1/18/2021 Modern Real Estate Practice in Illinois Tenth Edition Unit 11: Real Estate Contracts Contract Law • A contract must be: – Voluntary – An agreement or promise – Made by legally competent parties – Supported by legal consideration – Having to do with a legal act Contract Law • Express Contracts – Parties state terms and intentions in words – May be oral or written • Implied Contracts – Agreement of parties demonstrated by conduct 1 1/18/2021 Contract Law • Bilateral Contracts – both parties promise to do something; one promise is given in exchange for another – example: a real estate sales contract • Unilateral Contracts – one-sided agreement; one party makes a promise to induce a second party to do something, and the second is not legally obligated to act • Executed and Executory Contracts Essential Elements of a Valid Contract • Offer and acceptance (mutual assent, meeting of the minds, agreement) • Consideration • Reality of consent • Legally competent parties • Legal purpose • Statute of Frauds requires contracts for the sale of real estate must be in writing to be enforceable in a court of law. Validity of Contracts • A contract is valid when it meets all the essential elements that make it legally sufficient or enforceable • A contract is void when it has no legal force or effect because it lacks some or all of the essential elements of a contract. 2 1/18/2021 Validity of Contracts • A contract is voidable when it appears to be valid but may be rescinded or disaffirmed by one or both parties based on some legal principle • A contract is unenforceable when it seems on the surface to be valid; however, neither party can sue the other to force performance Validity of Contracts • In Illinois, contracts with minors for “necessaries” are enforceable. Discharge of Contracts • Performance of a Contract • Assignment – the transfer of rights or duties under a contract – Equitable Title vs Legal Title • Novation – substitution of a new contract in place of the original 3 1/18/2021 Discharge of Contracts • Breach of Contract – violation of any of the terms or conditions of a contract without legal excuse – Seller’s remedies – Buyer’s remedies – Suit for Specific Performance – Statute of Limitations Discharge of Contracts • Termination can occur when any of the following take place: – Partial performance – Substantial performance – Impossibility of performance – Mutual agreement – Operation of law – Rescission Contracts Used in the Real Estate Business • Contract forms • Listing and Buyer Agency Agreements • Leases • Real Estate Sales Contracts • Escrow Agreements 4 1/18/2021 Contracts Used in the Real Estate Business • In Illinois – Chicago Bar Association, et al. versus Quinlan and Tyson, Inc. – Ruled that real estate licensees are authorized only to fill in blanks on printed form contracts that are customarily used in the real estate community Customary Terms of Real Estate Sales Contracts • Offer, counteroffer, and acceptance • Earnest money agreement • Equitable title • Destruction of premises • Liquidated damages • Contingencies • Amendments and addendums • Additional provisions • Home and construction warranties Contracts Use in the Real Estate Business • Options – contract in which optionor gives optionee the right to buy or lease property at a fixed price within a certain period of time – optionee pays a fee for option right • Land Contracts – also known as Contract for Deed, Installment Contract, or Articles of Agreement for Warranty Deed – seller (vendor) retains legal right to property; buyer (vendee) gains equitable title to property 5 1/18/2021 Electronic Signatures and Paperless Transactions • Illinois Electronic Commerce Security Act • ESIGN Act • Uniform Eletronic Transactions Act (UETA) • Brokerages must still maintain records of transactions for five years; however, storage in the cloud is permissible Letters of Intent • Commercial transactions • Illinois Supreme Court case Quake Const., Inc. v. American Airlines, Inc. set guidelines to determine if a letter of intent is binding – Typically in writing – Amount of detail – Amount of money – Formal writing – Contemplation of formal written document 6.