ESSENTIAL ELEMENTS A OF CONTRACT

ESSENTIAL ELEMENTS A OF CONTRACT

Under the California Civil Code the existence of a contract requires:

1. Parties capable of contracting;

2. Mutual consent;

3. Lawful object; and

4. Sufficient consideration.

It may be helpful to add a fifth requirement which is present only in certain contracts: a proper writing.

Parties Capable of Contracting

For a valid contract, there must be two or more parties who have at least limited legal capacity. Generally
everyone is fully capable of contracting, except persons who are subject to certain limitations [unemancipated
minors, persons of unsound mind, aliens, and persons deprived of civil rights (e.g., convicts)].

Minors. A minor is a person under the age of 18 years. Under the Emancipation of Minors Law, a minor is
either unemancipated or emancipated (set free from parental control/supervision).

An unemancipated minor (hereafter “minor”) cannot give a delegation of power, make a contract relating to real
property or any interest therein, or make a contract relating to any personal property not in the minor’s
immediate possession or control. With certain statutory exceptions, a minor may disaffirm any contracts entered
into during minority or for a reasonable time after reaching majority. In case of a minor’s death within that
period, the minor’s heirs or personal representatives may disaffirm any contract into which the minor entered.

A minor is deemed incapable of appointing an agent; therefore, a delegation of authority (e.g., a power of
attorney) is void. A real estate broker can not serve as agent of a minor to buy or sell. A broker can represent an
informed adult in dealing with a minor, but the client assumes the risk of having the contract voided. However,
one may negotiate in real property with or for a minor only through a court-appointed guardian. For the minor’s
protection, the guardian needs court approval to carry out such negotiations.

Emancipation of Minors Law. Under this law (Family Code Sections 7000, et seq.), emancipated minors have
certain powers to deal with real property and are considered as being over the age of majority for certain
purposes, including the following: entering into a binding contract to buy, sell, lease, encumber, exchange, or
transfer any interest in real or personal property; conveying or releasing interests in property.

An emancipated minor is a person under 18 years of age who has entered into a valid marriage (even though
terminated by dissolution), is on active duty with any of the armed forces of the United States of America, or
has received a declaration of emancipation by petitioning the superior court of the county where he or she
resides.

Brokers dealing with minors must proceed cautiously and should seek the advice of their attorney.

Incompetents. California law provides that after the incapacity of a person of unsound mind has been judicially
determined, no contract can be made with such person until restoration to capacity. Similarly, a person who is
entirely without understanding but has not been judicially declared incompetent has no power to contract.

When dealing with incompetents concerning real property, proper procedure requires an appointment of a
guardian and court approval of the guardian’s acts.

Note: Both minors or incompetents, however, may acquire title to real property by gift or by inheritance. They
may convey, mortgage, lease or acquire real property pursuant to a superior court order obtained through
appropriate guardianship or conservatorship proceedings.

Aliens. In California, resident or nonresident aliens have essentially the same property rights as citizens. Section
671 of the Civil Code provides that “any person, whether citizen or alien, may take, hold, and dispose of
property, real or personal, within this state.” Federal law, however, provides certain restrictions on the property
rights of aliens.

Convicts. Persons sentenced to imprisonment in state prisons are deprived of such of their civil rights as may be

necessary for the security of the institution in which they are confined and for the reasonable protection of the
public.

Convicts do not forfeit their property. They may acquire property by gift, inheritance or by will, under certain
conditions, and they may convey their property or acquire property through conveyance.

Individual proprietors. The bulk of the nation’s business is conducted by individual proprietors, ordinary
partnerships, corporations, and, more recently, by limited partnerships and limited liability companies. The
first category does not present any special problems. The owner who is a sole proprietor takes title in his or her
own name, or, if married, the spouse may join as a grantee.

Partnership. In a partnership, two or more persons carry on a business as co-owners. The partnership may exist
if such intention can be proven whether or not the partners have reduced their agreement to a formal writing.
The more important characteristics of a partnership are the following: its lack of separate capacity to deal
independently from its members (with certain exceptions hereafter noted); customary equal participation of
members in management; co-ownership of partnership assets; individual interest of each partner in profits and
surplus; and the mutual agency relationship between partners making each the agent of the others insofar as
partnership business is concerned.

Partnership property consists of the originally invested and subsequent partnership acquisitions. Usually, the
best practice in investing in property usually is to take title in the name of the partnership itself. However, title
may also be taken in the individual name of one or more partners, or in the name of a third party as trustee for
the partnership. Although any authorized partner may then dispose of the property, it is customary for all
partners to execute the instrument of transfer.

If property is acquired in the partnership name, it should not be transferred until a “GP-1 form” is filed with the
Secretary of State and then recorded in the recorder’s office showing the names of the partnership and its
members.

The Uniform Partnership Act of 1994 became effective January 1, 1997. All partnerships formed prior to
January 1, 1997 were governed by the old Uniform Partnership Act (Corporations Code Section 15001, et seq.)
until January 1, 1999. On that date, the old Uniform Partnership Act was repealed and all partnerships were
governed by the Uniform Partnership Act of 1994 (Corporations Code Section 16100, et seq.).

Of course, if title to real property is in an individual’s name, both the individual and his or her spouse should
sign the instrument of transfer.

In order to enjoy some of the benefits of incorporation while retaining the partnership form, a possibility is to
create a limited partnership. This can only be achieved by filing a formal certificate. Limited partners may not
allow their names to be used in the business and may not participate in the control of the business. If all legal
requirements are met, the limited partners are not responsible for partnership debts beyond their investment. But
at least one partner must be a general partner with unlimited liability.

Limited liability companies. The Beverly-Killea Limited Liability Company Act (California Corporations
Code Sections 17000–17705) allows the formation of limited liability companies. It became effective, in
September of 1994.

To form a limited liability company, two or more persons must enter into an operating agreement and must
execute and file articles of organization with the California Secretary of State.

The end of the name of a limited liability company must contain, either the words “limited liability company”
or the abbreviation “LLC”. The words “limited” and “company” may be abbreviated to “Ltd.” and “Co.,”
respectively.

Subject to limitations contained in the articles of organization and compliance with other applicable laws, a
limited liability company may engage in any lawful business activity, except the banking, insurance, or trust
company business. (Corporations Code Section 17002)

Corporations Code Section 17101 sets forth the liability of members of a limited liability company. In part, the
liability parallels that of shareholders in a corporation, while the company is treated as a partnership for tax
purposes.

Corporations. The more important characteristics of a corporation are the following: separate capacity to deal
with property independently from its members; centralized control in a board of directors; liability of
shareholders normally limited to the amount of their investment; freely transferable shares; and continued
existence regardless of death or retirement of its shareholders.

Although a corporation may take title to property in its own name, it is an “artificial person” created by law, and
must function through human agents. Accordingly, corporate control is vested in the board of directors and so it
becomes important to have some evidence of the board’s decision in connection with the proposed property
transaction. The decisions of the board are usually in the form of resolutions authorizing certain officers to deal
with the corporate property. It should be noted that since a corporation has perpetual existence, it is not
permitted to take title to property in joint tenancy with right of survivorship.

Note: Some corporations are organized on a nonprofit basis. Members of such a nonprofit corporation are not
personally liable for the debts or obligations of the corporation, and in many respects such an organization is
similar in operation to a regular corporation. A board of directors controls its property and conducts its affairs.
The corporation may enter into contracts as well as acquire and dispose of real or personal property in its own
name.

Nonprofit associations. Sometimes transactions in real property will involve nonprofit associations: loosely
knit, unincorporated associations of natural persons for religious, scientific, social, educational, recreational,
benevolent or other purposes. Members of such associations are not personally liable for debts incurred in
acquisition or leasing of real property used by the association, unless they specifically assume such liability in
writing. These nonprofit organizations may, by statute, hold such property in the group name as is necessary for
business objects and purposes. Also, they may hold nonessential property for 10 years.

When an unincorporated association proposes to dispose of property, the conveyance should, in the case of
benevolent or fraternal societies or associations, be executed by its presiding officer and recording secretary
under seal after resolution is duly adopted by its governing body. In the case of other incorporated associations
for which no other provision is made by statute, conveyances may be executed by the president or other head,
and secretary, or by other specific officers so authorized by resolution. Such an association may record a
statement setting forth its names and the persons authorized to execute conveyances. California Corporations
Code Sections 20003 through 24007 govern unincorporated associations organized under California law.

Personal representative. A final category of parties to contracts, and one of considerable importance, is that of
personal representatives of decedents. A person who leaves a will may name an executor or executrix to carry
out its provisions. If a person dies intestate or fails to name an executor, the probate court will appoint an
administrator to administer the estate. The acts of these officials are generally subject to court supervision. Real
estate agents usually come in contact with executors and administrators when the latter are interested in selling
a parcel of real estate belonging to the estate.

Mutual Consent

The second element of a valid contract is that the parties who have capacity to contract shall properly and
mutually consent or assent to be bound. This mutual consent is normally evidenced by an offer of one party and
acceptance by the other party. An offer expresses the offeror’s willingness to enter into the contract. It must be
communicated to the offeree. The offer must also manifest a contractual intention. There need not be a true
“meeting of the minds” of the parties, for they are bound only by their apparent intentions that are outwardly
manifested by words or acts. Courts cannot read minds, and secret or unexpressed intentions, hopes and
motivations are immaterial. However, the assent must be genuine and free, and if it is clouded or negated by
such influences as fraud or mistake, the contract may be voidable at the option of one or both parties, depending
on the circumstances.

When negotiating a contract, some of the terms might be left open for future determination, or there might be a
condition which must be met before the parties become obligated (this may be called a “condition precedent”).
In either of these situations, it is usually held that only preliminary negotiations have taken place, mutual
consent has not been reached and a binding contract has not come into existence. In such cases even the courts
cannot guess what the parties will mutually agree upon.

Definite contract terms. Finally, the offer must be definite and certain in its terms. The precise acts to be

performed must be clearly ascertainable. Courts cannot make contracts for the parties, nor fix terms and
conditions. The offer must be “nonillusory” in character, meaning it must actually bind the offeror upon
acceptance.

If the offeror can cancel or withdraw at pleasure, without reasonable notice, the offer is illusory. Another
example is an offer/promise completely within the offeror’s control to perform or not to perform, such as an
offer to buy a property “contingent upon obtaining a $100,000 loan.” Without more conditions and specificity,
the offeror might not even apply for a loan. To avoid illusion, clauses in the contract should carefully specify
the details of the condition and should contain promises by both parties to provide some semblance of
mutuality. A clause in a deposit receipt conditioning the offer upon the obtaining of a loan by the offeror should
include the amount of the loan the buyer desires; interest rate; monthly installments; how secured; type (i.e.,
FHA, VA or conventional); an agreement by the buyer to use best efforts to procure such a loan; and an
agreement by the seller to cooperate in such efforts.

On many occasions, California courts have refused to enforce contracts because of uncertainty. In one case, a
broker provided in a deposit receipt that there was to be a first deed of trust in a fixed amount to a bank, and a
second to the seller for the balance. Interest in each case was fixed. The contract stated “total monthly payments
including interest, to be $95.” The court denied specific performance because the deposit receipt was silent as to
what portion of the $95 was to be paid to the bank and what portion to the seller.

Another agreement was drawn which was certain in all particulars except that it provided that the balance of the
purchase price was to be evidenced by a first and second mortgage. The agreement was silent as to the amount
of each mortgage and the uncertainty was critical because the parties disagreed as to the amounts of each
mortgage. The court refused to enforce the agreement.

Another contract was found to be too uncertain because it was silent as to the rate of interest on the deferred
balance and as to the date of maturity of the indebtedness.

Uncertainty and insufficiency were found in a form which was used containing a provision that an “extension of
time for 30 days may be granted by (blank)”. Since either party could extend, the court held that no one was in
fact authorized.

Provisions in a contract that state the property is to be improved with streets, water system, other utilities, and
paved boulevards are too indefinite for enforcement. The court will not determine where the streets are to run,
how many there are to be, or the area to be covered or how they are to be constructed.

Description of property. The problem of certainty and definiteness may be acute in connection with land
identification. A broker may not have the deed by which the owner acquired property, or the title report or
policy connected with it. The contract must, however, contain such a description, or at least include a unique
aspect of the property agreed to be sold so that it can be exactly ascertained. Where the broker has a former title
policy or a preliminary report, he should refer to the description by the title company’s name and policy
number. From such a mention or reference, it can be ascertained what property is meant. Oral evidence may be
used in court for the purpose of identifying the description, but not for the purpose of ascertaining and locating a
missing description or one that is too uncertain to be identified.

For example, it is very common to describe property by the street and house number, i.e.,: No. 19, 10th Street,
city, county and state. Usually, this is sufficient. However, if the seller has a large property with more than one
building on it, or an adjoining lot, this description would be insufficient. “My house and lot on 10th Street,
between A and B Streets” would be sufficient provided the owner did not have any other house and lot on that
block. “My land consisting of 96 acres located about four miles northeast from Porterville, California” was held
sufficient to enable the court to determine what land was meant, because that was all that the seller had in that
vicinity.

Termination of offer. The hope of the offeror is that the other party will accept and a contract will be formed.
But the offeror does not want to wait indefinitely, and need not. There are five ways to terminate an offer:

1. Lapse of Time. The offer is revoked if the offeree fails to accept it within a time period prescribed in the
offer. If the offer does not include a deadline for acceptance, the lapse of a reasonable time without
communication of acceptance may cause the offer to be considered to have been revoked. What is a
reasonable time is a question of fact dependent upon the circumstances.

2. Communication of Notice of Revocation. This can be done anytime before the other party has
communicated acceptance. It is effective even if the offeror said the offer would be kept open for a stated
period of time which has not yet elapsed. If the offeree pays to keep the offer open for a prescribed period
of time, an option is created, and the offeror must abide by its terms.

Sometimes an offer is made to sell property and the person to whom the offer is made later acquires reliable
information that the property has been sold to another party. This, too, constitutes a revocation.

3. Failure of offeree to fulfill a condition prescribed by the offeror or to accept in a prescribed manner. If the
offeree makes a qualified acceptance (as by changing the price), in effect a counteroffer is made and the
original offer is cancelled. It cannot later be accepted, unless revived by the offeror repeating it. Thus the
roles of the parties are exchanged, and the counteroffer itself may then be terminated like an original offer.
It should be noted here that this discussion of offer and acceptance, and the rest of the discussion as to
formation of contracts, may not apply to contracts between merchants for the sale of goods. These are
governed by the California Uniform Commercial Code.

4. Rejection by the offeree. An unequivocal rejection ends the offer, but simple discussion and preliminary
bargaining do not do so when they involve no more than inquiries or suggestions for different terms.

5. Death or insanity of the offeror or offeree revokes the offer.

Acceptance. Acceptance is the proper assent by the offeree to the terms of the offer.

The person to whom the offer is made must have knowledge of it before he or she can accept. Acceptance by
anyone other than the offeree is not possible. Most contracts are bilateral, but interesting problems arise in
connection with the less common unilateral contract, which is when the offeror asks for action, not a promise.
Normally, when the requested act is performed, the offer is automatically accepted. But if the offeree does not
intend an act to be an acceptance, or if there is no knowledge of the offer, there can be no acceptance and no
contract. This situation may occur when one returns a lost dog without seeing the ads offering a reward for its
return.

Acceptance must be absolute and unqualified, because if it modifies the terms of the offer in any material way,
it becomes a counteroffer. As already noted, this terminates the original offer. Indeed, if the acceptance is too
late or otherwise defective, the person making the offer cannot waive the delay or defect and treat the
relationship as a binding contract.

Acceptance must be expressed or communicated, though it may be sufficient without actually being received by
the person making the offer. Generally, silence is not regarded as an acceptance of an offer, because the party
making the offer cannot force the party to whom an offer is made to make an express rejection. Silence may
constitute an acceptance when the circumstances or previous course of dealing with a party places the party
receiving the offer under a duty to act or be bound. Acceptance may be made by implication to the
consideration tendered with an offer.

Acceptance of an offer must be in the manner specified in the offer, but if no particular manner of acceptance is
not specified, then acceptance may be by any reasonable and usual mode.

A contract is made when the acceptance is mailed or put in the course of transmission by a prescribed or
reasonable mode (e.g., by deposit of a telegram for transmission). This is so even though the letter of acceptance
is lost and never reaches the party making the offer, because the acceptance has been placed in the course of
transmission by the offeree.

Genuine assent. The final requirement for mutual consent is that the offer and acceptance be genuine. The
principal obstacles to such genuine or real assent are fraud, mistake, menace, duress or undue influence. If any
one of these obstacles is present, the contract may be voidable and a party to the alleged contract may seek
rescission (restoring both parties to their former positions), dollar damages or possibly reformation of the
contract to make it correct.

Fraud. Fraud may be either actual or constructive in nature. Normally, fraud exists when a person
misrepresents a material fact while knowing it’s not true, or does so with careless indifference as to its veracity.
A person must misrepresent with the intent to induce the other person to enter the contract, and the other must

rely thereon in entering the contract. “Material fact” is defined as an important fact which significantly affects
the party’s decision to enter into the contract.

Civil Code Section 1572 lists the following five acts which would be deemed actual fraud when done by a party
to a contract or with his or her connivance with intent to induce another to enter into the contract, or even
simply to deceive the other party:

1. The suggestion, as a fact, of that which is not true, by one who does not believe it to be true;

2. The positive assertion, in a manner not warranted by the information of the person making it, of that which
is not true, though the person believes it to be true;

3. The suppression of that which is true, by one having knowledge or belief of the fact;

4. A promise made without any intention of performing it; or,

5. Any other act intended to deceive.

Ordinarily, misrepresentation of law does not amount to actionable fraud, because everyone is presumed to
know the law. Nevertheless, this may be actionable fraud where one party uses superior knowledge to gain an
unconscionable advantage, or where the parties occupy some sort of confidential relationship, even though the
guilty party is not a strict fiduciary.

Constructive fraud. Constructive fraud as defined in the Civil Code may first consist of first, any breach of
duty which, without an actual fraudulent intent, gains an advantage for the person in fault or anyone claiming
under that person by misleading another to the other’s prejudice or to the prejudice of anyone claiming under
the other person.

Second, it may consist of any such act or omission as the law specifically declares to be fraudulent without
respect to actual fraud. The element of reliance is essential, and where it is shown that no commitments were
made until independent investigation by others, there can be no action claiming fraud. Negligent
misrepresentation has also been held to be a species of fraud.

A distinction should be made between fraud in the inception or execution, and fraud in the inducement of a
contract. For example, if the promisor knows what he or she is signing and the consent is induced by fraud, the
contract is voidable by the promisor; but if the fraud goes to the inception or execution of the agreement so that
the promisor is deceived as to the nature of his or her act and actually does not know what is being signed, and
does not intend to enter into a contract at all, it is void. A voidable contract is binding until rescinded.
Conversely, a void contract needs no formal act for rescission.

If one signs a contract without reading it and therefore fails, through carelessness or negligence, to familiarize
oneself with the contents of a written contract prior to its execution, relief is denied. The court may reform or
cancel the contract, where such failure or negligence to sign the instrument without reading it, is induced by
false representation and fraud made by the other party in order to make provisions that are different than those
set out in the instrument.

A party to a contract who is guilty of fraud in its inducement is not relieved of the effects of the fraud by any
stipulation in the contract that states either that no representations have been made or that any right which might
be grounded upon them is waived. Such a stipulation or waiver will be ignored, because the fraud renders the
whole agreement voidable, including the waiver provisions.

False representations. Where false representations are made by an agent and the contract contains a recital
limiting the agent’s authority to make representations, the innocent principal may, by certain stipulations, be
relieved of liability in a court action for damages for fraud and deceit. The defrauded third party may
nevertheless rescind the contract. The guilty agent may, of course, be liable in damages for the wrongful act.

Mistakes. Another possible obstacle to genuineness of assent is mistake. Where both parties are mistaken as to
the identity of the subject matter of the contract, there can be no contract. Where the subject matter of the
agreement has, unknown to the parties, already ceased to exist, so that performance of the contract would be
impossible, there is no contract.

Mutual agreement as to the subject matter is the basis of a contract. If the parties to an agreement consent
thereto, a contract results. However, the contract may be voidable if there is a substantial mistake as to some
basic or material fact which induced the complaining party to enter into the contract. Negligence of the injured
party does not in itself preclude release from mistakes, unless the negligence is gross, such as where the party
simply fails to read the agreement. One who accepts or signs an instrument, which is on its face a contract, is
deemed to assent to all of its terms and cannot escape liability on the ground of not having read it. This is true
only in the absence of influences such as fraud, undue influence, or duress.

Mistakes are classified in the Civil Code as mistakes of fact or of law. A mistake of fact is one consisting of
ignorance or forgetfulness of a fact material to the contract, but which is not caused by the neglect of a legal
duty on the part of the person making it. Or it may consist of a mistaken belief in the existence of a thing
material to the contract, or a belief in the past existence of such a thing, which has not existed. A mistake of law,
on the other hand, is described as one which arises from a misunderstanding of the law by all parties involved,
all making substantially the same mistake while thinking they knew and understood the law.

A mistake may also be a misunderstanding of law by one party, which the other party is aware of but does not
rectify.

Duress, menace, undue influence. Sometimes a contract may be rendered voidable because it was entered into
under the pressure of duress, menace, or undue influence. All three, in effect, deprive the victim of the exercise
of free will, and so the law permits such person to void the contract, as well as other remedies under the law.

Duress involves coercion or confinement. While duress is technically the unlawful confinement of persons or
property, modern case law has expanded duress to include unlawfully depriving a person of the exercise of free
will. Economic compulsion or duress may result in a finding that a contract provision is unconscionable.

Menace consists of a threat to commit duress, including the threat of unlawful and violent injury to a person or
the person’s character.

Undue influence is unfair advantage taken by someone who has the confidence of another, or who holds a real
or apparent authority over another. It may involve taking an unfair advantage of another’s weakness of mind, or
taking a grossly oppressive and unfair advantage of another’s necessities or distress. Undue influence is most
frequently encountered in connection with contracts between persons in confidential relationships, where the
victim is justified in assuming the other party will not act contrary to the victim’s welfare. The relationships that
usually fall within this rule include trustee and beneficiary, broker and principal, attorney and client, guardian
and ward, parent and child, husband and wife, physician and patient, and employer and employee.

Lawful Object

Assuming now that parties are capable of contracting and have properly manifested their consent through an
offer and acceptance, the validity of their agreement might still be attacked on grounds of legality. The contract
must be legal in its formation and operation. Both its consideration and its object must be lawful. The object
refers to what the contract requires the parties to do or not to do. Where the contract has but a single object, and
that object is unlawful in whole or in part, or performance is impossible, the contract is void. If there are several
distinct objects, the contract is normally valid as to those objects which are lawful. An object is unlawful when
it is contrary to an express provision of the law, or contrary to the policy of express law.

In general, the law will not lend its resources to either party involved in an illegal contract. Thus, if a contract is
executory and illegal, neither party may enforce it. If it is executed, neither party may rescind and recover
consideration. But sometimes the law which was violated was designed to protect one of the parties; or the
parties are not equally blameworthy; or when one party repents and calls the deal off before any part of the
illegal object has been realized. In such cases, the law will provide appropriate relief.

Common violations. The objects and consideration of a contract must be legal and cannot violate some specific
prohibition of the law. If such violation does occur, its effect upon the contract may depend upon the particular
statute involved. Two types of situations in the real estate field involving statutory violations are:

1. Contracts of unlicensed “brokers” or “general contractors.” These persons are not permitted to enforce their
contracts.

2. Forfeiture clauses in deposit receipts, contracts of sale and leases.

A contract clause which specifies a fixed amount of damages in the event of a breach is known as a liquidated
damages clause. Except as discussed below, a liquidated damages clause is presumed valid, unless the party
seeking to invalidate the provision proves that it was unreasonable under the circumstances existing at the time
the contract was made.

A liquidated damages clause is void if the liquidated damages are sought to be recovered from (l) a party to a
contract for the retail purchase or rental of personal property or services primarily for that party’s personal,
family, or household purposes; or (2) a party to a lease of real property for use as a dwelling by that party or his
or her dependents.

Special rules apply to liquidated damages provisions in contracts for the purchase of residential real property.
These rules are explained below in the Section entitled “REAL ESTATE CONTRACTS.”

Special rules apply to liquidated damages clauses in construction contracts with certain government entities,
making provisions for amounts to be paid for each day of delay in construction valid unless manifestly
unreasonable at the time the contract was made.)

3. Contracts by which one is restrained from engaging in business may be void, although a person selling
goodwill may promise the buyer not to compete within a reasonably limited area for a specific period of
time.

4. Persons may not generally avoid responsibility for their own fraud or negligence merely by so providing in
a contract.

5. A contract calling for the payment of interest in excess of the California Constitution’s current limits may
be usurious depending upon the identity of the lending entity and the purpose of the loan. If such a contract
is usurious, that portion of the contract relating to the payment of interest is void.

6. In addition to the foregoing, brokers must be careful to comply with the numerous regulatory measures
incorporated in the Real Estate Law. Specific violations may prevent enforcement of a listing contract. It
should be noted that violations of law not only affect the enforceability of the contract involved, but may
also subject the violator to criminal punishment.

Sufficient Consideration

Even if the agreement meets all the requirements of a valid contract already discussed, it may fail because of the
lack of sufficient consideration. In general, every executory contract requires consideration. The consideration
may be either a benefit conferred, or agreed to be conferred, upon the person making the promise, or any other
person, or a detriment suffered or agreed to be suffered. It may be an act of forbearance or a change in legal
relations. Consideration is the price bargained for and paid for a promise, and it may, of course, be a return
promise. If a valid consideration exists, the promise is binding even though some motive other than obtaining a
consideration induced the promisor to enter into the contract.

Ordinarily, the nature of the consideration is reflected in the written agreement of the parties. The consideration
must have some value. A purely moral obligation may under some circumstances be consideration. There is no
requirement of adequacy to make the contract enforceable. Thus, an option to purchase valuable property may
be given for consideration of one dollar or some other nominal sum. It is only in an action for specific
performance that the amount is important, and in this event the equitable remedy will be denied unless an
adequate consideration is proved. Also, gross inadequacy of consideration may be a circumstance which,
together with other facts, will tend to show fraud or undue influence.

In a unilateral contract, a promise of the offeror is consideration for an act or forbearance sought from the
offeree. In a bilateral contract, a promise of one party is consideration for the promise of another, and generally
any valid promise, whether absolute or conditional, is sufficient consideration for another promise.