Chapter 13
The Purchase Contract
Overview of Contracts
Undue
Influence
Misrepresentation?
Fraud?
Duress?
Offer
Yes
Acceptance
Yes
Consideration
Yes
Defenses
Capacity
No
Writing Required?
Valid Contract
No
No
No
Contract
No
Yes
Illegality?
Mistake?
Void or
Voidable
Contract
Types of Offers
• Options
1. Paid-for offers
2. Consideration required
3. Irrevocable
Elements Covered in an Option
Agreement
•
•
•
•
•
•
•
Legal description of the property
Proper names of the parties
Signatures of the parties
Length of the option
Beginning and ending dates of the option period
Amount of consideration to be paid
(Continued on the next slide)
Elements Covered in an Option
Agreement (cont.)
• Destiny of the consideration if the option is exercised:
Can it be a down payment?
• What if the option expires without acceptance: Does the
offeror retain the money?
• What if the option holder rejects prior to expiration:
Will there be a prorated refund?
• What if the property is destroyed during the option
period
• (Continued on the next slide)
Elements Covered in an Option
Agreement (cont.)
• What if one of the parties dies?
• Recording of the option in the public records and its
removal if not exercised
• Procedures and notifications required for exercise of the
option
• All terms or provisions of the sales contract
• (Continued on the next slide)
Elements Covered in an Option
Agreement (cont.)
• Marketable title (type of deed, insurance, and so on)
• Rights of lessees
• Presence of mortgages and new liens during the option
period
• Assignability of the option
Termination of Offer
• Rejection*
• Counteroffer* - Common law - mirror image rule
• Revocation*
*Effective upon receipt
Termination of Offers
• Death of offeror
• Bankruptcy
• Illegality
Overview of Contracts
Undue
Influence
Misrepresentation?
Fraud?
Duress?
Offer
Yes
Acceptance
Yes
Consideration
Yes
Defenses
Capacity
No
Writing Required?
Valid Contract
No
No
No
Contract
No
Yes
Illegality?
Mistake?
Void or
Voidable
Contract
Acceptance - Common Law
1. Must be absolute, unconditional and unequivocal for
common law
2. Mirror image rule is a zero tolerance rule
3. Must be by the party with the power of acceptance
4. Must be communicated to the offeror
Timing Rules for Acceptance
Type of
Offer
UCC Method
of Acceptance
Acceptance
Effective?
Common Law
Acceptance
No means
given
Same or faster
method of
comm.
When properly
mailed (dispatched)
Mailbox Rule applies
Same method
of comm.
No means
given
Slower method
of comm.
When received if
the offer is still open
Different
method of
comm.
Specified
means
(stipulated)
Specified means
used
Mailbox Rule
Specified
means
used
Timing Rules for Acceptance
(cont.)
Type of
Offer
UCC Method
of Acceptance
Acceptance
Effective?
Common Law
Acceptance
Specified
means
(stipulated)
Specified means
not used
Counteroffer and
rejection
Specified
Means not
used
Prompt
shipment
Proper goods
shipped
Upon shipment
N/A
Prompt
shipment
Improper goods
shipped
Breach and
acceptance
N/A
Timing - Acceptance
•
•
•
•
•
•
February 1, 2008 - A mails an offer to B
February 2, 2008 - B receives the offer
February 3, 2008 - A mails a revocation
February 4, 2008 - B mails acceptance
February 5, 2008 - B receives revocation
February 6, 2008 - A receives acceptance
Problem of Multiple Offers
• Day 1: Buyer A submits an offer to seller.
• Day 2: Seller counteroffers to buyer A. Buyer B
submits an offer to seller.
• Day 3: Seller counteroffers to buyer B. Buyer A
accepts. Before seller can revoke, buyer B accepts.
• The seller in the example has formed two valid
contracts and would have to convey the property to one
buyer and pay damages for breach to the other buyer.
Overview of Contracts
Undue
Influence
Misrepresentation?
Fraud?
Duress?
Offer
Yes
Acceptance
Yes
Consideration
Yes
Defenses
Capacity
No
Writing Required?
Valid Contract
No
No
No
Contract
No
Yes
Illegality?
Mistake?
Void or
Voidable
Contract
Consideration
• Amount - irrelevant, but whatever it is, it must be paid
• Bargained for exchange- promised induces the
detriment and detriment induces the promise
Overview of Contracts
Undue
Influence
Misrepresentation?
Fraud?
Duress?
Offer
Yes
Acceptance
Yes
Consideration
Yes
Defenses
Capacity
No
Writing Required?
Valid Contract
No
No
No
Contract
No
Yes
Illegality?
Mistake?
Void or
Voidable
Contract
Statute of Frauds
• Land
Options
Contracts
Leases
Mortgages
Exception: partial performance,
possession, and/or improvements and
payment
Requirements for Real Estate
Contracts under Statute of Frauds
• That the contract be in the form of a record, such as a
written agreement
• That the parties sign or authenticate the contract
• That the description of the property be adequate
Partial Performance Exception
to Statute of Frauds
• That valuable improvements have been made to the
property; or
• That there has been full or partial payment of the
purchase price and that the party who has paid money
has possession of the property.
Checklist for Negotiation of Real
Estate Contracts (cont.)
(Continued on next slide)
Checklist for Negotiation of Real
Estate Contracts (cont.)
(Continued on next slide)
Checklist for Negotiation of Real
Estate Contracts
Marketable Title
• Would a reasonable and prudent person accept this
title?
• Freedom from controversy
Marketable Title
Innocent Misrepresentation
Basis of the
bargain
Fact or promise
Rescission is the
only available
remedy
Proof Requirements for
Misrepresentation
• A statement of material fact has been made or omitted
– The type of information involved would affect the buying
decision.
• There is reliance on the statement of fact
–
The buyer uses the fact in making the decision of whether
to buy (see earlier discussion under “AS IS” clauses for
disclosures about patent and latent defects).
• There is detriment
– The buyer suffers through loss of property value or cost of
repair.
Overview of Contracts
Undue
Influence
Misrepresentation?
Fraud?
Duress?
Offer
Yes
Acceptance
Yes
Consideration
Yes
Defenses
Capacity
No
Writing Required?
Valid Contract
No
No
No
Contract
No
Yes
Illegality?
Mistake?
Void or
Voidable
Contract