - Acceptance

• RESULT
• Contract as of February 4 because same method
  of communication used contract formed when
  acceptance sent

16
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.

17
Overview of Contracts
No
Offer
Yes
No Contract
No
Acceptance
Yes
No
Consideration
Yes
Void or Voidable Contract
Undue Influence
Yes
Defenses
Illegality?
Capacity
Misrepresentation? Fraud? Duress?
Mistake?
No
Writing Required?
Valid Contract
18
Consideration

• Amount - irrelevant, but whatever it is, it must
  be paid
• Bargained for exchange- promised induces the
  detriment and detriment induces the promise

19
Overview of Contracts
No
Offer
Yes
No Contract
No
Acceptance
Yes
No
Consideration
Yes
Void or Voidable Contract
Undue Influence
Yes
Defenses
Illegality?
Capacity
Misrepresentation? Fraud? Duress?
Mistake?
No
Writing Required?
Valid Contract
20
Statute of Frauds

• Land

Options
Contracts
Leases
Mortgages
Exception partial performance, possession,
and/or improvements and payment
21
Requirements for Real Estate Contracts under
Statute of Frauds

• That the contract be in the form of a record,
  such as a written agreement
• That the parties sign or authenticate the
  contract
• That the description of the property be adequate

22
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.

23
Checklist for Negotiation of Real Estate
Contracts (cont.)
(Continued on next slide)
24
Checklist for Negotiation of Real Estate
Contracts (cont.)
(Continued on next slide)
25
Checklist for Negotiation of Real Estate Contracts
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Marketable Title

• Would a reasonable and prudent person accept this
  title?
• Freedom from controversy

27
Marketable Title
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Innocent Misrepresentation
Rescission is the only available remedy
29
Proof Requirements for Misrepresentation

• A statement of material fact has been made or
  omitted
• The type of information involved would affect
  the buying decision.
• 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).
• There is detriment
• The buyer suffers through loss of property value
  or cost of repair.

30
Overview of Contracts
No
Offer
Yes
No Contract
No
Acceptance
Yes
No
Consideration
Yes
Void or Voidable Contract
Undue Influence
Yes
Defenses
Illegality?
Capacity
Misrepresentation? Fraud? Duress?
Mistake?
No
Writing Required?
Valid Contract