Unit 1: Contract Law Overview

If the buyer gives notice (without legal justification) that he will not close the purchase of the property and is terminating the contract, is the seller out of luck?

The answer is no, termination of the contract does not terminate the seller's remedies under the contract, only the seller's obligation to sell. The seller still has recourse; the obligations to sell and purchase may have been terminated but the seller's right to seek damages is not terminated. Also, specific performance almost always is a remedy pursued by a buyer, not a seller.

__________ means doing what the contract requires, and ________ means not to do a specific thing.

The answer is performance, forbearance. Performance is doing what a contract requires, and forbearance means not to do something. For example, you might choose not to sue someone for breach of contract (forbear) even though you have the legal right to do so.

Which of the following is NOT a type of recognized system for arriving at a legal description?

The answer is range and trajectory. All the others are recognized systems to develop legal descriptions. Metes and bounds and the rectangular survey system are generally used for larger parcels that have not been subdivided, whereas lot and block and subdivision plat are used most frequently for developed property in urban areas.

Which method of legal description divides property into a variety of smaller parcels, including sections, each of which has 640 acres?

The answer is rectangular survey system. The rectangular survey system divides property into a variety of smaller parcels, including sections. The other systems do not make such a division.

The real estate agent representing the seller should encourage the seller to

The answer is require as much earnest money as can be negotiated with the buyer. In order to fulfill one of the agent's fiduciary duties to the seller, the agent should encourage as much earnest money as possible because this not only indicates serious interest by the buyer but also provides funds to reimburse the seller for expenses and inconvenience if the buyer does not carry through with the contract.

One party cancelling or terminating a contract as though it had never been made is

The answer is rescission. Rescission returns the parties to their original positions before the contract, so any monies exchanged must be returned. Rescission is normally a contractual remedy for a breach.

About a week after the effective date of the contract, the buyer and the seller agree to change the closing to a week earlier than the contract provides. You tell your client to mark the change on the original contract, initial it, and it is all set. Is that good advice?

No, aside from the fact you are required to use the promulgated addendum form, an amendment is not binding unless all parties have signed it.

A buyer and a seller enter into a contract using the Farm and Ranch Contract, which is one of TREC's six promulgated contracts. The effective date of the contract is June 20, and the buyer has 8 days to fulfill a duty under the contract. By when must the buyer complete the duty?

The answer is June 28 at midnight. According to the Farm and Ranch Contract, time is of the essence, so the buyer is held to exact performance (i.e., end of June is not acceptable). The effective date of the contract is not counted in the time frame, so the buyer has June 21, 22, 23, 24, 25, 26, 27, and 28 until midnight to fulfill the duty.

A contract may be discharged for any of the following reasons EXCEPT

The answer is a unilateral decision by either party to terminate the contract. A unilateral decision to terminate by one party without the right to terminate would cause the terminating party to be in breach.

Which of these addenda includes "time is of the essence"?

The answer is all of these. The six promulgated contract forms and four addenda include time is of the essence: Addendum for Sale of Other Property by Buyer, Addendum for Back-Up Contract, Third Party Financing Addendum, and Short Sale Addendum.

Which of the following is required for a valid contract?

The answer is consideration. Consideration is something of legal value offered by one party and accepted by another as an inducement to perform or to refrain from performing some act. Anything that has been bargained for and exchanged is legally sufficient to satisfy the requirement for consideration.

A contract to perform an unlawful act is considered which of the following?

The answer is void. A contract must be for a legal act. No one may enter into a legal contract for an illegal purpose.

If a loan shark promises you $500 if you will rough up one of his nonpaying customers to encourage prompt repayment, what sort of contract is this?

The answer is void. It has an illegal object and therefore is deemed never to have been a contract.

The statute of limitations for a written contract for the sale of real estate in Texas is

four years.

An amendment

is a change to the original agreement.

A contract that complies with all the basic requirements may still be either void or voidable. To be valid, the contract must have

mutual agreement.

When all of the parties to a contract agree to terminate it is said to be terminated by

mutual agreement.

A contract may be discharged under substantial performance when

one party does not complete all the details exactly as the contract requires but has to a large extent performed on the contract, which may be enough to force payment.

In Texas, the statute of limitations is two years for

oral contracts for a lease of less than one year.

In Texas, the statute of limitations for an oral contract for a lease of less than one year is

The answer is two years. Under the statute of frauds, leases for one year or less do not have to be in writing. An oral contract for the lease of a property for one year or less has a statute of limitation of two years.

What is the statute of limitations for an oral contract for the six-month lease of a property?

The answer is two years. Under the statute of frauds, leases for one year or less do not have to be in writing. An oral contract for the lease of a property for one year or less has a statute of limitation of two years.

If parties to a real estate contract in Texas are held to very strict deadlines for performance, the contract likely includes the phrase

"time is of the essence."

The statute of limitations is four years for which of the following?

A contract for the sale of real estate

Your client has asked you to add time is of the essence to a couple of the provisions of the purchase contract. What is your most appropriate response?

The answer is "I'm not sure that is a good idea, but you and the buyer should consult with your attorneys about this." A real estate broker or salesperson should never add the words time is of the essence to a contract or advise a customer or client to do so.

Which of these addenda does NOT include "time is of the essence"?

The answer is Addendum for Coastal Area Property. The six promulgated contract forms and four addenda include time is of the essence: Addendum for Sale of Other Property by Buyer, Addendum for Back-Up Contract, Third Party Financing Addendum, and Short Sale Addendum.

The voiding of a contract by a minor is

The answer is an example of terminating a contract by operation of law. A contract entered into with a minor is voidable at the option of the minor.

After a real estate sales contract is signed but before title actually passes, the status of the contract is

The answer is executory. A sales contract is bilateral (buyer and seller each have promised something) but remains executory until closing when the title is conveyed to the buyer and the seller receives funds from the sale.

Your client has a valid and enforceable contract to purchase a prize Arabian stallion. Before the deal closes, the horse breaks its leg and has to be euthanized. The contract is terminated as a result of

The answer is impossibility of performance. Clearly, the subject of the contract has been destroyed, and absent provisions in the contract dealing with that eventuality (not provided in the facts), it is impossible for the seller to deliver the animal you agreed to purchase.

Which of the following is necessary for a valid legal contract?

The answer is lawful objective. A contract for an illegal purpose or an act against public policies is not a valid contract.

The painter contracts to paint the exterior of the home for $1,750 plus the cost of paint and any other necessary materials. About three-fourths of the way through the job, the contractor breaks his leg and can't finish. The owner offers to pay the contract price less deductions for the cost of having the job completed by another painter, and the original painter accepts the offer. The contract has been discharged under the principle of

The answer is substantial performance. Enough was completed to justify payment less deductions for work remaining to be done. Partial performance would mean enough of the work was done to justify full payment.

A contract with a person under duress is

The answer is voidable. If a contract was made under duress, with misrepresentation, under the influence, or with intent to defraud, it is voidable.

A buyer's agent discovers after the contract has been signed that the seller's representation that the well delivers 26 GPM (gallons per minute) is false; the seller knows well that the well has never produced more than 2 GPM. The contract is

The answer is voidable. It was procured by misrepresentation, and the buyer has the right to terminate the contract due to what amounts to fraud. It is not "void" because it has the elements of a contract, but the fraud makes it voidable. It is not unenforceable because the buyer can enforce the sale if she so desires. While it is executory (not having been performed by the parties), executory is obviously not relevant to the main issue.

"Lost. Our priceless pet, 3-year old Bull Mastiff, 175 lbs., answers to 'Chloe.'" $125 reward, no questions asked." What kind of a contract is this?

Unilateral

Which of these describes an open listing agreement in which Broker A is entitled to a commission if she sells the property, but the seller or another broker could sell it and pay no commission to Broker A?

Unilateral contract

When a contract lacks one of the essential elements of a legal contract it is

Void

A few days after the contract to purchase the condo was signed by both parties, the seller realized he had forgotten to exclude the built-in wine cabinet located in the kitchen. After some negotiation, the parties agree to exclude the cabinet and agree on a slight reduction in the price of the property as a result. These items will be addressed in

an amendment.

A legally enforceable agreement under which two parties promise to do something for each other is classified as a(n)

bilateral contract.

Once a contract has been agreed upon and signed by all parties

changes must be addressed through the use of an amendment.

If I, as agent for the buyer, tell you, as seller, that my client is extremely wealthy and can pay cash for the property if she wants, when in fact she is broke and cannot begin to qualify for a purchase loan, the contract is

voidable by you because it was based on fraud.