Chapter 1: Contract Law Overview
Chapter Objectives
Welcome to the first chapter of the Texas Promulgated Contract Forms
course! In this chapter, you will be introduced to basic concepts to help you
understand contracts and modification to them. You will learn about
common promulgated addenda....
Texas Real Estate Promulgated
Contract Forms
Chapter 1: Contract Law Overview
Chapter Objectives
Welcome to the first chapter of the Texas Promulgated Contract Forms
course! In this chapter, you will be introduced to basic concepts to help you
understand contracts and modification to them. You will learn about
common promulgated addenda. You will also be introduced to contract
performance and the termination of contracts.
Let’s look at the chapter’s objectives.
Objectives
Discuss the Texas Real Estate Commission (TREC), and its role in
regulating real estate law and publishing promulgated contracts.
Explain the process of making, negotiating, and accepting a contract.
Identify actions available that are not considered “practicing law”
without a license.
Demonstrate the proper timing and use of addenda.
Properly "fill-in" the addenda according to TREC and contract law.
Understand the legal aspects of contract termination.
Early Non-regulation
Prior to 1939, real estate agents in Texas had very little regulation. Anyone
could claim to be a real estate broker. There was no license test, no Real
Estate Commission, and almost no control. Real estate brokers would write
the buyer’s and seller’s real estate interests in a contract, and that contract
would then become binding on the parties. Today, however, attorneys are
the persons licensed to draft contracts. By law, real estate brokers
are not authorized to do this.
,TRELA
In 1939, the Texas legislature passed the Real Estate Dealer's License
Act (REDLA), which required real estate agents to obtain licenses. KEY
CONCEPT This act was administered by the Secretary of State until 1949
when the Texas Real Estate Commission (TREC) assumed the
administrative responsibilities associated with it. In 1949, the REDLA was
changed into the Texas Real Estate License Act (TRELA). The TRELA was
created to protect the public from dishonest brokers and sales agents by
establishing rules for obtaining and maintaining a real estate license.
Regulation of Third Party
TREC regulates transactions in which you will be acting in a third-party
position. Sellers are the party of the first part, and buyers are the party of
the second part. Any salesperson is considered a third party and regulated
by TREC. This is a very important distinction. It will be referred to for
clarification of other issues.
Contracts
The TRELA covers many different topics, but in this course we will look
mainly at contracts, the forms approved and required by the Commission.
The TRELA allows real estate licensees to “fill in the blanks” of contracts
that are made available for licensees’ use by the Commission. As long as
you are only filling in the blanks of a promulgated contract, you will not be
considered practicing law.
Contract Defined
What is a contract?
A contract is a voluntary agreement between legally competent parties to
do, or to refrain from doing a legal act that is supported by legal
consideration. Doing something is known as performance . Refraining from
doing is known as forbearance .
The four essential elements of a contract are:
Agreement
Consideration
Competent parties
, Legal objective
When a contract meets all four of these criteria, it is valid and enforceable
by law. These essential elements are not in any specific order because they
are all required.
Contracts Are Agreements
Did you notice the definition of contact has no mention of it being in writing?
The reason is that not all contracts are required to be in writing to be
enforceable by law. KEY CONCEPT However, a contract for the purchase
of real estate must be in writing to be enforceable.
Generally, contracts may be created in writing or orally, or even simply by
the conduct of the people involved. Almost any agreement between two or
more individuals could be considered a contract. However, a contract must
not be either trifling, indeterminate, impossible, or illegal. Contract law is
based on the principle expressed in the Latin phrase, pacta sunt servanda,
which loosely translates to "agreements are to be kept".
If you think about it, it would be almost impossible to go through a day
without forming some type of contract.
Contract Example
Did you know that many everyday activities can be considered contracts?
Contracts are an integral part of our everyday life. Let’s compare an
everyday example of a contract to our definition.
You bought a donut at a donut shop. The clerk wanted to sell the donut and
you wanted to buy the donut. You voluntarily agreed to purchase the donut.
So, agreement was met. You paid cash for the donut and the clerk gave you
the donut, a thing of value, in exchange. So, consideration was met. We
assume you and the clerk were legally competent parties, so competency
was met. At the time of the purchase, selling and buying donuts were legal
acts, so the objective was met and it was supported by legal consideration.
Legal Age
Let’s take a closer look at the essential aspects of legally enforceable
contracts. We’ll begin with competency.
In a valid contract, both parties must be competent. In the case of real
estate, this means both the buyer and the seller must be of legal age, and
, they must be in complete control of their faculties. In other words, they must
be in their right mind.
KEY CONCEPT To be of legal age in Texas, a person must be 18 or more
years old, unless they are in the military or married. Adult status is not lost if
a divorce takes place before reaching the age of 18. Minors may also be
emancipated by the courts.
Competency Defined
A competent person:
has developed sufficiently in mental ways to be able to make their
own decisions.
understands what they are doing.
Additionally, a competent person is not insane nor under the influence of
drugs or alcohol.
Temporary Incompetency
It is possible that a person could be temporarily incompetent. This could be
caused by drugs or alcohol, for example. A person who is drunk could claim
they were mentally incompetent when they signed a contract. This is harder
to prove in court than insanity. By the time this could get to court, the
person would be sober. Also, the person would need to wake up the next
day and claim temporary insanity. If the person went to a mortgage
company and applied for a loan to buy a property and three weeks later
claimed temporary insanity, the courts would determine they acted in
accordance with the contract. And so, they would be bound by the contract.
Temporary Incompetency
You should never try to make a determination if a person is drunk or on
drugs. You could ask, but you would not legally be able to deny the person if
they wanted to write an offer. If you tried to deny someone the opportunity
to write an offer, you could be in the position of violating the Federal Fair
Housing Act, or be in a breach of your agency duties to the client.
KEY CONCEPT To summarize, a competent party:
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