Ch. 9 - Basic Contract Law

Rescission is a method to terminate a contract and a remedy to the non-breaching party when both parties mutually agree in writing to rescind or terminate all contractual obligations.

True

"Time is of the essence" means the timing of the contract is

very important wrong answers: only binding upon one party.

If "time is of the essence" is in the contract, then the contract may be void/voidable as soon as the deadline has passed; there is a material breach

void - the only way to save the contract is for the buyer and seller to agree to extend the contract before the deadline passes.

A contract can be terminated when both parties mutually agree to rescind or terminate all contractual obligations and return any consideration acquired under the contract back to the other party. This termination method is referred to as rescission and that return of consideration is known as restitution.

Agreement of the parties

Violation of an obligation, duty, or law.

Breach

_____________ damages are often referred to as "loss of value." The word itself suggests "Being compensated." If a contract called for $25 to be paid for lawn work and that lawn work was completed but the worker was not paid for his work, the compensatory damages would likely be about $25.

Compensatory

Damages award intended to compensate a plaintiff for harm caused by the defendant's act or failure to act, including personal injuries, property damage, and financial loss.

Compensatory Damages

There are several ways a contract may be discharged.

Full performance, agreement of the parties, impossibility of performance, operation of law

When the performance of a contractual obligation becomes illegal or impossible because of a change in the law after the contract was created, the contract is terminated.

Impossibility of performance

A sum of money that the parties to a contract agree to in advance that will serve as compensation in the event of breach. Often, it's the forfeiture of the earnest money deposit in purchase contracts.

Liquidated Damages

_________ in real estate occurs when a party, term, or obligation in a contract is replaced with another.

Novation

__________ is the substitution of a new contract for an earlier contract. The new contract cancels the original contract, relieving the original party of liability. A novation may also involve the substitution of a new party for an original party.

Novation

Jess has a one-year lease on office space. Her husband is transferred, and she has to move six months into the lease. She assigns the lease to Owen. When Owen does not pay the rent, who can the landlord go after?

Owen first, then Jess - The assignor, Jess, remains secondarily liable in addition to the assignee, Owen. She can be sued if Owen doesn't perform by paying the rent.

When the court interprets contracts to resolve a dispute, which of the following rules does NOT apply?

Oral statements take precedence over written statements. wrong answers: Contracts are interpreted as a whole. / Handwritten edits override preprinted language in a contract. / Ambiguous terms will be interpreted against the party that prepared the section in question.

______________ provides that a written agreement between the parties incorporates and includes all prior and current agreements between the parties—whether those are oral or written—and does not allow for any modifications that would contradict what is in the written agreement. In essence, a written agreement almost always overrides an oral or verbal agreemen

Parol evidence

An investor contracts with a builder to construct a gas station, but, before work begins on the building, the zoning ordinance for the area changes. This contract can be terminated through an impossibility to perform.

True

Every state has a statute of limitations that provides specific time limits within which parties are allowed to bring legal action to enforce their rights under a contract.

True

Liquidated damages are defined in advance of the breach, and are almost always denoted in the contract itself. In real estate, the buyer could be required to release the earnest money deposit to the seller if he (the buyer) breached the contract.

True

Specific performance is an order by the court requiring the party that breached the contract to perform his or her obligation. The breaching party must do what he or she agreed to do in the contract.

True

The Uniform Electronic Transactions Act (UETA) provides a legal framework for the use of electronic signatures and records in government or business transactions.

True

Written language (usually in the form handwritten edits) overrides preprinted language in a contract.

True

if "time is of the essence" is not in the contract and the buyer is late in performing, then the seller could give the buyer a reasonable time to perform even though the deadline in the contract has passed.

True

In North Carolina, electronic signatures are binding on contract parties.

True - North Carolina's Electronic Commerce Act recognizes electronic signatures on contracts as binding. In most cases, the use of electronic records and signatures is acceptable for real estate contracts, although both parties to the transaction must agree to conduct business by electronic means.

Terry signs an agreement of sale to buy a house. Two weeks after she signs the contract, she goes to work and learns that she has been promoted and will have to transfer across country in two months. Is she still obligated to buy the house?

Yes

Ciara hires Lisa to sing at her wedding in June. Lisa double books, and sends Jill to sing in her place. Would Lisa need to get Ciara's consent for assigning this contract to someone else?

Yes - A party to a personal services contract can only assign the contract with consent of the other party. Ciara couldn't make Lisa sing at some other event either.

Amy signs a contract to buy Brian's house. She does not show up at settlement. Can Brian sue Amy for specific performance?

Yes - Specific performance could be a remedy if seller Brian chooses to go to court. In some states, a judgment for specific performance under these circumstances would be unusual, however, and compensatory damages would probably be awarded. It's more likely that he would cancel the contract and seek any liquidated damages that should have been specified in the purchase contract.

That same day, Terry is introduced to her replacement, Chris, who is moving in from out of town to take Terry's old job. Chris needs a place to live. Can Terry assign her right to buy the house to Chris?

Yes - Unless specifically prohibited by the sales contract, Terry could assign her right to buy the house to someone else.

In an _________, one of the parties (assignor) transfers rights or interests under a contract to another person (assignee).

assignment

Terry assigns her right to buy the house to Chris. Chris doesn't show up the day of settlement. Who does the seller sue?

both Chris and Terry - Assigning a contract leaves the original party to the contract secondarily liable for its performance, unless the seller relieves the original party of obligation. The seller could sue both Terry and Chris.

After both parties sign a contract, one party may wish to withdraw from the obligations of the contract without actually terminating the contract. This may be accomplished through assignment or ____________.

novation

Karen and Dave agree that he can keep the $500 just for painting the garage. She won't pay him anymore, and he won't be obligated to paint the house. She'll find someone else to paint the house next year. This could now best be described as an example of

partial performance. - Karen didn't cancel the contract, since she and Dave came to some agreement. It's not rescission, since they did not return consideration. It's not novation, since it involves personal services. They mutually agreed to accept partial performance.

the revocation, cancellation, or repeal of a law, order, or agreement.

rescission.

returning to the proper owner property or the monetary value of loss.

restitution

Once a contract has been rescinded, and each party returns to the other any consideration that has been tendered, what has occurred?

restitution - restitution is rescission where the contract is undone, all obligations terminated, and all consideration returned. By comparison, cancellation is termination without undoing any of the acts that have been performed under the contract.

Larry signed a contract to buy Bob's house. However, the deadline in the contract has passed and Larry has not finalized the loan with his mortgage company. There is NOT a "time is of the essence" clause in their contract. The contract is considered

voidable. - but not void

Contracts are interpreted as a __________, which means all of the content and context of the contract language--documentary and factual including addenda and attachments—is taken into account.

whole