CALIFORNIA REAL ESTATE PRINCIPLES: CHAPTER 5: CONTRACTS. TERMS AND QUIZ.

Completion

- occurs after a contract has been completed and extends until the Statute of Limitations runs out. a. Executed Contract - contract has been discharged or performed.

Acceptance of Breach

1. A discharge of a contract may be simply the acceptance of the breach. 2. The wronged party does not pursue legal action.

Remedies for breach: (Summary)

1. Acceptance 2. Unilateral rescission 3. Action for $$ 4. Specific Performance

Offer

1. An expression of willingness to enter into a contract. a. OFFEROR - is the person (buyer) who has made the offer. b. OFFEREE - is the person (seller) to whom the offer has been made.

Terms used in a contract:

1. Execute - is to sign a contract. 2. Execution - is the act of performing or carrying out the contract. 3. An Executed Contract - is one that has either been discharged or performed.

Contract (Summary)

1. Expressed 2. Implied 3. Bilateral 4. Unilateral 5. Valid 6. Voidable 7. Unenforceable

Contracts 3 Phases: (Summary)

1. Negotiation 2. Not Yet Performed 3. Completion

Action for Dollar Damages

1. Occurs when a court suit for breach requests payment of a fixed amount of money as compensation. 2. A Liquidated Damages Agreement - sets, in advance, a specified amount of money as a compensation if there is a breach.

Contracts can be discharged: (Summary)

1. Performance 2. Breach 3. Acceptance of breach 4. Operation of law 5. Agreement between parties

Statute of Frauds (Summary)

1. RE contracts be in writing 2. Performed within 1 year

The Offer and Acceptance

1. The California Purchase Agreement and Joint Escrow Instructions is an offer and deposit to purchase a specific property on certain terms and conditions. 2. Spells out commission to be paid to brokers. 3. When using preprinted forms, the handwritten parts have control over the printed parts, and all corrections must be initialed by both parties.

The Deposit

1. The deposit is collected as consideration from a prospective buyer on behalf of the seller for the purchase agreement contract. a. Covenants - promises between parties to a contract. b. Contingencies, Conditions, or Subject to - provisions in a deposit receipt by which all parties are released from any obligation in the event that some stated occurrence fails to materialize (usually the availability of financing).

Specific Performance

1. The party causing the breach is, through court action, forced to perform the terms of the contract 2. Courts will ONLY consider this option if dollar damages cannot provide an adequate remedy. 3. The contract must be shown to be "just and reasonable." 4. Contract must have been based on adequate consideration.

Unilateral Rescission

1. The wronged party: a. Discloses the wrong and b. Restores everything of value to the offending party 2. The legal grounds for rescission are: a. fraud, mistake, duress, menace, undue influence, and faulty consideration. 3. Minors or incompetents may generally rescind their contracts

Digital Real Estate Forms

1. Today most real estate forms available to be filled in online using your computer or mobile device 2. Computer generated forms save time

Classification of Contracts:

1. Valid - contract is binding and enforceable. 2. Voidable - can be affirmed or rejected at the option of a party. 3. Void - no contract exists, therefore no rights are enforceable. 4. Unenforceable - valid contract that for some reason cannot be enforced in court.

Paper School vs. Digital School

1. Your client should dictate the method by which you fill out and complete the purchase agreement 2. All contracts need to be in writing or digital form to be enforceable 3. The filled in contract forms can be emailed to your client's smartphone or computer and saves time in the process

Contractual Intent

1. exists when the offeror communicates an offer to the offeree with the intention of forming a binding contract. 2. Contractual intent does NOT exist with : a. social invitation b. advertisement

Express Contract

1. is a contract that is expressed with words, either oral or written and is preferred for the following: a. Listings b. Purchase agreements c. Leases

Not Essential Elements of a Valid Contract

1. money (can be other consideration) 2. writing (except for real estate contracts which frequently require it) 3. performance.

Terms

1. must be definite and certain 2. A real estate contract must contain: a. price b. specific financing terms c. an accurate description of the property

Negotiation

1. occurs before the contract has been struck. a. Parties discuss the possibility of a contract. b. An offer is made. c. Possible additional offers and counter offers. d. An offer is accepted by all parties. e. A contract is created.

Legality

1. the requirement that a contract be legal in both formation and operation 2. both consideration and its objective must also be lawful

Performance of a Contract

1. the successful completion of a contractual duty, usually resulting in the performer's release from any past or future liability. 2. ASSIGNMENT - the transfer of a person's right in the contract to another party. a. Assignor - has original contract but transfers rights (but maintains secondary liability) to Assignee. 3. NOVATION - is the substitution, by agreement, of a new contract for an old one.

Consideration

1. usually anything of value given by one party to another, such as: a. A benefit to a party of the contract or another person. b. A loss suffered or agreed to be suffered. c. An agreement not to bring a legal suit. 2. Payment of money is NOT needed as adequate consideration

Implied Contract

A binding contract created by the actions of the principals rather than by written or oral agreement

b. void

A contract based on an unlawful consideration is: a. valid, until voided b. void. c. legal d. enforceable, if in writing

Executory Contract

A contract in which something remains to be done by one or both the parties

Unilateral Contract

A contract under which only one party expressly makes a promise

Bilateral Contract

A contract under which the parties enter into mutual promises, such as sales contracts

Expressed Contract

A contract under whihch the parties expressly enter into mutual promises

Specific Performance

A court action to compel the performance part of an agreement, e.g., sale of land

Liquidated Damages

A definite amount of damage, set forth in a contract, to be paid by the party breaching the contract. A predetermined estimate of actual damages from a breach

Mutual Consent

A genuine offer by one party and a genuine acceptance by the other party.

Assignee

A person to whom property or interests therein shall have been assigned

Covenant

A promise to do or not to do in a particular act

Offer

A proposal for acceptance, in order to form a contract. It must be definite as to price and terms

Option

A right given, for consideration, to purchase a property upon specified terms within a specified time period, without obligating the party to purchase the property

Assignment

A transfer by a person of that person's rights under a contract

Purchase Agreement

A written offer to purchase real property upon stated terms and conditions, accompanied by a deposit toward the purchase price, which becomes the contract for the sale of the property upon acceptance.

Genuine Consent

A. Both offer and acceptance must be genuine and real. B. This does not occur in cases of: 1. Fraud - occurs when a person misrepresents a material fact knowing that it is not true. 2. Mutual Mistake - exists when both parties are mistaken as to the matter of the agreement. 3. Duress - the unlawful detention of a person or his property. 4. Menace - a threat to commit duress. 5. Undue Influence - exists when a person in a position of authority, such as a broker or salesperson, uses that authority to an unfair advantage.

The Purchase Agreement Addendum

A. a form used as an addendum to either the Residential Purchase Agreement, another offer form, or the counter offer form B. It covers 6 separate topics that are occasionally relevant to a transaction: 1. The cancellation of prior sale; back-up offers. 2. Seller to remain in possession after close of escrow. 3. Tenant to remain in possession. 4. Junior or assumed financing. 5. Short pay. 6. Court confirmation. C. Errors and Omission Insurance

The Counter Offer Form

A. is used instead of completing an entirely new purchase agreement when a counter offer is made. 1. The offeree becomes the offeror. A contract negotiation may involve several counter offers.

Minors

All persons under 18 years of age

Options

An OPTION is a right to purchase a property upon specified terms within a specified time, which is granted in exchange for money. 1. Optionor - gives right to the purchase or lease of a property. 2. Optionee - potential buyer who purchases the sole privilege to buy or lease.

Dollar Damages

An action that abandons all other remedies and simply ask for money

Contract

An agreement to do or not to do a certain thing. It must have four essential elements: parties capable of contracting, consent of the parties, a lawful object, and consideration

Pest Control Report

An inspection report required, in the sale of property, to determine if termites are present within a building

Counter Offer

An offer in response to an offer

Rescission

Annulling a contract and placing the parties to it in a position as if there had not been a contract

Consideration

Anything given or promised by a party to induce another to enter into a contract

Inspection Advisory for Buyers

As professionals, real estate agents have a duty to advise buyers to exercise reasonable care to protect themselves.

Fraud, Duress, Menace

Deceptive statements or acts used to wrongfully obtain money or property

Breach

Failure to perform a contract, in whole or part, without legal excuse.

Void, Voidable, Unenforceable

Having no legal force or binding effect, or cannot be enforced for one reason or another

b. valid, if it was signed before the party died or became incompetent

If a buyer and seller enter into a valid binding contract and one of the parties dies or becomes incompetent, the contract is: a. void by statute b. valid, if it was signed before the party died or became incompetent c. voidable by one of the parties. d. none of the above

d. couter offer

If seller Garcia accepts an offer but changes its terms, seller Garcia has made a(n) a. modification or amendment b. purchase contract c. alteration d. counter offer

b. optionee

In an option agreement, the owner of the option is the a. optionor b. optionee c. property owner d. lender

Capacity of Parties

Individuals who have a legal capacity to contract, as opposed to minors, convicts, and incompetents.

Undue Influence

Influence used to destroy the will of another so that any decision is not his or her free act.

Valid Contract

Legally binding, the terms of which can be sued for in a court of law. If a buyer and seller signed a contract and the seller died, there is a valid contract.

c. substitution of a new contract for an old one

Novation is: a. realization of an unexpected profit b. creation of an existing agreement c. substitution of a new contract for an old one d. modification of a contract

Offeror

One making an offer

Offeree

One to whom an offer is made

Assignor

One who assigns his or her right in a contract

Incompetent

One who is mentally incapable of managing or taking care of self or property and therefor cannot enter into a contract without a guardian

Optionor

One who, for consideration, gives an option

Optionee

One who, for consideration, receives an option

c. Structural Pest Control Board

Reports disclosing presence of wood destroying organisms are obtained from the a. Bureau of Real Estate b. Department of Corporations c. Structural Pest Control Board d. Department of Housing and Community Development

Mutual Consent

The act of agreeing or consenting to the terms of an offer, thereby establishing " the meeting of the minds" that is an essential element of a contract; genuine assent from both parties.

Not Yet Performed

The contract is in "mid-stream" and is an EXECUTORY CONTRACT in which the provisions have yet to be completely performed.

Contingencies

The dependence upon a stated event before a contract becomes binding

d. all of the above

The following could be used by a buyer as earnest money deposit in purchasing real property a. a promissory note secured by a deed of trust b. a postdated check c. an unsecured promissory note d. all of the above

Novation

The substitution or exchange of a new contract for an old one by the mutual agreement of the parties

c. in words, either oral or written

The term "express contract" describes a contract which is expressed: a. only orally b. only in writing c. in words, either oral or written d. none of the above

Definite and Certain

The terms and provisions of a contract, which are clear, definite, and set forth

Disclosure Forms

There are a multitude of disclosure forms that may typically be required in a residential real estate transaction. Here a just a few of them: 1. Agent's Inspection Disclosure 2. Buyer's Affidavit 3. Confirmation: Real Estate Agency Relationships 4. Data Base Disclosure 5. Disclosure and Consent for Representation of More Than One Buyer or Seller 6. Disclosure Regarding Real Estate Agency Relationships 7. Homeowner's Guide to Earthquake Safety 8. Lead-Based Paint Hazards Disclosure 9. Methamphetamine Contamination Notice 10. Smoke Detector Compliance 11. Water Heater Statement of Compliance

Life of a Contract

There are three phases: 1. Negotiation 2. Not Yet Performed 3. Completion

Execute

To complete a contract by signing it

Acceptance

Voluntarily agreeing to the price and terms of an offer: Offer and acceptance create a contract.

c. Recurring information can be inserted into other related forms

What is the main advantage of using digital real estate forms? a. Computer form programs are always easy to learn b. Non members of CAR are unable to use the forms c. Recurring information can be inserted into other related forms d. None of the above

a. the seller

Who is responsible to disclose any Mello-Roos bonds or assessments to a homebuyer? a. The seller b. The seller's agent c. The buyer's agent d. All of the above

Parol Evidence Rule

a. Assumes a written agreement to be a complete and final expression of the rights and duties of all parties to a contract. b. Prohibits the introduction of any prior agreements as evidence in a court action. c. Except, the court will allow such evidence only if the contract: 1. is incomplete. 2. is ambiguous. 3. may not be enforceable because of mistake or fraud.

Contract

is an agreement to do or not do a certain act or service

Implied Contract

is created when an agreement is made by acts and conduct (implication) rather than words.

Unilateral Contract

is made when one party makes a promise for an act of another

Bilateral Contract

is made when one party makes a promise in exchange for the promise of another party.

Executed Contract

is one that has either been discharged or performed. This term should not be confused with the execution of a contract. Execute a contract is to sign a contract, while the execution of a contract is the act of performing or carrying out the contract.

Acceptance

is the consent to the terms by the offeree. 1. Silence cannot be interpreted as an acceptance of an offer because an acceptance must be communicated. 2. Acceptance must be in the manner specified in the offer. 3. Any COUNTER OFFER automatically constitutes rejection of the original offer and the proposal of a new offer.

Discharge of A Contract

occurs when the contract has been terminated in one of the following ways:

Termination of an Offer

offer terminates upon the occurrence of any of these: 1. Lapse of Time - offer is not accepted within the time period allowed in the offer. 2. Communication of Revocation - offer can be terminated by offeror at any time before offeree has communicated acceptance. 3. Failure of Offeree to Fulfill a Condition - all specified conditions must be completed in the prescribed manner. 4. Rejection - offeree rejects or makes a counter offer. 5. Death or Insanity - of either party or broker voids the offer. 6. Illegality of Purpose - if any condition or purpose of the contract is deemed illegal, the contract is void. 7. Counter Offer - automatically terminates all previous offers

Illusory Contract

one in which the terms are not definite and certain, therefore the contract is unenforceable.

Proper Writing

personal property contracts may be either written or oral, but the Statute of Frauds requires that most real estate contracts be in writing to be enforceable.

Capacity

refers to all persons legally permitted to sign a contract. Everyone is capable except: 1. Minors - anyone under the age of 18 years (except emancipated minors). 2. Incompetent - person judged to be of unsound mind. 3. Convicts - persons serving terms of imprisonment. a. may convey property with the approval of the California Adult Authority. b. civil rights are lost during the course of the jail term.