§10.7 - Elements of the Agreement

• Jurisdiction: Washington

§10.7 ELEMENTS OF THE AGREEMENT

The elements necessary to render a REPSA binding as to a seller and entitle a buyer to sue a seller for damages in the event of a breach are (1) consideration; (2) adequate description of the property; (3) specification of total purchase price; (4) specification of the method of payment of principal and interest; (5) provision for prorating taxes, insurance, and liens; (6) provision for payment of water and other utilities; (7) provisions for possession; (8) provisions for the deposit in escrow of the balance of the down payment by the purchaser; and (9) provisions for delivery of a deed by a seller. White & Bollard, Inc. v. Goodenow, 58 Wn.2d 180, 361 P.2d 571 (1961).

(1) General principles

Assuming there is no problem as to the competency of the parties or as to whether there is a memorandum or writing sufficient to satisfy the statute of frauds, when all of these requirements are met, a REPSA is a contract that is binding as to a seller and entitles a buyer to damages in the event of its breach. Hedges v. Hurd, 47 Wn.2d 683, 289 P.2d 706 (1955).

(a) Specific performance

When specific performance is sought, rather than damages, the courts have required a higher standard of proof: "clear and unequivocal" evidence that "leaves no doubt as to the terms, character, and existence of the contract." Kruse v. Hemp, 121 Wn.2d 715, 722, 853 P.2d 1373 (1993) (quoting Powers v. Hastings, 93 Wn.2d 709, 612 P.2d 371 (1980)). Specific performance will not be allowed when a seller is to receive only part of the purchase price at closing, with a balance payable pursuant to either a real estate contract, mortgage, or deed of trust, unless the REPSA specifies all of the material and essential terms of the financing, leaving none of those terms to be agreed upon as a result of future negotiations. The contract itself must specify such terms and conditions so that they are clearly ascertainable. Hagensen v. Petersen, 29 Wn.App. 721, 630 P.2d 1374 (1981).

(b) Real estate contracts

In a transaction that involves seller financing by way of a real estate contract, the Washington Supreme Court in Hubbell v. Ward, 40 Wn.2d 779, 246 P.2d 468 (1952), articulated a list of material terms that must be included in a REPSA for it to be enforceable: (a) time and manner for transferring title; (b) procedure for declaring forfeiture; (c) allocation of risk with respect to damage or destruction; (d) insurance provisions; (e) responsibility for taxes, repairs, and water and utilities; (f) restrictions, if any, on capital improvements, liens, removal or replacement of personal property, and types of use; (g) time and place for monthly payments; and (h) indemnification provisions. This list has been reaffirmed in Kruse, 121 Wn.2d 715, Sea ‑ Van Inv. Assocs. v. Hamilton, 125 Wn.2d 120, 881 P.2d 1035 (1994), and Silverstreak, Inc. v. Parsons, 112 Wn.App. 1039, No. 49591-7-I, 2002 WL 1505760 (Jul. 15, 2002) (unpublished). It is noteworthy that the court in Sea-Van stated that these terms are not specific to real estate contracts, but apply to all agreements involving conveyances of real estate. Sea-Van, 125 Wn.2d at 129.

In Haire v. Patterson, 63 Wn.2d 282, 386 P.2d 953 (1963), the Washington Supreme Court urged that the proposed real estate contract form be either attached to a REPSA or identified by number, publisher, and date of printing, or the material terms must be contained in the REPSA. After Haire, in Northwest Properties Agency, Inc. v. McGhee, 1 Wn.App. 305, 462 P.2d 249 (1969), the court found that the reference to a specific real estate contract form put the purchaser on notice as to the content of the form, and therefore the court granted specific performance of the REPSA.

Practice Tip: In seller financing transactions involving a real estate contract, the better practice is to complete and attach the form to the REPSA so that all of the terms and conditions that must be addressed are addressed.

(c) Promissory notes and deeds of trust

The Washington Supreme Court has held that the requirement of specificity of material terms in Kruse, 121 Wn.2d 715, is just as applicable to transactions involving seller financing by way of a promissory note and deed of trust. Setterlund v. Firestone, 104 Wn.2d 24, 700 P.2d 745 (1985). Although a form of promissory note and a form of deed of trust were attached to the REPSA, the Setterlund court noted that the back side of the form promissory note was not included, and that the deed of trust failed to allocate the separate ownership of the property between the recently married sellers. Also, the so-called "form note" contained a blank space for a default interest rate that was not filled in. Based upon the lack of specificity with regard to these material terms, the court held that specific performance must fail.

Practice Tip: In seller financing transactions involving a form promissory note and a form deed of trust, the better practice is to complete and attach the forms to the REPSA so that all of the terms and conditions that are applicable are addressed.

(d) Options

In a transaction involving an option contract for the purchase and sale of land, the option contract must specify all of the material terms of the future contract or a copy of a real estate contract specifying the essential terms must be attached to the option contract, before a court may order specific performance. Silverstreak, 112 Wn.App. 1039; Kruse v. Hemp, 121 Wn.2d 715, 853 P.2d 1373 (1993) (citing Hubbell v. Ward, 40 Wn.2d 779 (1952)). In addition, specific performance will not be granted when a seller is to receive only part of the purchase price at closing, with a balance payable pursuant to either a real estate contract, mortgage, or deed of trust, unless the REPSA specifies all of the material and essential terms of the financing, leaving none of those terms to be agreed upon as a result of future negotiations. Kruse, 121 Wn.2d 715.

When all of the material terms required in a REPSA are present, a buyer is entitled to a decree of specific performance requiring a seller to execute and deliver a deed and, when appropriate, a bill of sale, provided a buyer tenders payment of the full sales price within a reasonable period of time. Hubbell, 40 Wn.2d 779.

Practice Tip: In transactions involving an option, the better practice is to complete and attach the REPSA to the option so that all of the terms and conditions that must be addressed are addressed.

(2) Legal description

As previously discussed, the legal description must meet the requirements of the statute of frauds. Provisions allowing a selling licensee or closing agent to insert or correct, over the buyer's and seller's signatures, the legal description of the property are common in preprinted forms. In Noah v. Montford, 77 Wn.2d 459, 463 P.2d 129 (1969), a provision allowing a real estate broker to insert a legal description was held sufficient, even though the document contained no legal description when signed by the parties. For a detailed discussion of the requirements of a legal description, see Volume 1, Chapter 13 (Surveys, Land Descriptions, and Boundaries), in this deskbook.

Unless otherwise provided, all improvements and fixtures on the realty are included in the conveyance of the real property. Pruitt v. Meyer, 2 Wn.App. 14, 467 P.2d 364 (1970). A list of such fixtures is typically included in preprinted forms. Personal property to be transferred with the real property should be separately listed, assigned a value, and transferred by bill of sale. For a discussion regarding the transfer of fixtures, see Volume 2, Chapter 23 (Fixtures), in this deskbook.

(3) Purchase price

A REPSA must contain a specific statement setting forth the total purchase price. When payment of the purchase price involves seller financing, a specific statement as to the payment of principal and interest must be included. In cases in which the purchase price involves either assumption of an existing obligation or the "wrap" of an existing obligation, review the terms of the existing obligation to determine that a further encumbrance or assumption is not a prohibition pursuant to the "due on sale clause." See Bellingham First Fed. Sav. & Loan Ass'n v. Garrison, 87 Wn.2d 437, 553 P.2d 1090 (1976). A buyer should consider obtaining a written consent from the underlying lender to the transaction, as well as a statement that no event has occurred to trigger default under the existing obligation.

(4) Earnest money deposit

A broker typically holds the earnest money deposit in a residential real estate transaction, although title companies and escrow companies also may hold the deposit. Brokers and licensed escrow companies are required to have separate accounts in which to hold deposits. Ch. 18.85 RCW. As noted on most preprinted forms of REPSA, earnest money less than $5,000 will be held by a broker in a pooled account with interest paid to the Washington Housing Fund. Earnest money deposits in excess of $5,000 may be held in an...