Contracts - GA Salesperson Exam Prep Edge: National & State Portions

General Contract Law

-General Principles of contract law -Elements necessary for a contract to be valid; offer and contract -Effect of the Statute of frauds -Enforceability of contracts -Void, voidable, and unenforceable contracts -Bilateral and unilateral contracts; nature and use of option agreements -Notice, delivery, acceptance, and execution of contracts -Appropriate use, risks, and advantages of electronic signatures and paperless transactions -Rights and obligations of the parties to a contract -Possible remedies for breach or non-performance of contracts -Termination, rescission, and cancellation of contracts

Other names forms (drafted by a licensed attorney) used to write. a sales contract are:

-offer to purchase -sales agreement -contract of purchase and sale -purchase agreement -earnest money agreement -agreement of sale

5. Glynnis is ready to close on her new house, but her agent told her that they have to wait for the homeowner to fix the electrical box as agreed. What clause in her contract allowed her to request the repair?

Inspection contingency

6. Which offer would be the most appealing to a seller?

It depends on the seller's needs and motivations.

3. Drake's offer to purchase Kevin's condo currently has a financing contingency, an inspection contingency, an appraisal contingency, and a sale of current home contingency. Kevin also got an offer from Lucy, which came in at $5,000 less than Drake's offer but with only an appraisal contingency. What is true about Drake's offer compared to Lucy's?

It's likely viewed as a less favorable offer.

1. What happens to an initial offer from the buyer after a seller counters?

It's no longer in play. -If a seller (or buyer, for that matter) wants to counter an offer, it should be related to a significant term because it essentially takes the original offer out of play. A counter-offer is NOT a seller's way of saying "I will accept your offer if you don't accept my counter." A counter cancels the original offer.

2. Tawna agrees to sell her small plot of land to Morris for $5,000 cash. They don't write up a contract, but otherwise all the necessary elements for a valid contract are in place. What's the status of this contract?

It's valid but not enforceable -An oral contract for the transfer of real estate isn't enforceable in a court of law, but it's a valid contract. So the transfer could still take place, but neither party would be able to sue for completion of the contract.

Some option agreements are a lease with the option to buy. The ___ have an option to purchase the leased property should they choose to exercise the option. If they violate any of the lease terms while the option is active, they __ may terminate the option contract.

Lessees / lessor

Liquidated damages

Many real estate contracts include this clause that limits buyer damages to a return of the earnest money if the seller breaches the contract.

Once signed, the sales contract is a ...

BINDING, written agreement between the buyer and the seller.

10. Desmond has a signed listing agreement with his clients, the Harpers. In exchange for helping the Harpers list, market, and sell their home, the Harpers have agreed to pay Desmond a commission. What type of contract do Desmond and the Harpers have?

Bilateral -A contract involving 2 parties who both make a promise to the other party in exchange for consideration is a bilateral contract.

2. Tristan's offer has been signed by all parties and delivered back to the seller. This means that ___ has occurred.

Binding acceptance -Happens when a signed contract is delivered according to the delivery procedures and deadline outlined in the contract.

6. Breanna signs a contract offering to purchase Kathy's home for $150,000. Kathy replies, "No way," but offers to sell it to her for $200,000. Breanna agrees to these terms and they add their signatures. Which of the following statements is correct?

Breanna accepted the offer Kathy made. -Kathy's offer to sell the home is a counter offer, and when Breanna agrees to the terms of the counter, it constitutes acceptance.

8. Which of the following is an example of an escalator offer?

Buyer offers $650,000 with clause that buyer will beat all competing offers by $3,000 up to $675,000.

5. Jerry and Lewis have entered into a sales contract. They're about 3 weeks into the transaction, with several terms of the agreement yet to be met. What type of contract do Jerry and Lewis have?

Executory -One or more terms of the agreement remain undone.

3. Ken signed a contract to purchase Debra's condo. Ken signed the contract two weeks prior to turning 18, which is the age of majority in their state. Debra found out about his age prior to the closing but honored the contract and they closed on the condo a month after Ken's birthday. What was the status of the contract when Ken and Debra entered into it?

Voidable -The contract COULD have been cancelled, because it was missing one of the essential elements: a legally competent party (Ken was a minor when he entered into the contract). However, parties to a voidable contract may choose to follow through with - or execute- it, which is what happened here.

Unilateral rescission

When a breach occurs, the innocent party may unilaterally terminate the contract.

1. Sondra thinks the new business contract she's signed with her business partner is valid. Both parties are legally competent, the purpose is a business transaction so it's a legal purpose, an offer was made and accepted, and a fee has been negotiated and documented. Which essential element of a valid contract has Sondra not yet considered?

Whether consent was voluntary

All parties have the right to a transaction that's free from __ or __.

fraud / misrepresentation

Contact termination

generally means that one of the parties ends the contract before it's fully performed. The terminating party may owe duties or compensation to the other party.

The parties should operate in ___ to execute the contract with no deceptive practices.

good faith

Contract law

includes some implied rights and obligations of parties to a contract. These rights and obligations are not necessarily specified within the contract.

Amendment

is a change to an existing contract between parties. It changes one or more of the original contract terms. Ex. if the closing date must be changed, or the buyer decides she wants the curtains to remain and the seller agrees (after the original contract noted the seller was taking them), the parties can execute an amendment outlining the additional agreement between them.

Contract clause

is a section or provision within a contract that addresses a specific point of law or aspect of the agreement.

Addendum

is an addition to an existing document, such as an offer to purchase. It adds terms not addressed in the main body of the contract form.

The Uniform Electronic Transactions Act (UETA)

is an attempt to bring some degree of standardization to state laws regarding use of electronic documents and signatures. It gives electronic signatures, records, and contracts the same legal weight as paper records with "wet" signatures (signed by hand in ink).

How and when parties to a contract send notice regarding contract terms

is critical for avoiding breach of contract situations.

Consideration

is something of legal value offered by one party and accepted by another, e.g., the buyer's promise to pay the full purchase price, and the seller's promise to transfer marketable title through delivery of a deed.

Partial performance

is when one party meets some, but not all, of the terms of the contract. The innocent party may agree to accept partial performance, perhaps in return for some sort of compensation.

Most contracts include

many pages of information about the terms and conditions that contracting parties must meet.

Oral contracts

may be VALID but UNENFORCEABLE or difficult to enforce.

Indemnification

means one or both parties commit to compensate the other for any harm, liability, or loss arising out of the contract.

"Time is of the essence"

means that both parties faithfully agree to perform responsibilities within the time limits of the contract.

Legal purpose

means that the contract results in a legal outcome.

Assignment

means to transfer contractual rights or duties to a new party. Some contracts have provisions either permitting or prohibiting assignment. Unless the contract specifically prohibits assignment, contracts are generally assignable. Unless the parties agree that the original buyer or tenant is to be released from contract obligations, the original party remains liable if the new party fails to meet the contract's obligations.

Most contracts include a __ that describes how contract-related notice may be made and when notice is considered to have been received.

notices clause

Novation

occurs when one contract is substituted for another. The agreement may be between the same parties, or a new party may be substituted (this is novation of the parties). The intent between the parties is to discharge the old obligation, releasing the original party from those obligations.

Breach of contract

occurs when one party fails to meet contract obligations. The innocent party may take any one of several actions as a remedy to the breached contract.

Offer and contract

occurs when the parties enter into an agreement voluntarily with full understanding of contract terms.

option contract,

or option, is an offer to purchase a specific piece of real estate without the obligation to buy it.

If specific deadlines aren't stated,

performance must take place within a reasonable amount of time (often as determined by the courts).

Severability

refers to the concept that if a court deems a term in the contract to be unenforceable, the remainder of the contract remains enforceable.

Delivery and acceptance

relies heavily on the "time is of the essence" concept. ex. if a buyer submits an offer with an acceptance deadline and the seller fails to respond by that deadline, the offer is technically void; if a seller presents a counter-offer with an acceptance deadline and the buyer fails to respond by that deadline, the counter-offer is technically void.

Statute of frauds

requires that certain types of contracts, such as for a property ownership transfer, be in writing to be legally enforceable and to prevent injury from fraudulent conduct.

Mediation clause

requires the parties to attempt mediation prior to engaging in arbitration or a legal action.

Arbitration clause

requires the parties to resolve or attempt to resolve their disputes through an arbitration process.

Addendum and amendment forms

should be recommended and/or approved by the broker.

An offer isn't a contract until it's __ the seller and ___ to the buyer or the buyer's agent.

signed (accepted by) delivered (physically or electronically)

Choice of law

specifies that any dispute arising under the contract shall be determined in accordance with the law in a particular jurisdiction.

Specific performance

suit seeks to force a party to make good on the promises made in some way.

1. Your 15-year-old son just signed a contract joining a health club, which costs $50 a month. Which of the following best describes this contract?

the contract is voidable

2. What's the meaning of "good faith" in relation to contract law?

the parties agree that they'll execute the contract to the best of their ability and without any fraud or misrepresentation

In many states, electronic documents and signatures can be used only if

the parties to the contract agree.

State laws govern

the use of electronic documents and signatures.

The parties have a right to form and execute the contract fee from

undue influence (taking advantage of someone based on a relationship) or duress (wrongful pressure, coercion, or force involving a threat).

An oral contract for the sale of real estate is ___ in court, even though it has the following requirements for a valid contract.

unenforceable

Contracts may be valid but ___.

unenforceable ex. a voidable contract is valid, but may not enforceable in a court of law.

Release

when one party to a contract agrees in writing that the other party is no longer held to the provisions of the agreement.

9. You're explaining to your client that using electronic documents and signatures simplifies the homebuying process. Your client is skeptical about these signatures. You describe the Uniform Electronic Transactions Act (UETA) and tell your client that ______.

State laws take precedence over UETA. -The UETA is an attempt to standardize acceptance of electronic documents and signatures, but state laws govern the use of these electronic items, and will take precedence of the UETA.

1. Jerry and Simon signed a contract so that Jerry could purchase all of Simon's restaurant equipment for one price after Simon closes his restaurant next month. The contract contains a provision that states Jerry has one year from the purchase date to file a suit relative to the purchase. After the year is up, Jerry forfeits the right. What kind of contract clause is this?

Statute of limitations -It is the only one that's a traditional contract clause, and it basically gives a date by which all performance must be completed or the party forfeits any legal rights.

3. Katelyn really wants to include an inspection contingency in her purchase offer. Her agent explains that the inspection contingency only documents which of the following?

The date by which all inspection issues must be addressed. -Is a way of signaling to the seller that if the inspector finds property condition issues, the buyer may require the sellers to fix those issues or may even terminate the contract. The one thing that the inspection contingency must do is document the date prior to closing by which all inspection issues must be fixed.

Damages

The innocent party can sue for this. This is a means of seeking monetary compensation to make up for any harm caused.

offeror

The party extending the offer.

offeree

The party receiving the offer.

Offer to purchase

The process of the buyer and the seller entering into a contract of sale typically begins when a potential buyer makes a written offer to a seller. Although the form used to make the offer may be titled sales contract, it is not a contract but an offer that isn't a contract until the parties come to acceptance.

10. Tom and Jim are neighbors. Jim wants to buy Tom's rental property. In the contract they sign, Jim is identified only as "the neighbor." Which statute or contract element does this violate?

The statute of frauds

Rescission

Contract CANCELLATION generally results from an operation of law, such as breach of contract, destruction of the object of the contract, etc. If the contract is rescinded, it is terminated, and the parties are legally returned to their position before there was a contract. ex. If one party breaches the agreement, the other may legally have the right to rescind the agreement.

Mutual agreement

Parties to the contract may terminate the contract through this. This is best accomplished through mutual written release.

The UETA defines an electronic signature as

"an electronic sound, symbol, or process attached to or logically associated with a record and executed or adopted by a person with the intent to sign."

Contract discharge

(performance, execution) means that the parties have met all contract terms and are discharged from their contractual obligations.

Contract clauses include

-"Time is of the essence" -Choice of law -Indemnification -Contingency clauses -Arbitration clause -Mediation clause -Statute of limitations -Liquidated damages

Contracts signed under the following circumstances are unenforceable:

1. Contract is for an illegal purpose 2. One or more of the contract parties was under duress or undue influence 3. One or more of the contract parties committed misrepresentation 4. Contract terms are patently unfair or violate public policy 5. Contract contains errors

7. Kenneth enters into a contract to sell his home to Valerie, who puts down a $5,000 earnest money deposit. At the last minute, Valerie backs out of the deal. Kenneth keeps the earnest deposit. This is an example of ___.

Accepting liquidated damages -Liquidated damages provide a specific compensation amount in the event of a breach.

7. When Dashiell received the purchase offer for his bungalow, he was surprised to see a page added to the contract requesting that an attorney review the contract. What is Dashiell looking at?

Addendum

All these documents together form the complete agreement between the parties.

Addendum and Amendment

Time is of the essence

All parties must comply with contract terms in a timely manner.

4. Camille, a buyer, wants to change the price already agreed to in a sales contract. What document should she use?

Amendment

optionee/optionor

In an option contract the potential BUYER (optionee) is usually required to pay an option fee to the SELLER (optionor). If the optionee decides not to exercise the option and purchase the property, the optionor typically retains the option fee.

1. Kendra made an offer on Sam's property. Sam rejected Kendra's offer, but made a counter-offer. Kendra is now considering the counter. What is Kendra in this scenario?

Offeree -The person considering the offer is the offer, so that's Kendra's role now that Sam made a counter-offer.

8. Seller gina feels awful that Martha, who was going to buy Gina's property, lost her job. Gina decides to ___ Martha from her obligation to pay earnest money, so that money is returned to Martha.

Release -Rescission is when both parties mutually agree that it makes sense to terminate the contract. Release is when one party wants out and the other agrees to release that party from any obligations.

Elements necessary for a contract to be valid; offer and contract

Requirements for a valid contract 1. Offer and contract 2. Consideration 3. Legally competent parties 4. Legal purpose 5. Made voluntarily

4. Gail was supposed to close on her new home by the end of May, but she kept asking the sellers if they could push the closing back. Even after the summer was over the transaction still hadn't closed. Gail was guilty of not adhering to which aspect of the contract?

Time is of the essence Means that the parties will proceed without delay. Gail is delaying, so she's guilty of violating the time is of the essence aspect of the contract.

Each state can choose whether or not to implement ___, and state laws will supersede ___ when present.

UETA

9. A buyer has signed an option agreement, which is an offer to purchase a specific piece of real estate without the obligation to buy it. Until the buyer exercises the option to buy, only the seller is bound by the option agreement; the seller may not sell the property to anyone else during the option period. What type of contract does this describe?

Unilateral

A contract is

a legally binding agreement. All parties to a contract must perform the contract terms or be considered in breach of contract.

If the optionee decides to exercise the option, the optionor is required to perform the contract terms, and the contract then becomes a __.

bilateral contract

Notices Clause

ex. a purchase or listing contract may permit contract parties to select whether notices may be delivered electronically. Notice from one party to the other may become necessary during contract negotiation or with a breach of contract and termination situation. Delivery and acceptance most often comes into play after a buyer makes an offer and while the contract is still being negotiated.

Statute of limitations

allow the aggrieved party to collect reasonable damages, even if the damages are hard to calculate.

When parties agree to other terms that are outside a main contract, these terms are included in an ___ or an ___.

amendment / addendum

Legally competent parties

are those who have the legal and mental capacity to enter into a contract. Contracts entered into with legally incompetent parties are voidable at the option of the incompetent party, but may be enforced against the competent party.

In the event the seller accepts the buyer's offer, there is a __.

contract

executed

contract is one in which all parties to a contract have met all contract terms. A contract for the sale of real estate is executed by the delivery and acceptance of the deed and the payment of the purchase price. (Note that you may also see the term "executed" used to refer a document that's been signed.)

Voidable

contract is one that appears valid, but one or both parties have a legal right to disaffirm it. This could be because one of the parties lacks legal competence, or because there was a mistake or misrepresentation, causing a failure of reality in consent. The contract is voidable by the incompetent or misled party but enforceable against the other party.

Void

contract isn't a contract at all because it lacks one or more of the requirements for a valid contract. It has no legal force or effect; it's UNENFORCEABLE.

Voluntary

contract means the parties entered into the agreement voluntarily. Mistakes, misrepresentation, fraud, duress, or undue influence create a situation in which the consent is not real.

Bilateral

contract, both parties have obligations. Most real estate contracts are bilateral. For example, a purchase contract contains promises by both parties.

Unilateral

contract, only one party makes a promise. An option contract is one example of a unilateral real estate contract. -option contract -optionee -optionor

If a seller ___ a buyer's offer, the original offer is no longer in effect; the __ becomes a contract if it's signed by the buyer and accepted by the seller.

counter-offer(s)

Contingency clauses

define a condition or action that a party must meet in order to not be in breach of contract.

Contracts are __ until all of the promises in the contract have been completed. A contract for the sale of real estate is ___ until the deed is delivered and accepted.

executory