Commercialking is correct, but should have provided an explanation. The three elements of a Contract are Offer, Acceptance, and Consideration. The earnest money is the Consideration. As such, while it is true money is not required, consideration is required for a legal contract. Love and Affection can be used for consideration too. Earnest money (consideration) can be any amount, i.e. $1, or $10, etc. This is why you might see contracts that have items sold for only $10.
err...my understanding is that the consideration portion of a purchase agreement pertaining to real estate is the actual money to be paid for the property. That is the "consideration" ( the real estate and the eventual monies to be paid). Earnest money in a real estate purchase agreement to my understanding is simply an amount of money the buyer puts up to show his willingness/ability/determination/interest in completing the transaction. If the buyer backs out without cause, he loses the earnest money. Basically a deposit.
In the standard TREC (TX Real Estate Commission) contract, there is language regarding consideration money, then separate language regarding option money. I've long understood that there must be money exchanged in order to make a contract legal, but didn't know if it matterd where it was applied.
If you do not know how to read the State Statues in the state you are signing in, I would recommend contacting an Attorney to give a clear definition of what contract will survive in your state.
Contracts are promises that the law will enforce. The law provides remedies if a promise is breached or recognizes the performance of a promise as a duty. Contracts arise when a duty does or may come into existence, because of a promise made by one of the parties. To be legally binding as a contract, a promise must be exchanged for adequate consideration.
Adequate consideration is a benefit or detriment which a party receives which reasonably and fairly induces them to make the promise/contract .
For example, promises that are purely gifts are not considered enforceable because the personal satisfaction the grantor of the promise may receive from the act of giving is normally not considered adequate consideration.
Certain promises that are not considered contracts may, in limited circumstances, be enforced if one party has relied to his detriment on the assurances of the other party.
Contracts are mainly governed by state statutory and common (judge-made) law and private law. Private law principally includes the terms of the agreement between the parties who are exchanging promises. This private law may override many of the rules otherwise established by state law.
Statutory law may require some contracts be put in writing and executed with particular formalities. Otherwise, the parties may enter into a binding agreement without signing a formal written document.
A contract may not be quite as simple as one may perceive it to be.
I agree fully with J.Locke..In Louisiana, a contract , whether private or not is survived only through consideration of the sale of real estate via MONEY.. I.E.--earnest money or deposit, in the eyes of the court.. shares of stock or a rolex will not work.
actually, that is very wrong. Consideration can be ANYTHING, as long as it has value. That is not a locally specific law. Consideration is anything of value. And there are two sides to consideration, the buyer must put up some consideration, and the seller must put up some consideration. Therefore, if "money" was the only consideration, no contract/agreement would ever be enforceable.
As you can tell from the replies you need to accomplish two things.
1. Meet the requirements to make the contract legally binding. Cash is not required.
2. Market practices. If you do not offer reasonable value to back your promises (earnest money that can be used as liquidated damages for a failure to perform) you will have trouble winning deals if there is another buyer with a better offer. Earnest money is a way to show you are serious and worth doing business with. As a seller you look at the contract and the earnest money that is supporting the offer and then compare it to other options on the table.
Yes, in order for a contract to be enforcable there must be offer, acceptance, and consideration. Earnest money is not consideration. This would be clear if only by virtue of the fact that most of the time the seller doesn't actually recieve the earnest money-- it is held by some third party.
The consideration in a real estate contract is the promise to pay at a later date, i.e. at the closing.
So, if the earnest money isn't consideration what is it? It is a sign of good faith. In effect it signifies that there has been an offer and acceptance, at least in principle.
As to whether the consideration has to be cash outside Louisiana, clearly not. Barter is always acceptable under english common law. Unfortunately Louisiana's legal system is not based on English common law so I have no opinion on this matter in Louisiana but I doubt that it is not valid to trade my rolex (if I had one) for your pickuptruck in Louisiana and that if I drive off with the title in my pocket and the rolex on your arm I find it very hard to believe that a court is going to unwind the deal and make you give me back the watch.
The standard legal catch phrase for consideration which is not in cash is "ten dollars and other good and valuable consideration" this allows the parties to claim that even the nominal cash consideration makes the contract binding even if there was something wrong with the bartered goods. However you will also see "in exchange for services rendered" and "for love and affection" on occasion and these are also binding consideration.
My error. I shouldn't have listen to my Broker. My contention was that the purchase amount is the "consideration". I found the following Earnest Money defintion helpful: http://www.abanet.org/publiced/practical/homepurchase_money.html
Therefore, the earnest money is only a deposit toward the full amount of consideration. It is also true that consideration does not have to be any amount of money for a contract to be legal. Sorry for the error.
No it is not essential.
Commercialking is correct, but should have provided an explanation. The three elements of a Contract are Offer, Acceptance, and Consideration. The earnest money is the Consideration. As such, while it is true money is not required, consideration is required for a legal contract. Love and Affection can be used for consideration too. Earnest money (consideration) can be any amount, i.e. $1, or $10, etc. This is why you might see contracts that have items sold for only $10.
err...my understanding is that the consideration portion of a purchase agreement pertaining to real estate is the actual money to be paid for the property. That is the "consideration" ( the real estate and the eventual monies to be paid). Earnest money in a real estate purchase agreement to my understanding is simply an amount of money the buyer puts up to show his willingness/ability/determination/interest in completing the transaction. If the buyer backs out without cause, he loses the earnest money. Basically a deposit.
In the standard TREC (TX Real Estate Commission) contract, there is language regarding consideration money, then separate language regarding option money. I've long understood that there must be money exchanged in order to make a contract legal, but didn't know if it matterd where it was applied.
If you do not know how to read the State Statues in the state you are signing in, I would recommend contacting an Attorney to give a clear definition of what contract will survive in your state.
Contracts are promises that the law will enforce. The law provides remedies if a promise is breached or recognizes the performance of a promise as a duty. Contracts arise when a duty does or may come into existence, because of a promise made by one of the parties. To be legally binding as a contract, a promise must be exchanged for adequate consideration.
Adequate consideration is a benefit or detriment which a party receives which reasonably and fairly induces them to make the promise/contract .
For example, promises that are purely gifts are not considered enforceable because the personal satisfaction the grantor of the promise may receive from the act of giving is normally not considered adequate consideration.
Certain promises that are not considered contracts may, in limited circumstances, be enforced if one party has relied to his detriment on the assurances of the other party.
Contracts are mainly governed by state statutory and common (judge-made) law and private law. Private law principally includes the terms of the agreement between the parties who are exchanging promises. This private law may override many of the rules otherwise established by state law.
Statutory law may require some contracts be put in writing and executed with particular formalities. Otherwise, the parties may enter into a binding agreement without signing a formal written document.
A contract may not be quite as simple as one may perceive it to be.
John $Cash$ Locke
I agree fully with J.Locke..In Louisiana, a contract , whether private or not is survived only through consideration of the sale of real estate via MONEY.. I.E.--earnest money or deposit, in the eyes of the court.. shares of stock or a rolex will not work.
regards-pat
actually, that is very wrong. Consideration can be ANYTHING, as long as it has value. That is not a locally specific law. Consideration is anything of value. And there are two sides to consideration, the buyer must put up some consideration, and the seller must put up some consideration. Therefore, if "money" was the only consideration, no contract/agreement would ever be enforceable.
As you can tell from the replies you need to accomplish two things.
1. Meet the requirements to make the contract legally binding. Cash is not required.
2. Market practices. If you do not offer reasonable value to back your promises (earnest money that can be used as liquidated damages for a failure to perform) you will have trouble winning deals if there is another buyer with a better offer. Earnest money is a way to show you are serious and worth doing business with. As a seller you look at the contract and the earnest money that is supporting the offer and then compare it to other options on the table.
John
[addsig]
Well my 2 cents worth.
Yes, in order for a contract to be enforcable there must be offer, acceptance, and consideration. Earnest money is not consideration. This would be clear if only by virtue of the fact that most of the time the seller doesn't actually recieve the earnest money-- it is held by some third party.
The consideration in a real estate contract is the promise to pay at a later date, i.e. at the closing.
So, if the earnest money isn't consideration what is it? It is a sign of good faith. In effect it signifies that there has been an offer and acceptance, at least in principle.
As to whether the consideration has to be cash outside Louisiana, clearly not. Barter is always acceptable under english common law. Unfortunately Louisiana's legal system is not based on English common law so I have no opinion on this matter in Louisiana but I doubt that it is not valid to trade my rolex (if I had one) for your pickuptruck in Louisiana and that if I drive off with the title in my pocket and the rolex on your arm I find it very hard to believe that a court is going to unwind the deal and make you give me back the watch.
The standard legal catch phrase for consideration which is not in cash is "ten dollars and other good and valuable consideration" this allows the parties to claim that even the nominal cash consideration makes the contract binding even if there was something wrong with the bartered goods. However you will also see "in exchange for services rendered" and "for love and affection" on occasion and these are also binding consideration.
My error. I shouldn't have listen to my Broker. My contention was that the purchase amount is the "consideration". I found the following Earnest Money defintion helpful: http://www.abanet.org/publiced/practical/homepurchase_money.html
Therefore, the earnest money is only a deposit toward the full amount of consideration. It is also true that consideration does not have to be any amount of money for a contract to be legal. Sorry for the error.