Download Three Common Topics

Three Common Topics when
Using the TAR Commercial
Forms?
May 23, 2013
Issues to Discuss
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As-Is Clauses
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Avoiding Illusory Contracts
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Avoiding Allegation that Email or Text
Constitutes a Signature
As-Is Clauses
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Intent of an As-Is Clause is to bring finality
with respect to physical condition
Feasibility period allows buyer time to inspect,
study, and make final decisions
Repairs and concessions can be negotiated
As-Is Clause becomes more critical after
feasibility expires
TREC & TAR Forms
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Courts have consistently held the
language in the TREC and TAR
forms is equivalent to an As-Is
provision
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Buyer accepts the Property in its
present condition
Why not stop the discussion here?
Lawyer may want
“beefed-up” As-Is Clause
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The seller’s attorney is usually trying to close
the doors on all potential litigation. Wants to
close door on allegation that the seller:
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Omitted a material disclosure
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Made any type of misrepresentation
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Made any type of warranty (eliminate implied
warranties)
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That any oral agreements or understandings exist
outside the contract
Buyer’s Attorney
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Usually the buyer’s attorney is seeking to
preserve any rights the buyer may have for an
unforeseen or latent defects
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Whether known by seller or not
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Especially with regard to concealment and
misrepresentations
Negotiating As-Is Clauses
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The negotiating of as-is clauses beyond what
is contained in the forms, outside the
direction of one of the party’s legal counsel,
moves the broker into the unauthorized
practice of law.
22 TAC 537.11 - A licensee may not practice
law or give legal advice. Licensee may use
only the standard forms, fill in blanks, and
Landmark As-Is Case
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Prudential v. Jefferson (1995)
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AS-IS clause is enforceable if:
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Seller disclosed all known defects and did not
make misrepresentations of known facts
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Seller did not obstruct buyer’s right to inspect
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As-Is clause must be material to the bargain
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Parties must be in equal bargaining positions
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Disclaimer of reliance clauses must be clear and
unequivocal
Prudential cont.
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In a nutshell, Prudential provides that absent
fraud in the inducement an as-is clause can
waive claims based on the property’s
condition.
Also means that the implied warranty of
suitability can be waived.
TAR & TREC Forms
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The TAR forms and TREC forms seem to follow
the policy articulated by the Supreme Court in
Prudential.
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Sell “as-is”, but the Seller should disclose all
known defects
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Paragraph 19 of TAR Commercial Forms &
Paragraph 7 of TREC Forms
Standard forms have obligation to strike a fair
balance.
As-Is focuses on the Physical
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As-Is clauses are normally enforceable with
respect to the physical condition of the
property.
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A property defect is something that is physical,
mars the appearance of functionality of
something in the property
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Materiality is required for any action
Non-Physical Issues can Arise
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Courts have reviewed seller’s and
broker’s obligations to disclose other
issues
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Zoning
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Economic conditions or potential
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Non-physically impacting off-site
conditions
Usually no duty exists unless
Brokers’ Goals
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Let parties and attorneys
negotiate as-is clauses beyond
the standard forms (avoid
unauthorized practice of law)
Watch statements in
brochures, flyers, listing
services, emails, etc. (even
puffing)
Do what you say you will do
Broker’s Goals cont.
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Give buyer ample time to inspect. Encourage
inspection.
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Keep records of all disclosures and statements
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Encourage use of legal counsel
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Use final walk-throughs and acceptance forms
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Do not be silent about physical issues
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Do not have any agreements (even
immaterial) outside contract – use
Avoiding Illusory Contracts
“Contract” Defined
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A contract is a promise or set of promises
between two or more parties that:
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is enforceable in a court of law
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law gives a remedy for a breach
the performance under which the law recognizes as a
duty
Enforceability requires consideration
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Other conditions for enforceability may be
required (e.g., statute of frauds in real estate)
Illusory Contract
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An contract is illusory if it fails to bind a party
Illusory promise of performance invalidates a
bilateral contract
Invalid illusory contract in effect allows either
party to walk at will
Illusory Obligation of Performance
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An illusory obligation exists when
a party can walk the deal with no
penalty or no obligation to tender
consideration for walking.
Commonly known as “the
gentleman’s agreement,” “my
word is my bond,” “the
handshake deal.”
Common Illusory Contracts created
under the TAR or TREC Forms
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Paragraph 15 – attempting to strike all
remedies
More commonly occurs when Seller attempts
to strike all of buyer’s remedies except to
terminate and get a refund of earnest money
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This action creates an illusory contract
Paragraph 15 (cont.)
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TAR and TREC Forms have 3 basic remedies for
each party
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Terminate and receive earnest money
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Sue for damages
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Enforce specific performance
Striking all of buyer’s remedies except
termination and receiving earnest money
creates illusory contract
Option / Feasibility
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Lack of consideration for the unilateral and
unrestricted right to terminate creates an
illusory contract
Allows buyer to end contract (breach) with no
penalty or consideration
Suggestion is that consideration should be
more than nominal
Special Provisions
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Poorly drafted clauses that give unilateral
rights to terminate can create illusory
contracts
A contingency tied to a event-certain or
review-certain is not a unilateral right to
terminate and usually does not create an
illusory contract, but care needs to be
exercised
Brokers’ Statements in Email or
Text
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Recently, a few cases have popped up that
raised questions about whether an agent’s
(broker, lawyer, or other) statements in an
email bound the principal.
UETA
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Like all other states, Texas has adopted UETA
UETA provides that a record or signature
cannot be denied legal effect simply because
it is in electronic form.
UETA (cont.)
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UETA says that an electronic signature exists if
it is found “to be the act of the person to
whom it is attributed.”
UETA did not alter statute of frauds’
requirements
Question is whether the agent’s actions are
attributable to the principal
Authority of Agents
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Brokers are usually special
agents, whereas attorneys can
be, more commonly, general
agents
Seems wise for an agent to
express his authority to bind
or not bind.
To date, Texas courts have not
favored arguments that
Authority to Bind v Causing
Disputes
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Even though a broker may not
have authority to bind, the lack
of expressing that authority
may lead others to a different
conclusion and the parties into
a dispute
–
Could face disciplinary complaints
at TREC or TAR
Suggested Expressions
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Include statement that broker does
not have authority to bind the
principal or similar
“My client informs that he is inclined
to accept a proposed offer or
counter offer that would…the
acceptance of which requires my
client’s final approval and signature”
Historical Pitfalls to Avoid
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Avoid placing broker’s or
client’s initials on forms during
negotiations
Avoid striking forms without
initials or signatures.
If creating a “true” counteroffer or offer, have principal
sign and initial appropriately
Avoid statements such as “my
Awareness of Details may help
avoid trouble