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Tisha is a licensed real estate agent in Texas. She holds bachelor's in legal studies and a master's degree in criminal justice.
Patrick wants to sell his house, but he doesn't have much equity. He decides to market and sell his home himself, without the representation of a licensed real estate agent. After taking some photographs of the interior and exterior of the home, he prints some flyers and creates an advertisement online. Fortunately for him, it's the busy season for real estate and within a couple of weeks he has an offer for his home. He accepts the offer and he, along with the buyer, signs the offer. About a week later, Patrick gets some bad news. The contract for the sale of his home isn't enforceable. The buyer cannot buy his home after all and he has to try to find another buyer. How could this have happened? In Patrick's situation, the buyer was a minor and could not legally enter into a binding contract.
Put simply, a contract is an agreement between two or more competent parties that is legally binding. It can be spoken or implied, and is usually in writing. If a contract is enforceable then the parties to the contract can be compelled to perform as they agreed to in the contract. Patrick's contract was not enforceable because the buyer was a minor. However, there are multiple elements that exist that create an enforceable contract.
For a contract to be enforceable there must be five essential elements that exist. They elements are as follows:
These elements of a contract are defined as follows:
This element is a promise and a demand of some sort. In the real estate realm, it could be an offer to purchase a home or other piece of real estate.
This element is the agreement to the terms of the offer presented. In the real estate realm, it could be the seller accepting a buyer's offer to purchase a piece of real estate. If the party that responds to an offer changes the conditions of that offer, the party is not actually accepting the offer. Instead, he's presenting a counteroffer.
This element of a contract is what is actually presented in exchange for the something in the contract. When considering real estate, consideration could be the monetary compensation given in exchange for a piece of real estate.
This element of a contract requires that a party that is entering into a contract actually be able to enter into that contract. Remember Patrick and the buyer that turned out to be a minor? That buyer did not have the capacity to enter into the contract. Additionally, a party that does not have capacity could be one that is intoxicated at the time or is mentally incompetent.
This is the final element of a contract. It requires that the contract in question be for a legal purpose and not for an illegal purpose.
Let's go back to our first example with Patrick trying to sell his house. Patrick put his home back up for sale. He distributed flyers and created a new online advertisement. A few weeks later, a real estate agent approached him. She had a client that was interested in Patrick's house. The real estate agent presented a written offer for the house. In the offer, the prospective buyer offered $155,000 for the home. The buyer possessed the capacity to enter into a contract. Patrick was hoping to get $160,000 for his home and wrote on the contract that he would accept $160,000 instead. In this situation, Patrick made a counteroffer. The real estate agent presented the counteroffer to her client and the counteroffer was accepted. This was an enforceable contract. An offer was made for the house, with $155,000 being the original consideration, a counteroffer was made by Patrick, and that was accepted. Both parties had capacity to enter into the contract and the contract was for a lawful purpose (the sale of real estate).
Let's take a look at another example. Marlo was a salesman. He sold a variety of products both in person and online. After twenty years of running his business, he realized that he was not going to have enough money to retire. In an attempt to make extra money, he started selling drugs on the side. A 20-year-old client offered Marlo $150 for an ounce of marijuana. Marlo accepted the offer and received $150 in exchange for the marijuana. If the client gave Marlo $20 less than the $150 originally agreed upon, Marlo would not be able to enforce the contract. That's because the contract was not for a lawful purpose. Marlo would not have any form of recourse to get the $20 owed to him. While the elements of offer, acceptance, capacity, and consideration were present, the element of lawful purpose was not present.
Let's take a few moments to review what we've learned about the five essential elements of enforceable contracts. First and most simply, a contract is an agreement between two or more competent parties that is legally binding. It can be spoken or implied, and is usually in writing. If a contract is enforceable then the parties to the contract can be compelled to perform as they agreed to in the contract.
There are five essential elements in a contract which include the following: offer, which is a promise and a demand of some sort; acceptance, which is the agreement to the terms of the offer presented; consideration, which is what is actually presented in exchange for the something in the contract; capacity, which requires that a party that is entering into a contract actually be able to enter into that contract; and lawful purpose, which is the final element of the contract that requires that the contract in question be for a legal purpose and not for an illegal purpose. If all five elements don't exist, then the contract isn't enforceable.
Common issues that would cause a contract to be unenforceable would be minors attempting to enter into a contract, because a minor lacks capacity, and a contract involving an unlawful purpose, such as the sale of illegal drugs.
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Back To CourseReal Estate Training
6 chapters | 55 lessons
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