When Does a Contract Become Enforceable free essay sample

By: Miriam J. Baer, Deputy Legal Counsel Have you ever been involved in a real estate transaction in which you were not certain whether the parties had a binding contract? Perhaps the buyer and seller had reached an oral agreement when another buyer made an offer on the property. Maybe one of the parties got cold feet and wanted to back out of the deal even after signing the contract. To determine whether parties have an enforceable contract, you must be familiar with two basic concepts of contract law: the Statute of Frauds and the concept of acceptance. The Statute of Frauds Every state has a law known as the Statute of Frauds, which requires certain contracts to be in writing in order to be enforceable. Included in the North Carolina Statute of Frauds are certain long-term leases and all contracts for the sale of land or any interest in land. We will write a custom essay sample on When Does a Contract Become Enforceable? or any similar topic specifically for you Do Not WasteYour Time HIRE WRITER Only 13.90 / page To be enforceable, these leases and contracts must also be signed by the party to be charged; i. e. , the person against whom you want to enforce the contract. So, if one party has not signed a purchase contract, and has only orally agreed to its terms, he or she may not be held to the agreement. This means that if a buyer makes a written, signed offer to which a seller has only orally agreed, the agreement is not enforceable. If the seller receives a second offer, he is free to accept it. The Concept of Acceptance The second important concept in determining whether you have an enforceable contract is that of acceptance. Along with offer and consideration, acceptance is required in every contract between two or more parties in order for the contract to be legally valid. Generally, it is easy to determine when you have an offer in a real estate transaction. In North Carolina, a buyer usually makes the initial offer in writing, (often on the standard Offer to Purchase and Contract form), signs the offer and presents it to the seller or the sellers agent. Likewise, consideration something of value given to induce the other party to enter the contract is usually not an issue in real estate contracts. Typically, the buyer promises to give money or property to induce a seller to convey real property. This does not mean that earnest money is required to form an enforceable contract; the parties can form an enforceable contract without the buyer giving earnest money provided the other requirements are met. ) The remaining issue in real estate contracts, then, is the question of whether acceptance has occurred. Only when a contract has been properly accepted does it become enforce able. To achieve a valid acceptance, a contract for the sale of real estat( must meet two elements: signature and communication of acceptance. 1. Signature While a full signature is preferred, any mark will suffice including initials or even an Y (for instance, when one of the parties is unable to write) as long as it is made with the intent of the signer to be bound to the contract. There have even been cases in which a letterhead was considered a sufficient signature for a party. Similarly, the signature does not have to appear at the bottom of the document. Although it is preferable for the signature to be at the bottom, the contract will still be valid if the signature appears elsewhere. A party can therefore initial a contract at the side (as when rewriting a counteroffer) and be bound to the contract. 2. Communication of Acceptance Signature alone is not sufficient to constitute a valid acceptance: the accepting party must also communicate acceptance to the party who made the last offer or counteroffer. Assume, for example, that a buyer makes a written, signed offer which is delivered to the listing agent and then to the seller. The seller likes the offer exactly as written and signs it. Has a binding contract been created? No! The seller has not communicated acceptance back to the buyer. The contract will not be binding until the buyer (or the buyers agent) learns of the sellers acceptance. Unless the parties have agreed to a particular method of communication, communication of acceptance can be made in any manner that is convenient for the parties, and can even occur accidentally. Therefore, in a typical residential sales transaction, communication of acceptance can be made orally, e. . , by calling and advising the buyer of acceptance. This oral acceptance does not violate the Statute of Frauds because the contract itself has been written and signed. It is only the communication of acceptance that is oral. (Note that delivery of the contract document is not required to make a contract enforceable. The contract is formed at the time of communication. The real estate agent does, of course, have a duty to provide copies of the contract to the parties under the Real E state License Law. Because communication must be made to the other party in the transaction or to the other partys agent, it is important to know whether the real estate agents involved represent the buyer or the seller. a. Communicating acceptance of a buyers offer or counteroffer Suppose that a seller signs a buyers written offer and then tells the listing agent that he has accepted the offer. Is the sellers statement to the listing agent sufficient to create a binding contract? No. The seller has communicated acceptance only to his own agent, not to the buyer or to the buyers agent. So, the contract is not yet enforceable. Assume then that the listing agent tells the selling agent that the seller has signed and accepted the buyers offer. Has communication of acceptance been accomplished? The answer depends upon which party the selling agent represents. If the selling agent is a subagent of the seller, communication to the selling agent does not create a binding contract. However, if the selling agent is a buyers agent, communication to him is as good as communication to the buyer herself: the contract is enforceable once the buyer or the buyers agent learns that the seller has signed the buyers written, signed offer. b. Communicating acceptance of a sellers counteroffer Now suppose that the seller rejects the buyers offer but makes a written, signed counteroffer. To accept the sellers counteroffer, the buyer must do two things: (1) sign the counteroffer, and (2) communicate acceptance back to the seller or to the sellers agent. A signature, without communication, does not create a contract. Conversely, communication of acceptance, without a signature, does not create a contract. Remember that communication of the buyers acceptance must be made to the seller or to the sellers agent or subagent. If a buyer communicates acceptance to his own agent, i. e. , a buyers agent, no binding contract has been created. c. Oral negotiations Often after the buyer makes an initial written offer, all subsequent negotiations are communicated orally through the real estate agents involved in the transaction. This practice is acceptable, but may delay reaching a binding agreement. A gentlemens agreement is unenforceable; to be binding, the terms must be put in writing and signed by the parties. In a nutshell A contract for the sale of land is enforceable only if (1) it is in writing and signed; and (2) an offer has been made, is supported by consideration and is properly accepted. Acceptance requires not only the written signatures of the parties, but also communication of acceptance from the party accepting the last offer/counteroffer to the party (or partys agent) who made it