Chapter 5 Legality of the Contract

Texas Real Estate Contracts
4th Edition
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Chapter 5: Legality of the Contract
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Legality, in general
• When parties enter into a contract, the
contract must be legal.
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Contravention of Public Policy
• A contract that violates public policy is void
and unenforceable.
• A contract that violates public policy is
defined as a contract that is contrary to the
best interests of the public or the public
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Contravention of Constitution,
Statute, Ordinance
• If a contract is made in violation of an
express constitutional, statutory, or
ordinance provision, the contract will be
deemed void and unenforceable.
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Unlawful Intent of the Parties
• Contracts may be found void and
unenforceable where the subject matter of
the contract is intended to be used for an
unlawful purpose.
• However, contracts that are apparently valid
on their face will not always be found
unenforceable simply because one of the
parties to the contract intended to effect an
illegal purpose or perform an illegal act.
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Contracts Involving Fraud or
Deception of Third Parties
• Contracts that are intended to deceive third
parties or even the public are void as against
public policy and are unenforceable in a
court at law.
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Common Law Fraud
• The elements of a common law fraud claim
are that the speaker made
– a material representation,
– that was false,
– that the speaker knew was false at the time it
was made,
– that was made with the intention of being acted
– the party acted in reliance, and
– injury was suffered.
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Texas Real Estate Fraud
• Section 27.01 of the Texas Business and
Commerce Code deals specifically with fraud
in real estate transactions.
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Texas Deceptive Trade Practices–
Consumer Protection Act
• Enacted to protect consumers against
– false, misleading, and deceptive business
– unconscionable actions; and
– breaches of warranty
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• The general rule is that a waiver by a consumer of
the provisions of the Act is contrary to public policy
and is unenforceable and void.
• However, a waiver is valid and enforceable if certain
conditions are met.
– the waiver is in writing and is signed by the consumer;
– the consumer is not in a significantly disparate
bargaining position; and
– the consumer is represented by legal counsel in seeking
or acquiring the goods or services.
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--Defenses and Indemnity
• Defenses can involve reliance on
– official government records
– Information from another source
– Information concerning a test required or
prescribed by a government agency
• Indemnity refers to a right whereby one party
agrees to indemnify, or restore, another
upon the occurrence of some anticipated
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--Statute of Limitations
• Within two years after the date on which the
false, misleading, or deceptive act or
practice occurred or
• Within two years after the consumer
discovered or, in the exercise of reasonable
diligence, should have discovered the
occurrence of the false, misleading, or
deceptive act or practice.
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