Exam : Section 12: Basic Contract Law

executory contract

A contract in progress; one or more contract terms remains undone. Ex. Jack and Sarah, a buyer and seller, have agreed to terms over Jack's purchase of Sarah's townhome, but there are outstanding conditions and contingencies. The contract between them is executory. When it closes, it will be an executed contract.

executed contract

A contract in which all parties have met all contract terms. Ex. You've just closed your first transaction. Congratulations! The contract is fully executed.

Unilateral

A contract in which consideration (such as a promise) is only given by one party to the other. Ex. You tell your neighbor you'll give him $100 to watch your cat for the weekend. The neighbor has offered nothing at this point, but once the neighbor performs on the offer, you are now obligated to pay the $100.

Invalid

A contract in which one or more of the essential elements is missing. Ex. Lorraine was frustrated to find that because her client turned out to be only 17, her contract was invalid.

Valid

A contract that contains all the essential elements of a contract, and is binding in a court of law. Ex. Chuck asked his attorney if there was any way he could get out of his contract with the seller. His attorney reviewed the document and replied, "Sorry, Chuck. All the essential elements are there. It is a valid contract, and you are legally bound to its terms.

Which of the following best describes a bilateral contract?

A contract that involves an exchange of consideration between two parties

Implied

A contract that is based on the actions or behaviors of the parties, not on words Implied by actions. Ex. An example of an implied contract is ordering food at a restaurant. Your server will bring you your food, and the restaurant expects to be paid. Likewise, if your neighbor, Jake, allows you to show his property to prospective buyers, you have an implied agency contract with Jake.

voidable contract

A contract that may be canceled by one or more parties for one of several reasons. It may be missing an essential element, or it may seem valid but contain a material mistake or misrepresentation. A contract that is not automatically void, but being legally incomplete, may be declared void by one of the parties. Ex. Kimber's real estate did not get her earnest money deposited within the contracted deadline. The seller has the option to void the contract; Kimber does not.

Unenforceable

A contract that will not hold up in court. A contract that cannot be enforced in a court of law. It may be missing one or more elements for validity, or, it may appear on the surface to be valid, but not comply with local laws such as the state's statute of frauds. Ex. Stephan, a new real estate licensee, wrote a contract with uncertain terms. This makes the contract unenforceable.

Enforceable

A contract that will stand up in court. A contract that meets all the criteria for validity, including compliance with local laws, and may be held up in a court of law. Ex. Because the Smiths' contract to purchase a beach house had all of the typical nuts and bolts of a valid contract, it was considered enforceable in court.

Void

A contract with no legal force or effect often because it lacks one or more essential elements. Ex. Jasper called the local police: "My drug dealer reneged on our contract! Have him arrested." After an investigation, both parties were arrested. Jasper should have known that a contract is void if it is for an illegal purpose.

Bilateral

A mutual contract that involves an exchange of promises or other consideration between two parties. Ex. Cain agreed to scratch Joshua's back and Joshua agreed to scratch Cain's back. This is a bilateral contract.

Which of the following is an example of a bilateral contract?

A sales contract

Express

A stated (written or oral) agreement between two or more parties. Expressed out loud or on paper. Ex. A buyer, Tess, and seller, Marco, sit down and hash out the terms of their agreement. Although nothing is committed to writing, because they have agreed on all terms, this is an express contract. If the agreement is over real property, it must be committed to writing (and signatures obtained from both parties) to be enforceable in a court of law.

All of the following are true regarding implied agreements EXCEPT which one?

An implied agreement is based on a formal agreement.

Which of the following statements is correct?

An unenforceable contract is a valid contract, but it will not be enforced by the courts.

A contract is bilateral when ______.

Both parties are obligated to act

Breanna signed a purchase offer stating she'd buy Kathy's home for $150,000. Kathy rejected that offer but said she'd sell it to Breanna for $200,000. Breanna agreed to these terms, and they added their signatures. Which of the following statements is correct?

Breanna accepted the offer Kathy made.

What type of contract do you have once the seller has accepted the buyer's offer in writing and the buyer has been notified of the acceptance?

Enforceable

Which term describes a contract that will stand up in court?

Enforceable

Sam is taking out a home loan, which states the offered price and includes other important information, like the payments, the loan term, and Sam's signature. What type of contract is this?

Express

Which of the following is true regarding express agreements?

Express agreements may be written or verbal.

Hank, a licensee, and Steve, a buyer, don't have a written agency agreement, but Hank continues to show him houses and answer his questions about negotiation and terms. What type of contract do Hank and Steve have?

Implied

If your aunt asks your sister to paint her house and pays her $1,000, asks your brother to plant her garden and pays him $1,000, and then asks you to build her deck and doesn't pay you, this would feel like a breach of which type of contract?

Implied

Malcolm, a real estate licensee, lived next door to Peter, and they were great friends. When Peter decided to sell his house, he asked Malcolm for advice about staging, timing, and pricing. Then Peter listed his home as For Sale by Owner. What type of contract did Malcolm have with Peter?

Implied

Brynn's listing agent told potential buyers that all offers on Brynn's property would be considered at 5 p.m. on May 3. By that date and time, there were four offers. The persons making these offers are the _______.

Offerors

A contract is unilateral when ______.

Only one party is obligated to act

What's the main point of the statute of frauds?

Real estate purchase and sale contracts must be in writing to be enforceable.

An executory contract is one that's been ______.

Started

Who has the option to terminate a contract when a breach occurs?

The injured party

Joseph needed help with his daily activities, so his niece, Brenda, did his cooking, shopping, and cleaning. Joseph told her he would leave some money to her in his will. Brenda thanked him. But when her Uncle Joseph died, he only left Brenda his antique tea set. Why didn't Brenda get any money?

Their contract was verbal.

You're talking to a co-worker at lunch and she mentions she has a box of baby clothes her kids have outgrown that she needs to get rid of. You have a baby on the way, so you offer to pay her $25, and she agrees to bring the box to work the next day and give it to you. Which of the following is true in this situation?

This is an express contract because you defined in words the specific terms of the agreement and consideration to be exchanged.

Which type of contract won't stand up in court?

Unenforceable

An enforceable contract is one that ______.

Will stand up in court

An unenforceable contract is one that ______.

Won't stand up in court

A contract in which the parties trade a promise for a promise is ______.

bilateral

Real estate sales contracts must be valid, express, bilateral, ______, and executed or executory.

enforceable

What does a void contract lack that makes it void?

legality

Which of the following states that, in certain cases, oral evidence can be used to support or complete an otherwise incomplete or ambiguous contract?

parol evidence rule

The statute of frauds states that if a contract transferring ownership of real property is not in writing it is __________.

void

As part of the terms of the sales contract, the seller was supposed to provide a copy of the seller's disclosure but failed to do so. What type of contract is this?

voidable

Lack of capacity has made the contract non-binding, so the contract is _____.

voidable