An attorney, if asked that question, would say, “Before I can answer that question I would have to see the contract and know more about your particular situation.” That sounds like a good response to me, but you can count on his answer costing you $100 or better just for consultation time. I would probably say the same thing but I can’t charge for my answer because I’m not an attorney, and my answer would only be my opinion. Let’s look at some very important facts about contracts.
First a contract, according to contract law, is a legally enforceable agreement to do (or not to do) a specific thing. The key words in this definition are “legally enforceable.” Many of us agree to do or not to do something almost every day but if we don’t stand by our word, we can’t be forced to honor our agreement. Some contracts, in some states can be oral but then it’s one person’s word against that of someone else. Oral agreements are easily disputed and very difficult to enforce. A marriage ceremony is an oral contractual agreement and they are broken every day. So what makes a contract legally enforceable?
Legally competent parties
For a contract to be legally valid, binding, and enforceable, five requirements must be met. The first legal component is that all parties involved in the agreement must be legally competent. Determining a person’s competency can be somewhat difficult at times because we don’t know if that person is on a prescription drug that could cause them to be temporarily unable to make rational decisions. They could be going through a divorce, or facing bankruptcy, or some other personal crisis which could cause them to be incompetent at the time the contract was formed. Minors (less than 18 years of age) do not have contractual capability and are considered incompetent. The fact remains that all parties named in a contract must be competent in order for the contract to be legally enforceable in a court of law.
A mutual agreement
The requirement of mutual agreement (also called mutual consent, or mutual assent, or meeting of the minds) means that there must be agreement to the provisions of the contract by the parties involved. In other words, there must be a mutual willingness to enter into a contract. A person can’t be forced or coerced into entering into a contractual agreement. All parties to the contract must act on their own will.
Legal purpose or lawful objective
A contract to do something illegal or that is against any recorded state or federal law is void at the time it is written and cannot be legally enforced. In addition, there must be no fraud, innocent misrepresentation, or mistake, and the agreement must be genuine and freely given. One person is making an offer to do or not to do something and the other party is accepting that offer.
A contract fails to be legally binding if consideration is lacking from any party to the contract. The legal philosophy is that a person cannot promise to do something of value for someone else without receiving in turn some form of consideration. Other words, each party must give up something of value. Consideration is an exchange of some value. In real estate sales transactions, consideration is often misconstrued as “earnest money” or “good faith payment” to show a sincere interest in honoring the contract. For clarification purposes, a person can enter into a legally enforceable contract to purchase a home without putting up any earnest money. However, an offer to purchase without a good faith payment doesn’t confirm a sincere interest of the buyer’s assurance to close on the sale.
Contract must be in writing when required by law
In each state there is a law that is commonly known as a statute of frauds. Its purpose is to prevent frauds by requiring that all contracts for the sale of land, or an interest in land, be in writing and signed by all parties to be enforceable in a court of law. A written contract will supersede an oral one. Other words, if two parties orally promise one thing and then write and sign something else, the written contract will prevail every time.
If I change my mind, can I get out of a contract?
If the contract, without allowable contingencies, has all the elements of a valid contract that are discussed above; you could be forced by law to honor the contract regardless. Having said that, most people will allow you to terminate a contract so long as you agree to accept the consequences. More times than not these consequences come in the form of money. We have all purchased something of value and then had buyer’s remorse and wished we could reverse our decision. Especially true when entering into a contract to purchase real estate, because many times it is the largest investment we make in a life time; we should read every word in the contract to make sure we know exactly what we are committing to and what our consequences are if we fail to honor the contract.
Seek legal advice
Hopefully the information I have shared with you will help you understand what makes a contract legally binding and enforceable through the judicial system. I always suggest to my clients that they contact an attorney for a better explanation and clarification of the contract they are about to enter into. Real estate agents can provide the consumer a wealth of knowledge about buying or selling real estate but they aren’t attorneys and we can’t provide legal advice. I can advise you to read every document you sign very carefully. I also suggest you ask the sales person to explain every detail that is in a contract before signing a document.
Answers to your questions
Should you have specific questions concerning various issues, please let me know and I’ll research the answer for you. I also want to encourage you to subscribe to our “News & Updates” weekly report so you can stay abreast of issues that might affect you when buying or selling real estate. If you haven’t visited my website, please go to www.AlabamaRealEstateInstitute.com and view previous articles.