Chapter 6 (practice quiz)

What is a collateral contract?

A contract to make another contract.

What is an amendment?

A document that changes a term of the contract.

How is the amount of earnest money set?

ABy negotiation of the parties.

What is extrinsic evidence?

AEvidence outside the contract itself.

Brian and Sam write a real estate contract and include every term of the agreement, except the purchase price, which they agree to orally. Is this a valid real estate contract?

ANo, there must be a price.

Brad offers Seth $150,000 for his real estate. Seth writes back that he'll take $160,000. Have they formed a binding contract?

ANo, there was no meeting of the minds.

What is an addendum?

Additional information added on to the end of the contract.

Sara is selling her real estate. She signs one real estate contract with Bill dated May 1 for $350,000, and one real estate contract with Brad for $400,000. Which contract will be enforced?

Bill, May 1, because it was signed first.

What are the two types of damages generally available for breach of contract?

Compensatory damages and liquidated damages

Sally enters into a contract with Brad to sell her real estate. The purchase price is $100,000. But Brad pays only $50,000 and promises to pay the other $50,000 10 days after the closing. Sally conveys the property, but Brad does not make the payment. What kind of damages is she entitled to?

Compensatory damages for the balance of the purchase price.

Eddie bought real estate from Gil. Eddie did an inspection of the property and Gil provided a list of disclosures. But a week after closing when Eddie moved into the property, he found that under a carpet was a huge crack in the floor. What type of damages can Eddie claim?

Compensatory damages.

Jess is interested in buying Sam's real estate. They enter into a contract. The contract allows Jess to inspect the property. While inspecting the property, Jess damages a water pipe and causes $10,000 damage to the house. What type of damages can Sam claim?

Compensatory damages.

What is performance of a real estate contract?

Completing the undertaking and conveyance contemplated by the contract.

When does the statute of frauds apply?

Contracts for an interest in real property

When can a contract terminate by the passage of time?

Operation of law through statute of limitations.

If the buyer pays the seller the purchase price for real estate pursuant to a real estate contract, but the seller does not give the buyer a deed to the property, what is this considered?

Partial performance.

What does the buyer usually require the seller to do before closing?

Pay off liens.

If a bankruptcy is discharged, what happens to payment obligations under a contract?

Payment obligations are cancelled.

What could happen to a party that does not follow a court order for specific performance?

Sanctions for the court or imprisonment.

What is the purpose of an inspection period?

So the buyer can physically examine the property and the title for defects.

What must be given in exchange for a contract being signed?

Something of value.

Jim is a seller on a real estate contract and Bill is the buyer. Jim receives the purchase price from Bill, and Jim hands Bill a deed for the real estate, but Bill did not sign it. What remedy is available to Bill?

Specific performance to sign the deed. The parties clearly wanted the transaction to go forward

A seller is selling his real estate to a buyer. The purchase price is $200,000. The buyer gives the seller $100,000 with the promise to give the rest to the seller the next day. The seller gives the buyer the deed. However, the buyer never makes the second payment. What remedy is available to the seller?

Specific performance, getting an order from the court forcing the buyer to pay the rest of the money.

Partial performance of a contract can result in forced specific performance or...?

Termination

What is the name of the process when a contract is canceled by both parties?

Termination by mutual agreement.

What happens when the buyer cancels the contract without cause?

The seller gets to keep the earnest money.

Bret is the buyer on a real estate contract. He's obligated to pay $100,000 to buy a new home. However, for other reasons, Bret goes into bankruptcy. What will likely happen to the contract?

The trustee will terminate the contract by operation of law.

Marcus is a real estate agent who represents the seller in a transaction. If Marcus provides legal advice to the seller, he may be guilty of...?

The unauthorized practice of law.

How would a corporation sign a real estate contract?

Through an agent appointed by the corporation, usually a corporate officer.

What is the purpose of earnest money?

To make sure the buyer does not back out of the contract for no reason

How long can a party wait to sue for breach of contract?

Up until the statute of limitations.

How is the property identified in the contract?

Using a legal description

Who holds the earnest money?

Usually the closing attorney

What is novation?

When a contract is replaced with another between the parties or the contract is materially changed.

What is partial performance of a contract?

When one or both parties do not complete all of the requirements of the contract.

What is proration?

When part of an expense related to the property is divided by the buyer and seller based on the closing date

When do damages usually occur in a real estate closing?

When the real estate contract is breached.

What is a counteroffer?

When the seller does not agree with the buyer's offer and makes an offer of their own.

Can a buyer and a seller prepare their own real estate contract?

Yes, but it is not advisable.

Abe offers Cal $100,000 for his real estate in a contract. Cal demands $150,000 in his own contract. Abe is willing to pay $125,000. Can he make another offer?

Yes, there can be unlimited counteroffers.

Can a real estate attorney draft a real estate contract?

Yes. Attorneys can draft any type of contract

If a person orders a 50-inch television for $1,000 from Best Buy by written contract, but Best Buy delivers a 40-inch TV, is there an enforceable contract?

yes

What are liquidated damages meant to cover?

Damages that cannot easily be calculated, like a lost sale

What is the parol evidence rule?

Extrinsic evidence.

Under what circumstances could a seller be entitled to compensatory damages?

If the buyer causes damage to his property.

Andrew is a real estate agent representing the seller. What will he want in the earnest money clause to improve the position of his client?

If there is any cancellation by the buyer, seller would get the earnest money.

A buyer and seller enter into a real estate contract. Three days before closing, the house burns down. What is this called?

Impossibility of performance.

Alex and Miller enter into a contract for Miller to buy Alex's house. The contract allows for Miller to obtain a mortgage at 5% interest. However, after due effort, Miller can only get a mortgage at 6% interest. He backs out of the contract. Does Alex have a claim for damages against Miller?

Likely not. This is a mortgage contingency.

Which of these is required for a valid contract?

Meeting of the minds.

Bill is selling his real estate to Sam. Bill receives a higher offer and Sam finds a more suitable property. What can they do about the contract?

Mutual termination by agreement.

What is the Statute of Frauds?

A State law that says real estate contracts must be in writing.

Real estate is being sold, and the parties agree that some of the personal property will remain in the premises, but some of it will not. What is the best way to handle this situation?

An addendum listing the personal property.

What happens to earnest money after the closing is completed?

It goes to the seller, and is part of the purchase price.

When novation brings about a new contract, what happens to the original contract?

It is terminated.

Who usually negotiates real estate contracts?

Real estate agents.

Jimmy and Clyde enter into a contract for $100,000 of car parts by handshake. Is this a valid, enforceable contract?

No, it must be in writing

Can an oral mortgage contract be enforced?

No, it must be in writing.

Super Corp is selling real estate to Jim. The secretary of Super Corp was appointed by the Board of Directors to sign the deed on behalf of the corporation. The secretary signed the deed, but didn't affix the corporate seal. The state has a law that says all deeds from a corporation must have a corporate seal. Has there been full performance?

No, the corporate seal must be added to the deed.

Stan is selling his real estate to Brian pursuant to a real estate contract. Brian's attorney examines the title and finds that there is an easement on the property that will not allow it to be sold and used for the purpose that Brian needs. The contract allows Brian to back out of the contract if there is a significant title problem. What is remedy is available to the seller?

None. The contract will be cancelled for impossibility and contingency.

A buyer and seller enter into a real estate contract for the purchase and sale of 123 Maple Street. However, the seller does not own 123 Maple Street. The seller cancels the closings. What remedy does the buyer have?

None. This is a situation of impossibility of performance.

What are warranties in a real estate contract?

Promises made by the seller about the condition of the property and its title.

What is an example of a buyer default?

The buyer goes into bankruptcy

Which is an example of impossibility because of contingency?

The buyer is unable to get a mortgage consistent with the terms of the real estate contract.

Jim is selling his real estate to Wayne. The contract allows Wayne to have a 30 day inspection period to include physical inspection of the real estate. Jim will not let Wayne go onto the real estate, but demands that Wayne complete the closing and pay anyway. Wayne files a lawsuit against Jim. What is the most likely result?

The court will cancel the contract by operation of law.

Ben has a real estate contract where he is the buyer. He pays $1,000 earnest money to be held by the closing attorney. The real estate contract says that the closing will go forward if Ben can get a mortgage at 5% interest. After due effort, he can only get a mortgage at 8% interest. What happens to the earnest money?

The earnest money goes back to the buyer.

Who must sign an amendment for it to be valid?

both parties