Chapter 7. Georgia Real Estate An Introduction to the Profession Eighth Edition Chapter 7 Contract Law.

Chapter 7

Georgia Real Estate An Introduction to the Profession

Eighth Edition

Chapter 7

Contract Law

Key Terms• bilateral contract• breach of contract• competent party• consideration• contract• counteroffer• expressed contract• fraud

• implied contract• liquidated

damages• power of attorney• specific

performance• unilateral contract• void contract• voidable contract

© 2015 OnCourse Learning

How a Contract is Created

An expressed contract occurs when the parties to the contract declare their intentions orally or in writing.

An implied contract is created by actions of the parties.


Bilateral Contract

A bilateral contract results when a promise is exchanged for a promise.

“I will do this and you will do that.”

Purchase and sale agreements and leases are examples of bilateral contracts.


Unilateral Contract

A unilateral contract results when a promise is exchanged for performance.

“I will do this if you do that.”

An option to purchase is a unilateral contract.


Essentials of a Valid Contract

There are four essentials elements of any contract:

1. Legally competent parties2. Mutual agreement3. Lawful objective4. Consideration


Essentials of a Valid ContractValid – an agreement that contains all the essential elements of a contract

Void – an agreement that is missing one of the essential elements of a contract

Voidable – because of a defect, one or more of the elements may be removed by the injured party


Essentials of a Valid ContractInvalid – the agreement once had validity, but the validity has ceased

Enforceable – a contract that a court would allow and uphold

Unenforceable – a contract that a court would not allow or would not uphold


Competent Parties

For a contract to be legally enforceable, all parties entering into it must be legally competent.

In Georgia, the age for entering into a legally binding contract is 18.


Competent Parties

A minor does not have the capacity to appoint someone to sell property.

If a contract with a minor is required, the contract would be voidable at the option of the minor (the injured party).


Competent Parties

If there was a deliberate attempt to intoxicate a person involuntarily for the purpose of approving a contract, the contract would be void.

If the contracting party was voluntarily drunk to the point of incompetence, the contract is voidable.


Competent Parties

A person who contracts will under the influence of legal or illegal drugs would also be considered an injured party.

People who have been declared incompetent by a judge may not make a valid contract.


Competent Parties

Laches is the loss of a legal right due to failure to assert that right within a reasonable period of time.


Competent Parties

Individuals can give another person the power to act on their behalf with a power of attorney. The person holding the power of attorney is called an attorney-in-fact.


Competent Parties

The attorney-in-fact can act on the principal’s behalf so long as the principal is legally competent and as long as both of them are alive.


Competent Parties

Corporations are considered legally competent.

The individual contracting on behalf of the corporation must have legal authority from the board of directors.


Mutual Agreement

Mutual agreement means that there must be agreement to the provisions of the contract by the parties involved.


Mutual Agreement

There must be no fraud, innocent misrepresentation, or mistake, and the agreement must be genuine and freely given.


Mutual Agreement

Offer and acceptance requires that the offeror make an offer to the offeree. If the offer is acceptable, the offeree must then communicate the acceptance to the offeror.


Mutual Agreement

Upon receiving the offer, the offeree has three options: to agree to it, to reject it or to make a counteroffer.

An offer is said to be rejected if any change is made in the terms.


Mutual Agreement

Any change in the terms in considered a counteroffer.

This makes the seller the offeror.


Mutual Agreement

An offer can be revoked by the offeror at any time prior to the offeror’s hearing of acceptance.

An offer or counteroffer can be withdrawn at any time prior to communicating acceptance.


Mutual Agreement

A fraud is an act intended to deceive for the purpose of inducing another to part with something of value.

Fraud can result from failing to disclose important information, inducing someone to accept an offer.


Mutual Agreement

If a real estate agent commits a fraud to make a sale the deceived party later rescinds the sales contract, the commission is lost.

Georgia license law provides for suspension or revocation of a real estate license for fraudulent acts.


Mutual Agreement

Innocent misrepresentation is different from fraud in that the party providing the wrong information is not doing so to deceive another for the purpose of reaching an agreement.

Mistake arises from ambiguity in negotiations and mistake of material fact.


Mutual Agreement

Ignorance of the law is not considered a mistake.


Mutual Agreement

The offer and acceptance must be freely and genuinely given. Duress, menace, or undue influence cannot be used to obtain agreement.

A contract made under any of these conditions can be revoked by the aggrieved party.


Lawful Objective

To be enforceable, a contract cannot call for the breaking of laws.

Such a contract is void.


Consideration

For an agreement to be enforceable, it must be supported by consideration.

Consideration is usually something of value: a promise to do something, money, property, or personal services.


Consideration

Consideration that can be measured in dollars and cents is valuable consideration. Valuable consideration may be money, jewelry, goods, or services.

Love and affection is good consideration.


Consideration

The seller agrees to sell on the terms agreed and the buyer agrees to buy the property on those same terms.


Consideration

Earnest money is not the consideration. Earnest money is an indication of the buyer’s intent and may become damages to the seller in the event the buyer does not carry out the promises.


Contract in Writing

The statute of frauds requires that most contracts for the sale of land, or an interest in land, be in writing and signed to be enforceable in a court of law.

The sale of personal property in excess of $500 should be writing.


Contract in Writing

Listing contracts must be in writing.

A written contract will supersede an oral contract.


Contract in Writing

The most common real estate contract that does not need to be in writing to be enforceable is a lease for one year or less.


Contract in Writing

The parol evidence rule permits oral evidence to complete an otherwise incomplete or ambiguous written contract.

Courts presume that what the parties put into writing is what they agreed upon.


Executory, Executed, Execute

A contract that is in the process of being carried out is said to be executory.

Once completed, it is said to be executed. Performance has taken place.


Executory, Executed, Execute

Execute refers to the process of completing, performing or carrying out something.

You execute a document when you sign it. You execute the terms of the contract by carrying out its terms.


Performance and Discharge of ContractsUnless prohibited by the contract, rights, benefits, and obligations under a contract can be assigned to someone else.

The original party to the contract remains ultimately liable for its performance.


Novation

Novation is the substitution of a new contract between the same or new parties.

With novation, the departing party is released from the obligation to complete the contract.


Deceased Party

If there is a valid purchase contract and one party dies, the contract is usually enforceable against the estate because the estate has the authority to carry out the deceased’s affairs.


Property Damage

If neither possession nor title has passed and there is material destruction to the property, the seller cannot enforce the contract and the purchaser is entitle to the money back.


Breach of Contract

When one party fails to perform as required by a contract and the law does not recognize the reason for failure to be a valid excuses, there is a breach of contract.


Partial Performance

Partial performance may be acceptable because the innocent party feels that the time and effort to sue would not be worth the rewards.


Unilateral Rescission

Under certain circumstances, the innocent party can unilaterally rescind a contract. The innocent party can take the position that if the other party is not going to perform contractual obligations, then the innocent party will not either.


Lawsuit for Money Damages

If the damages to the innocent party can be reasonably expressed in terms of money, the innocent party can sue for money damages.


Lawsuit for Specific Performance

A lawsuit for specific performance forces the breaching party to carry out the remainder of the contract according to the terms, price and conditions agreed upon.


Monetary Damages vs. Specific Performance

A threat of a lawsuit will often bring the desired results if the defendant knows that the law will side with the wronged party.


Liquidated Damages

Once a seller accepts an offer, if the buyer fails to complete the purchase, the seller may keep the buyer’s earnest money as liquidated damages.


Mutual Rescission

Mutual rescission relieves the parties to the contract from their obligations to each other.


Statute of Limitations

The statute of limitations limits the amount of time a wronged party has to seek the aid of a court in obtaining justice.


Implied Obligations

Caveat emptor – let the buyer beware


Implied Obligations

In Georgia, builders are liable for their work for one year.

An individual agent is responsible for being competent and knowledgeable. A real estate agent will not be able to plead ignorance.


Chapter 7. Georgia Real Estate An Introduction to the Profession Eighth Edition Chapter 7 Contract Law.

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