Danny Davidson sold a single family home to Paul and Priscilla Peterson. A long-term relationship between Danny and Paul is the basis for not including a written agreement. The simple contract was made orally and only included the legal object and the amount to be paid. Danny did not disclose a dispute with his neighbor over boundary lines or include information about a soil subsidence in the front yard he claims not to have known about. Contract Elements
Four elements are necessary for a contract to exist. According to Kubasek et al., (2012) “These elements are the agreement, the consideration, contractual capacity, and a legal object,” (p. 304). The agreement consists of an offer from one party and an acceptance from another. The agreement was to exchange the single-family home for $250,000. The scenario is unclear as to whether Danny or Paul made the initial offer. Either Danny offered to sell the home for $250,000 or Paul offered to buy the home for $250,000. The consideration is the bargained for exchange. The consideration in this scenario is Danny receiving the $250,000 and the Petersons receiving the house. Each party has contractual capacity as far as is stated in the scenario. Neither party was incapacitated, inebriated, or unable to make decisions due to mental or age restrictions. The legal object in the scenario is the house in exchange for the money. It is legal to sell a house for money so each of the elements of a contract is present even if a written contract was not present. This scenario may be considered a simple contract because it did not fulfill the requirements of the formal contract. Breach, Defenses, and Remedies
Priscilla convinced Paul to sue Danny for breach of contract. The upgraded bathroom and landscaping were compromised because of the soil subsidence in the front yard. The landscaping cost $15,000 and the bathroom upgrades cost $50,000. Danny claims he had no knowledge of the soil subsidence issue. Priscilla and Paul will not be able to prove all elements of their breach of contract claim because the soil subsidence issue was not an issue in the original agreement. If Paul and Priscilla were going to make changes to the property it is their responsibility to make sure the property is in proper condition to accommodate those changes. The bathroom additions and landscaping were not part of the original agreement and Danny cannot be held reasonably liable for not predicting what changes the Petersons would make to the property. Danny may use lack of proper form as a defense against breach of contract. The objective theory of contracts “means we base the existence of a contract on the parties’ outward manifestations of intent and we base its interpretation on how a reasonable person would interpret it,” (Kubasek et al., 2012, p. 306). A reasonable person may assume that the buyer of the house was planning on living in it and possibly making alterations to the house. It is not reasonable to assume that immediate upgrades will be made or that expansion of the home will be done if the buyer does not state this intent or state issues with the current condition of the home.
Danny did not partake in landscaping and is not an expert or professional in the field so it would not be reasonable to assume he was aware of the soil issues. Remedies Paul and Priscilla may have include compensatory damages, nominal damages, punitive damages, liquidated damages, rescission and restitution, specific performance, or injunction. Some form of damages or rescission and restitution seem the most appropriate in this case. If it is decided that Danny was not in breach of contract legally but should have either known or notified the Petersons of the soil issue punitive damages are appropriate. If it is decided that Danny should pay for the loss due to the soil issue he many have to pay more than $65,000 in compensatory damages. If the Petersons decide to try for rescission and restitution Danny would be responsible for reimbursing them for the amount paid on the house as well as the amount paid toward the bathroom and landscaping, but he would get the house back. Statute of Frauds and New Contract Creation
The statute of frauds is helpful to businesses because its requirements clear ambiguity in contract agreements. According to Kubasek (2012) “Because the statute requires a writing as evidence of the contract, a claim to an oral contract for the sale of land is not enough to prove such a contract existed,” (p. 408). The contract between the Petersons and Danny was not written and did not contain the elements required to satisfy the statute of frauds. For the contract to be in compliance a written contract would be required because the total price was over $500. According to Kubasek (2012) “Agreements for a sale in which the total price is $500 or more are required by the UCC, Section 2-201, to be recorded in a written contract or a memorandum,” (p. 409). Alternative Dispute Resolution
This situation is not appropriate for trial because the court costs and time would not be worth the outcome. Alternative dispute resolution is most appropriate for this situation because a written contract was not present, the parties were friends before the contract, and a mediator may be able to help both parties find a reasonable solution without jeopardizing the relationship. The lack of a written contract makes it difficult to sue on the basis of details. Some sales are made on “As-Is” basis. Meaning both buyer and seller agree that the item will be sold for the price agreed upon even if the item has flaws. If this issue goes to court it will cost both parties more money, possibly more money than the property is worth, and will cause more ill will than if the issue can be mediated through alternative dispute resolution. Contract Administration Principles
The principles of contract administration applied in the scenario include: offer, acceptance, and contractual capacity. The parties participated in a vague form of contract administration that was not satisfactory to either side when an issue arose. Neither party made a counteroffer or verified details of the agreement beyond the price and the property. Condition and details of the property were not included and liability for issues was not stated. The aspects of contract administration that could have been handled more effectively include; the offer, a counteroffer, acceptance, details surrounding legal object, and execution. The object is for more than $500 so a written contract or memorandum is needed according to the UCC. An offer should have been made in writing with a counteroffer also presented in writing until the agreement was satisfactory to both sides. Additions to the initial offer could also have been made in the counteroffers inquiring about the condition of the surrounding property and liability for future issues that arise. Recommendations and Conclusion
Parties entering into contracts for the purchase of real estate can use the counteroffer option to negotiate and determine details of a contract before the contract is signed. Acceptance should not occur until both parties have questions answered and are satisfied. If an agreement is constructed by friends or individuals with a relationship outside the agreement a mediator or advisor is recommended. If neither party is experienced in the contract area lawyers or representatives can help focus on the best interests of the parties, the legal aspects of the agreement, and the possible future issues. Relationships are subjective and contracts need to be as objective as possible to protect the interests of all parties involved. Also, variations in contract law a property law from state to state make consultation with a professional the safest route for real estate contracts.
Kubasek, N., Browne, M., & Herron, D., Giampetro-Meyer, A., Barkacs, L., Dhooge, L., Williamson, C. (2012).Dynamic Business Law (2nd ed.). New York, NY: McGraw-Hill Company.