Real Estate, Chapter 6, Lesson Cumulative Quiz

When an offeree makes a counteroffer: A. no contract is formed unless the original offeror accepts the counteroffer B. the original offeror is required to accept the offeree's modified terms C. if the original offeror does not accept the offeree's modifications, they have a binding contract on the terms originally offered D. it creates a binding contract on the offeree's modified terms, unless the modifications are unreasonable

A. Explanation: A counteroffer acts as a rejection of the original offer. The only way a contract can be formed at this point is if the original offeror accepts the counteroffer.

The key difference between an assignment and a novation is that in a novation: A. the withdrawing party is released from liability B. the withdrawing party remains secondarily liable C. the other party's consent is not required D. the statute of frauds does not apply

A. Explanation: A novation means the old party is exchanged for a new party: the withdrawing party is released from liability. This can be distinguished from an assignment, where the assignor remains secondarily liable.

A contract is not formed if the offer is: A. revoked before it is accepted B. accepted before it expires C. revoked after it is accepted D. accepted without any modification of its terms

A. Explanation: An offer can be revoked before it is accepted. After acceptance, however, a legally binding contract has been formed.

As a general rule, a contract can be assigned from one party to another: A. unless a clause in the contract prohibits assignment B. unless the assignee is not a good credit risk C. only if there is no other way to avoid breach of contract D. only with the written consent of all parties

A. Explanation: Generally, a contract is assignable unless specifically prohibited.

A contract is bilateral if: A. each party makes a promise, so that both parties are legally obligated to perform B. only one of the parties is legally obligated to perform C. it has been put into words (spoken or written) D. it is in the process of being performed

A. Explanation: With a bilateral contract, each party is legally obligated to perform a promise.

A contract signed under duress: A. can be rescinded by either party B. is voidable by the party who was forced to sign C. does not fulfill the requirements of the statute of frauds D. is treated as an implied contract

B. Explanation: A contract is voidable if one of the parties used duress to persuade the other party to enter into it. When a contract is voidable, the injured party has the right to rescind it.

A contract which is binding on one party and not on the other is: A. bilateral B. unilateral C. void D. unenforceable

B. Explanation: A unilateral contract is one where only one of the contracting parties is legally obligated to perform.

If no action is taken to rescind a voidable contract: A. it automatically becomes void B. a court may declare that the contract has been ratified C. it cannot be enforced until the statute of frauds expires D. it must be assigned to another party

B. Explanation: Action must be taken to rescind a voidable contract. Failure to take action within a reasonable time could result in a court declaring that the contract was ratified.

Once a contract has been fully performed, it is said to be: A. executory B. executed C. unilateral D. implied

B. Explanation: An executed contract is one that has been fully performed. An executory contract has not yet been performed.

If the optionee fails to exercise the option within the specified time: A. the option is automatically extended for a similar period B. the option expires automatically C. the optionor can sue for breach of contract D. the optionor is entitled to specific performance

B. Explanation: If the optionee does not exercise the option by the end of the option period, the option automatically expires. There is no automatic extension of the option period.

The Ms execute an agreement to purchase a property from the Js for $150,000. Several days later, the Ks approach the Ms and offer them $6,000 to assume the Ms rights under the purchase agreement. The contract is silent regarding assignment. Which of the following is true? A. Absent an assignment provision, the Ms cannot assign their contract; they must wait for the transaction to close B. The Ms may assign the contract to the Ks C. The Js may terminate the contract and form a new one with the Ks D. The law prohibits assignment in real estate transactions

B. Explanation: The Ms may assign the contract to purchase the property to the Ks (because the agreement does not prohibit it). The Js may not unilaterally terminate the contract; they may choose to breach it, but then they may be liable for damages to the Ms.

A buyer has signed a purchase and sale agreement for an estimated 48 acres of land. When the property is surveyed, it turns out to be only 37 acres. Which of the following is true? A. The contract is void B. The contract is voidable by the buyer C. The buyer cannot withdraw, because a contract has been signed D. The buyer cannot withdraw, because the contract only referred to an estimated number of acres

B. Explanation: The contract is voidable by the buyer. Whether the misinformation was deliberate or not, the buyer is not getting what she bargained for. She can rescind the contract if she wants, or she can complete the sale anyway.

The statute of frauds requires a document that conveys real estate to be: A. in English B. in writing C. recorded D. acknowledged

B. Explanation: The statute of frauds requires certain types of contracts to be in writing and signed. In general, the statute of frauds applies to any agreement to convey an interest in real property.

When a contract is rescinded: A. performance must be completed within six months B. the parties return any consideration that has been exchanged C. a new party is substituted for one of the original parties D. All of the above

B. Explanation: When rescinding a contract, the parties agree to terminate the contract and put themselves back into the position they were in before the contract was executed. This means the return of any consideration that has been exchanged.

A contract with an unlawful purpose is: A. unenforceable B. valid C. void D. voidable

C. Explanation: A contract that lacks one of the essential elements, such as a lawful objective, is considered void.

A statute of limitations: A. limits the amount of consideration a party to a contract can be required to pay B. limits the number of contracts a person can enter into in one year C. sets a deadline for filing a lawsuit D. sets a deadline for fulfilling the terms of a contract

C. Explanation: A statute of limitations is a type of law that sets a deadline for filing a lawsuit.

An option on real estate is a: A. deposit B. consideration C. contract D. endorsement

C. Explanation: An option on real estate is a contract that creates a right to buy property for a fixed price within a set period of time.

Consideration is: A. not required for contracts that have been put into writing B. not required if the contract has a lawful objective C. something of value exchanged by the contracting parties D. formal execution of the contract in the presence of at least two witnesses

C. Explanation: Consideration is always a required element of a valid contract. It is something of value exchanged by the parties.

Which of these is one of the four basic elements needed to make a contract valid and legally binding? A. A unilateral promise B. A counteroffer C. Mutual consent D. Voidability

C. Explanation: Mutual consent, or offer and acceptance, is one of the four essential elements to a contract.

On Saturday, the buyers accept a counteroffer and initial the purchase agreement. On Monday, their broker notifies the sellers' broker, who notifies the sellers. When did mutual acceptance occur? A. On Saturday, when the counteroffer was accepted B. On Saturday, when the agreement was initialed C. On Monday, when notice of the acceptance was made D. On Monday, when the broker reviewed the acceptance

C. Explanation: Offer and acceptance is completed when the acceptance is communicated to the offeror in the manner and within the time limit stated in the offer.

An option to buy, when exercised, becomes a/an: A. implied contract B. unilateral contract C. bilateral contract D. statutory contract

C. Explanation: Once the optionee chooses to complete the purchase (exercises the option to buy), the agreement becomes bilateral and both parties are obligated to perform.

Which of these is a legal action that compels the party who has breached the contract to perform as agreed? A. Rescission B. Damages C. Specific performance D. Full performance

C. Explanation: Specific performance is a legal action to compel a defaulting party to perform the terms of a contract.

When a purchase and sale agreement has been signed by both buyer and seller, but the sale has not been completed and the deed has not been delivered, the contract is: A. unilateral B. implied C. executory D. executed

C. Explanation: The contract is executory, which means it is in the process of being performed. (Executed means the contract has been performed.)

A contract is voidable if one of the parties: A. is a minor B. used misrepresentation to persuade the other to enter into it C. has the right to rescind it D. All of the above

D. Explanation: A contract is voidable if one of the parties is a minor or used misrepresentation to persuade the other party to enter into it. When a contract is voidable, one party (the minor or the injured party) has the right to rescind it.

In the contract, the parties agree in advance that $10,000 will serve as full compensation to be paid in the event that one of the parties defaults. This sum is called: A. cancellation damages B. consideration C. specific performance D. liquidated damages

D. Explanation: Liquidated damages is an amount that the parties agree in advance will serve as compensation for a breach of the contract.

A buyer calls an agent and offers $100,000 for a property the agent has listed. The agent calls the sellers and lets them know the news, at which point they accept the offer. Who is legally bound at this point? A. Buyer only B. Sellers only C. Both the buyer and sellers D. None of the parties

D. Explanation: None of the parties are bound at this point, because the statute of frauds requires real estate contracts to be in writing. An oral contract for the purchase of real estate is unenforceable.

A valid, enforceable contract may be discharged by: A. the statute of frauds B. consideration C. breach of contract D. agreement between the parties

D. Explanation: The parties to a contract can agree to discharge a contract by rescission, cancellation, assignment, and novation.

The statute of frauds applies to: A. a purchase and sale agreement for a house B. a purchase and sale agreement for vacant land C. a listing agreement for a piece of commercial real estate D. All of the above

D. Explanation: The statute of frauds applies to most contracts used in real estate transactions. The type of property involved is immaterial.

In Washington, to have legal capacity to enter into a contract, a person must be: A. at least 21 years old B. able to read and to sign his or her name C. registered with the superior court D. mentally competent

D. Explanation: To have the legal capacity to enter into a contract, a person must be at least 18 years old and mentally competent.

The buyer and seller agreed that they would terminate their purchase and sale agreement and the seller would keep the earnest money deposit the buyer had given him. This is an example of: A. revocation B. novation C. rescission D. cancellation

D. Explanation: With a cancellation, the parties terminate the contract, but they agree to keep any consideration that has been exchanged.