RE05RC12: Contract Law

Approved on Feb. 14, 2012

I. History of Contract Law

II. What is a contract? 

A contract is a voluntary, legally enforceable promise between two competent to perform (or not to perform) parties some legal act in exchange for consideration.

1. Voluntary agreement or promise
2. Parties to the Contract
3. Requirement of competency of parties
   1. Age of Majority
   2. Mentally competent or other disability limiting comprehension
   3. Influence of drugs or other
4. Must be for legal purposes
5. Consideration
6. Offer and Acceptance (required)
7. Executed vs. Executory
8. Equitable Title (Equitable Conversion) vs. Legal Title
9. Statute of Limitations
10. Laches

III. Contracts used by real estate licensees? 

1. Offer contracts
2. Letter of Intent (LOI)
3. Listing Agreements
4. Buyer Representation Contracts/Agreements
5. Purchase and Sale Contracts
6. Options
7. Residential Leases
8. Commercial Leases
9. Contracts for a Deed

NOTE: Massachusetts Mandatory Licensee-Consumer Relationship Disclosure form is NOT a contract.

IV. Use of Lawyers

1. Role of attorney
2. Legal advice
3. Drafting contracts by licensees
4. Relationship between lawyers and licensees

V. Statute of Frauds – M.G.L. c. 259

1. Contract for purchase/sale of real property in writing to be enforceable
2. Agreement greater than one year not enforceable
3. A Will or Devise transferring property must be in writing
4. Sale of personal property in excess of $500 (UCC 2 201)

VI. Types of Contracts

1. Express – the parties state their terms and show their intentions in words
   1. Written
   2. Oral
2. Implied – the agreement of the parties is demonstrated by their:
   1. Acts
   2. Conduct

VII. Classification of Contracts

1. Bilateral
2. Unilateral
3. Executed
4. Executory

VIII. Elements of a Contract

1. Competent party
2. Offer
3. Acceptance
4. Consideration
5. Legal object
6. Consent

IX.  Acknowledgements (Notary)

1. Identity of party
2. Free and willing act
3. Admissibility in court

X. Electronic Signatures

1. Federal law - Electronic Signatures in Global and National Commerce Act
2. Massachusetts law - Uniform Electronic Transactions Act (UETA)
3. Electronic signature same as paper
4. Only few cases where electronic signature not accepted
   1. Wills, codicils
   2. Certain adoption and divorce matters
   3. Some service terminations
   4. Specific court documents
   5. Deed
5. Admissible in court

XI. Minimal Requirements of a Contract: For a contract for the purchase and sale of real property to be valid and enforceable under the Massachusetts Statute of Frauds, you must have a written memorandum with following minimal requirements:

1. In writing
2. Must identify the parties
3. Accurate description of property
4. Recital of consideration
5. Must be signed by the party to be charged
6. Basis for rescission
   1. Misrepresentation
   2. Fraud
   3. Undue influence or duress
7. Do brokers sign purchase and lease contracts? (Maybe)

XII. Validity of Contracts

1. Valid
2. Void
3. Voidable
4. Unenforceable

XIII. Types of real estate contracts

1. Listing Contracts – in Massachusetts an employment contract
   1. Exclusive right to sell
   2. Exclusive agency
   3. Open listing
   4. Net Listing (illegal)
   5. In writing or oral
2. Buyer Representation Contract
   1. Exclusive buyer agency agreement
   2. Exclusive agency buyer agency agreement
   3. Open buyer agency agreement
3. Offer to Purchase "Notice: This is a legal document that creates binding obligations. If not understood, consult an attorney."
   1. Key Terms:
   1. Parties
   2. Dates
   3. Legal description of property
   4. Purchase & Sale Agreement contingency
   5. Contingencies
   6. Price
   7. Earnest money
   8. Terms
   9. Time is of the Essence"

      2. Types of Offers:

a. Counter

b. Back-up

c. Multiple offers

d. Letter of Intent

      3. Binding or non-Binding

a. McCarthy v. Tobin

b. Supreme Judicial Court suggested language

 

  D. Options

1. A right (buy or lease)
2. Consideration
3. Option expiry date
4. Optionee right of sale

   E. Purchase & Sale Agreement (more detailed contract)

1. Parties (identification of buyer and seller)

2. Legal description of property

3. Consideration including schedule of payments

4. Time for performance and possession

5. Earnest money (down payment)

6. Type of Title Deed (possible covenants and restrictions)

7. Adjustments (proration of taxes, utilities, fuel, insurance etc.)

8. Casualty loss

9. Default provisions

a. Opportunity for cure

b. Liquidated damages (Must be reasonable)

c. Specific performance

10. Contingency clauses including inspections

11. Brokerage – identity and commissions

12. Provisions for title evidence

13. Identification and appointment of closing agent

14. Provision regarding damage or destruction to property

15. Identify personal property, if any

16. Right of assignment

17. Construction of agreement

18. Dates and signatures

 

 F. Land Contracts (Installment Land Contracts aka Contract For A Deed)

1. Seller retains legal title

2. Buyer – all other benefits of ownership

3. Similar to mortgage

4. Term

 

 G. Leases

1. Estate for Years

2. Month-to-Month (Periodic Tenancy, tenancy-at-will)

3. Residential

4. Commercial

 

  H. Mortgage and Note

1. Note – Promise to pay

2. Mortgage – security instrument

XIV. Termination

1. Performance of the contract
2. Expiration of the time for performance
3. Partial performance with written acceptance by other party
4. Substantial performance
5. Impossibility of performance
6. Rescission

1. By mutual agreement

2. Unilateral

   G. Operation of law
  H. Breach of contract

 

XV. Remedies for Breach

1. Specific performance
2. Liquidated damages
3. Injunction
4. Rescission
5. Lis Pendens
6. Vendor/vendees lien
7. Monetary damages

XVI. Alternative Dispute Resolution

1. Arbitration or Mediation
2. Massachusetts ADR law - M.G.L. c. 251
3. Must be agreed by both parties in contract
4. Provisions of arbitration or mediation
5. Courts must uphold