MODUL MINGGU 5
PENGANTAR REAL ESTATE
CONTRACT AND PROPERTY
TRANSACTION
Provided by Hasan Nuryadi, M.Ec. B.Sc(Hons)
1. Definition of contract
A contract is a legally binding exchange of promises or agreement between parties
that the law will enforce. Contract law is based on the Latin phrase pacta sunt
servanda (agreements must be kept). Breach of contract is recognized by the law
and remedies can be provided. Almost everyone makes contracts everyday.
Sometimes written contracts are required, e.g, when buying a house. However the
vast majority of contracts can be and are made orally, like buying a law book, or a
coffe at a shop. Contract law can be classified, as is habitual in civil law systems, as
part of general law of bligations (long with tort, unjust enrichment or restriction).
2. CONTRACT LAW ISSUES
According to the Indonesian Civil Code, to be valid, a contract has to fulfil four basic
requirements, i.e.:
According to the Indonesian Civil Code, to
be valid, a contract has to fulfil four basic
requirements, i.e.:
•
it must be concluded by competent parties;
•
these parties have consented to be bound by the contract;
•
the contract has a definite object;
•
the cause of the contract is permissible.
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•
Clearly all of these requirements must be fulfilled by contracts that are
concluded by electronic means, as well as those concluded by traditional
means (e.g. by the parties meeting each others in person). In this section our
focus will be on the requirement for consent and competence. We will
assume that the electronically concluded contracts that we are talking about
have definite objects. The issue of permissible cause will be dealt with below
in the section on the protection of the public, below.
2.1 Issues on competence
•
According to the Indonesian law, contracts that are signed by incompetent
parties are voidable. Incompetent parties are minors, persons who represents
other parties without authority and legal entities that are barred by their
Articles of Association from concluding the contract concerned. A minor (i.e.
those who are under the age of 17) who has signed a contact may submit a
claim (presumably through his guardian) to an Indonesian Court to void this
contract. Likewise companies may ask the Court to void contracts signed on
their behalf by other parties who actually have no authority to represent them.
•
Competence, presumably, would not be a problem in electronically concluded
contracts between parties who knew each other well such as contracts signed
via facsimile between companies that have extensively negotiated them
beforehand. There is also little chance that competence would matter
between parties who are conducting electronic commerce within a restricted
environment where only certain parties may join and conclude contracts with
each other, such as in a stock exchange. Competence, may, however,
becomes a potential problem in situations, such as selling goods through the
Internet, where the parties have no prior knowledge of each other and there is
no guarantee on each party’s competence. This problem is particularly crucial
for the electronic commerce through the Internet where parties could find
ways to hide their true identity.
•
Currently, the law does not provide us with any comforting solution in this
matter. The defence of good faith would not work very well in cases of
incompetent minors because the law is strongly protective of this group.
Likewise, in other cases of incompetence, unless the contracting party is able
to proof fraud or other unlawful acts on the part of his wrongly-represented
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counterpart, he cannot sought remedy from this counterpart, rather he must
sue the party who wrongly represented the counterpart for fraud. There is no
general standards on how far a party should go in checking his counterpart’s
competence
in
concluding
an
electronic
transaction.
Everything
is
approached on a case-by-case basis.
•
On the other hand, we must consider that the burden of claiming and proving
incompetence lays on the minor’s guardian and the wrongfully represented
parties. Realistically, these parties’ decision to submit claims of incompetence
to Court would depend on many practical issues, like the cost and benefit of
going to Court and the possibility for proving incompetence. This means
claims for incompetence are unlikely to be raised in cases where the amount
concerned are too small to warrant the cost of litigation.
•
Nevertheless, it is always advisable to take all practical precautionary
measures to prevent claims of incompetence. In situations where the
transaction is routine and involves the public in general, such as soliciting
merchandise through the Internet, it would be advisable to set up procedures
for identification of prospective clients.
3. Contractual formation
The Carbolic Smoke Ball offer, which bankrupted the Co. because it could not fulfil
the terms it advertised.
In common law jurisdictions there are three key elements to the creation of a
contract. These are offer and ecceptance, consideration and an intention to creat
legal relations. In civil law systems the concept of consideration is not central. In
addition, for some contract formalities must be complied with under what is
sometimes called a statue of frauds.
One of the most famous cases on forming a contract is Carlill v. Carbolick Smoke
Ball Company, decided in ninenth century England. A medical firm advertised that its
new wonder drug, a smoke ball, would cure people’s flu, and if it did not, buyers
would received £100. Many people sued for their £100 when it did not work. Fearing
brankruptcy, Carbolic argued the advert was not to be taken as a serious, legally
binding offer. It was merely an invitation to treat, or mere puff, a gimmick. But the
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court of appeal held that to a reasonable man Carbolic had made a serious affer.
People had given good “consideration” for it by going to the “ distinct inconvenience”
of using a faulty product.”Read the advertisement how you will, and twist it about as
you will,” said Lord Justice Lindley,”here is a distinct promise expressed in langguage
which is perfectly unmistakable”.
4. Offer and acceptance
Perhaps the most important feature of a contract is that one party makes an offer for
a bargain that another accepts. This can be called a ’concurrence of wills’ or a
‘meeting of the minds’ of two or more parties. There must be evidence that the
parties had each from an objective perspective enganged in conduct manifesting
their assent, and a contract will be formed when the parties have met such a
requirement. An objective perspective means that it is only necessary that somebody
give the impression of offering or eccepting contractual terms in the eyes of a
reasonable person, not that they actually did want to contract.
The case of Carlill v. Carbolic Smoke Ball Co. (above) is an example of a ‘unilateral
contract’, where acceptance is the performance of an act or the fulfilment of the
condition precedent. In the U.S., the general rule is that in “case of doubt, an offer is
interpreted as inviting the offeree to accept either by promising to perform what the
offer requests or by rendering the performance, as the offeree chooses.
Offer and acceptance does not always need to be expressed orally or in writing. An
implied contract is one in which some of the terms are not expressed in words. This
can take two forms. A contract which is implied in fact is one in which the
circumstances imply that parties have reached an agreement even though they have
not done so expressly. For example, by going to a doctor for a checkup, a patient
agrees that he will pay a fair price for the service. If he refuses to pay after being
examined, he has breached a contract implied in fact. A contract which is implied in
law is also called a quasi-contract, because it is not in fact a contract; rather, it is a
means for the courts to remedy situations in which one party would be unjustly
enriched were he or she not required to comensate the other. For example, say a
plumber who accidentally installs a sprinkler system in the lawsn of the wrong house.
The owner of the house had learned the previous day that his neighbor was getting
new sprinklers. That morning, he sees the plumber installing them in his own lawn.
Pleased at the mistake, he says nothing, and then refuses to pay when the plumber
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hands him the bill. Will the man be held liable for payment? Yes, if it could be proven
thet the man knew that the sprinklers were being installed mistakely, the court would
make him pay because of a quasi-contract. If that knowledge could not be proven, he
would not be liable. Such a claim is also referred to as “quantum meruit”.
5. consideration and estoppel
Consideration is a controversial requirement for contracts under common law (for
example money). It is not necessary in civil law systems, and for that reason has
come under increasing criticism. The idea is that both parties to a contract must bring
something to the bargain. This can be either conferring an advanctage on the other
party, or incurring some kind of detriment or inconvenience. Three rules govern
consideration.

Consideration must be sufficient, but need not be adequate. For instance,
agreeing to buy a car for a penny may constitute a binding contract. While
consideration need not be adequate, contracts in which the consideration of
one party greatly exceeds that of another may nevertheless be held invalid for
lack of sufficient consideration. In such cases, the fact that the consideration
is exceedingly unequal can be evidence that there was no consideration at
all. Such contracts may also be held invalid for other reasons such as fraud,
duress, unequal bargaining power, or contrary to public policy. In some
situations, a collateral contract may exist, whereby the existence of one
contract provides consideration for another. Critics say consideration can be
so small as to make the requirement of any consideration meaningless.

Consideration must not be from the past. For instance, in Eastwood v.
Kenyon, the guardian of a young girl raised a loan to educate the girl and to
improve her marriage prospects. After her marriage, her husband promised to
pay off the loan. It was held that the guardian could not enforce the promise
as taking out the loan to raise and educate the girl was past consideration,
because it was completed before the husband promised to repay it.

Consideration must move move from the promisee. For instance, it is good
consideration for person A to pay person C in return for services rendered by
person B. If there are joint promisees, then consideration need only to move
from one of the promisees.
Civil law system take the approach that an exchange of promises, or a concurrence
of wills alone, rather than an exchange in valuable rights is the correct basis. So if
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you promised to give me a book, and I accepted your offer without giving anything in
return, I would have a legal right to the book and you could not change your mind
about giving me it as a gift. However, in common law systems the concept of culpa in
contrahendo, a form of 'estoppel', is increasingly used to create obligations during
pre-contractual negotiations. Estoppel is an equitable doctrine that provides for the
creation of legal obligations if a party has given another an assurance and the other
has relied on the assurance to his detriment. A number of commentators have
suggested that consideration be abandoned, and estoppel be used to replace it as a
basis for contracts. However, legislation, rather than judicial development, has been
touted as the only way to remove this entrenched common law doctrine. Lord Jusice
Denning famously stated "The doctrine of consideration is too firmly fixed to be
overthrown by a side-wind.
6.Intention to be legally bound
There is a presumption living in Ceylon (Sri Lanka). Once he left, they separated and
Mr Balfour stopped payments. Mrs Balfour brought an action to enforce the
payments. At the Court of Appeal, the Court held that there was no enforceable for
commercial agreements that parties intend to be legally bound. On the other hand,
many kinds of domestic and social agreements are unenforceable on the basis of
public policy, for instance between children and parents. One early example is found
in Balfour v. Balfour. Using contract-like terms, Mr Balfour had agreed to give his wife
£30 a month as maintenance while he was agreement as there was not enough
evidence to suggest that they were intending to be legally bound by the promise.
The case is often cited in conjunction with Merritt v. Merritt. Here the court
distinguished the case from Balfour v. Balfour because Mr and Mrs Merritt, although
married again, were estranged at the time the agreement was made. Therefore any
agreement between them was made with the intention to create legal relations.
6.1 the abstraction principle
Germany has a special approach to contracts, which ties into property law. Their
'abstraction principle' (Abstraktionsprinzip) means that the personal obligation of
contract forms separately to the title of property being conferred. When contracts are
invalidated for some reason, e.g. a car buyer was so drunk that he lacked legal
capacity to contract, the contractual obligation to pay can be invalidated separate
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from proprietary title of the car. Unjust enrichment law, rather than the law of
contract, is then used to restore title to the rightful owner.
6.2 Formalities and writing
Contrary to common common wisdom, an informal exchange of promises can still be
binding and legally as valid as a written contract. A spoken contract should be called
an " oral contract", which might considered a subset of " verbal contracts." Any
contract that uses words, spoken or written, is a verbal contract. Thus, all oral
contracts and written contracts are verbal contracts. This is in contrast to a "nonverbal, non-oral contract," also known as "a contract implied by the acts of the
parties", which can be either implied in fact or implied in law.
Most jurisdictions have rules of law or statutes which may render otherwise valid oral
contracts unenforceable. This is especially true regarding oral contracts involving
large amounts of money or real estate. For example, in the U.S., generally speaking,
a contract is unenforceable if it violates the common law statute of frauds or
equivalent state statutes, which require certain contracts to be in writing. An example
of the above is an oral contract for the sale of a motorcycle for US$ 5,000 in a
jurisidiction which requires all any contract for the sale of goods over US$500 to be in
writing to be enforceable. The point of the Statute of Frauds is to prevent false
allegations of the existence of contracts that were never made, by requiring formal
(i.e. written) evidence of the contract, however, a common remark is that more frauds
have been committed through the application of the Statute of Frauds than have ever
been prevented. Contracts that do not meet the requirements of common law or
statutory Statutes of Frauds are unenforceable, but are not necessarily thereby void.
However, a party unjustly enriched by an unenforceable contract may be subject to
restitution for unjust enrichment. Statutes of Frauds are typically codified in state
statutes covering specific types of contracts, such as contracts for the sale of real
estate.
In Australia and many, if not all, jurisdictions which have adopted the common law of
England, for contracts subject to legislation equivalent to the Statute of Frauds, there
is no requirement for the entire contract to be in writing, although there must be a
note or memorandum evidencing the contract, which may come into existence after
the contract has been formed. The note or memorandum must be signed in some
way, and a series of documents may be used in place of a single note or
memorandum. It must contain all material terms of the contract, the subject matter
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and the parties to the contract. In England and Wales, the common law statute of
frauds is still in force, but only for guarantees, which must be evidenced in writing,
although the agreement may be made orally. Certain other kinds of contract must be
in writing or they are void, for instance, for sale of land under s. 52, Law of Property
Act 1925.
If a contract is in a written form, and somebody signs the contract, then the person is
bound by its terms regardless of whether they have read it or not, provided the
document is contractual in nature. Furthermore, if a party wishes to use a document
as the basis of a contract, reasonable notice of its terms must be given to the other
party prior to their entry into the contract. This includes such things as tickets issued
at parking stations.
7. Uncertainty, incompleteness and severance
If the term of the contract are uncertain or incomplete, the parties cannot have
reached an agreement in the eyes of the law. An agreement to agree does not
constitute a contract, and an inability to agree on key issues, which may include such
things as price or safety, may cause the entire contract to fail. However, a court will
attempt to give effect to commercial contracts where possible, by construing a
reasoable contruction of the contract.
Courts may also look to external standards, which are either mentioned explicitly in
the contract or implied by common practice in a certain field. In addition, the court
may also imply a term; if price is excluded, the court may imply a reasonable price,
with the exception of land, and second-hand goods, which are unique.
If there are uncertain or incomplete clauses in the contract, and all options in
resolving its true meaning have failed, it may be possible to sever and void just those
affected clauses if the contract includes a severability clause. The test of whether a
clause is severable is an objective test - whether a reasonable person would see the
contract standing even without the clauses.
8. Contractual terms
The terms and conditions of a contract are its content. Once the so called essentialia
negotii of a contract's formation are established, the question of what the parties of a
contract have agreed to.
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8.1 Different types of statements
Whether a statement is a term of a contract is important because only if a promise is
a term of the contract can a party sue for the breach of the contract. Statements can
be split into the following types:

Puff (sales talk) : If no reasonable person hearing this statement would take it
seriously, it is a puff, and no action in contract is available if the statement
proves to be wrong. It may also be referred to as “puffery”.

Representation : A representation is a statement of fact made to induce
another person to enter into a contract and which does induce them to enter
into a contract, but it is one that the maker of the statement does not
guarantee its truth. If the statement proves to be incorrect, it cannot be
enforced, as it is not a term of the contract, but it may prove to be a
misrepresentation, whereupon other remedies are available.

Term : A term is similar to a representation, but the truth of the statement is
guaranteed by the person who made the statement. The test is an objective
test.
Factors that a court may take into account in determining the nature of a statement
include:

Timing : If the contract was concluded soon after the statement was made,
this is a strong indication that the statement induced the person to enter into
the contract.

Content of statement : It is necessary to consider what was said in the given
context, which has nothing to do with the importance of a statement.

Knowledge and expertise : in Oscar Chess Ltd v. Williams, a person selling a
car to a second-hand car dealer stated that it was a 1948 Morris, when in fact
it was a 1939 model car. It was held that the statement did not become a term
because a reasonable person in the position of the car dealer would not have
thought that an inexperienced person would have guaranteed the truth of the
statement.
The parol evidence rule limits what things can be taken into account when trying to
interpret a contract.
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8.2 Terms implied in fact
The Privy Council proposed a five stage test in BP Refinery Western Port v. Shire of
Hastings:

Reasonableness and equitableness: The implied term must be reasonable
and equitable

Business efficacy: The implied term must be necessary for the business
efficacy of the contract. For instance, if the term simply causes the contract to
operate better, that does not fit this criterion. This is the principle laid out in
the Moorcoock (1889) 14 P.D. 64

Obviousness: The term is so obvious that it goes without saying.
Furthermore, there must be one and only one thing that would be implied by
the parties. For example, in Codelfa Construction Pty Ltd v. State Rail
Authority of New South Wales, a term regarding the inability of construction
company to work three shifts a day could not be implied because it was
unclear what form it would have taken. In English Law, This principle was
established in the case of Spring v. NASDS [1956] 1 W.L.R. 585, in the
context of a Trade Union membership contract.

Clear expression: The term must be capable of clear expression. No specific
technical knowledge should be required.

Consistency: The implied term may not contradict an express term.
In Australia, the High Court has ruled that the test in BP Refinery applies only to
formal contracts, while the test in Byrne and Frew v. Australian Airlines Ltd shall
apply to informal contracts:

Necessity : The term must be necessary to ensure reasonable or effective
operation of a contract of the nature before the court.

Consistency: The implied term may not contradict an express term (same as
for formal contracts).

Clear expression: The term must be capable of clear expression (same as
for formal contracts).

Obvious: McHugh and Gummow JJ have stated that it must also be obvious.
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8.3 Term implied in law
These are terms that have been implied into standardised relationships. The other
difference between this and terms implied in fact is that the test is one of necessity; a
necessary term is one where the contract is rendered worthless or nugatory if it is
without it. generally bound by the custom of the industry that you are in. To imply a
term due to custom or trade, you must prove the existence of the custom, which must
be notorious, certain, legal and reasonable.
8.4 course of dealing
If two parties have regularly conducted business on certain terms, it may be
reasonable to presume that in future dealings where there is no contract, the parties
wish to incorporate the terms of the previous contracts. However, if a party wishes to
incorporate terms by course of dealing, the original document must have been
contractual in nature, and delivery receipts may not fit this description. In Australia,
there is a further requirement that the document was procured after formation.
8.5 Good faith
It is common for lengthy negotiations to be written into a heads of agreement
document that includes a clause to the effect that the rest of the agreement is to be
negotiated. Although these cases may appear to fall into the category of agreement
to agree, courts nowadays (at least in Australia) will imply an obligation to negotiate
in good faith provided that certain conditions are satisfied

Negotiations were well-advanced and the large proportion of terms have been
worked out; and

There exists some mechanism to resolve disputes if the negotiations broke
down.
The test of whether one has acted in good faith is a subjective one; the cases
suggest honesty, and possibly also reasonably.
The Unfair Term in Consumer Contracts Regulations 1999 reg 8 will render
ineffective any 'unfair' contractual term if made between a seller or supplier and a
consumer.[ Regulation 5 of the Statutory Instrument further elaborates upon the
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concept of 'unfair', which is rather novel to English law. 'Unfair' is a term that was not
individually negotiated (i.e. standart form) that "causes a significant imbalance in the
parties' rights and obligations arising under the contract, to the detriment of the
consumer". This is not possible if the term is not contrary to 'good faith'; such as in
Director General of Fair Trading v First National Bank, wherein the lack of a
seemingly unfair interest term would leave the bank open to a very poor deal
whereby no interest could be charged.
8.6 Subject to”contracts
If a contract specifies "subject to contract", it may fall into one of three categories:

The parties are immediately bound to the bargain, but they intend to restate
the deal in a formalised contract that will not have a different effect; or

The parties have completely agreed to the terms, but have made the
execution of some terms in the contract conditional on the creation of a
formalised contract; or

It is merely an agreement to agree, and the deal will not be concluded until
the formalised contract has been drawn up.
If a contract specifies "subject to finance", it imposes obligations on the purchaser:

The purchaser must seek finance; and

When offers of finance arrive, the purchaser must make a decision as to
whether the offers of finance are suitable.
Once again, there is an element of good faith involved.
This may also refer to contingent conditions, which come under two categories:
condition precedent and condition subsequent. Conditions precedent are conditions
that have to be complied with before performance of a contract. With conditions
subsequent, parties have to perform until the condition is not met. Failure of a
condition does not void the contract, it is just regarded as voidable.
8.7 Statutory implied terms
The rules by which many contracts are governed are provided in specialized statutes
that deal with particular subjects. Most countries, for example, have statutes which
deal directly with sale of goods, lease transactions, and trade practices. For example,
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most American states have adopted Article 2 of the Uniform Commercial Code,
which regulates contracts for the sale of goods.
The are also many acts around the world which deal with specific types of
transactions and businesses. For example, the states of California and New York in
the U.S have statutes that govern the provision of services to customers by health
studios, and the UK has the Sale of Goods Act 1979 which governs the contracts
between sellers and buyers.
8.8 Setting aside the contract
There can be three different ways in which contracts can be set aside. A contract
may be deemed 'void', 'voidable' or 'unenforceable'. Voidness implies that a contract
never came into existence. Voidability implies that one or both parties may declare a
contract ineffective at their wish. Unenforceability implies that neither party may have
recourse to a court for a remedy. Recission is a term which means to take a contract
back.
8.9 Misrepresentation
Misrepresentation means a false statement of fact made by one party to another
party and has the effect of inducing that party into the contract. For example, under
certain circumstances, false statements or promises made by a seller of goods
regarding the quality or nature of the product that the seller has may constitute
misrepresentation. A finding of misrepresentation allows for a remedy of rescission
and sometimes damages depending on the type of misrepresentation.
According to Gordon v. Selico it is possible to make a misrepresentation either by
words or by conduct, although not everything said or done is capable of constituting a
misrepresentation. Generally, statements of opinion or intention are not statements of
fact in the context of misrepresentation.If one party claims specialist knowledge on
the topic discussed, then it is more likely for the courts to hold a statement of opinion
by that party as a statement of fact.
9. Mistake
A mistake is an incorrect understanding by one or more parties to a contract and may
be used as grounds to invalidate the agreement. Common law has identified three
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different types of mistake in contract: unilateral mistake, mutual mistake, and
common mistake.

A unilateral mistake is where only one party to a contract is mistaken as to the
terms or subject-matter. The courts will uphold such a contract unless it was
determined that the non-mistaken party was aware of the mistake and tried to
take advantage of the mistake. It is also possible for a contract to be void if
there was a mistake in the identity of the contracting party. An example is in
Lewis v Avery where Lord Denning MR held that the contract can only be
avoided if the plaintiff can show, that at the time of agreement, the plaintiff
believed the other party's identity was of vital importance. A mere mistaken
belief as to the credibility of the other party is not sufficient.

A mutual mistake is when both parties of a contract are mistaken as to the
terms. Each believes they are contracting to something different. The court
usually tries to uphold such a mistake if a reasonable interpretation of the
terms can be found. Although a contract based on a mutual mistake in
judgement does not cause the contract to be voidable by the party that is
adversely affected.

A common mistake is where both parties hold the same mistaken belief of the
facts. This is demonstrated in the case of Bell v. Lever Brothers Ltd. Which
established that common mistake can only void a contract if the mistake of
the subject-matter was sufficiently fundamental to render its identity different
from what was contracted, making the performance of the contract
impossible.
Sometimes the capacity of either natural or artificial persons to either enforce
contracts, or have contracts enforced against them is restricted. For instance, very
small children may not be held to bargains they have made, or errant directors may
be prevented from contracting for their company, because they have acted ultra vires
(beyond their power). Another example might be people who are mentally
incapacitated, either by disability or drunkenness. When the law limits or bars a
person from engaging in specified activities, any agreements or contracts to do so
are either voidable or void for incapacity. The law on capacity can serve either a
protective function or can be a way of restraining people who act as agents for
others.
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10. Illegal contracts
A contract is void if it is based on an illegal purpose or contrary to public policy. One
example, from Canada, is Royal Bank of Canada v. Newell. A woman forged her
husband's signature on 40 checks, totalling over $58,000. To protect her from
prosecution, her husband signed a letter of intent prepared by the bank in which he
agreed to assume "all liability and responsibility" for the forged cheques. However,
the agreement was unenforceable, and struck down by the courts, because of its
essential goal, which was to "stifle a criminal prosecution." Because of the contract's
illegality, and as a result voided status, the bank was forced to return the payments
made by the husband.
In the U.S., one unusual type of unenforceable contract is a personal employment
contract to work as a spy or secret agent. This is because the very secrecy of the
contract is a condition of the contract (in order to maintain plusible deniability). If the
spy subsequently sues the government on the contract over issues like salary or
benefits, then the spy has breached the contract by revealing its existence. It is thus
unenforceable on that ground, as well as the public policy of maintaining national
security (since a disgruntled agent might try to reveal all the government's secrets
during his/her lawsuit).
10.1 Remedies for breach of contract
A breach of contract is failure to perform as stated in the contract. There are many
ways to remedy a breached contract assuming it has not been waived. Typically, the
remedy for breach of contract is an award of money damages. When dealing with
unique subject matter, specific performance may be ordered.
As for many governments, it was not possible to sue the Crown in the U.K. for breach
of contract before 1948. However, it was appreciated that contractors might be
reluctant to deal on such a basis and claims were entertained under a petition of right
that needed to be endorsed by the Home Secretary and Attorney General. S.1 Crown
Proceeding Act 1947 opened the Crown to ordinary contractual claims through the
courts as for any other person.
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10.2 Damages
There are three different types of damages.

Compensatory damages which are given to the party which was detrimented
by the breach of contract. With compensatory damages, there are two kinds
of branches, consequential damages and direct damages.

Nominal damages which include minimal dollar amounts (often sought to
obtain a legal record of who was at fault)

Punitive damages which are used to punish the party at fault. These are not
usually given regarding contracts but possible in a fraudulent situation.

Exemplary damages which are used to make an example of the party at fault
to discourage similar crimes. Fines can be multiplied by factors of up to 50 for
such damages.
11. Contractual theory
Contract theory is the body of legal theory that addresses normative and conceptual
questions in contract law. One of the most important questions asked in contract
theory is why contracts are enforced. One prominent answer to this question focuses
on the economic benefits of enforcing bargains. Another approach, associated with
Charles Fried, maintains that the purpose of contract law is to enforce promises. This
theory is developed in Fried's book, Contract as Promise. Other approaches to
contract theory are found in the writings of legal realists and critical legal studies
theorists.
Another dimension of the theoretical debate in contract is its place within, and
relationship to a the wider law of obligations. Obligations have traditionally been
divided into contracts, which are voluntarily undertaken and owed to a specific
person or persons, and obligations in tort which are based on the wrongful infliction
of harm to certain protected interests, primarily imposed by the law, and typically
owed to a wider class of person.
Recently it has been accepted that there is a third category, restitutionary obligations,
based on the unjust enrichment of the defendant at the plaintiff’s expense.
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Contractual liability, reflecting the constitutive function of contract, is generally for
failing to make things better (by not rendering the expected performance), liability in
tort is generally for action (as opposed to omission) making things worse, and liability
in restitution is for unjustly taking or retaining the benefit of the plaintiff’s money or
work.
Compare with the US context, the Uniform Commercial Code defining "Contract" as
"the total legal obligation which results from the parties agreement" and does not
attempt to state what act is essential to create a legal duty to perform a promise. The
common law describes the circumstances under which the law will recognise the
existence of rights, privilege or power arising out of a promise.
12. Real estate contract
A real estate contract is a contract for the purchase/sale, exchange, or other
conveyance of real estate between parties. Real estate called lease hold estate is
actually a rental of real property such as an apartment, and lease (rental contracts)
cover such rentals since they typically do not result in recordable deeds. Freehold
("More permanent") conveyances of real estate are covered by real estate contracts,
including conveying fee simple title, life estates, remainder estates, and freehold
easements. Real estate contracts are typically bilateral contracts (i. e., agreed to by
two parties) and should have the legal requirements specified by contract law in
general and should also be in writing to be enforceable.
12.1 Details explained on the contract
In many countries, real estate contracts must be in writing to be enforceable. In the
United States the Statute of Frauds require real estate contracts to be in writing to be
enforceable. In South Africa, the Alienation of Land Act specifies that any agreement
of sale of immovable property must be in writing.
Additionally, a real estate contract must:

Identify the parties: The full name of the parties must be on the contract. In
a sales contract, the parties are the seller(s) and buyer(s) of the real estate,
who are often called the principals to distinguish them from real estate
agents, who are effectively their intermediaries and representatives in
negotiation of the price. If there are any real estate agents brokering the sale,
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they are typically listed also as the real estate brokers/agents who would earn
the commission from the sale.

Identify the real estate (property): At least the address, but preferably the
legal description must be on the contract.

Identify the purchase price: The amount of the sales price or a reasonably
ascertainable figure (an appraisal to be completed at a future date) must be
on the contract.

Include signatures: A real estate contract must be entered into voluntarily
(not by force), and must be signed by the parties, to be enforceable.

Have a legal purpose: The contract is void if it calls for illegal action.

Involve Competent parties: Mentally impaired, drugged persons, etc. cannot
enter into a contract. Contracts in which at least one of the parties is a minor
are voidable by the minor.

Reflect a meeting of the minds: Each side must be clear and agree as to
the essential details, rights, and obligations of the contract.

Include Consideration: Consideration is something of value bargained for in
exchange of the real estate. Money is the most common form of
consideration, but other consideration of value, such as other property in
exchange, or a promise to perform (i.e. a promise to pay) is also satisfactory.
Notarization by a notary public is normally not required for a real estate contract, but
many recording offices require that a seller's or conveyor's signature on a deed be
notarized to record the deed. The real estate contract is typically not recorded with
the government, although statements or declarations of the price paid are commonly
required to be submitted to the recorder's office.
Sometimes Sometimes real estate contracts will provide for a lawyer review period of
several days after the signing by the parties to check the provisions of the contract
and counter propose any that are unsuitable.
If there are any real estate brokers/agents brokering the sale, the buyer's agent will
often fill in the blanks on a standard contract form for the buyer(s) and seller(s) to
sign. The broker commonly gets such contract forms from a real estate association
he/she belongs to. When both buyer and seller have agreed to the contract by
signing it, the broker provides copies of the signed contract to the buyer and seller.
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13. Offer and acceptance
As may be the case with other contracts, real estate contracts may be formed by one
party making an offer and another party accepting the offer. To be enforceable, the
offers and acceptances are normally in writing and signed by the parties agreeing to
the contract. Often, the party making the offer prepares a written real estate contract,
signs it, and transmits it to the other party who would accept the offer by signing the
contract. As with all other types of legal offers, the other party may accept the offer,
reject it - in which case the offer is terminated, make a counteroffer - in which case
the original offer is terminated, or not respond to the offer - in which case the offer
terminates by the expiration date in it. Before the offer (or counteroffer) is accepted,
the offering (or countering) party can withdraw it. A counteroffer may be countered
with yet another offer, and a counter offering process may go on indefinitely between
the parties.
To be enforceable, a real estate contract must possess original signatures by the
parties and any alterations to the contract must be initialed by all the parties involved.
If the original offer is marked up and initialed by the party receiving it, then signed,
this is not an offer and acceptance but a counter-offer.
14. Deed specified
A real estate contract typically does not convey or transfer ownership of real estate
by itself. A different document called a deed is used to convey real estate. In a real
estate contract, the type of deed to be used to convey the real estate may be
specified, such as a warranty deed or a quitclaim deed. If a deed type is not
specifically mentioned, "marketable title" may be specified, implying a warranty deed
should be provided. Lenders will insist on a warranty deed. Any liens or other
encumbrances on the title to the real estate should be mentioned up front in the real
estate contract, so the presence of these deficiencies would not be a reason for
voiding the contract at or before the closing. If the liens are not cleared before by the
time of the closing, then the deed should specifically have an exception(s) listed for
the lien(s) not cleared.
The buyer(s) signing the real estate contract are liable (legally responsible) for
providing the promised consideration for the real estate, which is typically money in
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the amount of the purchase price. However, the details about the type of ownership
may not be specified in the contract. Sometimes, signing buyer(s) may direct a
lawyer preparing the deed separately what type of ownership to list on the deed and
may decide to add a joint owner(s), such as a spouse, to the deed. For example,
types of joint ownership (title) may include tenancy in common, joint tenancy with
right of survivorship, or joint tenancy by the entireties. Another possibility is
ownership in trust instead of direct ownership.
15. Contingencies
Contingencies are conditions which must be met if a contract is to be performed.
Contingencies that suspend the contract until certain events occur are known as
"suspensive conditions". Contingencies that cancel the contract if certain event occur
are known as "resolutive conditions”.
Most contracts of sale contain contingencies of some kind or another, because few
people can afford to enter into a real estate purchase without them. But it is possible
for a real estate contract not to have any contingencies.
Some types of contingencies which can appear in a real estate contract include:

Mortgage contingency - Performance of the contract (purchase of the real
estate) is contingent upon or subject to the buyer getting a mortgage loanloan
for the purchase. Usually such a contingency calls for a buyer to apply for a
loan within a certain period of time after the contract is signed. Since most
people who buy a house get a mortgage loan to finance their purchase,
mortgage contingencies are one of the most common type of contingencies in
real property contracts.

Inspection contingency - Purchase of the real estate is contingent upon a
satisfactory inspection of the real property revealing no significant defects.
Contingencies could also be made on the satisfactory repair of a certain item
associated with real estate.

Another sale contingency - Purchase or sale of the real estate is contingent
on a successful sale or purchase of another piece of real estate. The
successful sale of another house may be needed to finance the purchase of a
new one.
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
Appraisal contingency - Purchase of the real estate is contingent upon the
contract price being at or below a fair market value determined by an
appraisal. Lenders will often not lend more than a certain percentage
(fraction) of the appraised value, so such a contingency may be useful for a
buyer.

72 hour kick out contingency Seller contingency, in which the seller accepts a
contract from a buyer with a contingency (typically a home sale or rent
contingency where the buyer conditions the sale on their ability to find a buyer
or renter for their current property prior to settlement). The seller retains the
right to sell the property to another party if he so chooses after giving the
buyer 72 hours notice to remove their contingency. The buyer will then either
remove their contingency and provide proof that they can consumate the sale
or will release the seller from their contract and allow the seller to move
forward with the new contract.
16. Date of closing and possession
A typical real estate contract specifies a date by which the closing must occur. The
closing is the event in which the money (or other consideration) for the real estate is
paid for and title (ownership) of the real estate is conveyed from the seller(s) to the
buyer(s). The conveyance is done by the seller(s) signing a deed for buyer(s) or their
attorneys or other agents to record the transfer of ownership. Often other paperwork
is necessary at the closing.
The date date of the closing is normally also the date when possession of the real
estate is transferred from the seller(s) to the buyer(s). However, the real estate
contract can specify a different date when possession changes hands. Transfer of
possession of a house, condominium, or building is usually accomplished by handing
over the key(s) to it. The contract may have provisions in case the seller(s) hold over
possession beyond the agreed date.
The contract can also specify which party pays for what closing costs. If the contract
does not specify, then there are certain customary defaults depending on law,
common law (judicial precedents), location, and other orders or agreements,
regarding who pays for which closing cost.
17. Condition of property
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A real estate A real estate contract may specify in what condition of the property
should be when conveying the title or transferring possession. For example, the
contract may say that the property is sold as is, especially if demolition is intended.
Alterrnatively there may be a representation or a warranty (guarantee) regarding the
condition of the house, building, or some part of it such as affixed appliances, HVAC
system, etc.
Sometimes a separate disclosure form specified by a government entity is also used.
The contract could also specify any personal property (non-real property) items which
are to be included with the deal, such as washer and dryer which are normally
detachable from the house. Utility meters, electrical wiring systems, fuse or circuit
breaker boxes, plumbing, furnaces, water heaters, sinks, toilets, bathtubs, and most
central air conditioning systems are normally considered to be attached to a house or
building and would normally be included with the real property by default.
A listing contract is a contract between a real estate broker (or his/her agent
representatives, acting in the broker's name) and a seller or sellers of real property to
give the broker the right to offer the property for sale.
The contract is often referred to as a listing agreement and, if the broker is a
member of the National Association of Realtors, it must include all of the following
terms:
1. A beginning date and a termination date.
2. The list price at which the property will be offered for sale.
3. The amount of compensation offered to the broker, whether it is in the form of
a flat fee or percentage of the sales price.
4. The and conditions under which the brokerage fee shall be paid by the seller.
5. Authorizes the broker to co-operate with other brokers as sub-agents or
buyer's agents and details the compensation to be offered to those brokers in
the event they procure a buyer.
In addition, other terms which may appear in the agreement can include:
6. Authorization to the broker to post a sign, to advertise the property,
and to
put a lockbox on the door, as well seller's obligations to advise the broker on
the condition of the property, and broker's obligations to advise the seller
about regulations and laws which may affect the sale.
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Typically, separate listing agreements exist for the sale of residential property, for
land, and for commercial or business property.
Upon listing the property, the real estate agency tries to obtain a buyer for the
property and, in consideration of successfully finding a satisfactory buyer, the broker
anticipates receiving a commission (fee) for the services the brokerage provided.
18. Payment of a commission or fee
Although the terms of the contract could vary, usually the payment of a commission
(or fee) to the brokerage is contingent upon:

The successful negotiation of a purchase contract between a satisfactory
buyer and seller and the subsequent ability and willingness of the buyer to
close the deal, or

Finding a satisfactory buyer who is ready, willing, and able to pay the full
listing price (or more) for the real estate for sale without any contingencies.
If the seller refuses to sell the real estate when one of the above two conditions
applies, it is typically considered that the real estate agent has done his job of finding
a satisfactory buyer and the seller must still pay the commission, although the details
are determined by the listing contract. Unless closing (or "settlement" or "close of
escrow", as it is known in some parts of the country) is a condition of the listing
agreement, the buyer's failure to complete the transaction may not require the seller
to pay a commission to the broker.
The commission is usually a percentage of the sales price of the property ranging
from 2 or 3% up to about 10%, but usually in the range of about 3 - 7% for houses.
The commission could also be a flat fee or some combination of flat fee and
percentage, particularly in the case of lower-priced properties, vacant lots, or other
unusual real estate.
The commission is paid by the seller to the listing real estate broker, who will then
compensate his/her listing agent and any co-operating brokers/agents from this
commission by separate agreements with them.
19. Listing price and final contract price
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The listing contract typically also includes a listing price for the property and an
experation date by which the contract expires. However, if the property is be sold at a
lower or higher price, the seller pays a commission at a proportionally lower or higher
amount. If the seller does not accept a price lower than the listing price, then the
broker will have to wait until a satisfactory sale to earn the commission.
In the event of multiple offers being presented, the seller may accept whichever offer
is most suitable to him/her, even if the price is not the highest. The percentage
commission will be paid according to the accepted price. The seller, often in
concurrence with the real estate agent, may choose to accept an offer that is lower
than the highest offer for various reasons, such as terms or contingencies in the
purchase contract offered or perceived differences in financial qualification of the
competing buyer.
Typically, , the real estate agent has the experience and data to determine a suitable
listing price for the seller's property and will recommend a listing price to the seller.
The seller can accept, reject, or try to negotiate a different listing price for the
contract. If the seller's price is unrealistically high and the agent cannot convince the
seller otherwise, the agent can decline to list the property.
20. Expiration date
Listing a property commonly incurs certain expenses for the listing broker and takes
some time and effort for the listing salesperson. To make it worthwhile, they want a
certain minimum listing time period to have a good chance of selling the property.
However, the listing contract must have an expiration date. A typical listing period is
often from 3 or 4 months to 6 months. If the property is not sold or under a purchase
contract by then, the seller may decide to re-list the property, perhaps with a different
listing price, with the same or a different broker or agent, or not list it at all. The listing
of the property can start at a date later than the date the listing contract is signed to
allow the seller time to prepare the property for showing or sale.
20.1 Types of listing contracts
There can be several types of listing contracts :

Executive right to sell: The seller must pay the brokerage a commission if,
by the expiration date in the listing contract, the real estate is sold, regardless
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of whether the buyer is obtained through the agency or not. Even if the seller
finds the buyer him/herself, a commission is still owed to the brokerage.
Furthermore, the seller cannot list the property with any other broker until the
listing expires with the property unsold.
Broker Brokers who are REALTORS and, thus, are members of NAR are
obliged to enter the property into the local MLS system and offer
compensation to co-operating brokers.

Exclusive Agency: The seller can only list the property with one brokerage
until the listing contract expires with the property unsold. The seller must pay
the broker a commission if the real estate is sold to a buyer obtained through
that brokerage. By agreement, if the seller finds the buyer him/herself, the
seller does not have to pay a commission. Since there will be no co-operating
broker involved, the property will not be listed in the MLS.

Open Agency: A seller can enter into an agreement to sell his/her property
with more than one brokerage in open agency listings. The seller must pay a
commission only to the brokerage which brings the buyer for the real estate.
Typically, if the seller finds the buyer him/herself, the seller does not have to
pay a commission.
21. Real Property
Real property is a legal term encompassing real estate and ownership interests in
real estate (immovable property). It is a type of property differentiated from personal
property.
This article discusses the ownership of land using the interpretation of real property
as a legal term used in Anglo-American common law jurisdictions. Other legal
geopolitical systems of government have different legal interpretations concerning
the ownership of land. Terminology varies in these systems, as well: for instance,
heritable property in Scotland; immovable property in Canada, United States, India,
Malta, Cyprus, most of Europe, including Russia, also South America, Malaysia,
south Africa, pakistan, Bangladesh, and many other countries and continents; and
immobilier (Real Estate) in France.
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22. History of the word
In law, the word real means relating to a thing (from Latin res, matter or thing), as
distinguished from a person. Thus the law broadly distinguishes between real
property (land and anything affixed to it) and personal property (everything else, e.g.,
clothing, furniture, money). The conceptual difference was between immovable
property, which would transfer title along with the land, and movable property, which
a person would retain title to. (The word is derived from the notion of land having
historically been "royal" property. The word royal — and its Spanish cognate real —
come from the unrelated Latin word rex, meaning king).
In modern legal systems derived from English common law, classification of property
as real or personal may vary somewhat according to jurisdiction or, even within
jurisdictions, according to purpose, as in defining whether and how the property may
be taxed.
23. Land Relationship to Owner
Real property property is not just the ownership of property and buildings — it
includes many legal relationships between owners of immovable property (real
estate) that are purely conceptual such as the easement, where a neighboring
property may have some right on your property, right-of-way, or the right to pass over
a property, and incorporeal heridiments such as profit a prendre. Real property can
also be held in various ways. In some jurisdictions real property is held absolutely, in
England it may still be considered to be carved out of Crown’s ownership of all
property in the realm. Such distinctions are important in terms of the law of escheat
or when property reverts to the state because it lacks an owner or has been
abandoned.
24. Definitions
As she/he sees fit. Other estates include the life estate where the owner's rights to
the property An important area of real immovable property are the definitions of
estatee in land. These are various interests that may limit the ownership rights one
has over the land. The most common and perhaps most absolute type of estate is
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the fee simple which signifies that the owner has the right to dispose of the property
cease at their death and fee tail estates where the property at the time of death
passes to the heirs of the body (i.e. children, grandchildren, descendants) of the
owner of the estate before he died.
In the law of almost every country, it is the state that is the true owner of all land
within its territory, because it is the sovereign, or supreme lawmaking authority over
it. Individuals don't "own" their land, but only "estates" in the land, also known as
"equitable interests", such as the transferrable right to use and exclude others from
use.
24.1 Estate Law
Estates may also be held jointly as joint tenants with rights of survivorship or as
tenants in common. The difference in these two types of joint ownership of an estate
in land is basically the inheritability of the estate. In joint tenancy (or in marriage this
is sometimes called tenancy of the entirety) the surviving tenant (or tenants) become
the sole owner (or owners) of the estate.
Nothing passes to the heirs of the deceased tenant. In some jurisdictions the magic
words "with right of survivorship" must be used or the tenancy will assumed to be
tenants in common. Tenants in common will have a heritable portion of the estate in
proportion to their ownership interest which is presumed to be equal amongst tenants
unless otherwise stated in the transfer deed. There are other types of estates in land
that are used to prevent the alienation of land (also used in the law of trusts).
Generally these are called future interests, an example being the rule against
perpetuities.
Real property may not only be owned it may be leased in which the possession of the
property is given to the tenant for a limited period of time. Such leases are also called
estates such as an estate for years, a periodic tenancy or an estate at will. Real
property may also be owned jointly through the device of the condominium or
cooperative.
24.2 Economic aspects of real property
Because real immovable property is essential for industry or other activity requiring a
lot of fixed physical capital, economics is very concerned with real immovable
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property and rules like the one regarding its valuation and disposition, and obligations
accrueing to its owners.
In economic terms, real property consists of some natural capital (or land, one of the
factors of production especially in agriculture), and infrstructural capital (the buildings,
water and power lines, and other improvements necessary to make immovable
property useful for
some
human
purpose).
Other
fixed
physical
assets,
indistinguishable economically from infrastructure, such as machines, may be stored
on immovable property and may require natural or infrastructural attributes (such as
running water for a turbine or an isolated location to allow loud noise emissions) hard
to duplicate even nearby.
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