Ch. 6 - Law of Contracts

Six Elements Required of a Valid Contract:

Competent parties Consideration Mutual Agreement Lawful Objective In Writing and Signed by the Parties Contain a Legal Description

25 of 25 What term describes the exchange of promises offered by one party to another to do or not to do something? Deliberation Application Omission Consideration

Consideration Consideration is the exchange of promises offered by one party to another to do or not do something. Consideration separates contractual obligations from a gift. It is usually something of value being exchanged by one party to receive something of value from the other party.

11 of 25 What type of performance describes when a defendant has failed to complete performance of an agreement according to its terms and where the plaintiff may recover damages to compensate him or her to the same extent as though the contract had been completely performed? Sufficient performance Partial performance Defective performance Residual performance

Partial performance Partial performance occurs when a defendant has failed to complete performance of an agreement according to its terms.

4 of 25 In contract language, what means to do what one agreed to do? Action Performance Exchange Attainment

Performance In contract language, "performance" means to do what one agreed to do. Some contracts require a party to refrain from doing something and that is called "forbearance."

3 of 25 What are described as the legal agreements that underlie the transfer and financing of real estate, as well as the real estate brokerage business? Property contracts Real estate contracts Legal contracts Performance agreements

Real estate contracts Real estate contracts are the legal agreements that underlie the transfer and financing of real estate, as well as the real estate brokerage business.

contract

agreement between two or more parties who, in a "meeting of the minds," have pledged to perform or refrain from performing some act.

void contract

agreement that does not meet the tests for validity, and therefore is no contract at all. If a contract is void, neither party can enforce it.

The Statute of Frauds in California requires that...

all agreements affecting title to or interest in real estate be in writing and signed by the parties to the contract.

EXPRESS contract

all the terms and covenants of the agreement have been clearly stated and agreed to by all parties, whether verbally or in writing.

A real estate contract that is not a personal contract for services can be...

assigned or delegated to another party unless the terms of the agreement specifically prohibit assignment or delegation.

2 of 25 Real estate contracts aren't enforceable unless the parties have exchanged something of value called commerce. consideration. interchange. transposition.

consideration. Real estate contracts aren't enforceable unless the parties have exchanged something of value, called consideration.

Contract law

consists of both common law and statutory rules that govern the creation, interpretation, and enforcement of contracts.

ambiguous contract

contains terms, but the terms are vague or can be interpreted and understood in more than one way.

An oral long-term lease and an oral real estate sales contract are examples of...

contracts that may be valid but not enforceable.

Consideration

exchange of promises offered by one party to another to do or not do something.

Default

fail to do something required by law or duty. Those who fail to perform are in default and may be sued by the other party.

breach of contract (aka default)

failure to perform according to the terms of the agreement. gives the damaged party the right to take legal action. In California, the Statute of Limitations to sue for breach of contract in real estate is four years from the time the breach occurred.

mutual agreement

full consent of all parties to a contract It is a meeting of the minds and is also referred to as mutual assent.

voidable contract

initially appears to be valid, but is subject to cancellation by a party to the contract who is believed to have acted under some kind of DISABILITY.

Real estate contracts

legal agreements that underlie the transfer and financing of real estate, as well as the real estate brokerage business. Listing and representation agreements and real estate purchase agreements are the most common types of contracts used in real estate

1 of 25 The full consent of all parties to a contract is called memorandum of understanding. cooperative agreement. mutual agreement. service agreement.

mutual agreement. The full consent of all parties to a contract is mutual agreement. It is a meeting of the minds and is also referred to as mutual assent.

17 of 25 A meeting of the minds where parties freely agree to the terms of a contract, exactly as the contract is written, is called separate assent. reciprocal agreement. bilateral assent. mutual assent.

mutual assent. A meeting of the minds, or mutual assent, means parties freely agree to the terms of the contract, exactly as the contract is written.

20 of 25 At least how many people are needed to form a bilateral contract? 1 2 4 0

2 "Bilateral contracts need at least two people, while unilateral contracts only obligate action on one part."

24 of 25 What type of contingency gives the buyer time to apply for and obtain financing? A Preliminary Title Contingency A Buyer Financing Contingency A Sale of Buyer's Property Contingency A Home Inspection Contingency

A Buyer Financing Contingency A buyer financing contingency gives the buyer time to apply for and obtain financing for the property. This usually includes an appraisal of the home to ensure the property is valued at a specific amount.

14 of 25 What type of contract is one in which both parties promise to perform their respective parts of an agreement in exchange for performance by the other party? An express contract A unilateral contract An implied contract A bilateral contract

A bilateral contract A bilateral contract is one in which both parties promise to perform their respective parts of an agreement in exchange for performance by the other party.

Define breach of contract.

A breach of contract is a failure to perform according to the terms of the agreement. Also called default, a breach of contract gives the damaged party the right to take legal action

15 of 25 What should every contingency have so that there is "reasonable time" for the fulfillment of the contingency? Limitations of liability Selling restrictions A specific deadline A clear description

A specific deadline Every contingency should have a specific deadline. Without this, the decision of a "reasonable time" for the fulfillment of the contingency is left for a court to decide.

13 of 25 What type of suit is an attempt to force the defaulting party to comply with the terms of the contract? A suit for damages Rescission A suit for specific performance Forfeiture

A suit for specific performance A suit for specific performance is an attempt to force the defaulting party to comply with the terms of the contract.

21 of 25 Which one of these contracts is a unilateral agreement? An Independent Contractor Agreement A Listing Agreement An Option to Purchase A Buyer Representation Agreement

An Option to Purchase Unilateral contracts are one sided. In a unilateral contract, a promise on one side is exchanged for an act or forbearance on the other side. An option to purchase is unilateral.

16 of 25 What type of contract is one that has been fully performed and fulfilled? An open contract An executory contract An executed contract An indefinite contract

An executed contract An executed contract is one that has been fully performed and fulfilled; neither party bears any further obligation. A completed and expired lease contract is an executed contract.

19 of 25 What type of contract describes a sales contract prior to closing? An executed contract An implied contract An express contract An executory contract

An executory contract An executory contract is one in which performance is yet to be completed. A sales contract prior to closing is executory.

5 of 25 What type of contract is one in which all the terms and conditions of the agreement have been clearly stated and agreed to by all parties, whether verbally or in writing? An executed contract An implied contract An express contract A bilateral contract

An express contract An express contract is one in which all the terms and covenants of the agreement have been clearly stated and agreed to by all parties, whether verbally or in writing.

7 of 25 What type of contract is one that cannot be fully understood because important terms are missing? An indefinite contract An inferred contract An ambiguous contract A presumed contract

An indefinite contract

23 of 25 What describes a failure to perform according to the terms of an agreement? Failure of privilege Breach of contract Failure of performance Breach of faith

Breach of contract A breach of contract is a failure to perform according to the terms of the agreement. Also called default, a breach of contract gives the damaged party the right to take legal action.

6 of 25 What consists of both common law and statutory rules that govern the creation, interpretation, and enforcement of contracts? Common law Statute law Contract law Civil law

Contract law Contract law consists of both common law and statutory rules that govern the creation, interpretation, and enforcement of contracts.

delegation transfers....

DUTIES

22 of 25 What term describes the failure to do something required by law or duty? Transgression Breach Noncompliance Default

Default Default is to fail to do something required by law or duty.

rescission

Discharging a contract by mutual agreement

8 of 25 What term describes when damages were within the contemplation of the contract when made? Accountability Computability Predictability Foreseeability

Foreseeability Foreseeability means such damages were within the contemplation of the contract when made.

What is the Statute of Limitations to sue for breach of contract in California?

Four years from the time the breach occurred

List five common tort claims made against real estate licenses.

Fraud Breach of Duty Breach of Contract Negligence Bodily Injury / Property Damage

Performance and Forbearance

In contract language, "performance" means to do what one agreed to do. Some contracts require a party to refrain from doing something and that is called "forbearance". Contracts may include both performance and forbearance requirements.

Law of Torts

Issues involving licensee non-disclosure to third parties Tort is a civil wrong or wrongful act, whether intentional or accidental, that the law recognizes as grounds for a lawsuit. Tort law attempts to remedy a wrong by providing monetary damages to the injured party. Types of damages that may be recovered: -pain and suffering, -emotional distress, -personal property issues, -loss of earnings, -reasonable medical expenses.

Discharge of a contract (aka cancellation and termination), may occur for any of the following causes..

Performance - A contract terminates when fully performed by the parties. Infeasibility - An otherwise valid contract can be canceled if it is not possible to perform. Mutual agreement - Parties to a contract can agree to terminate, or renounce, the contract.

damaged party may elect the following 4 legal remedies:

Rescission - A damaged party may rescind the contract. Rescission cancels the contract and returns the parties to their pre-contract condition, including the refunding of any monies already transferred. Forfeiture - Forfeiture requires the breaching party to give up something, according to the terms of the contract. Suit for damages - A damaged party may sue for money damages in civil court. Suit for specific performance - A suit for specific performance is an attempt to force the defaulting party to comply with the terms of the contract.

18 of 25 What do many states have that protects consumers who enter into the types of contracts in which fraud is most likely to occur? Consumer law Common law The Statute of Frauds The Breach of Performance

The Statute of Frauds Many states have a statute of frauds that protects consumers who enter into the types of contracts in which fraud is most likely to occur.

10 of 25 What restricts the time period for which an injured party in a contract has the right to bring a lawsuit against the other party? The Statute of Frauds An exclusion clause A limitation clause The Statute of Limitations

The Statute of Limitations The Statute of Limitations restricts the time period for which an injured party in a contract has the right to bring a lawsuit against the other party.

3 scenarios that can occur when a contingency is not met:

The transaction is void. The contingency is waived. The agreement is revised.

What is a tort?

Tort is a civil wrong or wrongful act, whether intentional or accidental, that the law recognizes as grounds for a lawsuit.

In terms of validity and enforceability, a court may construe the legal status of a contract in one of four ways:

Valid Valid but unenforceable Void Voidable

It's important agents and parties to a contract are clear on the following components of a contingency:

Who is required to act? What should be done? When must it be done? How is the contingency removed or satisfied?

A real estate contract that transfers property or any interest in property must include

a legal description.

According to the Statute of Frauds...

assignment of property must be in writing.

executed contract

has been fully performed and fulfilled: -neither party bears any further obligation.

competent party

has the legal capacity to enter into a contract and may be held to the promises made in the agreement.

incompetent party

may not be held to the terms of the contract.

valid contract

one which meets the LEGAL requirements for validity.

unilateral contract

only one person is allowed to make a promise or agreement. One party promises to do something, provided the other party does something. The latter party is not obligated to perform any act, but the promising party must fulfill the promise if the other party chooses to perform.

executory contract

performance is yet to be completed. A sales contract prior to closing is executory. While the parties have agreed to buy and sell, the buyer has yet to pay the seller and the seller has yet to deed the property to the buyer.

Under California law, all parties to a contract are required to use

reasonable due diligence to fulfill contingency requirements. Due diligence protects both the buyer and seller in a real estate transaction.

In most cases, the resulting contract, until the two parties meet all the conditions within it...

remains an executory contract. When all of the requirements of an executory contract have taken place, the contract becomes an executed contract.

Contracts are not valid that...

require performance that is unlawful (illegal).

12 of 25 Discharging a contract by mutual agreement is called rescission. initiation. revocation. retraction.

rescission.

breach

something torn or broken. In contract law, it means that someone has broken his or her word.

The same criteria need to be proven....

to enforce a bilateral or unilateral contract in court. In each situation, the following will need to be established: The contract existed The contract was broken A loss was suffered The person challenged was responsible Both unilateral and bilateral contracts are enforceable in court.

implied contract

unstated or unintentional agreement that may be considered to exist when the actions of any of the parties suggest the existence of an agreement.

voidable contract differs from a void contract in that...

void contract does not require an act of disaffirmation to make it unenforceable.

9 of 25 If a contingency was not met by the date outlined in the contingency, the contract is abdicated. revised. waived. void.

void. A contingency that was not met by the date outlined in the contingency voids the transaction.

All contracts should use...

clear, precise language. Problems often arise when the language of a contract is indefinite or ambiguous.

Contingencies

conditions that must be met in order for a contract to be performed.

Assignment transfers....

RIGHTS

bilateral contract

both parties promise to perform their respective parts of an agreement in exchange for performance by the other party.

unenforceable contract

cannot be enforced in a court of law. This could happen because the terms of the contract are ambiguous, if one party has a voidable contract, or if the Statute of Limitations has expired.

indefinite contract

cannot be fully understood because important terms are missing from the contract.