The Law Of Contracts – A Few Basics
There’s an old proverb that says “In California, if it ain’t in writin’, it ain’t real estate’.
The Statute of Frauds in the State says that all real estate undertakings must be reduced to writing. The real estate industry, via its Trade Association, the California Association of Realtors, has evolved a series of several hundred documents that cover virtually every contingency that might arise from a short term lease to the purchase of a multi-unit high rise.
But there is a small body of underlying rules that govern any of the contracts that might be created. Briefly, those rules are these:
To be binding on the parties, a contract must:
– Be for a lawful purpose
– Have consideration (usually we mean money in exchange for a house)
– Be mutually agreeable (called “mutuality”: everyone signs agreeing to everything)
Also, there is a little known corollary to this which has to do with bringing a binding contract into existence. The offer must be:
When an offer is prepared fully, completely and can be said truly to represent the Buyer’s wishes, it is signed by the Buyer and presented to the Seller, usually through a listing agent. After a Seller reviews an offer one of three things happens:
– The Seller rejects the offer outright
– The Seller makes a counter offer
– The Seller accepts the offer as written
If the response is a Seller-signed acceptance, that acceptance must be delivered to the Buyer or, if another party (usually a brokerage) is designated, then to the alternate party. UNTIL AN OFFER (OR A COUNTER OFFER OR SERIES OF COUNTER OFFERS) IS DELIVERED, NO CONTRACT CAN COME INTO EXISTANCE.
Also, here are two additional, seldom considered, twists on the law of contracts:
When an agent, whether representing buyer or seller, presses the principal to make a decision and to respond, there is another element: time. Most offers and counter offers carry a three day limit after which they are void.
When an offer is presented and the Seller wishes to make a counter offer concerning any part of the original offer, the original offer is no longer “good”, that is, the creation of the counter offer automatically relieves the Buyer of an obligation to continue with the contract unless the Buyer signs the Seller’s counter offer.