G
General Agent – An agent who is authorized by his principal to perform a broad range of acts, usually all acts necessary in connection with a particular business or venture.
General Assembly – The legislative branch of the NC state government charged by the NC Constitution with the responsibility of enacting the statutory law for the state.
General Contractor – The contractor in general control and supervision of the subcontractors in a construction project. Also called the Prime Contractor.
General Lien – A lien that attaches to any real or personal property owned by a person in the county in which the lien is filed. A properly filed judgment lien, for example, is a lien against all property owned by the defendant debtor in the county in which the lien is filed. Compare Specific Lien.
General Warranty Deed – A deed whereby the grantor agrees to protect the grantee against the valid claims of all persons whomsoever with respect to the land conveyed.
G.I. Loan – A loan guaranteed by the Veterans Administration under the Servicemen’s Readjustment Act of 1944, as amended. See also VA Mortgage Loan.
Ginnie Mae – See Government National Mortgage Association
Good Faith – The absence of bad faith or evil intent. An intention to deal honestly. Even though good faith is exercised by a real estate agent, the agent nonetheless may be liable for negligent misrepresentation or non-disclosure (omission).
Good Faith Estimate - Written estimate of the settlement costs the borrower will likely have to pay at closing. Under the Real Estate Settlement Procedures Act (RESPA), the lender is required to provide this disclosure to the borrower within three days of receiving a loan application.
Government National Mortgage Association (GNMA or “Ginnie Mae”) – A government organization under the jurisdiction of HUD that plays an important role in the secondary mortgage market by attracting capital into the real estate finance market through the sale of securities backed by pools of mortgage, the timely payment of which are guaranteed by GNMA.
Government Survey System – Also known as the Rectangular Survey System, this system of land description is used extensively in Midwestern and western states.
Graduated Lease – A lease calling for systematic increases in rental at regular intervals over the lease term.
Graduated Payment Plan – A system of repayment of a mortgage loan whereby monthly payments start out at a lower amount at first and then increase at stated ntervals.
Grant – A generic term applicable to all transfers of real property; a technical term used in deeds of conveyance of lands to denote a transfer.
Grantee - A person to whom real estate is conveyed; the buyer.
Grantor - A person conveying real estate by deed; the seller.
Gross Debt Service Ratio - The percentage of gross annual income required to cover payments associated with housing (mortgage principal and interest, taxes and secondary financing). Most lenders prefer that the GDS be no more than 32%.
Gross Debt Service Ration (GDS) - The percentage of the borrower's gross income that will be used for monthly payments of principal, interest and taxes, heating costs and half of condominium fees.
Gross Income – The total income from property before any expenses are deducted.
Gross Lease – A lease of property whereby the lessor is to pay all property charges resulting from ownership.
Gross Rent Multiplier – A figure, used in connection with the income approach method of appraisal, which represents the relationship between gross rental income and value; derived by dividing value (represented by sale price) by monthly or annual gross rental income.
Ground Lease – A lease of land only that involves the separation of ownership of the land from ownership of the buildings and improvements on the land.
Ground Rent – The rent or earnings paid for or attributable to the right of use and occupancy of a parcel of unimproved land; that portion of the total rental paid that is considered to represent a return upon the land only.
H
Habendum Clause – The “To Have and To Hold” clause in a deed that defines or limits the quantity of the estate granted.
Habitability – See Implied Warranty of Habitability
Handicap – A physical or mental impairment which substantially limits one or more major life activities; a record of having such an impairment, or being regarded as having such an impairment.
Hazard Insurance Policy – A policy of insurance that provides coverage against specified perils that might physically damage property.
Heirs – The persons who inherit property of a decedent owner who dies without a valid will.
Hereditaments – Every sort of inheritable interest in property, tangible (corporeal) and intangible (incorporeal). Used generally in connection with real property, meaning land and all of its incidents and appurtenances.
High-Ratio Mortgage - A mortgage that exceeds 75% of the home's appraised value. These mortgages must be insured for payment.
Highest and Best Use – The legally permissible and economically feasible use of a property which, as of the date of appraisal, will support the highest present value for such property or which will produce the maximum net return on the property over the period encompassing the foreseeable useful life of the property, or a given period of time; also, the optimum use of a property.
Historic Preservation Zoning – Zoning for the purpose of preserving the historic character of buildings and neighborhoods.
Holdback - An amount of money withheld by the lender during the progress of construction of a house to ensure that construction is satisfactory at every stage.
Holding Period – The period during which a party owns a property.
Holdover Tenant – A tenant who remains in possession of leased property after the expiration date of the lease term.
Home Equity Loan or Line of Credit ("revolving loan") - A type of loan that is secured against a property and allows the owner to borrow and repay money at his or her leisure. Periodic payments of at least accumulated interest are required but the loan is fully open: may be paid out in whole or in part at any time and, if there is still money available under the loan ceiling, the borrower may take more money for her use.
Home Improvement Loan - A loan made for the purposes of making improvements to a property.
Home Inspection - The written statement of the results of the inspection of a given property by a professional home inspector. Will show problems and potential problems with the property not always visible to an average purchaser (i.e. a deteriorating roof, an ancient furnace, termites, wood rot, basement seepage). Many purchasers make their offer to purchase conditional upon obtaining a satisfactory Home Inspection report.
Homeowner's (Homestead) Tax Exemption - A tax break for home owners offered in certain jurisdictions which sees property tax assessments reduced by a certain percentage as a result of the fact that the taxpayer resides in the property. May require evidence of the status of ownership to be filed periodically with taxing authority.
Homeowner’s Insurance Policy – A “package policy” of insurance designed to insure a homeowner’s buildings against a number of perils including fire, lightning, windstorm, hail, etc. and to insure the homeowner against liability claims.
Homestead – Real property owned by a person under special legal restrictions and exemptions from claims of his creditors under the Constitution.
HUD - See Department of Housing and Urban Development
HUD-1 Form – See Uniform Settlement Statement.
I
Illegal Contract – A contract that is unenforceable because it violates the law.
Illegal Use – A use that has been established after enactment of a zoning ordinance, which use violates the zoning ordinance.
Illusory Offer – Under contract law, an illusory offer is a statement that looks like an offer to purchase but is so conditioned and worded that the person making it has really made no legally binding promise at all.
Implied Contract – A contract that is implied from the conduct of the parties. It is not the result of express agreement between the parties.
Implied Easement – An easement created by implication, by operation of law, as a result of the circumstances of a conveyance. For example, a grantor who land locks a grantee has created an implied easement known as an easement of necessity.
Implied Warranty of Covenant – A guaranty or assurance the law supplies in an agreement, even though the agreement itself does not express the guaranty or assurance.
Implied Warranty of Fitness (New Dwelling) – As an exception to the doctrine of caveat emptor, the NC courts have recognized that in every contract for sale of a recently completed dwelling (or one under construction), a builder/vendor is held to warrant to the initial vendee that, at the time of the passing of the deed (or the taking of possession by the initial vendee, whichever occurs first), the dwelling, together with all its fixtures, is: (1) sufficiently from major structural defects, and (2) is constructed in a workmanlike manner.
Implied Warranty of Habitability – A theory of landlord and tenant law holding that a landlord renting or leasing residential property impliedly warrants to the tenant that the property is habitable and fit for the use intended. The NC Residential Agreements Act incorporates this concept into a statute. See also Fit Premises and Residential Agreements Act.
Impossibility of Performance – In contract law, the defense of impossibility of performance will excuse a party to a contract from performing in some instances. The defense must be in the nature of the thing to be done and not the inability of the promisor to do it.
Improved Land (Lot) – Either land on which improvements, such as buildings, have been constructed or land which has been prepared (improved) for further development by grading, draining, installing utility connections, or similar actions.
Improvement – A valuable addition to land (or real property) or a change in its condition, amounting to more than mere repairs or replacement, that is intended to enhance its value, beauty, or utility or to adapt it for new or additional purposes.
Improvements on Land – Structures, of whatever nature, usually privately rather than publicly owned, erected on site to enable its utilization (e.g., buildings, fences, driveways, retaining walls, etc..)
Improvements to Land – Usually relates to publicly owned structures, such as curbs, sidewalks, street lighting systems, and sewers, constructed so as to enable the development of privately owned land for utilization. Also includes any site enhancement, such as driveways, ditches for drainage, landscaping, etc..
In Arrears – A method of charging and paying interest on a loan where the interest owed for a particular period is charged and paid at the end of the period. Example: A mortgage payment due September 1, pays the interest for the month of August.
Income – A stream of benefits generally measured in terms of money derived from labor, business, property, or capital.
Income Capitalization Approach – A set of methods or procedures used to estimate the value, usually present market value, of an income producing property by capitalizing expected future benefits (cash flow and reversion) using an appropriate capitalization rate. See also Capitalization, Capitalization Rate, Direct Capitalization and Yield Capitalization.
Income property - A property which is owned or developed specifically to produce income for its owner.
Indenture - Similar to a contract. An agreement between two or more parties, often referring to land. A formal, written instrument made between two or more persons with different interests. The word comes from the old practice of indenting or cutting the deed on the top or side of a wavy line.
Index, Grantor and Grantee – An indexing system used in Register of Deeds offices whereby records of documents affecting title to land are listed in both the grantor’s and grantee’s name.
Index Lease – A lease calling for periodic increases or decreases in rent based upon some reliable government or private index or standard.
Informal Reference – The description of real property in an informal but sufficiently adequate way so as to identify a parcel of land. Use of a street address, for example, is an example of an informal reference.
Injunction – A writ or court order to restrain one or more parties to a suit from doing an iuequitable or unjust act in regard to the rights of some other party in the suit or proceeding.
Innocent Misrepresentation – A representation made by one believing it to be true, although it is in fact untrue. While an innocent misrepresentation is not fraud, it is not necessarily harmless, and it can constitute negligent misrepresentation or, in some cases, willful misrepresentation, especially if made by a real estate agent.
Inside lot - Term for a property that is not located on a corner at the intersection of two roads.
Installment Land Contract – The sale of real estate by the seller on the installment method with the vendee given possession and with the vendor retaining legal title until all payments have been made or until some other agreed upon time. Sometimes called a Contract for Deed.
Institutional Lender - An accredited financial organization (i.e. bank, trust company, credit union, etc.) which offers loans
Insurable Interest – A requirement in insurance law that the insured party have a legitimate financial interest in the subject of the insurance.
Interest – A sum of money paid for the use of another’s money.
Interstate Land Sales Full Disclosure Act – An act that closely regulates the sale of certain subdivision lots in interstate commerce.
Interval Ownership – See Time Share.
Intestate – A person who dies having made no will, or one whose will is defective.
Investment Real Estate – For income tax purposes, real estate that is used in a business or held for income producing purposes.
Involuntary Alienation – A transfer of ownership of real property without the owner’s consent, such as by lien foreclosure sale, adverse possession, escheat, or eminent domain (condemnation). Distinguish from Voluntary Alienation.
J
Joint liability - The responsibility of two or more people to fulfill the terms of a home loan or debt.
Joint tenancy - Ownership by two or more people that gives equal shares of a piece of property. Rights pass to the surviving owner or owners. Property held by two or more persons together with the right of survivorship. While the doctrine of survivorship has been abolished with respect to most joint tenancies in NC, the tenancy by the entirety retains the doctrine of survivorship in all of its vigor.
Judgment - Decree of a court declaring that one individual is indebted to another and fixing the amount of such indebtedness. The decision or sentence of a court of law as the result of proceedings instituted therein for the redress of an injury. A properly docketed judgment declaring that one individual is indebted to another individual creates a lien on any real property owned by the judgment debtor.
Judgment Lien – A general lien on all real property owned or subsequently acquired by the judgment debtor in the county where the lien is filed (docketed). The lien last for 10 years after docketing.
Jumbo Loan - A mortgage larger than the maximum eligible for purchase by the two Federal agencies, Fannie Mae and Freddie Mac.
Junior Mortgage – A mortgage lower in lien priority than another mortgage.
Jurisdiction – The authority by which judicial officers have the power to hear and decide cases.
K
Kick-out clause - A clause in a sales contract that allows a seller to accept one buyer's contingent offer, then back out without penalty if a second buyer makes a better offer.
Kit home - A structure that contains prefabricated components and is put together by a contractor.
Knob-and-tube wiring - An old-fashioned wiring system that has been replaced by fuses and circuit breakers
L
Laches – Delay or negligence in asserting one’s rights.
Land – In a legal sense, the solid part f the surface of the earth, as distinguished from water; any ground, soil, or earth whatsoever, regarded as the subject of ownership; every thing annexed to it, whether by nature (e.g., trees), or by man (e.g., buildings, fences, etc..), and everything on or in it, such as minerals and running water.
Land Contract – See Installment Land Contract.
Landlord – One who rents o leases real estate to others; the lessor.
Land Use Controls – Public and private restrictions on the use of real property.
Latent Ambiguity – A condition that exists in a description of real property in a deed or contract that is insufficient in itself to identify a parcel of property, but that provides a reference to outside facts by which the land involved might be identified. Compare Patent Ambiguity.
Latent Defect – A property defect which is not discoverable by a reasonably diligent inspection; a hidden defect. Compare Patent Defect.
Lateral Support – The right of a land owner to have the sides of his land supported in its natural state by the lands of adjacent owners. See also Subjacent Support.
Lease – A type of contract, written or oral, between the owner of real estate, the landlord, and another person, the tenant, covering the conditions upon which the tenant may possess, occupy, and use the real estate.
Leased Fee – The interest of a lessor in leased property that the lessor owns for a fee.
Leasehold – The interest (estate) a lessee has in real estate by virtue of his lease. Also called a non-freehold estate.
Legal Capacity – A requirement that in order for a contract to be enforceable the parties must have the legal capacity to enter into a contract (cannot be a minor, insane person, declared incompetent, or an intoxicated person).
Legal Description – A statement containing a designation by which land can be identified sufficiently to meet the requirements established by law.
Legal Title – The interest in real property that is held by (a) the trustee under a deed of trust, (b) the seller under a valid “interim” real estate sales contract, and (c) the seller under an installment land contract. See also Equitable Conversion. Distinguish from Equitable Title. (Note: The owner of real estate that is not encumbered by a deed of trust and is not the subject of a real estate sales contract holds both legal and equitable title to his property.
Lender - A bank, savings institution or mortgage company that offers home loans
Lessee – The person who leases property from another; a tenant.
Lessor – The owner who rents or leases property to a tenant or lessee; the land lord.
Leverage - Use of a small amount of cash--a 5 percent or 10 percent down payment--to buy a piece of property
Liabilities - A person's financial obligations. Liabilities include long-term and short-term debt, as well as any other amounts that are owed to others.
Liability Insurance – As related to real estate, insurance that indemnifies a property owner in the event he is found liable for damages to a third party who has been injured on the insured’s property.
License – A privilege or right granted to an individual by the state to engage in a business or profession; e.g., as a real estate broker. In real property law, a licensee is an authority to go upon or to use another person’s land or property without possessing any estate therein.
Lien - A legal claim against a property that must be paid off when the property is sold. A mortgage or first trust deed is considered a lien.
Lien Foreclosure Sale – The involuntary transfer of property to satisfy a tax obligation, judgment, or similar obligation that has been secured by a lien on the debtor’s property.
Lien Theory – The theory underlying the method of pledging real estate as collateral for a loan that usually provides for the borrower to hold both legal title and equitable title to the real property during the term of the loan for the lender to hold a lien against the property until the loan is repaid. The legal instrument used to accomplish this is a mortgage. See also Title Theory.
Lien Waiver – A document signed by a contractor, subcontractor, laborer, or materialman waiving the right to a mechanc’s lien claim on the property.
Life Estate – An estate or interest in real property that exists only for the life of a certain designated person. The “life tenant” has the exclusive right to possession, control, and use of the property during the term of the life estate. Upon the death of the person whose life is the “measuring life”, title to the property automatically vests in the designated “remainderman”. See also Life Estate Pur Autre Vie, Life Tenant, and Remainder.
Life Estate Pur Autre Vie – A life estate in property measured by the life of another (i.e., a person other than the life tenant). If the holder of this type of life estate dies before the measuring life, the heirs of the life tenant inherit the property and will hold it until the measuring life dies.
Life of Loan Cap – A ceiling (maximum upper limit) the interest (note) rate on an adjustable rate mortgage cannot exceed over the life of the mortgage loan.
Life Tenant – A person who owns a life estate in land or other real property.
Like Kind Exchange – Under the Internal Revenue Code, the exchange of property held for productive use in a trade business or for investment for other property of a like kind to be held either for productive use in a trade or business or for investment.
Limited Partnership – A partnership where some of the partners have their liability limited to the amount of money that they have invested. The entity must comply with the NC Uniform Limited Partnership Act.
Liquidated Damages – An amount of damages, specified in the contract, recoverable by either party in the event of breach of the contract.
Lis Pendens – A recorded document giving notice of the pendency of a legal action affecting the title of real estate.
Listing - Piece of property placed on the market by a listing agent
Listing Contract – A document in which a property owner contracts with a broker as agent to find a buyer for the owner’s property; the document executed by an owner giving a broker authority to act as the owner’s agent in the sale of the owner’s property. Often referred to simply as a “listing”.
Littoral Owner – A person who owns property adjacent to an ocean or lake.
Loan Commitment – A commitment by a lender to make a particular mortgage loan to a loan applicant under specified terms. The commitment, which may be either a “conditional” commitment or a “firm” commitment, is valid for only a specified period of time.
Loan Origination Fee – See Origination Fee
Loan-to-value ratio - Technical measure used by lenders to assess the relationship of the loan amount to the value of the property The relationship between the amount of a loan and the appraised value of the property secured by the loan, usually expressed as a percentage.
Lock or Lock-In - A lender's guarantee of an interest rate for a set period of time. The time period is usually that between loan application approval and loan closing. The lock-in protects you against rate increases during that time.
M
Machinery Act – The NC General Statutes that govern the ad valorem taxation of property.
Maintenance – The act of keeping, or the expenditures required to keep, a property in condition to perform adequately and efficiently the service for which it is used.
Mailbox Rule – A rule of law that states that once an offeree’s written acceptance is mailed (placed in the control of the postal service and out of the control of the offeree), the offer is considered to be accepted as of the date and time of mailing, even though the acceptance is not actually received by the offeror until several days later. The offeror cannot withdraw or revoke his offer after an acceptance has been mailed and the offeree cannot withdraw or revoke his acceptance after it has been mailed.
Manufactured Homes – For purposes of taxation, “a structure, transportable in one or more sections, which, in the traveling mode, is eight feet or more in width or is 40 feet or more in length, or when erected on site, is 320 or more square feet, and which is built on a permanent chassis and designed to be used as a dwelling with or without permanent foundation when connected to the required utilities, and includes the plumbing, heating, air conditioning and electrical systems contained herein. NC Gen Stat. §143-143.9(6).
Manufactured Home (Real Property) – A manufactured home as defined in NC Gen. Stat. §143-143.9 (7) constitutes “real property” if it is a residential structure and has the moving hitch, wheels, and axles removed and has been placed on a permanent foundation on land owned by the owner of the manufactured home. N.C. Gen. Stat. §105-273(13). Manufactured homes are federally regulated by the U.S. Department of Housing and Urban Development (Manufactured Housing Construction and Safety Code) 24 CFR 3280.
Marital Life Estate – A life estate arising by operation of law where a married person owning an inheritable estate dies and is survived by his or her spouse who, under certain conditions, could have a life estate in part or all of a deceased spouse’s real property owned at any time during their marriage.
Market value - Price that a piece of property sells for at a particular point in time. The value of a property based on current demand. The most profitable amount for which a property should sell in a competitive and open market under all conditions requisite to a fair sale, with the buyer and seller each acting prudently and knowledgeably, and with the sale not being affect4ed by any undue stimulus. Distinguish from Market Value.
Marketable Title Act – NC legislation passed in order to enhance the marketability of title to real property by allowing the title examiner to determine the status of title by a search of the relatively recent public records only. The Act is located at Chapter 47-B of the General Statutes and is subject to numerous exceptions.
Market Data Approach – The obsolete term for an appraisal method or procedure used to estimate the market value of a property by comparison and analysis of the sale prices of other recently sold similar properties. See Sales Comparison Approach.
Market Price – The price actually paid for a property (i.e., the sale price). Distinguish from Market Value.
Market Rent – The rental income that a property most probably would command on the open market as indicated by current rentals being paid for comparable space.
Market Value – The most probable amount for which a property should sell in a competitive and open market under all conditions requisite to a fair sale, with the buyer and seller each acting prudently and knowledgeably, and with the sale not being affected by any undue stimulus. Distinguish from Market Price.
Mass Appraisal – A method of determining the assessed values for all parcels of land in a particular county or city without performing a separate appraisal for each parcel. Usually performed by county tax assessors to determine market values for ad valorem taxation purposes.
Material Fact – In its broadest sense, any fact of substance relating to a property or a real estate sales (or rental) transaction that might affect a prospective purchaser’s (or tenant’s) decision to buy (or rent) the property or an owner’s decision to sell (or rent).
Mechanic's Lien (Materialman’s and Laborer’s Lien) - A claim against a property for money owing. A lien may be filed by a supplier or a subcontractor who has provided labor or materials but has not been paid. A lien must be properly filed by a claimant. It has a limited life, prescribed by statute that varies from province to province. If the lien-holder takes action within the prescribed time, the homeowner may be obliged to pay the amount claimed by the lien-holder.
Meeting of Minds – A mutual intention of two persons to enter into a contract affecting their legal status based on agreed upon terms.
Metes and Bounds – The term comes from the old English words “metes” meaning measurements, and “bound” meaning boundaries. It is generally applied to any description of real estate that describes the boundaries by distance and angles.
Mineral Deed – A deed transferring mineral rights which have been severed from surface rights to a grantee. Mineral deeds must comply with the Statute of Frauds (NC Gen. Stat. §22-2)
Mineral Lease – A lease entitling the lessee to explore for minerals and mine them if they are discovered. Mineral leases of any duration must be in writing under the Statute of Frauds (NC Gen. Stat. §22-2)
Misrepresentation – A false representation, either willful or negligent, of a material fact to another party. See also Fraudulent Misrepresentation, Willful Misrepresentation, and Negligent Misrepresentation.
Mistake of Fact – A basis for avoiding performance of a contract when there is a mutual erroneous impression by the parties to the contract concerning some material fact.
Mistake of Law – An erroneous impression by one or both parties to a contract concerning the law governing their agreement. Mistake of law does not excuse performance of a contract.
MLS®, Multiple Listing Service® - Used in conjunction with a real estate database service, operated by local real estate boards, under which properties may be listed, purchased or sold. An MLS® listing means REALTORS have agreed to work together for the marketing of a listing.
Mobile Home – See Manufactured Home (Real Property)
Modular Home – A modular home is a dwelling consisting of a series of rooms or units (modules) constructed and inspected off site in accordance with the NC Building Code and then transported to its ultimate site and assembled on a permanent foundation. Modular homes may consist of one or more stories.
Monument – A stone marker or other fixed object used to establish real estate boundaries.
Mortgage - A mortgage is security for a loan on the property that you own. It provides for your personal guarantee to repay the loan as well as a pledge of the property as security for the loan. See also Deed of Trust.
Mortgage acceleration clause - Clause which allows a lender to demand that the entire balance of the loan be repaid in a lump sum under certain circumstances. The acceleration clause is usually triggered if the home is sold, title to the property is changed, the loan is refinanced or the borrower defaults on a scheduled payment
Mortgage Banker – A mortgage company that extends a full range of mortgage lending services, including the making of mortgage loans of all types and the servicing of the loans during their term.
Mortgage Broker – An agent or broker of a lender who brings together the lender and the borrower and receives a fee for this service.
Mortgage Company – See Mortgage Broker
Mortgage Insurance – See Private Mortgage Insurance.
Mortgage Insurance Premium - A premium which is added to the mortgage and paid by the borrower over the life of the mortgage. The mortgage insurance insures the lender against loss in case of default by the borrower.
Mortgage Life Insurance - A form of reducing term insurance recommended for the borrower. In the event of the death of the owner or one of the owners, the insurance pays the balance owing on the mortgage. The intent is to protect survivors from losing their home.
Mortgage Note – A legal “I.O.U.” evidencing indebtedness and coupled with a mortgage or deed of trust on the property of the debtor. See also Note and Negotiable Promissory Note.
Mortgagee - The lender. The person to whom a mortgage is executed; the lender who holds a lien on real property to secure the obligation owed to him; same as the beneficiary under a deed of trust. See also Beneficiary.
Mortgagor - The borrower. The person who executes the mortgage; the borrower owner who gives the mortgage to the mortgagee as security for the debt owed by the owner; same as the grantor under a deed of trust.
Multiple Listing Service (MLS) – A local or regional cooperative listing arrangement operated by brokers who are members of the local board or association of the National Association of Realtors®. See also Cooperative Listing Service.
Mutual Assent – Agreement or definite terms required of both parties before a contract can come into existence.