Module 2: Contracts

A contract that has no force or effect in law from its inception is void. voidable. unenforceable.

1 and 3 only A contract that has no force or effect in law from its inception is necessarily void. Void describes a contract that has never existed as a valid contract. Thus, it is also unenforceable. To say it is voidable would give doubt to whether it is void or valid. In this case, the contract never was valid nor ever will be.

With written escrow instructions, an escrow agent may do which of the following? Disburse funds as authorized by the principals. Draft legal documents. Review legal documents for typographical errors.

1 and 3 only With written escrow instructions, an escrow agent may disburse funds as authorized by the principals and review legal documents for typographical errors. An escrow agent cannot, however, draft legal documents.

Which statement/s is/are TRUE? A counter offer is a rejection of the first offer and is a new offer. A slight change made to the buyer's offer by the seller, such as changing the escrow company, does not create a counter offer.

1 only A counter offer is a conditional rejection that attempts to change, add to, or qualify the terms of the offeror's initial offer. Any change to the offeror's original offer is a counter offer. Upon making a counteroffer, the original offer is no longer open for acceptance by the offeree and has become a new offer.

An offer can be terminated by rejection by the offeree. a counter offer. revocation by the offeror.

1, 2 and 3. A seller (i.e., the offeree) can accept the offer as written, reject the offer outright, reject the offer by making a written counter offer, or do nothing and let the offer expire. The buyer (i.e., the offeror) can revoke the offer presented to the offeree if it has not been accepted.

A contract is void when it is entered into with a minor. it requires an illegal act for performance.

2 only A contract is not necessarily void if it is entered into with a minor since minors can enter contracts via emancipation, the legal mechanism by which the court frees a minor from parental control. However, the legality of purpose requires that the object of the contract be legal. If entered into for an illegal purpose, a contract is not legally binding.

A "voidable" contract is unenforceable. valid until action is taken to make it void.

2 only A voidable contract is not unenforceable until made void. It is valid until action is taken to make it void.

Which one of the following statements is/are correct? Listing agreements are assignable without the seller's consent. Unless prohibited in the contract, a land sale contract can be assigned by the buyer.

2 only Unless prohibited in the contract, a land sale contract can be assigned by the buyer. Listing agreements need to be agreed to by both the seller and the agent representing the seller. Therefore, listing agreements are not assignable without the seller's consent.

Which of the following is an executory contract?

A contract for the sale of real estate before the transaction closes escrow. An executory contract is one in which performance is yet to be completed. A contract for the sale of real estate before the transaction closes is an executory contract.

What is a multiple listing?

A listing that is entered in a multiple listing service to enable cooperation with member brokers. Though not a distinct type of listing agreement, multiple listing is a significant feature of brokerage practice. Multiple listing is an authorization to enter a listing in a multiple listing service.

Which statement is FALSE?

A void contract is valid when entered into by the parties but it may later become unenforceable. Valid: meets all requirements, Void: not valid; unenforceable, Voidable: may be rescinded due to subsequent discoveries: if performed, cannot change the outcome.

Which of the following is the best description of a contract?

An agreement between competent parties based upon legal consideration that creates legally enforceable duties and obligations. A contract can best be described as an agreement between competent parties based upon legal consideration that creates legally enforceable duties and obligations.

Who should sign the listing contract when a private corporation wants to sell its real property?

Any person authorized by the board of directors. When a private corporation wants to sell its real property, any person authorized by the board of directors should sign the listing contract.

If either party in a real estate transaction suffers a loss because of a broker's misrepresentations the broker can be held liable for damages. the broker could lose their commission.

Both If either party in a real estate transaction suffers a loss because of a broker's misrepresentations, the broker can be held liable for damages AND the broker may lose their commission.

A voidable contract is one that both parties can consider acceptable has a defect allowing one of the parties to declare it void.

Both 1 and 2 A voidable contract is one that contains a defect that allows one party to declare the contract entirely void without any adverse legal effect. Voidable means a contract can be made void but does not have to be made void; both parties could consider the voidable contract acceptable.

A real estate licensee can be guilty of misrepresentation by direct acts or statements. acts of omission, such as failure to disclose vital information.

Both 1 and 2 Misrepresentation can be by both omission and commission. Commission is the act of doing something while omission is the act of leaving something out.

The consideration necessary for a valid contract could be a promissory note. personal property, such as a boat.

Both 1 and 2 The consideration necessary for a valid contract must be either a legal detriment to the donor or a legal benefit to the recipient. A legal benefit is something to which the recipient was not previously entitled. A legal detriment is something the party will do, but which the party was previously under no obligation to do or has not already done. Therefore, personal property such as a boat would be considered a legal benefit. A promissory note would be considered a legal detriment.

Donald Van Dorn has entered into a listing agreement to sell his house through Broker Darla Polk. Polk's brokerage is the only brokerage that has the right to sell the house during the listing period. Van Dorn has reserved the right to sell the home and pay no commission. Van Dorn and Polk entered into which type of listing agreement?

Exclusive agency. This kind of agreement is called an exclusive agency. Only Polk's brokerage is given the right to sell the house during the listing period.

On Wednesday, Jack offered to buy Fred's property for $275,000, with the offer to remain open until 5 p.m. the next day. On Thursday morning, Jack offered Sally $280,000 for her property, and she accepted. At 1 p.m. on Thursday, Fred accepted Jack's offer. Which of the following is true of this situation?

Jack has entered into contracts with both Fred and Sally. Jack has entered into contracts with both Fred and Sally. Jack should have rescinded his offer to Fred before making an offer to Sally. Jack is obligated to perform both contracts or face possible damages.

If an offer to purchase is not accepted in its entirety, it will still bind the offeror. offeree.

Neither 1 nor 2 If an offer to purchase is not accepted in its entirety it does not bind anyone, neither the offeror nor the offeree.

Which of the following is not a necessary element in the formation of a contract?

Performance Performance is not a necessary element in the formation of a contract. Performance, however, is a necessary element in the execution of a contract. Both parties must perform in order to execute the contract.

The statute or act that requires a contract for the sale of land to be in writing is the

Statute of Frauds. Because the real estate purchase and sale agreement is subject to the Statute of Frauds, the agreement must be in writing to legally exist.

What is the meaning of novation?

Substitution of a new contract between the same or different parties When there is a novation, a new party is substituted for one of the original parties to the contract and the original party is excused from further performance.

What is rescission?

The act of declaring that a contract is no longer in effect for a given party. Parties to a contract may rescind a contract by mutual consent, or a damaged party may rescind the contract unilaterally. This act of rescission cancels the contract and returns the parties to their pre-contract condition, including the refunding of any monies already transferred.

Which of the following conditions is necessary for a customer to qualify as "ready, willing, and able?"

The customer must be legally competent to undertake the transaction. A ready, willing, and able customer is one who is amenable to the terms of the transaction (ready and willing), and is financially capable of paying the price and legally capable of completing the transaction (able).

For an option to sell real property to be valid and enforceable, all but one of the following must be done. Identify the one that need NOT be done.

The option must be recorded. While the option must be in writing, the option need not be recorded.

How much time does a seller have to accept a buyer's offer that includes "time is of the essence?"

Until the expiration date the buyer included in the offer. When the offer includes an expiration date and the phrase "time is of the essence," the offer expires at exactly the time specified.

In assisting a buyer or seller to complete an offer to purchase, what should an agent do to reduce the risk of committing an unauthorized practice of law?

Use a standard contract promulgated by a state agency or a real estate board. It is advisable, and legally required in most states, for a broker to use a standard contract form promulgated by state agencies or real estate boards, as such forms contain generally accepted language. This relieves the broker of the dangers of creating new contract language, which can be construed as a practice of law for which the broker is not licensed.

A contingency in a sale contract is

a condition that, if unmet, renders the contract unenforceable. A contingency is a condition that must be met before the contract is enforceable. If one party cannot meet a contingency condition by a specified deadline, the other party may cancel the contract.

Every valid contract must meet all of the following requirements EXCEPT

a consideration clause expressed in monetary terms. Every valid contract must meet all of the following requirements except a consideration clause expressed in MONETARY TERMS. A consideration is something of value provided by one person to the contract in exchange for something of value from the other person to the contract. While consideration is one of the essential elements to a valid contract, consideration does not necessarily have to be in monetary terms.

"An agreement between competent parties upon legal consideration creating legally enforceable duties and obligations" is a definition of

a contract. In general, a contract is an agreement between competent legal parties to do some legal act or to refrain from doing some legal act in exchange for consideration.

A prospective homebuyer submits a signed offer with the condition that the seller pay for the inspection at closing. The seller disagrees, crosses out the provision, then signs and returns the document to the buyer. At this point, assuming all other contract validity items are in order, the original offer is now

a counteroffer. By changing any of the terms of an offer, the offeree creates a counteroffer, and the original offer is void. At this point, the offeree becomes the offeror, and the new offeree gains the right of acceptance. If accepted, the counteroffer becomes a valid contract provided all other requirements are met.

A listing agreement in which the broker is authorized to retain all the proceeds of a sale in excess of the seller's listing price is called

a net listing. A listing agreement in which the broker is authorized to retain all the proceeds of a sale in excess of the seller's listing price is called a net listing. The net listing is likely the most favorable form of listing agreement for income for agents, with the exception that the seller owes no fee if the seller procures the sale.

The amount of the earnest money deposited is determined by

agreement between the buyer and seller. In a real estate transaction, the amount of the earnest money deposit is negotiated by the buyer and seller. There is no set amount required for earnest money.

A listing agreement between a principal broker and seller can be terminated by death of either party. destruction of the property. bankruptcy of the seller. All of the above.

all of the above A listing agreement between a principal broker and seller can be terminated by death of either party, bankruptcy of the seller and destruction of property, among many other things.

A contract can be rescinded because of undue influence. a mistake. a misrepresentation.

all of the above Some of the factors that can void a contract include mutual mistake, undue influence, duress, concealment, misrepresentation, and fraud.

A real estate sale contract is an executory contract until

all the obligations and promises are performed and the transaction is closed. An executory contract is one for which the signatories have yet to perform their respective obligations and promises. Upon closing, the sale contract is fully performed and no longer exists as a binding agreement.

Mark and Eleanor Walworth have signed a listing agreement with Kim Pederson to sell their house. By the terms of the agreement, the Walworths will pay a 6% commission if the house is sold during the listing period. This type of contract is known as

an exclusive right to sell. This type of contract is known as an exclusive right to sell. In an exclusive right to sell listing, the commission is earned if the property is sold by another brokerage, the seller, or the listing brokerage.

A contract created by actions rather than oral or written words is called

an implied contract. A contract created by actions rather than oral or written words is called an implied contract. As opposed to express contracts, implied contracts are not created by an oral or written agreement, thus they must be deduced from the actions of the parties.

One of the essential requirements for a valid escrow is a binding contract. This may be an exchange agreement. an option agreement. a lease agreement. any of the above.

any of the above. A binding contract for a valid escrow may be an option agreement, an exchange agreement or a lease agreement.

If the seller wants to amend the sale agreement after it is signed, the change must

be in writing and signed by the seller and the buyer. Changes to an accepted offer must be in writing and signed by the buyer and seller.

An accepted offer to purchase includes the signature of the buyer. the seller.

both 1 and 2

An executory contract is always a

contract that will be performed. An executory contract is one that has not yet been fully performed. An executed contract is one that has been fully performed by both parties.

A voidable contract is

enforceable, but is subject to rescission by one of the parties to the contract. A voidable contract is still enforceable, but it is subject to rescission by one of the parties to the contract. Rescission is the process by which one party legally makes a contract void.

The guardian for a mentally incompetent party enters into an oral contract with another party to buy a trade fixture on behalf of the incompetent party. This contract

is possibly valid and enforceable. Incompetent parties, or parties of "unsound mind," may not enter into enforceable contracts. However, during the period of one's incompetency, a court may appoint a guardian who may act on the incompetent party's behalf with court approval.

An amount predetermined by the parties to an agreement as to the total amount of compensation a party should receive in the event that the other party breaches the contract is known as

liquidated damages. Liquidated damages is the predetermined amount of compensation a party should receive in the event that the other party breaches the contract.

The sale agreement specifies that the seller keeps the earnest money deposit if the buyer defaults. This stipulation is known as

liquidated damages. This stipulation is known as liquidated damages. Liquidated damages are damages specified in advance as damages for a breach of contract.

To be enforceable, a listing for residential property

must be signed by the owner and the lisitng licensee. To be enforceable, a listing for a residential property must be signed by the owner and the licensee. It must be in writing. It does not need to include the words "exclusive right to sell" to be enforceable. Finally, the buyer is not a party to a listing agreement.

When Bob bought Brian's house, he assumed Brian's mortgage and the lender released Brian from all further liability under the loan. This is known as

novation.

To be enforceable, a real estate sale agreement must have

offer and acceptance. To be enforceable, a real estate sale agreement must have the essential elements of a contract. One of these essential elements is mutual assent (offer and acceptance).

A broker says to a potential buyer, "In my opinion, this house has the best view in the whole area!" when other houses in the same area have a view as good or better, is an example of

puffing. The broker's statement to a prospect that, "In my opinion this house has the best view in the whole area!" when other houses in the same area have a view as good or better, is an example of puffing. Puffing is sales talk and isn't designed as a statement of fact or to mislead about value or quality. Puffing is the licensee boasting about the property's benefits.

When the time is of the essence clause is in the contract,

punctual performance of the terms is required of the principals to the contract. When a contract has a "time is of the essence" clause, both parties are expected to perform the terms of the contract without an intentional delay unless an exception is agreed to in-writing by both parties.

To be valid, a contract must

reflect a mutual understanding or agreement. Mutual consent, also known as offer and acceptance and meeting of the minds, requires that a contract involve a clear and definite offer and an intentional, unqualified acceptance of the offer.

An option

should recite in detail the terms of the purchase in the event it is exercised.

A second offer made on a property prior to the seller's decision on the first offer should be

submitted to the seller immediately. A second offer made on a property prior to the seller's decision on the first offer should be submitted to the seller immediately. A buyer can revoke an offer any time before the seller's acceptance is communicated to the buyer (or buyer's agent).

A breach of contract is

the failure of a party to perform according to the terms of the contract. A breach of contract is a failure to perform according to the terms of the agreement.

An implied agency relationship may be deemed to exist if

the parties act as if there is a contract. An implied contract is an unstated or unintentional agreement that may be deemed to exist when the actions of any of the parties suggest the existence of an agreement.

The term waiver is best defined as

to voluntarily give up or surrender a right. A waiver as it relates to a contract is the act of voluntarily giving up or surrendering a right contained within the contract.

A contract created to pursue an illegal objective is

void. A contract created to pursue an illegal objective is void. Legality of purpose is the contract element that requires the object of the contract to be legal. If entered into for an illegal purpose, a contract is not legally binding.

A seller contracts to sell a property that they do not own. The contract is

void. The content, promise, or intent of a contract must be lawful. A contract that proposes an illegal act is void.

Party A entered into a contract with Party B after being coerced by Party B. The contract between Party A and Party B is:

voidable at the option of Party A. The contract can be voidable at the option of Party A.