Three Counter Offers, Two Addendums, One Unwritten Side Agreement and No Contract
May 27, 2016
David W. Degnan, Esq.
Degnan Law, PLLC
Real estate agents draft contracts every month. Many contracts are straight-forward and easy to follow. However, real estate agents often engage in intense negotiations in an effort to keep a deal alive. In such cases, agents are often left with a contract that has multiple counter offers, addendums, and even side agreements. In such cases, attorneys are often asked to determine if the parties created an enforceable contract.
When analyzing whether the parties reached a contract, an attorney will start with the three basic elements of a contract: (1) an offer, (2) an acceptance, and (3) consideration. See K-Line Builders, Inc. v. First Federal Sav. & Loan Ass’n, 677 P.2d 1317, 139 Ariz. 209 (Ariz. App., 1983).
First, an offer is “a manifestation of willingness to enter into a bargain, so made as to justify another person in understanding that his assent to that bargain is invited and will conclude it.” Id. Importantly, the offer must be reasonably specific so the other party knows what he or she is accepting. Id. For example, a seller may offer to sell an exclusive option to purchase a specific property for the next month for $100,000 and leave the offer open for three days.
Second, an acceptance is “a manifestation of assent to the terms thereof made by the offeree in a manner invited or required by the offer.” Id. In this case, the buyer is invited to accept the option in the next three days. The buyer may not accept the contract on the fourth day because such acceptance is not invited by the person making the offer.
Similarly, if an offer is not accepted in the same manner as originally offered, this is generally considered a rejection and a new offer –known as a counter offer. United California Bank v. Prudential Ins. Co. of America, 140 Ariz. 238, 241, 681 P.2d 390, 423 (Ariz. App., 1983). For example, if the buyer were to make a counter-offer for $80,000 for the option to purchase the property over the next two months, then this would be considered a rejection of the initial offer and the creation of a new offer that the seller can accept or reject or counter.
Third, consideration is “benefit to the promisor or a loss or detriment to the promisee, and there is no consideration for a promise where no benefit is conferred on the promisor or a detriment suffered by the promise.” K-Line Builders, 677 P.2d at 1321. In the above example, both parties are receiving some benefit (or detriment) from this transaction; this is consideration. One party is receiving an option to purchase the property, and the other party is receiving money in exchange for that privilege.
Addendums are modifications to a contract. A modification requires a new (1) offer to modify the existing contract, (2) acceptance and (3) consideration. Demasse v. ITT Corp., 984 P.2d 1138, 1144 194 Ariz. 501 (Ariz., 1999). As such, addendums or modifications to an executed agreement should be accompanied with some new benefit to both parties. This is often an overlooked element of contract drafting, leaving the parties with significant uncertainty when one party moves to enforce the contract.
When analyzing whether a contract exists, an attorney will look at each offer, acceptance, counter, addendum, and consideration to determine if the parties reached an agreement. Agents must do the same.
The above is meant as a high-level overview of contract law. Certainly, contract law is full of exceptions and technicalities that must be considered and analyzed. If you have a contract dispute and are unsure if the parties did in fact reach an agreement, then do contact real estate counsel.
David Degnan is a real estate attorney and the owner of Degnan Law, PLLC. Degnan Law handles contract and real estate disputes. If you have any questions about your contract or your dispute, contact David at email@example.com or 602-266-0531.