Real Property Contracts

An Excerpt from Chapter Six of Arizona Real Estate: A Professional’s Guide to Law and Practice

Arizona REALTOR® Magazine - May 2010

Contracts are the basis of buying and selling real estate. A contract is a legal document that affects the buyer, seller, brokers, and every other person involved in a real estate transaction. The contract in a real estate transaction can prevent problems or cause disputes. If the following basic contract law principles are applied, each transaction will proceed more smoothly, with fewer disputes and less liability for the parties and brokers involved.

GENERAL CONTRACT REQUIREMENTS
For a valid contract to exist there must be an offer, acceptance, consideration and sufficient specificity so that the obligations involved can be ascertained. K-Line Builders, Inc. v. First Federal Savings and Loan Association, 139 Ariz. 209, 677 P.2d 1317 (App. 1983) (Discussing minimum contract requirements in a case involving a financing contract between a builder and a savings and loan). However, real property contracts must meet certain other requirements and usually contain numerous other important provisions relating to the transaction.

Offer
An “offer” is an expression of a willingness to enter into an agreement, so made as to justify another person to believe that assent to the offer will conclude it. K-Line Builders, Inc., 139 Ariz. 209, 677 P.2d 1317 (App. 1983). In other words, an offer creates a power of acceptance, permitting the offeree to transform the offer into a contract.

When an offer or counteroffer is not supported by independent consideration, it may be withdrawn at any time prior to its acceptance. Bevins v. Dickson Electronic Corp., 16 Ariz. App. 105, 491 P.2d 494 (1971);Patton v. Paradise Hills Shopping Center, Inc., 4 Ariz. App. 11, 18, 417 P.2d 382 (1967); Butler v. Wehrley, 5 Ariz. App. 228, 425 P.2d 130 (1967). Any statement clearly implying an unwillingness to enter into a contract according to the terms of the offer, communicated to the offeree prior to unequivocal and unconditional acceptance of the offer, is sufficient to withdraw an offer and prevent contract formation. Although formal notice that the offer is withdrawn is not necessary, written confirmation is advisable. See, Butler, 5 Ariz. App at 232, 425 P.2d 130. Further, a written offer can be verbally withdrawn, although again, the verbal withdrawal should be followed by a written confirmation. See, Executive Towers v. Leonard, 7 Ariz. App. 331, 439 P.2d 303 (1968).
 
An offer that has been accepted cannot be withdrawn. Richards v. Simpson, 111 Ariz. 415, 531 P.2d 538 (1975). In the Richards case, the court held that the actions of the prospective buyer in subsequently signing the offer after the offer had been withdrawn did not constitute acceptance of the offer while the offer was still open and a contract was not formed. See also, Butler v. Wehrley, 5 Ariz. App. 228, 425 P.2d 130 (1967).

Acceptance
“Acceptance” is a manifestation of assent to terms of an offer in the manner invited or required by offer. K-Line Builders, Inc., 139 Ariz. 209, 677 P.2d 1317 (App. 1983). Acceptance of an offer must be conveyed to be effective. Id.; Empire Machinery v. Litton Business Tel. Systems, 115 Ariz. 568, 573, 566 P.2d 1044 (1977). Silence does not ordinarily establish acceptance. Farnsworth on Contracts, §3.14 p. 231 (1991) citing Restatement (Second) of Contracts §56 (“it is essential to an acceptance by promise either that the offeree exercise reasonable diligence to notify the offeror of acceptance or that the offeror receive the acceptance reasonably.”) If the offer does not specify the manner for acceptance, any reasonable manner of acceptance will be permitted. If the offer contains no time for acceptance, the seller must accept the offer within a reasonable time. However, if the offer specifies the time and manner for acceptance, that provision will control. Therefore, when drafting an offer, it should specify the manner and time for acceptance. For example, the AAR Resale Contract at Section 8p specifies:

Terms of Acceptance: This offer will become a binding contract when acceptance is signed by seller and a signed copy delivered in person, by mail, facsimile or electronically, and received by Broker named in Section 8r by _____, ____ at ___ a.m./p.m., Mountain Standard Time. Buyer may withdraw this offer at any time prior to receipt of seller’s signed acceptance. If no signed acceptance is received by this date and time, this offer shall be deemed withdrawn and the buyer’s earnest money shall be returned.

Acceptance of an offer must be in the exact terms as the offer, and any attempt to accept in terms materially different from the original offer constitutes a counteroffer, which rejects the offer. A counteroffer can become the basis of a contract only if it is accepted by the person who made the original offer. Malcoff v. Coyier, 14 Ariz. App. 524, 526, 484 P.2d 1053, 1055 (1971); Clark v. Compania Ganadera de Cananea, S.A., 94 Ariz. 391, 385 P.2d 691 (1963) (To create mutual consent and therefore a contract, acceptance of the offer must be unequivocal); Richards v. Simpson, 111 Ariz. 415, 531 P.2d 538 (1975); United Cal. Bank v. Prudential Ins. Co., 140 Ariz. 238, 681 P.2d 390 (1983). Again, once a counteroffer is made, the original offer has been rejected and cannot be accepted.

Consideration

Although consideration is necessary to a valid contract, consideration is easily demonstrated. Consideration need not be money, but may involve a promise for a promise. Carroll v. Lee, 148 Ariz. 10, 13, 712 P.2d 923 (1986). Consideration may also be a benefit to a promisor or a detriment to a promisee. Consideration may be entirely without benefit, if there is a detriment to the promisee. Grant v. White, 103 Ariz. 257, 439 P.2d 828 (1968) citing Cavanaugh v. Kelly, 80 Ariz. 361, 297 P.2d 1102. (Sellers agreed to accept a smaller down payment in return for the broker's agreement to make part of commission contingent on buyer's future performance.) By Arizona statute, “[e]very contract in writing imports a consideration.” A.R.S. §44-121. However, many contracts still set forth the consideration by the familiar term “for $10 and other valuable consideration” or by requiring earnest money.

K. Michelle Lind, Esq. K. Michelle Lind is General Counsel/Assistant CEO to the Arizona Association of REALTORS® (AAR). She serves as the primary legal advisor to the association. Michelle oversees AAR’s Risk Management Committee, which includes professional standards administration for twenty of the state’s local REALTOR® associations, and the development of standard real estate forms. She is the author of Arizona Real Estate: A Professional’s Guide to Law & Practice and a regular contributor to the Arizona REALTOR® and the Arizona Journal of Real Estate & Business. Please note that this article is of a general nature and may not be updated or revised for accuracy as statutory or case law changes following the date of first publication. Further, this article reflects only the opinion of the author, is not intended as definitive legal advice and you should not act upon it without seeking independent legal counsel.

 
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