Some Real Estate “Contracts” Are Mere “Agreements to Agree”
Did you know that not all “agreements,” even if detailed, rise to the level of a legally enforceable contract?
Contracts Must Specify All Material Terms
In order to be enforceable, an agreement must be supported by a “meeting of the minds” on all material terms. Where key terms are not specified, Courts typically refuse to find that a contract exists. In the absence of a valid contract, no cause of action for enforcement exists.
In order to be enforceable, the parties must have agreed on the contract’s material terms. T.O. Stanley Boot Co., 847 S.W.2d at 221; Am.’s Favorite Chicken Co., 929 S.W.2d at 622.
“When an agreement leaves material matters open for future adjustment and agreement that never occur, it is not binding on the parties and merely constitutes an agreement to agree.” Martin v. Martin, 326 S.W.3d 741, 749 (Tex. App.—Texarkana 2010, pet. denied). Stated simply, where an essential term is left open for future negotiation (or when the court cannot determine the parties’ legal obligations and liabilities) the contract is not binding or enforceable. T.O. Stanley Boot Co., 847 S.W.2d at 221; Am.’s Favorite Chicken Co., 929 S.W.2d at 622.
Essential Terms for Real Estate Contracts
In the real estate context there are many “key” terms for contract formation. Among the important components of a contract for the purchase or exchange real estate are:
- purchase price
- sufficient description of the property
- closing date
- identification of the buyer and seller.
Failure to specify at least the terms identified above will make enforcing a real estate contract very challenging. Other terms, contingencies, and special provisions can form key components that could also be considered “material.”
I recently handled a case in which the Seller and Buyer had negotiated an owner-finance arrangement for the purchase of a commercial property. When the Seller later refused to sell, the Buyer came to me for help.
Unfortunately, the contract they had negotiated failed to specify the payment terms or interest rate. The absence of these terms required me to inform the Buyer that the Seller’s agreement to owner-finance, even though written and signed, might not be enforced by a Court. Fortunately, we were able to settle that case without having to litigate the issue of materiality of the missing terms. That was a relief since I was pretty confident that I was dealing with a mere “agreement to agree” as identified by Texas courts.
In another case I took to trial in Bexar County, I defended the seller of a convenience store against a suit seeking to enforce a verbal contract for the payment of a debt. In that case we asserted the defense of inadequate contract terms. Our defense was based upon the absence of a written promissory note, and nothing but emails to evidence the alleged agreement.
Failure of a contract to identify the property being bought and sold has also been litigated.
These are just a few examples of the legal “grey area” associated with vague or incomplete contracts. Parties seeking to enter a valid, binding and enforceable contract should seek the assistance of an experienced real estate attorney.