120. Contract Formation

I am going to be talking about contracts and contract formation. In real estate transactions, there are a lot of different kind of contracts that are used, either as part of the purchase and sale or leasing the property. We've got listing agreements between the seller and the broker to list the property. We've got buyer's, rep agreements. We've got letters of intent. Got all sorts of documents that come into play that fall under the heading of a contract as part of real estate transaction, both on the residential and the commercial side. What I wanted to talk about today was giving you an overview of what the elements, the required elements of a contract are for a valid contract and a real estate transaction. Mainly, we're going to be tying into the trek residential 1-4 family contract. That's going to be the basis for a number of episodes moving forward. We're going to use that document as a guide. I'll end up posting a link to that document in the notes so that you have a reference to it moving forward. Before we dive into that document itself, I wanted to give an overview of what constitutes a valid and enforceable contract for the transfer or for the purchase and sale of real estate here in the state of Texas. If we start off by looking at what is a contract, it's a promise or agreement to do something. It's a set of promises to do something or not do something. That can include now or in the future. To be legally enforceable, so to be a valid and enforceable agreement, it's got to meet certain requirements. If it does, then the law, either courts, will recognize it as an enforceable agreement and provide remedies if there's a breach. Later on, in a subsequent episode, we'll talk about default under the trek 1-4 family contract. Using that as a guide, one thing that's always recommended, so the trek 1-4 family contract itself is a form. It is promulgated by the Texas Roll State Commission and promulgated means that it has been passed by law, by a rule, by a trek rule. Real estate agents and brokers are required in Texas are required to use that form or require to use trek promulgated forms if a form exists for either that transaction, that type of transaction, or for something ancillary to that transaction, such as an amendment. If there's a form that trek is promulgated and agents require to use that form if necessary. Right now, there's about 29 promulgated forms or approved forms. Those are two different distinctions. If you go to Trek's website and look for the forms, there are four forms that are approved, which means they are adopted or approved by Trek but not required to be used. There are two required notices that Trek has. On the list of their documents, out of that, there are the promulgated forms, approved forms, and then notices. An example of a promulgated form would be the Trek 1-4 family contract. There's a contract for condominiums, there's a contract for farm and ranch. There are numerous addenda that come into play, such as a third party financing addendum, owner financing addendum, or seller financing addendum. So if that transaction revolves around one of those forms, then a real estate agent or broker in the state of Texas is required to use that form. There are some exceptions. One is if the owner has its own form or so one of the parties has their own form that they want to use. That could be in a landlord tenant situation where the landlord says, "I have my contract and this is the one I want you to use." Then the agents require to use that form. But they have not prepared that form themselves. They're not drafted at themselves because what agents and brokers can't do is engage in the unauthorized practice of law. And there's a line. Once they cross that line, they're now engaging in the practice of law. In order to do that you have to have a law license. An example would be you have a form that lets take the Trek 1-4 family contract. In there there's a paragraph called special provisions. Well in the past that was often utilized to add all sorts of things to the contract. And one thing Trek has done is if there is a prevalent issue then they draft an addendum to be used to address that issue. And that form has been adopted by the broker lawyer committee that has determined what language needs to go in that form. And they're also protecting the consumer. Again that's Trek's primary objective is to protect the consumer. And so if you have an agent who is not an attorney or broker who's not an attorney and they try to add the language into the form that can create all sorts of issues for a seller or buyer or a owner or a tenant and a lease transaction. And so it was not uncommon for a broker or agent to add all sorts of language into the special provisions section. Now I would say the general rule is don't add anything in there because it has a potential to create a lot of liability or risk for the agent and for the agent's principle. And so another example would be language related to the mineral estate. Well now Trek has an addendum related to the mineral estate. And so if there is a mineral estate associated with that transaction then that addendum needs to be used. And so another exception. So one is if the owner has their own form. Second exception is if an attorney has drafted the document then the agents can the agent of broker can utilize that form if that's what their client wants them to use. If it's a transaction coming out of the court by court order or by property being sold by the government then the government can prepare their own form. They may have their own form to utilize in that transaction. So there are some examples there in terms of when what contract an agent has to use and when. And then the approved forms are approved for use but not required. And an example of that would be the seller's disclosure. We'll get to that later but that is the language in that document that sets the floor in terms of what has to go into that document is passed by the legislature. And so that's found in the Texas property code 5.008 of the Texas property code outlines the language in the seller's disclosure notice and it's required in many residential transactions. There are some exceptions where it's not used will get into that later but what what so that says the floor so trick has that form and so it's approved for use but it's not mandatory now in a residential transaction where that forms required then what do you do well if you're a member of tar text association of realtors or now Texas realtors. Tar has their own forms and so in order to use those forms you must be a realtor which means you're a real estate agent who is joined the local board and that's does she become a member of the Texas association realtors and national association realtors and and then you have a license to use those forms well tar has its own forms they're not promulgated by track. But in the instance of the seller's disclosure tar form raises that floor in terms of the language or the items that are covered in tar seller's disclosure and so there's additional information and that's okay because the legislature has set the floor in terms of what's required which means you can't take that stuff out but you can add to it and that's what tar has done. So in the case of a real estate agent if they're realtor then they could use either tricks approved seller's disclosure notice or they could use tar's sell disclosure notice and then trek also has two notices one is the information about broker services and the other is the consumer protection notice so those are just so that so that in case of the compasses, tracks documents that you'll find on the Trex website. And then under TAR, for example, TAR has additional forms. They've got a total of 305 and five forms. 28 of those are the same as the Trek forms, the ones that are promulgated. And then there's also the, there's the notices like the IABS and information about brokerage services and the consumer protection notice. But then there's a lot of others. And that's because like Trek doesn't get into commercial forms or documents or property management forms or documents or, you know, leases, which you will find on Trex website as a short term lease. But you not age what we consider traditionally. So if you're going to run an apartment or house for, you know, six, nine, 12 months or so. And so TAR has those forms. And so a real estate agent who is a realtor has a license to use those forms. Okay. And so, so we've covered like what forms have to be used. But let's get into, let me, let's take a step back now and look at the contract formation. In terms of what we're looking at here is what is called common law contracts. And that's what this trend, that's what a residential real estate or commercial real estate transaction entails. And that's, that's to be distinguished from contracts under the uniform, uniform commercial code or UCC contracts. So I think the primary purpose of contract law is to minimize risk and maximize value for the part of your representing in relation to a real estate transaction. So it's to, to minimize risk and maximize value. So you look at that and go, well, but it's just a, you know, it's a form. It's a document. You feel some blanks, you check some boxes. How does, how does that involve minimizing risk or maximizing value? Well, it's important to know what's, what's in that document and what it means. And if, if, you know, how, how each sentence or each paragraph plays out. And if an issue arises, then what's the effect of that language that's in the contract in terms of how that, that issue or that situation has resolved. And so the, the, it's important to note what is in that contract. Even more so, it's important to note what's not in the contract. And so you get into, there's, there's all sorts of clauses that are not in your standard promulgated forms or that are in your, your standard agreements that are in your standard leases. And so that really creates an issue in terms of, if you, if you get into a situation either during the performance of that contract, you know, it's, let's say the, the trek one to four family, you sign it. So it's been signed. It's executory, which means it has not been fully performed. Once it's been fully performed, it's, it's called executed. That contract has been executed, which means the terms and conditions of that contract have been affected. But there are terms that that can still hang around after that contract is finished. You know, once you go to closing and the, the seller signs a D transferring title of the property of the buyer, most of the terms in that contract cease to, to, to exist. It's, unless we put language in there that, that, that term or that paragraph will continue will survive the closing, which means it stays, it stays alive. That most of the terms of that contract are resolved by that closing by the transfer title of the property, not all of them, but many of them. And so it's, it's the language that we put in that contract during the performance of that contract, up to a closing. And then also what we, what we want to survive after the closing, so certain representations that one party makes to the other, for example. So a lot of the contract is, you've got your, you have your, you know, party, the party's information, you've got your subject matter. In this case, it's, it's residential real estate. You have your business terms. So how much are you going to pay? And how's it going to be financed? And who's going to pay for what expenses? And then we have the, the, the risk section. And that's where all these, these additional clauses come into play. And that's, that's where attorneys, attorney spend time on the whole contract. But that's really where attorneys will come into play is to look at what is in the clauses, what are what's in the representations? That are that are in the contract. And then what representations need to be added to the contract. And that's where representation is a statement made by party. That's, that's a, that's a simplest way of looking at it. So it's, it's getting the, you know, the, the, if you're, if you're representing the seller, you want to make sure the seller is not making representations that are not true. And then to certain extent to try and minimize the amount of representations being made, because that opens the seller up to risk. On the flip side, on the buyer, the buyer wants representations made by the seller. In terms of the condition of the property, in terms of how the property has been managed, any defects, you know, anything that the buyer needs to know about in relation to the property. And in the operations, and sometimes even the seller, the seller him or herself or itself, if it's an entity, you know, in terms of that sellers in good standing, as a, as a business organization. That means they're under, they're in existence under the law. And there's no issues that are affecting the, the status of that entity, because you don't want to get into a situation where you've got to, let's say commercial real estate transaction, multi-million dollar transaction. And the seller is in the middle of bankruptcy, and you don't, and the buyer doesn't know about it. Well, that, that creates all sorts of issues in terms of the seller being able to transfer titles of that property, or sell that property. So it's where the representations that are made. And so that's where minimizing risk and maximizing value comes into play. And so that's, you know, their attorneys will not, not just for the fun of it, but attorneys will spend sometimes significant amount of time just on one paragraph in the contract. And one of the goals that I see or that, that, you know, I tend to focus on is attempting to neutralize some of the statements that are in the contract. So for example, if you might see a default provision that is very one sided to one party, well, you may look at that and go, well, you know, that default provision is not bad, it just favors one party and not the other. So that one party has all these rights and remedies, and the other does not. So it's either, let's, let's fix that by either revising it, or let's fix it by neutralizing that contract to where the other side has the same rights and remedies. So that they're the same. And so if the seller, you know, if you're representing the buyer and you get to the very one sided contract where all the rights and remedies are afforded to the seller, you may look at that and go as the buyer, you know, you're not going to come in and go, or the buyer's attorney, you're not going to come in and go, take all those out. You may look at that and go, okay, you know, those, those are, those are valid under the law here in Texas. But I want my client to have the same rights and remedies in this transaction that the seller does. So that if the seller defaults, the buyer has those same rights and remedies, if you're proposing those as a seller to the buyer, all we're asking is for you to accept the same from the buyer to the seller in the event of a default. We might see the same thing on a on a dimminity provision, so an identification clause, you know, things like that. There are other clauses that you that are not in a contract. And I see this both on the purchase and sell side and and then even more so, especially in leases, where you'll have a client comes in not a client, they're not your client because if they if they were, they wouldn't be in this problem because they would have good representation and and they wouldn't be in have an issue in the first place. But you've got you've got a retail tenant, let's say, that signs a three year lease on a 1500 square foot space and they, you know, the owner of owners represents the lease, they sign it, they move in. And then they realize that they can't put signs out, they can't put marketing materials out, they don't have enough parking spaces, you know, because because another tenant or tenants are taken up all the parking. And so they don't have any customers, which is affecting their income, which is affecting their ability to pay the rent. And they go to the landlord and say, I need you to fix this. And the owner says, not my problem because that's it's not in the lease, you know, I don't have to guarantee you parking spaces. I just have to guarantee you a space. So not my problem. Now, that's a that's a whole another discussion in terms of, you know, an owner should, you know, needs to maintain a good relationship with the tenants to ensure that they can do business and make money and then pay the bills. So, you know, owner should want to work on resolving that issue. But that's just one example, because there's a lot of other clauses that that are paragraphs, they could be added to the contract, both on the purchase of sales side and the lease side that are not in your standard form. So that's where you get into minimizing risk and maximizing value for either, either party. We also look at providing consistency. Another purpose of contract laws to provide consistency in the performance of the agreement between, you know, the parties. And what that means is that when you go into a contract, all contracts are presumed legal. I'll cover that in another element here in a minute when I get into the details. But you go into a contract presuming that it's legal and that it's enforceable. And so by having the laws that we have in place, it gives some assurance to the parties that if they sign that contract, it is valid, it's enforceable and the court will uphold it. I mean, there's no defects or there's no issues with the contract. And so we want that. Otherwise, signing a contract would have no validity. It would be the equivalent of where people say, "Well, we used to be able to rely on a handshake. "We used to be able to do business on a handshake "and we can't anymore." And that's why we have 100 page agreements in place where things used to be done just on a simple handshake. And that's because we can't trust each other. And so by having some certainty that the words we put on a piece of paper and that are signed off on by the parties will be enforceable in the eyes of a court, provide some assurance in terms of how that transactional play out. Limit the liability of the party you're representing. I've already talked about that in terms of minimizing risk and maximizing value. And I gave you some examples in terms of how that plays out. 'Cause the thing to note, what happens is a lot of times individuals will sign an agreement. And it's right here right now. That's all they're thinking about. But what they're not thinking about is what's gonna happen in five days or 15 or 30 or 60, 90, three years, five years. And so you've got to look at that bigger picture going into that contract, going into that agreement to see what the ramifications now, but not just now, also down the road. I've talked about the disclosures, the representations and warranties that are made by the parties. I've talked about limiting representations made by one party to another. And then the other thing that's important is to provide one or more remedies in the event that there's a breach. So if one party breaches the contract, this is one of those clauses you need in the contract is a default provision. What happens in the event that one party defaults under that contract and what are the potential remedies that the non-defaulting party can get? So we've looked at the promulgated contracts. We've looked at the contracts that's under track. We looked at the contracts under tar. We looked at the basic elements of, or the purpose of contract law. And then we can look at contract formation. And so there's about seven elements that come into play in terms of having a valid information and a enforceable agreement. So now we're getting into the weeds of what constitutes a valid and enforceable agreement. And so the first is we look at agreement. And so to get to agreement, we have offer and acceptance. You see, I make it sure I've got these a number of digits. Yeah. So offer and acceptance equals agreement. So that's the first one. And so there's a lot of, I could probably go on for 30 hours just on offer and acceptance, constituting agreement in all the different rules and the elements of this. But I'm going to keep it very simple for this podcast. And if you've got one party that makes an offer, so a buyer presents an offer to the seller and says, I want to buy your house. The seller has three options in that case. They can either accept that offer. So they say the buyer submits a written offer. So the seller can sign that offer. Now you have agreement. You have offer, you have acceptance, and you have agreement. The buyer can reject that offer. They can say, nope. And then that's the end of it. The other thing is the, or the seller, the seller can reject the buyer's offer. And then the third is the seller can counter offer. And so an account offer situation, effectively what that entails is the seller has said, the buyer's made an offer and the seller says no. But I'm going to make an offer back to you. And so now what has happened is the buyer's offer is no longer an existence. It's gone. The seller has created a new offer to send that back to the buyer. And so now the buyer has the option of either accepting that counter, rejecting it, or countering back to the seller. And so that's where in certain instances you can go back and forth on counter offers. But what can't happen is if a seller rejects that offer, then that's the end of it. And then three days later they go back to the buyer and they go, I accept, can't do that. That offer is no longer valid. Another thing is same thing in a counter offer situation. You get to a point to where the buyer keeps pushing the seller to lower the price and through they're going back and forth on counter offers. And finally the seller says, nope, I reject your offer. And the buyer says, no, okay, I go back to the previous offer, the higher price, I accept that. You can't do that once that's been rejected. So one of the things I see in terms of offer and acceptance with the Trek 1-4 family contract is that so a couple of things. One is negotiations going back and forth by email between the brokers or between the agents. And that gets really dangerous because there are court cases out there where the court has said that those emails can end up constituting a valid, a written, valid and forceful agreement and that the agents have bound their client to that agreement. So that creates some serious issues. And so you have to be really careful in terms of, and this doesn't just apply to real estate contracts. This can be any contract. Now that's a, that could be a whole podcast in and of itself in terms of written or electronic agreements. And so that's where agents have to be really careful to make sure that they do not end up crossing a line. And that's gonna be a fact situation, which means you're gonna have to look to the facts of that case to determine if that agent cross the line in terms of going to the extent where a court would find that a contract exists through email communications. And so that's an issue. Take it one step further. Now with text messaging, it's so much easier to fire off a text message that I don't know, I've not done the research yet. I've got that on my list to do. And so if I come back and do a podcast later on electronic contracts and signatures that I'll update the research I've done to date, but I think if we don't have any case law on text messages, I think it's just a matter of time. So one good policy to have would be no negotiations of contracts by text message, because that fragment of a sentence in that text message could end up binding a client to a contract. So that's where you've got to be careful. So it's best to have your offer and acceptance going back in written form using the track one to four family contract in a residential real estate transaction situation. And I would say, I would take that one step further and say that what I see is the agents will end up like marking like you may. Now this is a little bit less prevalent of an issue today. And that we because of the technology we have, but when, especially when it was facts, facts is going back and forth. And even more so, you had the old thermal paper in the agent would strike out the price. And the parties would initially, and they would fax it back over. And the other side would strike out the price. Add a new price, their side would initial fax it back over. And so sometimes the copy would be like very poor. And then that wasn't the only change. And so then one of the things, you know, at some point the agents would say, let's go ahead and get this cleaned up and bring it into one document that reflects all the changes and get the parties to sign off on it. Now, and that's valid. It's making sure that the terms or any changes in that contract are readable. Now you really don't have anybody using fax. text messages. You've got people that can send documents by, they can scan them in, you can, with the scanner, using a laptop or a desktop computer. You can use a scanner app on the phone or tablet. So, a lot of times that image is clear. But one thing with the technology we have now versus what we had back in the day is you can easily go in and make those changes on the documents and send it back over where it's a clean copy. What's worse is when you have an agent that sends you a picture of a document that has the car seat or the center console and then there's the contract and it's at an angle and it's not a pretty sight. But that's a valid document. It's just very unprofessional. I would say be sure to use an app, be sure to make all your documents look professional, raise the standard, make sure you adhere to a high standard in terms of the documents that you send out. But that's where you go back and forth on offer and acceptance. Once you want you, the last party has agreed, then you've got agreement. Then the contract is effective and then we look at the effective date of that contract and all the terms that tie into that effective date are related to that effective date and then the parties move forward with the performance of that contract. Next thing a contract must have is consideration to be enforceable. I'm going to keep this one very simple or try to. But consideration is something of legal value, something that has been bargained for. In order for our contract to be enforceable, there must be consideration. Again, we go back to the next one. Next one is going to be capacity and then locality. Again, I'm going to say it again in a minute. We assume contracts to be enforceable, legal and enforceable. We don't go into a contract going well. Is there consideration to this contract? Unless you're an attorney or you've got legal education, you're probably not thinking about that. What's the consideration in this contract and how's the court? What's the court going to do about either the consideration that is being used or the lack thereof? People don't think about that. They really don't think about will. Is there offers or acceptance? It's just here, sign this contract, you sign it, okay, we got a contract. That's the whole offer acceptance, plus acceptance equals agreement. Then we got a consideration. It's something of legal value, something that is bargained for. Contract in order to be enforceable must be supported by consideration. We look at legally sufficient consideration. Now, the court generally is not going to stick their nose into what constitutes legally sufficient. There's case law out there on that. What you might be looking at to determine if something's not, because the court's going to say the party's agreed to it at that time on the ground. I was not there. For me to come in and play money, money, quarterbacks, really not going to work. One party may have changed our mind later. That was attempting to claim that there was insufficient consideration. The court says that's what they agreed to at the time. What we see is that it's legally sufficient. What you don't want to get into is a situation where there's fraud or duress that could end up affecting the consideration in a transaction. For example, if I agreed to sell you an item, that's worth $1,000 for $100, because I just got to hurry up and get rid of it. I need $100 cash. Then the consideration in that case is me agreeing to sell you that item and only that item. What we bargained for. On your side is you agreeing to pay me the $100 purchase price for that item. Then I come back later and I say, "Oh, wait a minute. I was robbed." That was there was insufficient consideration for that transaction. The court's not going to come back and go, "Well, you're right. For a $1,000 item, consideration should have at least been in terms of the agreement between the parties at least $500 on a purchase price. The buyer willing to pay $500. In terms of what was bargained for, I used the court. I'm going to step in now and play money, want a quarterback and go, "No, that wasn't legally sufficient." The court's not going to do that. Where you could find that there's legally insufficient consideration is you've got a little lady that has, she's in her 90s and has lived in this house since her parents' house before her and it's been paid for for the last 50 plus years. It is now in a hot area that's developing and property's worth a whole lot of money and then you go in and just badger her to selling you the property for $10,000 and now it's worth a million. In that case, that's where you get into fraud, duress, undue influence that could end up impacting that transaction. That's where parties have to be careful. In a real estate transaction, it is the seller willing to sell that property to the buyer and then also giving up the right to sell that property to another party and then the buyer willing to pay the purchase price for that property. That's where we get into the consideration. The third element we've got offer and acceptance equals agreement. Number one, we've got consideration. Number two, and then number three is capacity. What we're looking at here is both on the individual side and on the entity side, on the business entity side. On the individual side, we look at there's two different forms of capacity. Number one is minors. Individuals that have not reached the age of a majority in that state. For example, in Texas, that age is 18 years of age. Anybody under the age of 18 is still considered a minor. In transactions involving minors, the contract is voidable at the option of the minor. The minor can come back and say, I signed that contract by that house. Now I changed my mind. That minor has the ability to void that contract. The next one exception or an exception to that is two exceptions. One is if the disabilities of that minor have been removed. For example, that minor under the eyes of the law is no one considered a minor. I think if you go look up Leanne Rimes, she's a country singer. I think her disabilities were removed when she was a minor and when she wanted to manage her own assets. In that case, any contracts entered into with that minor are enforceable. The other is contract for or a group for necessities. So necessities are things like food and room and board and things like that. So if a minor were to sign for a apartment, then that's a necessity having a roof over your head. Where something like a car is not. The minor entered into a contract by a car. Signed the loan agreement and then later said I want to avoid this agreement. Then the minor has that option. That agreement is avoidable. Or they can affirm that agreement and honor it and carry it out. The other is individuals who are lacked the mental capacity to make their own decisions. And there are individuals who have been determined to be mentally incompetent by a court of law and then those that have not. So we get into a situation where an individual who is mentally incompetent or who has been deemed mentally incompetent as the option of or that contract in that case is avoidable as well. So that's another condition that may remove an individual's capacity to enter into a contract. So question and that's on the this is on the individual side. So minors and then individuals who lack the mental capacity or who have been deemed mentally incompetent by a court of law. So question, can you sell land to a minor and the question or the answer is yes, you can. the contract's voidable, but you can sell land to a miner. You get into all sorts of issues though, like I said with financing and can the miner get alone, you got all these other issues that come into play. And so in that case, it's best to ensure that the attorneys looked at that transaction and has put their blessing on it because when it comes time to sell that property, if that individual still a miner, that creates some issues as well. In terms of the miner can sell it, but then you've got to go get a quarter order in order to do so. So that creates an issue. The other aspect is business organizations. And so you want to make sure that if you're dealing with a business organization, that that organization is in good standing in either the state like in Texas or in a state where they are transacting business. And so what that effectively means is that they have paid all their taxes. Under state law. And you can go to the comptroller's website here in Texas and look and search for business entities to see if they're in good standing or not. And so you want to make sure if you're working with or if you're involved in the transaction with a business organization that it is in good standing under Texas law. So that's number three. Number four is legality. And in this case, as I've mentioned before, contracts are presumed to be legal. So we go in with that presumption. And contracts that, a contract to perform an act that is against the law, so either a city ordinance or state statute or federal statute or against public policy are illegal and unenforceable. So that's a, we talked about avoidable contracts with a minor. Here, a contract that is illegal is unenforceable. But again, we go in presuming that contracts are legal and unenforceable. And then we would come back later and look at determine if that contract is illegal. So for example, if you had somebody that said, I, I'm hiring you to go illegally dispose of this hazardous waste. So enter into a contract with me to come pick up your hazardous waste, but you want me to just go dump it out in this field. So you're not paying me very much money. And then I agree to that. We sign, we actually sign an agreement. And then I later change my mind and go, you know, if I change your heart and I go, you know what, I can't illegally dispose of that hazardous waste that's against the law and I'm not gonna do it. Well, the individual now has to go hire somebody to do it either illegally, illegally. And then wants to sue me for breach of contract. Well, in that case, I was being asked to perform an illegal act so the court is gonna find that agreement unenforceable. Okay. So in other words, there's not gonna be a breach. Next element. So we've got offering acceptance equals agreement. We've got consideration. We've got capacity. We've got legality. And then next we have no defects to mutual assent or what we might call genuineness of assent. And so in this case, what we're talking about is there are no issues in terms of the, what another way of looking at this is what we call meeting of the minds. That's a better way of looking at it. Maybe you can wrap your head around that. And so with meeting of the minds is that we, the parties are both in agreement in terms of what is being bought and what is being sold. And so if both parties make a mistake, then the court could find that there is no meeting of the minds to that contract. But if one party makes a mistake, you know, a lateral mistake, then the court's not gonna find that that contract is not enforceable because there's no meeting of the minds. One party knew what they were selling. The other party had it at, you know, they made a mistake. And so, but we also look at, so that's mistake. If we have a misrepresentation, if we have undue influence, if we have duress, these are other elements to where a party has not ascended to that contract. There's no meeting of the minds in that situation. So, number, so that's number five. Number six is the contract must be in written form. We have a law called the Statute of Fraud's in Texas. That's found in the Texas Business and Commerce Code. If you look in chapter 26 of the Texas Business and Commerce Code, you'll find the reference to Statute of Fraud's. And so in Texas, certain contracts must be in writing to be enforceable. And they must be signed by the party against human enforcement assault. Okay, so that's where we get into having a written agreement. It does not need to be signed by both parties. It needs to be signed by the party against human enforcement assault, but it's, I think what we generally see is that it's signed by both parties, which is important. And then that's it. And he's been writing, needs to be signed by the party against human enforcement assault. There is, and then let me do the last one, and then I'm gonna come back to that. The last thing that's relevant is that it needs to have a valid, it needs to sufficiently describe the subject matter of that contract. So if it's a real estate contract, it needs to provide a legal, under Texas law, legally sufficient, or I mean, a sufficiently reasonably sufficient legal description for that property. Okay, and so I'll get into that in a later section. So for real estate contract, it has to include a legal description. So going back to the written form, there's a question I saw on a Facebook group recently, where the question had been asked, the seller deeded the property to the buyer, but there was no contract. So is that a valid transaction? Under the statute of frauds, there must be a written contract in order for the agreement to be enforceable. And so therefore is that transaction valid. And so what was amazing, this was more, this was more of a national Facebook group. What was amazing is that this topic, like what I just covered here is covered in the principles of real estate classes for people for real estate just to get their licenses. And sometimes in many instances, there's a lot of redundancy. The problem is nobody pays attention to these elements and they're relevant. I remember going, I was at a conference for commercial real estate agents years ago. This is probably 10 years ago. And it was a class, and in that class, it was a continued education class. And in that class, there was a scenario, where they had agents break out into groups for discussion and then report back to the larger group. And it was a scenario on offer and acceptance. And I remember one of the agents going, oh my gosh, this is ridiculous. Give us something that's actually relevant, that instead of this stuff, man, this is like so easy. And I'm sitting there going, you know, you're right, it is easy. You know, I'm thinking this is my head. I'm going, it is easy. Offer and acceptance is very easy. I'm also an attorney, so in that case, it's easy. But this is something that I see over and over and over and over again, that agents just won. They don't understand. And then too, they don't know how to handle issues that arise during that offer and acceptance process. During that agreement process, we get into, and like I said, I did not get into, I'm not going to get into the weeds on that because I could spend hours on in just on each of these topics or each of these elements. But it's, and maybe one day I'll do that, but not today. But you look at, you got an agent that says, oh, we made an offer on this house and, but then they found another house and they, that they really like better. And so they went ahead and made an offer on it to make sure that, you know, they, you know, they could get that house and the seller signed that offer. So what do we do? And I'm going, oh my gosh, you know, that's where we get into like the agent going, but this is really simple. I don't know why we're covering this stuff. And the scenario just described you, I've heard many times. and you're going, "You have got to terminate that other offer," or their first offer, you have got to terminate it immediately. Now, there's a process in terms of how you do that, or how you should do that. And so I said, you know, there's a sequence, and this is where you get into, "Well, when is the acceptance, like if the seller were to accept, when is that valid?" And so what do you do? And so now with email and text messages and everything else, you know, we have the rule once the document's deposited in the mailbox, then it's affected. And I was like, "Look, there's a form to actually terminate that offer. You take that form, and you go to the post office like right now, and you send it by certify mail, return receipt requested, and then you were going to get a, you know, have the post office stamp at the post office needs to be open, and if they're not, most of them close about five o'clock, you go to the one at the, by the airport, and it used to stay open till almost midnight, I think, but they started closing early now. I think the one in Houston, you can go to the airport. I believe it's still there. I know, back when I was in law school, that was the answer. You go to the post office of the airport, because they were open 24 hours, and as long as you got it stamped before midnight, then it was considered delivered that day. And so go take care of that right now, and then you fax that over, and you email it over, and you text it over, and you call them. I see, because the problem with this, the problem with that is this, you, you've made an offer on one property. You made an offer on a second property that was accepted, and you still have this other offer hanging out there. And if the seller were to accept that, and it doesn't take much, and then put the, put the party on, the party's on notice before that termination of the offer is delivered to the seller, then you've got two contracts. And we live in a very cavalier society, or we're very cavalier these days in terms of signing these agreements. You know, it's all signed in. Oh, I didn't want to do that. So just let's just go ahead and cancel it. That's not the way it works. You know, generally one of the options under the, one of the remedies under default by one of the parties is a specific performance. So I'm going to force you to buy this house, or I'm going to, I'm going to sue you, and I'm going to seek either specific performance, or if you, in this case, because you don't have earnest money that's already been affected as part of that contract, usually in the earnest money account, as liquidated damages in the contracts terminated. This is under the trick one to four family contract, or any other remedy available law. And so that's where you really get into, you know, some, some issues in terms of, well, what is that dollar amount? If it's a dollar amount. And, and then you get attorney's fees, that's where, that's what you're really going to get you, you know, 5,000 just to get started, and then 10, and then you've got both sides. So you're going to pay your own plus, potentially, the other, the other sides of attorney's fees. So that's where the issues arise. And so, you can't do that. You cannot put out two offers, and, and then get one accepted, and then leave this other one hanging out there. But that's, that's the kind of stuff you run into. So it's like, you don't do that. You terminate it, and then you do that one. Yeah, but we, we really want to make sure they got this other house. No, you don't do that. So that's, that's where you get into these issues. And so each of these is valid. But going back to the other, the other scenario I'd started with, and that's what I'm going to wrap up with, is that the fact that they asked this question of, you know, is that transaction valid? And the answer is yes, you have full performance. That, that agreement has been fully executed. And if you, if we go back to when I, when I first started the podcast, I talked about a contract that is executory. That's a contract that's been agreed to. It's been either signed or it's been verbally agreed to. It's an oral contract. And, and it's executory, which means it has not been fully performed. Once you go to closing and the seller, you know, all the documents are signed, then that contract is considered to be executed. That's, that's the legal term. Not, that doesn't mean signed. It means fully performed. Executed means fully performed. And so in, in, in that case, where the seller trans, you know, transfer title by D to the buyer, they had a verbal agreement. Well, and, and then that contract was fully executed when the seller transfer title of that property to the buyer. And then for the agent to go, yeah, but they didn't have a contract. And the statute fraud says the contract must be in writing. Well, it does. There's, it's not just real estate. There's a couple of other transactions where it has to be in writing. But that doesn't always happen. Parties can still agree to a handshake. And then if that, if that title is transferred, then that's it. That's done. Now, if there were other issues, such as seller financing or, you know, contingency that that's to occur after the fact, that's where you start to really run into some problems. Or, or, or, you know, a contingency that was to be performed during that contract before title was transferred. Well, that may not have happened. And so now to go back and, and try to enforce that could be an issue. So that's, that's, that's an instance where you, if you have full, you know, if that, if that contract has been fully performed as if it's been executed, then, then having a written agreement is not a relevant question. What, what is a question is, were there other agreements that were not fulfilled? That's a separate issue. And then that's going to be a fact situation going to court to determine whether those are valid or not. But in terms of the transfer title of the property, that's done. There's other instances if you have partial execution under a contract. So, homeowner agrees to, with a builder or, or a, an individual agrees with the builder to build a house. And there's no written agreement. And the builder starts building the house. And the, the parties are performing as they've agreed to. And then halfway through, the individual says, I don't, I don't want to build this house anymore. And the contractor says, well, you, you owe, you know, under the terms of our agreement, you agreed to pay me X number of dollars to build you this house to yo me this money. No, there's no written agreement. I'm not going to do it. So in that case, there's partial performance under that contract. And so a court can come into that point and say, a contract exists. You know, you can't, you can't go back to the set of your frauds and go, nope, no contract. Contract exists. Now, the problem is there's a, there's all these unknowns. There's all these unknowns out there. And that's where it gets really complicated and messy and expensive. And so that's why it's best to have a contract so that you have that certainty going in in terms of what the agreement between the parties are and how that contract should be performed. So with that said, I will leave you at that. And that's more than I wanted to talk about, but I hope you get something out of this. It's all relevant, whether it's real estate or not. It's relevant to business in terms of what constitutes a valid and enforceable contract in the state of Texas.