Term
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Definition
A contract is an agreement between two or more parties who, in a "meeting of the minds," have pledged to perform or refrain from performing some act. A valid contract is one that is legally enforceable by virtue of meeting certain requirements of contract law. If a contract does not meet the requirements, it is not valid and the parties to it cannot resort to a court of law to enforce its provisions.
Note that a contract is not a legal form or a prescribed set of words in a document, but rather the intangible agreement that was made in "the meeting of the minds" of the parties to the contract. |
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Term
| what is a valid contract? |
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Definition
A valid contract is one which meets the legal requirements for validity.
A valid contract that is in writing is enforceable within a statutory time period. A valid contract that is made orally is also generally enforceable within a statutory period, with the exceptions noted below |
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Term
| what is a valid but unenforceable contract? |
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Definition
A valid contract is one which meets the legal requirements for validity. These requirements are explained in the next section.
A valid contract that is in writing is enforceable within a statutory time period. A valid contract that is made orally is also generally enforceable within a statutory period, with the exceptions noted below. |
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Term
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Definition
A void contract is an agreement that does not meet the tests for validity, and therefore is no contract at all. If a contract is void, neither party can enforce it.
For example, a contract that does not include consideration is void. Likewise, a contract to extort money from a business is void. Void contracts and instruments are also described as "null and void." |
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Term
| what is a voidable contract? |
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Definition
A voidable contract is one which initially appears to be valid, but is subject to rescission by a party to the contract who is deemed to have acted under some kind of disability. Only the party who claims the disability may rescind the legal effect of the contract.
For example, a party who was the victim of duress, coercion, or fraud in creation of a contract, and can prove it, may disaffirm the contract. However, the disaffirmation must occur within a legal time frame for the act of rescission to be valid. Similarly, if the party who has cause to disaffirm the contract elects instead to perform it, the contract is no longer voidable but valid.
A voidable contract differs from a void contract in that the latter does not require an act of disaffirmation to render it unenforceable. |
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Term
| A contract is valid only if it meets all of the following criteria: |
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Definition
competent parties
mutual consent
valuable consideration
legal purpose
voluntary act of good faith |
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Term
| In regards to contracts, what are competent parties? |
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Definition
The parties to a contract must have the capacity to contract and there must be at least two such parties. Thus, the owner of a tenancy for life cannot deed his interest to himself in the form of a fee simple, as this would involve only one party. Capacity to contract is determined by three factors:
legal age
mental competency
legitimate authority
Depending on state law, a contract involving a minor as a party may be either void or voidable. If the law allows a minor to contract, the contract will generally be voidable and the minor can disaffirm the contract. In Oklahoma, the minimum legal age is 18 years-old. |
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Term
| In regards to contracts, what is mutual consent? |
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Definition
| Mutual consent, also known as offer and acceptance and meeting of the minds, requires that a contract involve a clear and definite offer and an intentional, unqualified acceptance of the offer. In effect, the parties must agree to the terms without equivocation. A court may nullify a contract where the acceptance of terms by either party was partial, accidental, or vague. |
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Term
| In regards to contracts, what is valuable consideration? |
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Definition
A contract must contain a two-way exchange of valuable consideration as compensation for performance by the other party. The exchange of considerations must be two-way. The contract is not valid or enforceable if just one party provides consideration.
Valuable consideration can be something of tangible value, such as money or something a party promises to do or not do. For example, a homebuilder may promise to build a house for a party as consideration for receiving money from the homebuyer. Or, a landowner may agree not to sell a property as consideration for a developer's option money. Also, valuable consideration can be something intangible that a party must give up, such as a homeowner's occupancy of the house in exchange for rent. In effect, consideration is the price one party must pay to obtain performance from the other party. |
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Term
| in terms of contracts, what is "good consideration"? |
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Definition
| Good consideration is something of questionable value, such as a child's love for her mother. Good consideration disqualifies a contract, because while one's love or affection is certainly valuable to the other party, it is not something that is specifically offered in exchange for something else. Good consideration can, however, serve as a nominal consideration in transferring a real property interest as a gift. |
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Term
| In regards to contracts, what is legal purpose? |
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Definition
| The content, promise, or intent of a contract must be lawful. A contract that proposes an illegal act is void. |
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Term
| In regards to contracts, what is voluntary / good faith? |
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Definition
The parties must create the contract in good faith as a free and voluntary act. A contract is thus voidable if one party acted under duress, coercion, fraud, or misrepresentation.
For example, if a property seller induces a buyer to purchase a house based on assurances that the roof is new, the buyer may rescind the agreement if the roof turns out to be twenty years old and leaky. |
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Term
| what is validity of a conveyance contract? |
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Definition
In addition to satisfying the foregoing requirements, a contract that conveys an interest in real estate must:
be in writing
contain a legal description of the property
be signed by one or more of the parties
A lease contract that has a term of one year or less is an exception. Such leases do not have to be in writing to be enforceable. |
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Term
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Definition
| The statute of limitations restricts the time period for which an injured party in a contract has the right to rescind or disaffirm the contract. A party to a voidable contract must act within the statutory period. |
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Term
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Definition
The Statute of Frauds requires that certain contracts must be in writing to be enforceable.
Real estate contracts that convey an interest in real property fall in this category, with the exception that a lease of one year's duration or less may be oral |
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Term
| what is the uniform electronic transactions act? |
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Definition
| The Uniform Electronic Transactions Act makes it legal in many states to use electronic signatures in electronic transactions. These are enforceable documents in complying states. |
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Term
| The Statute of Frauds requires that most contracts that convey an interest in real estate be in writing. What does it mean to say under this doctrine that an oral contract may be valid, but not enforceable? |
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Definition
| An oral contract to convey an interest may meet the five conditions for validity, but a court will not order a defaulting party to perform. However, if the parties do perform, the contract is executed and cannot be rescinded under the Statute of Frauds. |
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Term
| John Junior, age 14, under duress from his father, signs a contract to buy a $75,000 sports car from his father, John Senior, for $10 a week plus a promise to "be a good boy" around the house, even though both father and son know that Junior intends to drive the car without license or insurance. Do you think a court would enforce this contract if either party decided not to go through with it? |
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Definition
| A court might declare the contract void, voidable, or simply not a valid contract because: Junior is a minor; the consideration is grossly insufficient or not clearly defined; Junior's signing is not entirely voluntary, nor is consent truly mutual; the purpose of the contract may not be legal, since Junior cannot legally operate the car, although it may be legal for him to own it. |
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Term
| how is mutual consent required for a contract reached? |
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Definition
| The mutual consent required for a valid contract is reached through the process of offer and acceptance: The offeror proposes contract terms in an offer to the offeree. If the offeree accepts all terms without amendment, the offer becomes a contract. The exact point at which the offer becomes a contract is when the offeree gives the offeror notice of the acceptance. |
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Term
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Definition
An offer expresses the offeror's intention to enter into a contract with an offeree to perform the terms of the agreement in exchange for the offeree's performance. In a real estate sale or lease contract, the offer must clearly contain all intended terms of the contract in writing and be communicated to the offeree.
If an offer contains an expiration date and the phrase "time is of the essence," the offer expires at exactly the time specified. In the absence of a stated time period, the offeree has a "reasonable" time to accept an offer. |
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Term
| in terms of a contract, what is acceptance? |
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Definition
An offer gives the offeree the power of accepting. For an acceptance to be valid, the offeree must manifestly and unequivocally accept all terms of the offer without change, and so indicate by signing the offer, preferably with a date of signing. The acceptance must then be communicated to the offeror. If the communication of acceptance is by mail, the offer is considered to be communicated as soon as it is placed in the mail.
In many states, all offers that are delivered to the seller's agent must be delivered to the seller. In instances where the seller has instructed his or her licensee not to bring offers below a certain price, a contract does not have to be delivered. Offers that come after an acceptance do not have to be delivered either. |
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Term
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Definition
By changing any of the terms of an offer, the offeree creates a counteroffer, and the original offer is void. At this point, the offeree becomes the offeror, and the new offeree gains the right of acceptance. If accepted, the counteroffer becomes a valid contract provided all other requirements are met.
For example, a seller changes the expiration date of a buyer's offer by one day, signs the offer and returns it to the buyer. The single amendment extinguishes the buyer's offer, and the buyer is no longer bound by any agreement. The seller's amended offer is a counteroffer which now gives the buyer the right of acceptance. If the buyer accepts the counteroffer, the counteroffer becomes a binding contract. |
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Term
| what is revocation of an offer? |
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Definition
An offer may be revoked, or withdrawn, at any time before the offeree has communicated acceptance. The revocation extinguishes the offer and the offeree's right to accept it.
For example, a buyer has offered to purchase a house for the listed price. Three hours later, a family death radically changes the buyer's plans. She immediately calls the seller and revokes the offer, stating she is no longer interested in the house. Since the seller had not communicated acceptance of the offer to the buyer, the offer is legally canceled. |
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Term
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Definition
acceptance: the offeree accepts the offer, converting it to a contract
rejection: the offeree rejects the offer
revocation: the offeror withdraws the offer before acceptance
lapse of time: the offer expires
counteroffer: the offeree changes the offer
death or insanity of either party |
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Term
| what is assignment of a contract? |
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Definition
A real estate contract that is not a personal contract for services can be assigned to another party unless the terms of the agreement specifically prohibit assignment.
Listing agreements, for example, are not assignable, since they are personal service agreements between agent and principal. Sales contracts, however, are assignable, because they involve the purchase of real property rather than a personal service. |
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Term
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Definition
State laws define the extent to which real estate brokers and licensees may legally prepare real estate contracts. Such laws, referred to as "broker-lawyer accords," also define what types of contracts brokers and licensees may prepare. In some states, brokers and licensees may not draft contracts, but they may use standard promulgated forms and complete the blanks in the form.
As a rule, a broker or licensee who completes real estate contracts is engaging in the unauthorized practice of law unless the broker is a party to the agreement, such as in a listing agreement or sales contract. Brokers and licensees may not complete leases, mortgages, contracts for deed, or promissory notes to which they are not a party. |
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Term
| Oral Vs. Written contracts |
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Definition
| A contract may be in writing or it may be an oral, or parol, contract. Certain oral contracts are valid and enforceable; others are not enforceable, even if valid. For example, most states require listing agreements, sales contracts, and leases exceeding one year to be in writing to be enforceable. |
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Term
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Definition
| s one in which all the terms and covenants of the agreement have been manifestly stated and agreed to by all parties, whether verbally or in writing. |
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Term
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Definition
is an unstated or unintentional agreement that may be deemed to exist when the actions of any of the parties suggest the existence of an agreement.
A common example of an implied contract is an implied agency agreement. In implied agency, an agent who does not have a contract with a buyer performs acts on the buyer's behalf, such as negotiating a price that is less than the listing price. In so doing, the agent has possibly created an implied contract with the buyer, albeit unintended. If the buyer compensates the agent for the negotiating efforts, the existence of an implied agency agreement becomes even less disputable. |
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Term
| what is a bilateral contract? |
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Definition
A bilateral contract is one in which both parties promise to perform their respective parts of an agreement in exchange for performance by the other party.
An example of a bilateral contract is an earnest money contract: The buyer promises to pay for the property and the seller promises to deliver title to the property. |
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Term
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Definition
only one party promises to do something, provided the other party does something. The latter party is not obligated to perform any act, but the promising party must fulfill the promise if the other party chooses to perform.
An option is an example of a unilateral contract: in an option-to-buy, the party offering the option (optionor) promises to sell a property if the optionee decides to exercise the option. While the potential buyer does not have to buy, the owner must sell if the option is exercised. In some states, promulgated contract forms allow options. The optionor has the right to terminate the contract at any time during the option period. In many options, the optionor has to pay an option fee, which is not refunded if the contract is terminated. |
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Term
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Definition
| is one that has been fully performed and fulfilled: neither party bears any further obligation. A completed and expired lease contract is an executed contract: the landlord may re-possess the premises and the tenant has no further obligation to pay rent. |
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Term
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Definition
| is one in which performance is yet to be completed. A sales contract prior to closing is executory: while the parties have agreed to buy and sell, the buyer has yet to pay the seller and the seller has yet to deed the property to the buyer. |
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Term
| what is an unconscionable contract? |
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Definition
| contract is one that unduly favors the party with superior bargaining power. It is one that a mentally competent person or honest person would normally reject. Because of the inequality of bargaining power, the element of voluntary participation without duress may be deemed to be absent. Most contracts of this type occur in consumer transactions and limit the rights of the buyer to seek court relief against the seller or disclaim any warranty that the purchaser may rely upon. A court may look at the relative circumstances of the parties at the time of contracting to determine whether it would be an affront to the judicial system to enforce such a contract. |
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Term
| what is an adhesion contract? |
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Definition
| is one dictated by the party who has the greater bargaining advantage. It gives the weaker party only the options of accepting or rejecting the contract. Such contracts are not necessarily unconscionable, as they may not unfairly exploit the assenting party. However, courts sometimes refuse to enforce contracts of adhesion on the grounds that there was no true meeting of the minds or no true offer and acceptance because the purchaser had no choice but to accept. |
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Term
| what is an aleatory contract? |
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Definition
| An aleatory contract is one whose effects are triggered by the occurrence of a chance event ("aleatory" means "dependent on chance"). Insurance policies are aleatory contracts in that the insured only receives the proceeds of the policy if a specified event, such as an accident, fire, or death, occurs. |
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Term
| how can a contract be cancelled or terminated due to performance? |
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Definition
A contract terminates when fully performed by the parties. It may also terminate for:
partial performance, if the parties agree
sufficient performance, if a court determines a party has sufficiently performed the contract, even though not to the full extent of every provision |
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Term
| how can a contract be cancelled or terminated due to infeasibility? |
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Definition
| An otherwise valid contract can be canceled if it is not possible to perform. Certain personal services contracts, for example, depend on the unique capabilities of one person, which cannot be substituted by someone else. If such a person dies or is sufficiently disabled, the contract is cancelable. |
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Term
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Definition
| Parties to a contract can agree to terminate, or renounce, the contract. If the parties wish to create a new contract to replace the canceled contract, they must comply with the validity requirements for the new contract. Such substitution is called novation. |
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Term
| Cooling-Period Rescission |
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Definition
| Rescission is the act of nullifying a contract. In many states, parties to certain contracts are allowed a statutory amount of time after entering into a contract, or "cooling period", to rescind the contract without cause. No reason need be stated for the cancellation, and the canceling party incurs no liability for performance. |
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Term
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Definition
Revocation is cancellation of the contract by one party without the consent of the other. For example, a seller may revoke a listing to take the property off the market. While all parties have the power to revoke, they may not have a defensible right. In the absence of justifiable grounds, a revocation may not relieve the revoking party of contract obligations.
For example, a seller who revokes a listing without grounds may be required to pay a commission if the broker found a buyer, or reimburse the broker's marketing expenses if no buyer was found. |
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Term
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Definition
| Abandonment occurs when parties fail to perform contract obligations. This situation may allow the parties to cancel the contract. |
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Term
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Definition
| If a contract contains an expiration provision and date, the contract automatically expires on the deadline. |
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Term
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Definition
| If a contract is void, it terminates without the need for disaffirmation. A voidable contract can be canceled by operation of law or by rescission. |
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Term
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Definition
| The rights and liabilities of parties to a contract may be changed by the application of law. The Statute of Limitations restricts the time period for which an injured party in a contract has the right to bring a lawsuit against the other party. When a person files for bankruptcy, the person's obligations under existing contracts are terminated as of the filing date. |
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Term
| what is breach of contract? |
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Definition
is a failure to perform according to the terms of the agreement. Also called default, a breach of contract gives the damaged party the right to take legal action, subject to any time limits created by the state's statute of limitations or other legislation.
The damaged party may elect the following legal remedies:
rescission
forfeiture
suit for damages
suit for specific performance |
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Term
| what is breach of contract? |
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Definition
is a failure to perform according to the terms of the agreement. Also called default, a breach of contract gives the damaged party the right to take legal action, subject to any time limits created by the state's statute of limitations or other legislation.
The damaged party may elect the following legal remedies:
rescission
forfeiture
suit for damages
suit for specific performance |
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Term
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Definition
| A damaged party may rescind the contract. This cancels the contract and returns the parties to their pre-contract condition, including the refunding of any monies already transferred. |
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Term
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Definition
| Forfeiture requires the breaching party to give up something, according to the terms of the contract. For example, a buyer who defaults on a sales contract may have to forfeit the earnest money deposit. |
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Term
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Definition
| A damaged party may sue for money damages in civil court. The suit must be initiated within the time period allowed by the statute of limitations. When a contract states the total amount due to a damaged party in the event of a breach, the compensation is known as liquidated damages. If the contract does not specify the amount, the damaged party may sue in court for unliquidated damages. |
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Term
| Suit For Specific Performance |
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Definition
| A suit for specific performance is an attempt to force the defaulting party to comply with the terms of the contract. Specific performance suits occur when it is difficult to identify damages because of the unique circumstances of the real property in question. The most common instance is a defaulted sale or lease contract where the buyer or seller wants the court to compel the defaulting party to go through with the transaction, even when the defaulter would prefer to pay a damage award. |
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Term
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Definition
| Sometimes a contract does not accurately reflect the intentions of the parties because of some mechanical or clerical error in the document. When this happens, a legal action called a reformation is necessary to correct or modify the contract. |
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Term
| What happens to an offer made to a seller if the seller changes one of the terms, signs the offer, and returns it to the buyer? |
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Definition
| The original offer becomes void. The changed offer is a new offer, or counteroffer, from the seller to the buyer. |
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Term
| When does an offer or counteroffer become a contract? |
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Definition
| When the parties, purpose, consideration, and good faith requirements have been met and the offeree communicates acceptance to the offeror without changing the offer in any way. |
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Term
| What is the relationship between an executory contract and an executed contract? |
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Definition
| An executory contract is waiting to be performed; once it has been performed, it is an executed contract. |
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Term
| Describe the legal remedies a damaged party has when another party to a contract breaches the contract. |
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Definition
Rescission - cancel the contact and return all monies.
Forfeiture - the breaching party has to give up something.
Suit for damages - the breaching party is required by a court to pay an amount specified in the contract (liquidated damages) or an amount determined in the suit (unliquidated damages).
Suit for specific performance - the breaching party is required by a court to go through with the contract. |
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