Contracts

General

Civil Code 1550 identifies capable parties, consent, a lawful object, and sufficient cause or consideration as essential contract elements. A defect can make an agreement void, voidable, or unenforceable, depending on the defect; those are not interchangeable conclusions.

Mutual consent requires agreement expressed through an offer and an effective acceptance. Consent must be free, mutual, and communicated. Duress, menace, fraud, undue influence, or qualifying mistake can support rescission. Distinguish fraud that induces agreement from a case where there was no effective assent at all; a defect in consent does not always produce the same legal result.

A bilateral contract exchanges promises, such as a purchase agreement. A unilateral promise invites performance. An option gives its holder a choice to accept while binding the optionor under the option's terms. Executory means performance remains; executed in this classification means fully performed. Express terms are stated, while implied terms arise from conduct.

A valid agreement satisfies its legal requirements. A void agreement has no legal effect. A voidable agreement may be avoided by the protected party on an applicable ground. An unenforceable agreement does not support the requested remedy, for example because a required writing is missing. Do not classify every capacity or consent problem identically.

Capacity

Adults generally have contractual capacity. Family Code 6701 prohibits an unemancipated minor from making a contract relating to real property or an interest in it. Many other legally permitted minor contracts can be disaffirmed, but that is a different rule. Section 7050 gives an emancipated minor adult capacity for specified acts, including real-property transactions. A minor can own inherited property without having adult capacity to contract. Civil Code 38 addresses persons entirely without understanding; section 39 addresses unsound mind without complete lack of understanding. Capacity depends on the facts, not a diagnosis alone.

The statute of frauds

Civil Code 1624 generally requires a signed writing for a real-property sale, a lease longer than one year, and employment of an agent to buy or sell real estate for compensation. Failure to satisfy the statute ordinarily makes the agreement unenforceable rather than void. Exceptions depend on the agreement and facts; do not treat performance alone as a substitute for a signed brokerage compensation agreement.

Offer, counteroffer, and acceptance

Follow the offer's prescribed acceptance method. An ordinary revocable offer may be revoked before effective acceptance, but the revocation must be communicated. An enforceable option limits revocation. A true counteroffer ordinarily rejects the original; an inquiry is not necessarily a counteroffer. Civil Code 1583 can make authorized dispatch effective unless the offer requires receipt.

Consideration

Something of value given by each side, which may be a promise, an act, or forbearance. It need not be adequate, only sufficient, which is why a court will not rescue a party who made a bad bargain. Love and affection support a gift deed and will not support a contract.

Assignment and novation

Assignment transfers contractual rights. Delegating performance ordinarily leaves the original obligor liable unless released. Novation substitutes and discharges an obligation with the necessary agreement. Do not call the assignor merely secondarily liable in every assignment.

Time is of the essence

A time-is-of-the-essence clause makes specified deadlines material, subject to the agreement and applicable waiver or other rules. Without it, timing still matters, and a reasonable time may be implied where none is specified. Read the actual notice, cure, contingency, and cancellation provisions.

Remedies for breach

Specific performance, available for real property because each parcel is unique. Compensatory damages. Rescission, which unwinds the contract and restores the parties. And liquidated damages, where the parties agreed the sum in advance.

Discharge

Performance, an agreement to end obligations, novation, impossibility, or other legal rules can affect duties. Breach does not automatically extinguish every obligation. California's general contract limitation periods are four years for a written contract and two for an oral one, subject to accrual rules and exceptions; a limitations defense is not the same as performance.

Listing Agreements

A listing agreement is a contract between the seller and the BROKER, employing the broker to find a buyer. The salesperson identifies their representative capacity when signing for the broker. A listing does not automatically move with a salesperson who changes firms.

It is also an employment contract, so it must satisfy the statute of frauds to support a claim for compensation. Civil Code 1624 requires an agreement authorizing or employing an agent to buy or sell real estate for compensation to be in writing. An oral listing can create a real agency relationship with real fiduciary duties and still leave the broker unable to sue for the fee.

Compare listings on two separate dimensions: who can earn the commission and how compensation is calculated. A net arrangement concerns compensation and must not be confused with exclusivity.

Read the termination date and the safety clause together. One sets the listing's duration; the other may preserve a commission claim after expiration if its stated conditions are met.

Exclusive right to sell

The broker is paid if the property sells during the term, whoever produced the buyer, including the seller. It protects the broker's compensation claim even when the seller finds the buyer, subject to the agreement's terms.

Exclusive agency

The broker is paid unless the SELLER personally finds the buyer, in which case no commission is owed. One broker, but the seller keeps a carve-out for themselves.

Open listing

Non-exclusive. The seller may give open listings to any number of brokers and pays only the one who produces the buyer. If the seller sells it themselves, no one is paid. It terminates automatically as to all brokers when the property sells.

Net listing

The seller states a net figure and the broker keeps everything above it. It is permitted in California, but the licensee must disclose the actual selling price and the amount of their own compensation to the principal before the principal is bound. Failing to do so is a secret profit under Business and Professions Code 10176(g).

The definite termination date

An exclusive listing must specify a definite termination date. A listing with no end date, or one that renews automatically until canceled, is a ground for discipline under Business and Professions Code 10176(f). Read the termination and renewal provisions carefully.

The safety or protection clause

Entitles the broker to a commission if, within a stated period after expiration, the seller sells to a person the broker introduced during the term. It normally requires the broker to deliver a written list of those prospects to the seller before or shortly after expiration. Without the list, the clause usually fails.

What the listing does not authorize

A listing employs the broker to seek a buyer; it does not authorize the broker to sign the seller's contract or deed. Separate written authority must cover that act. Civil Code 1091 addresses written conveyance authority. Acknowledgment, recordability, and title requirements are separate, and section 2933 specifically governs recording a power to execute a mortgage. Do not treat every listing or purchase-contract signature as requiring a recorded power of attorney.

Termination

By expiration, mutual agreement, performance, revocation, renunciation, or by operation of law on the death or incapacity of the seller or the BROKER, or destruction of the property. Death of the salesperson who took the listing does not end it, because the listing belongs to the broker.

Multiple listing service

An MLS is a listing-information and cooperation service, not the seller's employment agreement. Do not assume an MLS entry is an offer of buyer-broker compensation: NAR-affiliated MLS rules prohibit displaying offers of compensation on the MLS. Statutory law, private MLS rules, and separately negotiated compensation agreements are distinct.

Residential exclusive listing limits

Civil Code 1670.12 limits covered residential exclusive listings to 24 months initially and 12 months for a written renewal; no automatic renewal is allowed. The term caps do not apply to a corporation, LLC, or partnership. Government Code 27280.6 prohibits recording the covered agreement. A definite termination date is still a separate licensing requirement.

Buyer Broker Agreements

California's buyer-broker agreement requirements took effect January 1, 2025. Read Civil Code 1670.50 together with current DRE Regulations 2906.1 through 2906.3. They address execution timing, required terms, duration, and renewal.

Execute the agreement as soon as practicable, no later than execution of the buyer's offer. Regulation 2906.2 creates a rebuttable presumption that signing before an in-person or virtual showing is practicable. A seller-only agent may show the seller's property to an unrepresented visitor without thereby becoming the visitor's buyer's agent.

The requirement applies to licensed services for a buyer purchasing real property, including residential, commercial, industrial, or agricultural property. Separate it from rental and loan-brokerage activities and from any additional MLS or association requirements.

The agreement records the services, compensation, payment timing, and expiration date. A missing or defective writing can create disciplinary and compensation-enforcement problems; it does not mean an agent's conduct can never create agency duties.

As soon as practicable, no later than the offer

For a buyer's agent, signing before a showing is the presumed practicable sequence under Regulation 2906.2. The presumption can be rebutted; the statute's outside deadline is execution of the buyer's offer. Do not turn either rule into permission to delay routinely until an offer.

Three months means 90 days, counted precisely

The agreement may not run longer than three months from the date it was made. The DRE regulations define three months as 90 calendar days, with the first day being the day after the last party signs, unless the agreement specifies a delayed effective date, in which case the 90 days run from that date.

The entity exception

The 90-day term cap excludes a corporation, LLC, or partnership. Do not extend that exclusion to every trust, institution, or other entity without reading the statute. The no-automatic-renewal rule still applies.

The compensation notice

Business and Professions Code 10147.5 requires at least 10-point bold notice that compensation is negotiable in printed or form compensation agreements for covered sales of one-to-four-unit residential property and mobilehomes. This form rule has a narrower scope than the buyer-agreement requirement itself.

The rate may not be pre-printed

In agreements covered by section 10147.5, the amount or rate cannot be preprinted and must be entered as a negotiated term. The law does not establish a standard commission for any transaction.

Exclusive and non-exclusive

Read the scope, property description, exclusions, and compensation triggers. An exclusive agreement can require compensation on a covered purchase even through another broker; a non-exclusive agreement uses its own earning conditions. Neither label replaces the statutory requirements.

Where the money comes from

The buyer's contractual obligation depends on the agreed compensation and earning conditions. The seller or another broker may contribute as lawfully arranged. If that contribution is insufficient, the buyer may owe a balance under the agreement. Payment source does not determine representation.

Agency disclosure runs alongside

The buyer's agent provides the statutory agency disclosure form as soon as practicable before the buyer signs the representation agreement and before the buyer executes an offer, and obtains a signed acknowledgment of receipt.

Renewal is not automatic

A renewal must be written, dated, and signed by all parties before the existing agreement expires. Regulation 2906.1 makes its effective date the date the last party signs. Apply the 90-day limit unless the specified entity exception applies.

Offers/Purchase Contracts

An acceptance must comply with the offer's terms. If the offer requires receipt, follow that requirement; otherwise Civil Code 1583 can make acceptance effective on reasonable and usual dispatch. An ordinary offer can generally be revoked before effective acceptance, but an enforceable option creates a different obligation.

A true counteroffer ordinarily rejects the original and proposes a new agreement. A request for information need not do so. When several counteroffers are outstanding, read any reservation that makes seller confirmation necessary; do not assume each signed response independently binds the seller.

The parties' exchanged promises can supply consideration without a cash deposit. If money is delivered, hold and disburse it under the trust rules and lawful contract or escrow instructions. It does not become the seller's money merely because the offer is accepted.

Contingency removal is governed by the agreement. Common California purchase forms use written removal and notice-to-perform procedures, but those are contract provisions, not a universal statute forbidding every automatic expiration. Read the actual deadline, removal method, notice, and cancellation terms.

The offer

Identify parties, property, price, and essential terms with sufficient certainty. An ordinary offer can be revoked before effective acceptance through communicated revocation. An enforceable option, prescribed receipt requirement, or applicable dispatch rule can change the analysis.

Acceptance must be communicated

An uncommunicated signature left in a drawer does not establish acceptance. Follow the offer's method, including any receipt requirement. If none displaces it, Civil Code 1583 can make acceptance effective on reasonable and usual dispatch.

Contingencies

Financing, appraisal, investigation, title review, association documents, or sale of another property may be conditions in the agreement. They do not excuse every breach. Determine what the contingency permits, what good-faith efforts are required, and how it is exercised or removed.

Removal is active and in writing

Where the agreement requires written removal, silence does not remove the contingency. Follow any notice-to-perform and cure period before cancellation. A differently drafted contract may use a different lawful mechanism.

The deposit and liquidated damages

A valid liquidated-damages clause can fix the seller's monetary recovery for the covered buyer breach. Apply its language, required signatures or initials, and the relevant validity rule; the 3 percent presumption is limited to section 1675 transactions. Specific-performance rights are not automatically erased. A disputed deposit must remain protected until lawful disbursement authority exists, such as an effective release or controlling order.

Multiple offers

All written offers go to the seller promptly. The seller may accept one, counter one, counter several with the same counteroffer subject to their reserved right to accept another, or reject all. A back-up offer becomes primary if the first fails, and it should say so expressly.

Amendments and addenda

An addendum adds terms at the time of contracting. An amendment changes the contract after it is formed. Use the required written assent and signatures for the transaction. An agent cannot change a principal's contract merely by agreeing with the other agent; separate authority and any applicable writing requirement control.

Cancellation

Cancellation rights come from the agreement or applicable law. Cancellation and entitlement to the deposit are separate. A broker or escrow holder must follow lawful disbursement authority, which can include agreed instructions, a controlling contract procedure, or a court order; it cannot simply resolve the parties' dispute itself.

Who may sign, and for whom

Confirm who owns the interest and who has authority to sign the particular instrument. Community-property conveyances generally require both spouses; a trust acts through its trustee and an entity through an authorized representative. An attorney-in-fact needs written authority covering the act, not merely a listing. Distinguish contract authority from a deed's acknowledgment and recording requirements, title-company requirements, and the specific mortgage-power rule in Civil Code 2933.

Electronic signature and delivery

The Uniform Electronic Transactions Act makes an electronic signature effective where the parties agreed to transact electronically. Delivery still has to happen: acceptance sitting unsent in a transaction platform has not been communicated, and the contract has not formed.

Back-up offers

A signed back-up agreement should state its priority, activation conditions, cancellation rights, and deposit timing. Becoming primary and delivering a deposit occur under those terms, not a universal rule that every back-up deposit waits until first position.

Agreements

This official DRE label reaches beyond formation. It includes performance, assignment, delegation, amendment, interpretation, discharge, breach, and remedies. Begin with the contract's language. A signed purchase agreement in escrow remains executory because duties remain. It becomes executed in the strict sense when all promised performance is complete.

An assignment transfers a right. A delegation transfers a duty, but the delegating party ordinarily remains responsible unless released. A novation substitutes a new party or obligation with everyone's consent and releases the original obligor. Rescission instead unwinds the agreement and seeks to restore the parties to their earlier positions.

Agreements can end by full performance, mutual rescission, expiration, failure of a condition, operation of law, or material breach followed by an available remedy. A minor deviation is not automatically material. Ask whether the failure defeats an essential purpose and what the contract permits the nonbreaching party to do.

Contract damages ordinarily seek to provide the benefit promised by performance. Specific performance may compel a real property transfer because each parcel is treated as unique, but it is an equitable remedy, not an automatic result. Rescission, restitution, compensatory damages, and liquidated damages serve different purposes.

Interpret the agreement as a whole to carry out lawful intent. Specific negotiated language generally controls inconsistent boilerplate, and unresolved ambiguity may be construed against the drafter. Ambiguity calls for interpretation, not an automatic finding that the entire contract is void.

Assignment

Transfers a contractual right. It does not automatically release the assignor from every obligation.

Delegation

Transfers performance of a duty. The delegating party generally remains liable unless released.

Novation

Replaces a party or obligation with everyone's consent and discharges the original obligation.

Rescission

Unwinds the agreement and seeks restoration when a legal ground exists.

Specific performance

An equitable order compelling the promised transfer when damages are inadequate.

Compensatory damages

Money intended to compensate for provable loss caused by breach.

Amendment

Changes terms while leaving the agreement otherwise in place.

Cancellation

Ends future duties under an agreed right or legal ground. It is not automatically rescission.

A lease is two things at once

A lease is both a contract and a conveyance of a leasehold. An ordinary sale generally does not itself terminate an existing tenancy, but enforceability, lease terms, priority, and foreclosure protections matter. Possession can require inquiry into the occupant's rights; it is not conclusive proof of every claimed right.

Land contracts leave title behind

Under a typical land contract or installment sale contract, the vendor retains legal title while the vendee obtains equitable rights and pays over time. Possession and conveyance timing follow the agreement and applicable statutes. Distinguish this from a sale in which title transfers and the seller takes back a secured note.

Promissory Notes/Securities

A promissory note is the borrower's written promise to repay. It states principal, interest, payment schedule, maturity, and default provisions. The note is evidence of the debt. A deed of trust or mortgage is a separate security instrument that places real property behind the obligation. A note can be unsecured, but a security instrument has no independent purpose without an underlying debt.

A negotiable note can be transferred so the transferee may enforce it. Endorsement and delivery determine how rights pass. A holder in due course takes a qualifying instrument for value, in good faith, and without notice that it is overdue, dishonored, altered, subject to a claim, or affected by certain defenses. That status can defeat many personal defenses, but not every defense.

Holder-in-due-course status can defeat many personal defenses, including some failures of consideration and ordinary fraud in the inducement. It does not eliminate every defense. For example, infancy remains a defense where the law makes it one, and illegality can matter where it makes the obligation void. Analyze the particular defense instead of assuming that transfer erases every problem with a note.

A note secured by real estate is not automatically the same as a security regulated under securities law. Selling fractional interests, pooling investor money, or offering an investment program can create securities issues. A real estate license does not excuse compliance with applicable securities, disclosure, trust-fund, and licensing requirements.

Maker

The person who signs the note and promises to pay.

Payee

The person to whom the note is initially payable.

Holder

A person in possession who is entitled to enforce under the transfer rules.

Endorsement

A signature or instruction used with delivery to negotiate or transfer an instrument.

Deed of trust

The security instrument involving trustor, beneficiary, and trustee. It is not the debt.

Holder in due course

A holder meeting value, good-faith, and no-notice requirements who receives protection from many defenses.

The note is the debt, the deed of trust is the security

The note evidences the personal repayment promise; the deed of trust secures it with property. Enforcement remains subject to California's security-first and antideficiency rules. Loss of the paper does not automatically cancel the obligation, but enforcing a lost note requires the applicable proof.

Real property securities dealer

Offering fractional note interests or pooled mortgage investments can trigger securities qualification or an applicable exemption. Business and Professions Code 10237 identifies the Article 6 exemption framework, and section 10238 imposes notice and transaction conditions. It is not a general requirement to register every note seller as a real property securities dealer.

Purchase/Lease Options

An option is a contract in which the optionor promises to keep an offer open for the optionee during a stated period. The optionee buys a power to accept but does not promise to purchase. Consideration supports the optionor's promise of irrevocability. Without an enforceable option, an ordinary offer may remain revocable before acceptance.

An option concerning real property should identify the parties and property, state the price or a workable method for determining it, define the option period, specify consideration, and explain how exercise must occur. Exercise must be timely and comply with the option's method. A late or qualified attempt is not acceptance.

A lease option combines a tenancy with a separate purchase right. Rent is consideration for possession. Option consideration is the price of holding the purchase right open. Whether rent credits or option money apply to the price depends on the written agreement. Do not relabel option consideration as a security deposit or assume it is refundable.

A right of first refusal does not let the holder force an owner to sell. It offers a chance to meet qualifying terms if the owner decides to sell. An option to renew or extend a lease must likewise be exercised unequivocally, on time, and in the manner the lease specifies.

Options to acquire real property fall within writing rules for interests in land. Recording can affect notice and priority, but is not an element of contract formation. A licensee who obtains an option in property connected to the licensee's agency must disclose the license status and interest as California law requires.

Optionor

The party who gives the option and is bound to keep the offer open under its terms.

Optionee

The holder who may exercise but is not obligated to buy merely because the option exists.

Option consideration

Value exchanged for keeping the offer open. Credit or refund treatment depends on the agreement.

Exercise

Timely, unconditional acceptance using the method the option requires.

Lease option

A lease plus a separate purchase right. Analyze the two sets of provisions separately.

Right of first refusal

An opportunity after the owner decides to sell, not a present power to compel sale.

An option is unilateral until exercised

The optionor is bound; the optionee is not. Only on exercise does the arrangement become a bilateral contract to buy and sell. That asymmetry is the whole concept, and it is why an option needs its own consideration to exist at all.

Option money is not a deposit

Option consideration pays for keeping the purchase right open. Refunds, purchase-price credits, and who holds the funds depend on the agreement. Money received by a broker on another's behalf must be handled under trust rules until lawfully disbursed; calling it option money does not eliminate those rules.

Advanced Fee

DRE's outline uses the label Advanced Fee. California statutes and regulations use advance fee. It means a fee claimed, demanded, charged, received, collected, or contracted for before the licensed services have been fully completed, subject to statutory exclusions. The timing of collection, not the marketing label, brings the rules into view.

Before using an advance-fee agreement or related advertising, a broker must submit the materials to DRE at least 10 calendar days before proposed use. DRE's August 2026 guidance instructs brokers to wait for a no-objection letter before collecting under those materials. Submission is not permission to use false, misleading, or incomplete claims.

The agreement must describe the specific complete services, state the total fee and when it becomes due, state that no particular result has been guaranteed or represented, and provide a definite completion date. Required text must be no smaller than 10-point type, and the principal receives a copy when signing.

Money received before performance is generally trust money. A broker may withdraw only amounts for actual and necessary expenses or compensation for completed services under the agreement. The principal must receive a verified accounting at the end of each calendar quarter and a final verified accounting when the agreement ends.

California separately prohibits advance fees for residential loan-modification and mortgage-forbearance services. A salesperson may not independently collect or control advance fees. Trust handling, supervision, approved materials, and accounting remain the employing broker's responsibility.

Submit before use

Send the agreement and related materials to DRE at least 10 calendar days before proposed use.

Wait for review

Current DRE guidance says collection begins only after a no-objection letter.

Complete services

Identify the specific work, not vague promises of marketing or results.

Fee and timing

Disclose the total amount and when it becomes due and payable.

No guaranteed result

State that no particular outcome has been guaranteed or represented.

Completion date

Give the promised services a definite completion date.

Trust and accounting

Hold unearned money in trust, make only permitted withdrawals, and give quarterly and final verified accountings.

Loan-modification ban

Do not collect an advance fee for residential loan-modification or mortgage-forbearance services.

No advance fees for covered residential loan modifications

Civil Code 2944.7 applies to covered loan-modification and forbearance services for loans secured by residential property containing one to four dwelling units. Compensation cannot be collected until each and every contracted or represented service has been fully performed. Calling a partial task complete, dividing the work into stages, or depositing an advance in trust does not avoid the prohibition.

The accounting is verified and repeated

A verified accounting goes to the principal at least quarterly, at the end of the arrangement, and on the principal's demand. Funds may be withdrawn only as actually expended for the principal's benefit or five days after the required verified accounting has been mailed to the principal.