Damages
If one party refuses to complete the agreement, instead of suing for specific performance of the terms of the agreement, the other party can sue for damages. Damages mean the financial losses that have been incurred because the other party failed to complete the bargain. There is a basic legal maxim that says “to get financial damages (compensation), you have to prove you have suffered financial damages.” For example, if a vendor refused to complete the deal because he thought he could make $50,000 more on the clear who the parties are. Sometimes people who are flipping properties put their name and then after that “and/or assignee”, as they wish to assign out the agreement before any conditions are removed, or before the deal closes. This legal terminology is fraught with potential peril, in terms of enforceability if one side or the other wants to get out of the deal. Make sure you get advance advice from a lawyer who specializes in real estate law, to avoid legal hassles.
Voidable Contracts
If one of the parties has been induced into entering the contract on the basis of misrepresentation, whether innocent, negligent or fraudulent, that party may be entitled to void the contract. If the misrepresentation was innocent, generally only the contract can be cancelled and any money returned, and no damages can be recovered in court. If there is negligent or fraudulent misrepresentation, however, not only can the contract be cancelled, but damages can also be recovered in court. For example, if the vendor was going to provide vendor-back financing and relied on representations of the purchaser concerning his creditworthiness and ability to pay, and prior to completion of the transaction (by doing a credit check and/or other investigation) the vendor finds out that the purchaser is a terrible credit risk, then that could be deemed to be negligent or fraudulent misrepresentation. For that reason the contract could be cancelled. To give another example, if the purchaser finds out before completion that the representation of the vendor or the vendor’s agent is grossly untrue (e.g., that zoning has been approved for subdivision purposes, and investigation shows that no application has been made for subdivision purposes), then the purchaser could get out of the contract and sue to recover damages, if any can be proven.
These are just some illustrations of the types of factors that could impact on the validity or enforceability of the contract. You can see how competent legal advice in advance from a skilled real estate lawyer is necessary to minimize potential problems.
