Contract Law for

Real Estate Agents

By: Priscilla A. Duhaney, LLB, LEC, MA
Attorney-at-Law/Realtor/Lecturer
​
 Unit 1: Fundamentals of Contract Law

1. Define a contract.
2. Explain the characteristics of a valid and legally binding contract
3. Outline the general legal principles that govern the interpretation of contracts
4. Explain the ways in which contracts may be discharged
5. Explain the ways to be in breach of a contract
6. Identify and describe common remedies for a breach of contract

2
 What is a Contract?
According to the University of New
Mexico:
Contracts are agreements that the law will Contracts may include obligations imposed by

enforce. law even if the parties are not aware of those

obligations.

Contracts are individual, or private, rights and A contract is an agreement between two parties
duties created by oral or written agreement and that creates an obligation to perform (or not
consent of the parties. perform) a particular duty.

Pitch deck title 3

 Explain the characteristics of a
valid and legally binding contract:

Characteristics:

• Offer

• Acceptance

• Consideration

• The intention to create legal relations.

• The capacity to contract

• Certainty.

4
 “OFFER”
An offer refers to a promise that one party makes in exchange for

another party's performance. In other words, it is an invitation to enter

into a contract on certain terms. It can be expressed in many different

ways, from a short and simple oral statement to a long and detailed

written statement.

5
 “OFFER”
In order to create a valid contract, one party must make
an offer, another party must accept the offer, and
consideration must be exchanged

The one who makes the offer is known as the “offerer,”

while the person who receives the offer is called the
“offeree.” Although you can make an offer with just a
single-sentence verbal statement, you and the other
party will generally benefit from a detailed written
description of the offer and its terms.

6
 “OFFER”
For example, a homeowner may offer to sell their property
to a potential buyer at a specific price and under certain
conditions. If the buyer accepts the offer, it becomes a
legally enforceable contract, requiring both parties to fulfill
their obligations according to the agreed terms.

7
 “ACCEPTANCE”
If the one receiving the offer decides to accept it and

make a partial payment, the offerer may be bound to the

terms and conditions of the offer. Once the offerer takes

the payment, an agreement is struck. He or she will then

be legally obligated to perform his or her part of the

contract. If the offerer fails to fulfill his or her contractual

duties, the offeree is entitled to take legal action.

8
 “ACCEPTANCE”
If the offer is rejected, it is regarded as terminated. If

changes are made to the terms of the offer, the initial offer

will be terminated and replaced with a new offer. The new

offer is referred to as a counteroffer. If it is indicated that

an offer will end within a certain timeframe, the receiving

party cannot accept it after the expiration date. An offer

may be automatically terminated after a reasonable

amount of time.

9
 “ACCEPTANCE”
For example, in a business transaction, a company may

offer to purchase goods from a supplier at a certain price

and quantity. The supplier, upon receiving the offer, agrees

to the terms and conditions and communicates their

acceptance to the company. This acceptance establishes a

legally binding contract between the two parties,

obligating the supplier to deliver the goods and the

company to pay for them.

10
 “CONSIDERATION”
Consideration in contract law refers to something of value that
is given in exchange for a promise or performance. It is an
essential element of a valid contract and is necessary to create
a legally binding agreement. Consideration can take the form of
money, goods, services, or even a promise to do or not do
something. It ensures that both parties have something to gain
or lose from the contract and helps to establish the mutual
obligations and benefits of the agreement.

11
 “CONSIDERATION”
Consideration could be a promise, performance, forbearance,
or property with legal value, but the economic benefit is not
required.

A gift or gratuitous promise cannot be a consideration for they

have no bargaining. The past performance also cannot be a
consideration as there is no exchange.

12
 “CONSIDERATION”
For example, in a contract between a landlord and a tenant, the
consideration could be the monthly rent payment in exchange
for the use of the property. The landlord provides the tenant
with a place to live, while the tenant provides financial
compensation. Without this consideration, there would be no
incentive for either party to fulfill their obligations, and the
contract would lack enforceability.

13
Incoming quiz on the first 3
characteristics of a contract
 Choose the correct answer below:
Which of the following elements True or False:
is essential for the formation of a
What is an offer in contract law? valid offer?

a) A promise made by one a) Consideration Question: An advertisement is

party to another to perform b) Acceptance generally considered as an offer in
certain obligations. c) Intention to create legal relations contract law.
d) Invitation to treat
b) A proposal or expression of
willingness to enter into a legally
binding agreement on specific
terms.
c) An invitation
discuss contract to negotiate
terms or
without
the intention
relations. to create legal

d)
of An terms
the unconditional acceptance
other party. proposed by the

ANS: b) A proposal or expression of willingness

to enter into a legally binding agreement on ANS: b) Acceptance ANS: FALSE
specific terms.
15
“The intention to
create legal relations”

The intention to create legal relations is a fundamental

element of contract law, as it ensures that agreements
are not merely casual or social arrangements. It
establishes the seriousness and commitment of the
parties involved, and provides a framework for
resolving disputes and enforcing the terms of the
contract.

16
“The intention to
create legal relations”
Without this intention, a contract may be considered void or
unenforceable, as it lacks the necessary legal foundation. Therefore, the
intention to create legal relations is crucial in establishing the validity
and enforceability of a contract.

- In social/domestic agreements, there is a rebuttable

presumption that legal relations were not intended
- In commercial/business agreements, there is a rebuttable
presumption that legal relations were intended
- Collective agreements are usually presumed not to create legal
relations

17
“The intention to
create legal relations”
For example, in a business context, two companies
may enter into a contract to supply and purchase
goods. This agreement demonstrates their intention to
create legal relations, as they both understand that
failure to fulfil their obligations under the contract
could result in legal consequences such as payment of
damages or termination of the agreement. The
intention to create legal relations ensures that both
parties take the contract seriously and provides a
mechanism for resolving any disputes that may arise
during the course of their business relationship.

18
 “The capacity to
contract”
"The capacity to contract" in contract law refers to
the legal ability of a person to enter into a binding
agreement or contract. It involves the mental and
legal competence of an individual to understand the
terms and consequences of a contract and to be held
legally responsible for fulfilling their obligations
under that contract.

19
 “The capacity to
contract”
For example, a person agrees to rent an
apartment and signs a lease agreement. However,
if they later realize that the apartment does not
meet the promised conditions or has significant
maintenance issues, they may argue that the
landlord breached their obligations and seek legal
action to terminate the contract or demand
compensation for the inconvenience and
damages caused.

20
 “CERTAINTY”
In contract law, "certainty" refers to the requirement
that the terms and conditions of a contract must be
clear, definite, and unambiguous. It ensures that the
parties involved have a clear understanding of their
rights, obligations, and the consequences of their
actions.

21
 “CERTAINTY”
Certainty is crucial in contract law to avoid confusion,
disputes, and to provide a solid foundation for the
enforcement of contracts.

Without certainty, contracts would be prone to

interpretation and subjectivity, leading to potential
disagreements and legal battles. The principle of
certainty acts as a safeguard to ensure that contracts
are not open to multiple interpretations, allowing for a
fair and efficient resolution of any disputes that may
arise.

22
 “CERTAINTY”
For example, in a commercial lease agreement,
certainty is crucial in defining the exact terms of rent
payment, duration of the lease, and any potential
penalties or obligations. This ensures that both the
landlord and tenant have a clear understanding of
their rights and responsibilities, reducing the
likelihood of disagreements or misunderstandings
during the course of the lease. The certainty provided
by well-defined terms allows both parties to
confidently plan their finances and business
operations accordingly.

23
Real life court cases of contracts for real
estate:
One example of a real-life court case that involves contract law for real estate is the case of
Johnson v. Davis. In this case, the buyers purchased a house and later discovered significant
defects in the property's foundation. The buyers argued that the sellers had breached their
implied warranty of habitability, as they failed to disclose the foundation issues. The court
ruled in favor of the buyers, holding that the sellers had a duty to disclose any known defects
to the buyers, even if not explicitly mentioned in the contract. This case highlights the
importance of sellers being transparent and disclosing any known defects in a property, as
failure to do so can result in a breach of the implied warranty of habitability.

24
Outline the general legal principles that govern the
interpretation of contracts

 AGREEMENT :

In contract law, the principle of agreement is essential. It refers to the mutual understanding and consent between the parties

involved in a contract. The court may consider various factors, such as the conduct of the parties during the performance of the

contract and trade usage or custom, to interpret the terms of the agreement accurately. These factors help provide context and

insight into the intentions of the parties when entering into the contract.

25
Outline the general legal principles that govern the
interpretation of contracts

EXAMPLE:

Two parties entered into a contract for the sale of a property. The contract stated that the buyer would purchase the property "as

is." However, during the inspection period, it was discovered that there were significant structural issues with the property that

were not disclosed by the seller. The court considered the conduct of both parties during their interactions leading up to the

contract and found that the seller had made representations about the property's condition being in good shape. Additionally,

evidence was presented regarding trade usage in real estate transactions, which indicated that it is customary for sellers to

disclose any known structural issues. Based on this evidence, the court concluded that the seller had breached their duty to

disclose and misrepresented the condition of the property. Therefore, the buyer was entitled to rescind the contract and seek

damages for the structural issues.

26
Outline the general legal principles that govern the
interpretation of contracts

 CONSIDERATION:

Consideration is a legal principle that refers to something of value that is exchanged between the parties involved in a contract. It is

a necessary element for a contract to be enforceable. Consideration can be in the form of money, goods, services, or even a

promise to do or refrain from doing something. It is important because it signifies that both parties have bargained for and agreed

upon the terms of the contract. Without consideration, a contract may be deemed unenforceable.

27
Outline the general legal principles that govern the
interpretation of contracts

EXAMPLE:

Consideration in a real estate contract could be the exchange of money for the purchase of a property. The buyer offers a certain

amount of money as consideration, and in return, the seller agrees to transfer ownership of the property to the buyer. This

exchange of consideration ensures that both parties have mutually agreed upon the terms and obligations of the contract, making

it legally enforceable.

28
Outline the general legal principles that govern the
interpretation of contracts

 LEGALITY:

Legality is a fundamental principle that states that a contract must be formed for a lawful purpose and must not involve any illegal

activities. If a contract is found to be illegal, it is considered void and unenforceable by the court. The principle of legality ensures

that contracts uphold the law and do not promote or support illegal activities. It is important for parties to ensure that their

contracts comply with legal requirements to avoid any potential legal consequences.

29
Outline the general legal principles that govern the
interpretation of contracts

EXAMPLE:

An example of the principle of legality in action would be a contract for the sale of a property. Both the buyer and seller must

ensure that the terms of the contract comply with all applicable laws and regulations governing real estate transactions. For

instance, the contract must not involve any illegal activities such as money laundering or fraud. If it is discovered that the contract

was formed for an unlawful purpose, such as using the property for illegal activities, the court would consider it void and

unenforceable. Therefore it is crucial for both parties to carefully review and understand the terms of the contract before signing it.

Additionally, seeking legal advice or assistance from a real estate professional can help ensure that the contract is legally binding

and protects the interests of both the buyer and seller.

30
Outline the general legal principles that govern the
interpretation of contracts

 GENUINENESS OF ASSENT:

Genuineness of assent is a legal principle that emphasizes the importance of parties entering into a contract with a true and

voluntary agreement. It requires that both parties have a clear understanding of the terms and conditions of the contract and that

they have not been coerced or deceived into entering into the agreement. This principle ensures that contracts are entered into

freely and fairly, and that both parties are aware of the rights and obligations they are assuming.

31
Outline the general legal principles that govern the
interpretation of contracts

EXAMPLE:

Mutual assent plays a crucial role in the buying and selling of properties. For example, if a buyer is interested in purchasing a

house, they may make an offer to the seller. The seller then has the option to accept, reject, or counter the offer. In this case, both

parties must have a clear understanding of the terms of the offer and any negotiations that take place. It is important that neither

party feels coerced or deceived into accepting or rejecting the offer, as this could lead to disputes or legal issues. Mutual assent

ensures that both the buyer and seller willingly enter into the transaction with a shared understanding and agreement on the

terms. This helps to establish trust and fairness in the real estate market, allowing for a smooth and successful buying and selling

process.

32
Outline the general legal principles that govern the
interpretation of contracts

 FORM:

Form refers to the manner in which a contract is created or executed. It is a legal principle that outlines the specific requirements

for a contract to be valid and enforceable. These requirements may include the need for the contract to be in writing, signed by the

parties involved, and contain certain essential terms. The purpose of form in contract law is to ensure clarity, certainty, and

evidence of the parties' intentions. Failure to meet the necessary form requirements may result in the contract being deemed

unenforceable and may lead to legal consequences for the parties involved. Therefore, it is crucial for individuals entering into a

contract to understand and adhere to the form requirements outlined by contract law to ensure the validity and enforceability of

the agreement.

33
Outline the general legal principles that govern the
interpretation of contracts

EXAMPLE:

A detailed example of form requirements in contract law can be seen in the process of purchasing a property. When buying a

house, both the buyer and seller need to sign a written contract that clearly outlines the terms and conditions of the sale, including

the purchase price, closing date, and any contingencies. This written agreement serves as evidence of the parties' intentions and

provides clarity and certainty regarding their obligations. If either party fails to meet the necessary form requirements, such as not

signing the contract or not including all necessary terms, the contract may be considered invalid or unenforceable. Additionally,

the law requires certain disclosures and inspections to be conducted during the property purchasing process, ensuring that both

parties are aware of any potential issues or defects. Overall, the law plays a crucial role in protecting the rights and interests of both

buyers and sellers in the property transaction.

34
Written Form example:

35
 Explain the ways in which contracts may be
discharged:
 AGREEMENT/CONSENT:

Contracts may be discharged through agreement or consent between the parties involved. This means that both
parties mutually agree to terminate the contract, either by reaching a new agreement or by cancelling the
existing one. For example, if two parties enter into a contract to lease a property for one year, but after six
months they both agree to terminate the contract early, they can do so through mutual consent. They may
decide to negotiate a new agreement that allows for early termination or simply cancel the existing contract by
agreeing to terminate it.

36
 Explain the ways in which contracts may be
discharged:
 THE IMPOSSIBILITY OF PERFORMANCE:

Another way contracts may be discharged is through the impossibility of performance. This occurs when unforeseen
circumstances make it impossible for one or both parties to fulfill their obligations under the contract. For example, if a natural
disaster destroys the subject matter of the contract, it would be impossible for either party to perform their duties. In such cases,
the contract is considered discharged. For instance, if a construction company agrees to build a house for a client but a fire
destroys the construction site, making it impossible to complete the project, both parties would be discharged from their
obligations under the contract. Another example could be if a musician contracts to perform at an event but becomes seriously
ill right before the performance, making it impossible for them to fulfill their duty. In this case, the contract would be discharged
due to the impossibility of performance.

37
 Explain the ways in which contracts may be
discharged:
 THE LAPSE OF TIME :

Another way contracts may be discharged is through the lapse of time. This means that if the contract has a specific duration or
deadline and that time has passed without the obligations being fulfilled, the contract is considered discharged. This could
occur if a contract has a specific end date and that date has been reached without the parties completing their obligations. In
such cases, the contract is no longer enforceable. for example in real estate , if a buyer and seller enter into a contract for the
sale of a property with a specific closing date, but the closing date passes without the buyer completing the purchase, the
contract is considered discharged. The seller is then free to sell the property to someone else or pursue other legal remedies for
breach of contract.

38
 Explain the ways in which contracts may be
discharged:
 Performance:
• As a general rule, discharge by performance requires complete and exact performance of the obligations in
the contract, except where the contract is divisible, is capable of being fulfilled by substantial performance,
performance has been prevented by the other party or partial performance has been accepted by the other
party.
• Contracts may be discharged is through performance, where both parties fulfill their duties as agreed upon.
Additionally, contracts can be discharged through mutual agreement, where both parties agree to end the
contract before its completion. Another example in real estate is when a seller successfully sells the property
to a buyer who fulfills all the terms and conditions specified in the contract, resulting in the performance-
based discharge of the contract.

Pitch deck title 39

 Explain the ways to be in breach of a
contract:
 Failure to perform:

Is one of the ways in which contracts may be discharged. If one party fails to fulfill their obligations as outlined in the
contract, it can result in a breach of contract. For example, if a buyer fails to secure financing within the specified
timeframe stated in the contract, it can result in a breach of contract. This failure to perform can discharge the contract
and release both parties from their obligations.

40
 Explain the ways to be in breach of a
contract:
 ACTING IN A MANNER THAT PREVENTS THE PERFORMANCE OF A PARTY:

Acting in a manner that prevents the performance of a party may result in the discharge of a contract. This can occur
when one party intentionally or negligently hinders the other party's ability to fulfill their obligations. For example, if a
contractor fails to provide necessary materials to complete a construction project, the other party may be discharged
from their obligation to make payment. Similarly, if a tenant consistently fails to pay rent, the landlord may be
discharged from their obligation to provide a habitable living space. For Example, a seller may be discharged from their
obligation to sell a property if the buyer fails to secure financing within the agreed-upon timeframe. Additionally, if a
landlord fails to maintain the property in a safe and habitable condition, the tenant may be discharged from their
obligation to pay rent. These examples highlight how intentional or negligent actions can result in the discharge of
contractual obligations in real estate transactions.

41
Incoming quiz on the breach of a
contract
 Choose the correct answer below:
How can one party breach a If Party A fails to deliver the goods as promised
Which of the following is an
contract by preventing the in the contract, what type of breach is this?
example of failure to perform?
performance of the other party?

a) By providing necessary a) Anticipatory breach

a) Delivering goods as promised. information. b) Non-material breach
b) By actively assisting the other c) Failure to perform
b) Fulfilling obligations on time.
party.

c) Not meeting deadlines or c) By intentionally hindering or

obstructing the other party's
delivering goods/services as performance.

promised.

ANS: c) Not meeting deadlines or ANS: c) By intentionally hindering or

ANS: c) Failure to perform
delivering goods/services as promised. obstructing the other party's performance.
43
 Identify and describe common remedies for a
breach of contract:
 THE AWARD OF DAMAGES:

Is one common remedy for a breach of contract. Damages are a monetary amount that is awarded to the innocent
party to compensate for the loss they have suffered as a result of the breach. The purpose of damages is to put the
innocent party in the position they would have been in if the contract had been performed properly. The amount of
damages awarded will depend on various factors such as the extent of the breach and the actual loss suffered by the
innocent party. For example in real estate, if a seller fails to deliver the property to the buyer as agreed upon in the
contract, the buyer may be entitled to damages. The damages would be calculated based on factors such as the
difference in market value between the promised property and a comparable substitute, any additional expenses
incurred by the buyer due to the breach, and potentially even lost profits if the buyer intended to use the property for
business purposes.

44
 Identify and describe common remedies for a
breach of contract:
 SPECIFIC PERFORMANCE:

Is another remedy that may be sought in cases of breach of contract. This remedy requires the party who breached the
contract to fulfill their obligations as originally agreed upon. In the real estate example, this would mean that the seller
would be required to deliver the promised property to the buyer. Specific performance is often sought when the
subject matter of the contract is unique or when monetary damages would not adequately compensate the injured
party. However, it is important to note that specific performance is not always granted by the court, as it may not be
feasible or practical in certain situations. For example in real estate, specific performance may not be granted if the
property has been destroyed or if it is no longer available due to unforeseen circumstances. In such cases, the court
may instead award monetary damages to the injured party as a substitute for specific performance.

45
Identify and describe common remedies for a
breach of contract:
 INJUNCTION:

Is another form of equitable relief that a court may grant in certain situations. An injunction is a court order that
requires a party to either do something or refrain from doing something. It is often used to prevent harm or maintain
the status quo while a legal dispute is being resolved. For example, if one party is using trade secrets of another
party in violation of a non-disclosure agreement, the court may grant an injunction to prevent the party from
continuing to use the trade secrets. Injunctions can be temporary or permanent, depending on the circumstances
of the case. For example in real estate, if a neighbor is constructing a fence that encroaches on another person's
property, the affected party can seek an injunction to stop the construction until the boundary dispute is resolved.
This temporary injunction would prevent further harm and maintain the status quo until a final decision is made by
the court regarding the property boundaries.

46
Identify and describe common remedies for a
breach of contract:
 RECISSION:

Is another remedy that can be sought in certain legal situations. It is a remedy that essentially cancels or terminates
a contract, restoring both parties to their pre-contractual positions. This can be done when there has been a
material breach of the contract or when one party has been induced to enter into the contract through fraud,
misrepresentation, or duress. The purpose of rescission is to undo the legal effects of the contract and return the
parties to their original positions as if the contract had never been made. For example, rescission can occur if the
buyer discovers that the seller intentionally withheld information about significant structural damage to the
property during the negotiation process. In such a case, rescission would allow the buyer to cancel the contract and
receive a refund of their down payment, while the seller would regain possession of the property and be relieved of
any obligations related to the sale.

47
Incoming quiz on the remedies
for breach of a contract
 Choose the correct answer below:
What is the term used to describe a
Which remedy involves the payment Party A breaches the contract by selling a piece of land to
remedy that requires the breaching party Party B, which they had already sold to Party C. If Party B seeks
of monetary compensation to the to fulfill their contractual obligations as to have the original contract enforced, what remedy should
injured party originally agreed?
they pursue?

a) The award of damages a) The award of damages

a) Specific performance b) Specific performance b) Specific performance
c) Injunction c) Injunction
b) Injunction
d) Recission d) Recission

c) Recission

d) The award of damages

ANS: b)Specific performance ANS: b)Specific performance

ANS: d) The award of damages
49
 REFERENCES:

 http://jec.unm.edu/education/online-training/contract-law-
tutorial
 https://www.upcounsel.com/what-is-an-offer-in-law-of-con
tract#:~:text=An%20offer%20refers%20to%20a,long%20and
%20detailed%20written%20statement
.
 https://www.law.cornell.edu/wex/consideration#:~:text=Co
nsideration%20is%20a%20promise%2C%20performance,a%
20contract%20cannot%20be%20enforceable
.
 https://www.shsu.edu/klett/CONTRACTS%20BASIC%20PRIN
CIPLES%20ch%2010%20new.htm

51