Lesson 6, contract law
A buyer and seller agree upon an option to purchase, with a 60-day option period. When should the parties agree upon the purchase price? Select your answer below: A.Any point between the signing of the option agreement and closing B.At closing C.Before signing the option agreement D.When the buyer decides to exercise the option
C.Before signing the option agreement
A property owner is forced to sign a purchase and sale agreement under threat of physical harm. What is the status of the agreement for the property owner?
A contract that one party signed under duress is voidable by that party.
True or False? An individual reaches the age of majority when she turns twenty-one.
False Age of majority is 18
True or False? An agreement to sell 500 Widgets for $10,000 is a unilateral contract.
False An agreement where both parties promise to do something is a bilateral contract.
read for your own benefit
Here's how an option to purchase works. Cal (the optionor) gives Rita (the optionee) the right to purchase his home for $225,000 in the next 90 days. In exchange, Rita gives Cal a sum of money called the option money. During the 90-day period, if Rita decides she wants to buy the property, she can exercise her option. Then Cal must sell Rita the property at the agreed price. If Rita decides not to buy the property, Cal can keep the option money. Option money is nonrefundable
what is a rescission
When a court rescinds a contract, the parties are required to undo the steps they've taken to carry out the contract.This will put them back in the positions they were in before they entered into the contract.
what is a listing agreement ocntract?
When a seller lists property with a real estate firm, the parties enter into a contract called a listing agreement. A listing agreement is an employment contract between a seller and a firm.
what is an option contract?
An option is a contract that gives one party the opportunity to do something, without obligating him or her to do it. In the real estate field, the most common type of option is an option to purchase.
William took a listing and soon discovered that his client had been declared incompetent by a judge six months ago. Under these circumstances, the listing contract is: Select your answer below: A.enforceable if William finds a buyer B.of no value to William because it's void C.renegotiable, but only for 24 hours D.binding, as William was acting in good faith
.of no value to William because it's void Any contract signed by a person who has been declared incompetent is void as a matter of law.
what is a unilateral contract?
A contract is unilateral if only one of the parties is legally obligated to perform.
what is a purchase and sale agreement contract?
A purchase and sale agreement is a contract between a buyer and a seller. It sets forth the terms on which the property is being bought and sold: price, financing, closing date, and so on. The statute of frauds requires such an agreement to be in writing.
A and B sign a rental agreement in which A agrees to lease her property to B in exchange for rent. This contract is: Select your answer below: A.bilateral B.implied C.unilateral D.voidable
A. bilateral
A provision in a sales contract that states that a sum agreed to in advance will serve as full compensation in the event of a breach is a: Select your answer below: A.liquidated damages provision B.compensatory damages provision C.punitive damages provision D.default damages provision
A. liquidated damages provision Most purchase and sale agreements call for forfeiture of the earnest money if the buyer breaches the contract. This is an example of a liquidated damages provision. Under this type of provision, the seller isn't allowed to sue the buyer for additional damages, even if the earnest money deposit isn't sufficient to cover the seller's actual losses.
Which of the following people might bring a suit for specific performance? Select your answer below: A.A buyer in a real estate transaction in which the seller backed out one day before closing B.A homeowner unhappy about a neighbor who painted her house purple in violation of the subdivision CC&Rs C.A real estate broker who didn't receive the commission she was promised D.A seller who was overcharged during escrow
A.A buyer in a real estate transaction in which the seller backed out one day before closing specific performance is granted in a contract lawsuit, the court orders the breaching party to perform as agreed, rather than to pay damages to the other party. Courts generally grant specific performance only when the object of a sales contract is unique and monetary damages would not be sufficient to put the nonbreaching party in the position she would have been in if the contract had been performed. That�s the situation for a real estate buyer, as well as for purchasers of items such as jewelry or artwork.
X and Y execute a properly drawn up option agreement for X to purchase Y's commercial property. X gives $5 in consideration. The option is: Select your answer below: A.unenforceable B.valid C.void D.voidable
B. Valid An option agreement, because it is a contract, must include consideration. The consideration can be a nominal amount (like $5), but it must actually be given to the optionor. In other words, it can't be merely a recitation of consideration in the contract document, without actual payment.
Juanita offers $5 to whoever will rake the leaves in her yard. This is a/an: Select your answer below: A.license B.unilateral contract C.implied contract D.bilateral contract
B. unilateral contract
An offer is dated June 4. The offer is accepted on June 7. The buyers are approved for a loan and satisfy the financing contingency on June 9. The transaction closes on June 28. The date of the contract is: Select your answer below: A.June 4 B.June 7 C.June 9 D.June 28
B.June 7 The date on which acceptance occurs is considered to be the date of the contract. In this case, that would be June 7.
A legal action brought in court to compel a party to fulfill the terms of a contract because the land is unique and money damages would not adequately compensate the party victimized by a breach is called a/an: Select your answer below: A.partition action B.suit for specific performance C.quiet title action D.injunction
B.suit for specific performance The legal premise that no two properties are alike justifies a suit for specific performance (asking the court to order the seller to deliver the deed to the buyer), rather than simply pay money damages. Injunctions are also court orders, but are generally prohibitory, requiring an action be stopped, making B the better answer here.
A buyer and seller have signed a contract, but the sale is not completed and the deed hasn't been delivered. Until the title is transferred to the buyer at closing, the contract is: Select your answer below: A.void B.unenforceable C.executory D.executed
C.executory
What are the elements of a valid contract?
Capacity Mutual consent Lawful objective Consideration
Martha gave Hannah the right to purchase her vacant lot for $65,000. Hannah paid Martha $1,200 for this right. Hannah is the: Select your answer below: A.mortgagor B.mortgagee C.optionor D.optionee
D. Optionee
In negotiations with a prospective buyer, all of the following would be actual fraud, except: A. deliberately lying about the condition of the property B. making statements with reckless indifference to their accuracy C. intentionally concealing a material defect D. accidentally failing to disclose a material fact
D. accidentally failing to disclose a material fact Unintentional failure to disclose information would be constructive fraud, not actual fraud.
What are compensatory damages?
The standard remedy for breach of contract is compensatory damages.The court orders the breaching party to pay the other party a sum of money, to compensate him for losses resulting from the breach
What are the two requirements for legal capacity in pertaining to a valid contract?
The two requirements for legal capacity are age of majority and mental competence.
ABC Investment puts up a $100,000 deposit when it signs an agreement to purchase a commercial lot. Then the firm suffers some business reversals and decides not to complete the transaction. The lot owner agrees to release ABC but insists on keeping the deposit as damages. How was the contract discharged?
This is a cancellation. When a contract is cancelled, the parties agree to terminate it without undoing the steps in the transaction that they've already taken.
Thompson leases an apartment for 24 months. After just six months, Thompson's employer transfers her to another city. A friend of Thompson's would like to take over her lease. The landlord accepts the new tenant and releases Thompson from liability. What is this arrangement called?
This is a novation. In a novation, the withdrawing party (Thompson) obtains the consent of the other party (the landlord) and is released from liability.
what is the most common remedy for breach of contract?
compensatory damages
what are the seven common contracts used in real estate transactions?
option agreement escrow instructions lease land contract purchase of sale buyer representation listing agreement
The purchaser signs an offer and gives it to the real estate agent to pass on to the seller, along with an earnest money deposit. At this point: Select your answer below: A.the earnest money will be held by the agent until the buyer defaults after closing B.the offer can be withdrawn any time before it is accepted C.in the eyes of the law, the parties have formed a valid contract D.specific performance would be the remedy if the seller refused the offer
B. the offer can be withdrawn any time before it is accepted An offeror can revoke an offer at any time until he is notified that the offer has been accepted. Many contracts also include a deadline for acceptance.
Barker is declared incompetent by a court, and his daughter Marge is appointed to handle his affairs. After several years, Marge asks her sister Beth to take over her duties. Beth then lists Barker's property for sale. Would a sale of Barker's property be valid under these circumstances? Select your answer below: A.No, any contract concerning real estate and an incompetent person is automatically void B.No, Beth hasn't been designated by a court to handle Barker's affairs C.Yes, but only if Beth gets Barker's written permission D.Yes, Marge has delegated her responsibilities properly
B.No, Beth hasn't been designated by a court to handle Barker's affairs
Chris, a real estate agent, met with Zach, a property owner, to discuss listing the property. Zach told Chris that he was illiterate and that he needed Chris to read the listing agreement to him. Chris did so, plus he spent a long time explaining the various terms and answering Zach's questions. Zach agreed to everything, and signed the agreement with an "X." The listing agreement is: Select your answer below: A.valid, as long as Zach gets his attorney to verify what Chris told him B.valid, because Zach was illiterate, not mentally incompetent C.invalid, because an illiterate person is not mentally competent D.invalid, because Chris was guilty of the unauthorized practice of law when he discussed the terms of the listing agreement with Zach
B.valid, because Zach was illiterate, not mentally incompetent Illiteracy is not a form of mental incompetence, and a contract can be valid even though one party was unable to read it or simply failed to do so. (Misrepresenting the contents of a contract to an illiterate person would make it voidable, but nothing in the question suggests that there was misrepresentation in this case.) Even if the agent rendered legal advice without a license, that wouldn't affect the contract's validity.
You might hear the terms "offer and acceptance," "mutual assent," and "meeting of the minds" in connection with a contract. What do they all have in common? Select your answer below: A.They affect only contracts for the transfer of personal property B.They mean there is a qualified acceptance of an offer C.They mean there is an unqualified acceptance of an offer D.They refer to whether the parties have capacity to enter into a contract
C. They mean there is an unqualified acceptance of an offer These terms all refer to whether the parties mutually consented to the terms of a contract. To create a valid contract, the acceptance must be unqualified. (A counteroffer is sometimes referred to as a qualified acceptance.)
Mark tells Elizabeth that a new freeway will be built near the vacant land he is selling, even though he knows the freeway is now being built along a different route. Elizabeth relies on Mark's representation and signs a purchase and sale agreement, agreeing to pay a premium price for the land. Shortly before closing, Elizabeth finds out about the freeway plans. Which of the following is true? Select your answer below: A.Elizabeth must complete her part of the contract; she can't claim fraud B.The contract is voidable by Mark C.Elizabeth can force Mark to fulfill his part of the contract, even though there was fraud D.the contract is void; there was an intentional misrepresentation
C.Elizabeth can force Mark to fulfill his part of the contract, even though there was fraud Fraud makes the contract voidable by the injured party. However, the injured party may also choose to go through with the contract, and the person who committed the fraud (in this case, Mark) will be bound by the contract. (Here, Elizabeth might decide that the property is still a good enough deal that it will pay off in the long run.)
A contract to purchase property must include which essential element? Select your answer below: A.Equal bargaining power between the parties B.A seal by a notary public C.Mutual agreement D.A three-day right to rescind
C.Mutual agreement An unambiguous offer and an unqualified acceptance are essential to a valid contract of any kind. This is called mutual agreement (also known as mutual consent).
A contract signed by a person who was intoxicated at the time of the signature would be: Select your answer below: A.valid B.void C.voidable by the intoxicated party D.voidable by the other non-intoxicated party
C.voidable by the intoxicated party
what is consideration in pertaining to a contract?
Consideration is something of value that one party to a contract gives to the other. It can be anything of value: money, property, services, or a promise to provide something of value in the future.
An executor listed her aunt's property. While showing the property to the agent, the executor said that her aunt always had tenants in the upstairs apartment. Without checking with zoning, the agent listed and sold the property as multifamily. If the property is not zoned multifamily, does the buyer have the right to rescind the contract? Select your answer below: A.No, because the executor should have checked to determine the zoning of the property B.No, because the title company should have checked to determine the zoning of the property C.Yes, because the agent misrepresented the property and any contract entered into under misrepresentation is void D.Yes, because the agent misrepresented the property and any contract entered into under misrepresentation is voidable
D. Yes, because the agent misrepresented the property and any contract entered into under misrepresentation is voidable The agent's misstatement is an example of constructive fraud: when a person who occupies a position of confidence and trust makes a false statement with no intent to deceive. Fraud is one of the negative forces that make a contract voidable by the injured party.
Three years ago Caldwell bought a home, and the seller told him there was 150 feet of street frontage. Caldwell recently arranged to sell the home to Adams. During their negotiations, Caldwell told Adams the street frontage was 150 feet. But after they signed their contract, a survey revealed that the frontage is only 130 feet. Adams can withdraw from the contract because of: A. actual fraud B. duress C. menace D. constructive fraud E. undue influence
D. constructive fraud An unintentional misrepresentation is constructive fraud. Adams did not get what she bargained for, and she has legal grounds for terminating the contract.
Jerry offered to buy some vacant land for $500,000. There were no contingencies in his offer, and it was accepted by the seller. Jerry was planning on building a shopping center on the property, but didn't mention this to the seller or his real estate agent. A few days before closing, Jerry learned that his financing for the shopping center had fallen through. The contract is: Select your answer below: A.void B.voidable C.unenforceable D.valid
D. valid The contract is valid. Since it was not made contingent on financing for the shopping center, Jerry is liable for performance; if he can't find some way to buy the property, at the very least he is likely to lose his earnest money deposit.
Victoria receives an offer from Lloyd for her property. The offer is for $225,000, and she receives it on Friday morning. On Saturday, she counters by changing the purchase price to $235,000. The counteroffer states that Lloyd has 48 hours to accept the offer. On Sunday, Lloyd rejects the counteroffer. Victoria immediately accepts Lloyd's original offer. Under these circumstances, the agreement is: Select your answer below: A.valid, because Victoria accepted all the terms of Lloyd's original offer B.valid, because Victoria accepted a written, valid offer C.not valid, because Victoria did not accept the offer within a reasonable period of time D.not valid, because Victoria terminated Lloyd's original offer when she made the counteroffer
D.not valid, because Victoria terminated Lloyd's original offer when she made the counteroffer A counteroffer serves to terminate an offer. Once an offer has been rejected, it cannot be accepted. At this point, though, Victoria may simply make a new offer to sell the property to Lloyd for $225,000, and hope that he hasn't changed his mind.
Loren has been looking for a home for several months. He finally found one he liked, just by driving around and looking at "For Sale by Owner" signs. He immediately made a full-price offer of $325,000. He made an earnest money deposit of $3,000. The seller quickly accepted the offer. The purchase and sale agreement is: Select your answer below: A.invalid, because Loren didn't use a real estate agent to close the deal B.invalid, because the home wasn't part of the local multiple listing service inventory C.valid, because Loren made an earnest money deposit as part of his offer D.valid, because Loren's consideration for the contract was the $325,000 purchase price
D.valid, because Loren's consideration for the contract was the $325,000 purchase price The purchase price is the consideration for the contract (not the earnest money deposit).
what is a valid contract?
In the broadest sense, a contract is an agreement between two or more persons to do, or not do, certain things. It may be legally binding. A contract that is legally binding is called a valid contract. A valid contract will be enforced by a court if one of the parties fails to comply with the agreement.
what is an assignment of a contract?
In various circumstances, one of the parties to a contract may want to withdraw and have someone else take his place. One of the original parties, the assignor, assigns his interest in the contract to a new party, the assignee.
What does it mean when a contract has been executed
The process of signing a contract document is often called executing the contract. So when someone says a contract has been executed, that may mean only that it has been signed, not performed. You should interpret the word according to its context.
Wilson wants to sell his home quickly, so he agrees to let the buyer take over his mortgage payments without asking for the lender's approval. What is this kind of arrangement called?
This is an assignment; Wilson has assigned his mortgage to the buyer. Wilson is still liable to the lender, however, because he did not obtain the lender's approval.
what are the 2 requirements an offer must meet??
1. express an intention to enter a contract 2. must be definite and certain
what is a buyer representation agreement contract?
A buyer representation agreement is a written employment contract between a prospective property buyer and a real estate firm. The buyer hires the firm to locate a suitable property for the buyer to purchase.
what is a land contract?
A land contract is also called an installment sales contract or a contract for deed. A land contract is a financing agreement between a buyer and a seller. The buyer agrees to pay the purchase price in installments over time, rather than paying the seller the full price at one time.
what is a lease contract?
A lease temporarily transfers the right to possession of a piece of property from the owner (the landlord) to a tenant. It is both a contract and the conveyance of an interest in the property—a leasehold estate.
Margo agreed to buy Peter's house. At closing, Peter changed his mind. He hasn't signed the deed and no longer wants to sell his house. Can Margo take legal action to force the sale? Select your answer below: A.Yes, Margo can file a suit for specific performance B.Yes, Margo can file a suit for possession C.No, Peter hasn't signed the deed so Margo has no legal rights D.No, Peter hasn't signed the deed so Margo cannot enforce the contract
A.Yes, Margo can file a suit for specific performance When the nonbreaching party to a contract wants the breaching party to actually perform the contract as agreed, she can sue for specific performance. If Margo wins the lawsuit, the court will order Peter to complete the sale (deliver the deed to Margo), instead of simply paying Margo a sum of money as compensatory damages.
The optionee in an option to purchase real estate: Select your answer below: A.has no obligation to purchase the property B.is the prospective seller of the property C.must purchase the property, but may do so at any time within the option period D.is limited to a refund of the option consideration as a matter of right if the option is exercised
A.has no obligation to purchase the property The optionee (buyer) has no obligation to purchase the property that is the subject of the option contract. However, the optionor (seller) is entitled to keep the consideration in exchange for granting the option.
An optionee's rights can be assigned under all of the following circumstances, EXCEPT when the: Select your answer below: A.option money is $10 or less B.option money is in the form of a promissory note C.optionor has died D.optionee has died
B.option money is in the form of a promissory note If the option money is in the form of a promissory note (in other words, the option hasn't been paid for yet), the optionee cannot assign it.
An option to buy property has been exercised. At that point, it becomes a/an: Select your answer below: A.bifurcated contract B.unilateral contract C.executed biennial contract D. executory bilateral contract
D. executory bilateral contract Once the optionee agrees to complete the purchase (exercises the option to buy), the agreement becomes bilateral and both parties are obligated to perform.
what is a contract by escrow instructions?
Escrow instructions are instructions from a buyer and a seller to an escrow agent. They set forth the obligations of the buyer and seller and the conditions under which the agent will disburse funds and deliver the deed to close the transaction.
Frank gives Stella an option to buy his house. Stella, as the optionee, is obligated to: Select your answer below: A.exercise the option at the end of the option period B.apply for a zoning change, if one is necessary in order to use the property in the way Stella wants C.pay consideration for the option right D.record the option
C.pay consideration for the option right
An option: Select your answer below: A.transfers title immediately when it is signed by both parties B.transfers legal title (but not equitable title) when it is signed by both parties C.sets a time limit to keep an offer open D.does not include the basic terms of the contract (such as the sale price); those are to be determined later
C.sets a time limit to keep an offer open
A contract gives a person the right to purchase property for a particular price within a certain timeframe. This contract is a/an: Select your answer below: A.land contract B.lien agreement C.sale-leaseback D.option
D. option An option to purchase is an agreement that gives one party the right to buy the other party's property at a set price within a set period of time.
Two parties enter into an option agreement, scheduled to end in December. However, in October the optionee decides he doesn't want to buy the property. What should the parties do in order to terminate the option? Select your answer below: A.Complete a formal statement of novation B.Exercise the option's contingency clause C.File an interpleader action so a court can void the contract D.Nothing; the option will expire automatically
D.Nothing; the option will expire automatically An optionee must take an affirmative step to exercise an option, by giving written notice of acceptance to the optionor. If the optionee does not do so by the end of the option period, the option automatically expires. Answer A doesn't apply since novation is the replacing of a contract (or party) with a new one.
Of the following types of contracts, which one is a unilateral contract? Select your answer below: A.Escrow instructions B.Exclusive right-to-sell listing C.Lease D.Option
D.Option
If a party has an option to buy a piece of property, that person: Select your answer below: A.is obligated to purchase the property at the end of the option period B.must pay off all of the seller's existing liens on the property C.can take out a loan on the property, in the seller's name D.paid consideration for the option
D.paid consideration for the option
A letter of intent: Select your answer below: A.contains all terms and conditions of a contractual agreement B.is generally binding C.is used regularly in small residential transactions D.sets out basics prior to negotiation
D.sets out basics prior to negotiation
Anna and June enter into a contract where Anna agrees to sell her house to June. Anna later changes her mind and refuses to sell. June then sues Anna to force her to go through with the contract. This is known as a suit for: Select your answer below: A.injunction B.damages C.lis pendens D.specific performance
D.specific performance This is a suit for specific performance. Specific performance is a legal remedy in which a court orders the breaching party to perform the contract as agreed, rather than simply paying damages.
In an option: Select your answer below: A.no consideration is required B.the seller is the optionee and the buyer is the optionor C.the seller must apply the option money to the purchase price if the optionee exercises her option D.the option agreement must clearly state all the terms and conditions of the sale
D.the option agreement must clearly state all the terms and conditions of the sale The option agreement also serves as the sales contract once the option is exercised, so all terms and conditions of the sale need to be included in the option agreement. Option money is ordinarily not applied to the purchase price; it's an incentive that the seller keeps regardless of whether the sale happens.
what is specific performance?
In an order of specific performance, the court directs the breaching party to carry out the contract as promised.When a damages award would be an adequate remedy, a court generally won't order specific performance.
What are liquidated damages?
Liquidated damages is money one party agrees in advance to accept as her remedy if the other party breaches.An earnest money deposit is often treated as liquidated damages.
what must an option contract have to be enforceable?
Option to Purchase Must be in writing States terms of sale May be recorded Contract right only Unilateral agreement
what happenes when an option contract has been exercised?
Sometimes, an option is called a unilateral contract, because the optionee has not promised to do anything. But when an option is exercised, it becomes an executory bilateral contract. An option may be assigned, with two exceptions: if there is a provision prohibiting assignment, or if the consideration took the form of an unsecured promissory note.
Farrell makes the final payment on his second mortgage, ending his obligation to the lender. How has this contract been discharged?
The contract has been discharged by performance. Most contracts are discharged by full performance of their terms.
Casey agrees to purchase Peter's house. Before the deal closes, though, Casey loses his job and cannot obtain the necessary financing. Peter returns Casey's earnest money deposit to him. What is this arrangement called?
This is a rescission. When both parties are returned to the positions they were in before the contract was made, it's called rescission.
what is a bilateral contract?
a contract is bilateral if both of the parties are legally obligated to perform.
What is a tender?
a tender is an unconditional offer to perform as agreed. the non breaching party is usually required to make a tender before filing a lawsuit unless when one party repudiates the contract by making a definite statement that he is not going to perform as agreed, the other party can sue without making a tender.
what are the 2 types of fraud?
actual it is actual fraud when the person making the misrepresentation knows or should know that the statement is false. constructive constructive fraud in non intentional and occurs when someone who is in a position of trust, or who has superior knowledge of the subject matter misleads the person without meaning to do so.
what is an executed contract?
an executed contract is one that has been fully performed. Both parties have done what they promised to do.
every contract is
express or implied unilateral or bilateral executory or executed
what are the ways a contract can be discharged without full performance?
rescission cancelation assignment novation
what is a cancelation of a contract?
similar to rescission, but there's an important difference. In canceling a contract, the parties agree to terminate it without undoing whatever steps they've already taken. If money has changed hands, the party who received it is allowed to keep it.
what are the ways an offer can terminate?
the offeror revokes the offer too much time passes the offeror dies or is declared insane the offeree rejects the offer the offeree makes a counteroffer
what is specific performance?
when a party within a contract is court ordered to carry out their side of said contract.
what is a rescission?
when both parties agree to terminate the contract, and undo any steps they have already taken to carry said contract out.
what is an unenforceable contract?
A contract is unenforceable if its contents can't be proved, if it's voidable by the other party, or if the deadline set by the statute of limitations passes before a lawsuit is filed.
what is a valid contract?
A contract is valid if it meets all legal requirements.It is binding and enforceable in a court of law.
what is a void contract?
A contract is void if there was a mentally incompetent party, an unlawful objective, a forged signature, or no consideration.A void contract has no legal effect.Both parties can disregard it.
what is a voidable contract?
A contract is voidable if signed by a minor, or if signed as a result of fraud or other negative influences.If a contract is voidable by one party, it is unenforceable by the other party.
Which of the following would NOT make a contract voidable? Select your answer below: A.It is missing an essential element B.One party signed the contract as a result of fraud C.The contract resulted from misrepresentation D.One of the parties was subject to duress
A. It is missing an essential element If one or more of the four essential elements of a contract (capacity, mutual consent, lawful objective, and consideration) is totally missing, the contract is void, not just voidable.
When is an enforceable purchase and sale agreement formed? Select your answer below: A.When the buyer knows of the seller's written acceptance of the offer B.When the seller has orally informed the buyer of her acceptance C.When the seller has received the earnest money D.When the transaction has closed
A.When the buyer knows of the seller's written acceptance of the offer Formation of a contract occurs when the offeree communicates acceptance to the offeror in an acceptable method and within the proper time period. For a real estate contract to be enforceable, the agreement must be in writing.
In an executed contract: Select your answer below: A.both parties have performed their duties B.only one party has made a promise C.at least one promise has been completed D.one party may sue for specific performance
A.both parties have performed their duties An executed contract is one that has been fully performed. In other words, both parties have performed their duties and done what they promised to do.
Which of the following is true regarding an oral agreement for the sale of real property? It is: Select your answer below: A.unenforceable; it violates the statute of frauds B.void; it violates the statute of frauds C.voidable; it violates the statute of frauds D.valid; assuming both parties are above the age of majority
A.unenforceable; it violates the statute of frauds An oral agreement for the sale of real property fails to fulfill the requirements of the statute of frauds. Such a contract is unenforceable.
what is an executory contract?
An executory contract is one that is in the process of being performed.
what is an expressed contract?
An express contract is one that is put into words, whether written down or merely spoken. The parties expressly state what they agree to do.
what is an implied contract?
An implied contract is one that is not expressed in words, but which is implied by the actions of the parties. The parties have acted in a certain way, and those actions imply the existence of a contract.
Jones makes an offer for Smith's home that is $5,000 below the asking price and gives Smith 48 hours to accept the offer. If Jones changes his mind about purchasing the home, he can: A. do nothing until the 48 hours have passed B. revoke his offer before Smith accepts it C. submit a counteroffer D. sue Smith for breach of contract
B. revoke his offer before Smith accepts it Jones can revoke his offer at any time until he receives notification that Smith has accepted it.
True or False? A reward poster is an example of a bilateral contract.
False No one has to perform according to the terms of the poster. However, the person offering the reward must pay it should someone choose to perform. Because it is "one-sided," a reward poster is a unilateral contract.
True or False? A legal guardian cannot enter into a contract on behalf of a minor without court approval.
False The legal guardian of a minor or an incompetent person can enter into contracts on that person's behalf without court approval.
True or False? A contract signed by a mentally incompetent person is void, which makes it enforceable only by the incompetent person's court-appointed guardian.
False This contract is not enforceable by either party
Miller is buying Gilman's house for $250,000. They both have signed a written purchase and sale agreement. They both have contractual capacity and freely consented to the terms of the contract. What is the status of their contract?
The contract is valid. The parties have capacity to contract, there was mutual consent, the contract has a lawful objective, consideration was exchanged, and the agreement was in writing.
Pierce makes an offer to Johnson that is $10,000 below the asking price. Johnson immediately makes a counteroffer that is only $5,000 below the asking price. Which of the following statements is true? A. Pierce is under no obligation to continue with the transaction B. Pierce must accept or reject Johnson's counteroffer C. Pierce is bound by the counteroffer D. Johnson cannot withdraw her counteroffer E. Johnson's counteroffer was illegal
A. Pierce is under no obligation to continue with the transaction
Jim is a local handyman. Yolanda, a homeowner, hires him to build a chicken coop in her back yard. They agree on a set price for the job. However, once Jim begins working, he realizes it's going to take him a lot longer than he thought, and he realizes he's being underpaid. Jim: Select your answer below: A.will be liable for breach of contract if he doesn't finish the chicken coop, regardless of whether it takes longer than he expected B.can sue Yolanda for violation of the Fair Labor Standards Act C.can make Yolanda renegotiate the terms of the contract, simply by refusing to proceed unless she does so D.made an honest mistake, so Yolanda is legally obligated to pay him more for the work
A. will be liable for breach of contract if he doesn't finish the chicken coop, regardless of whether it takes longer than he expected The agreement was valid, and Jim is obligated to fulfill his part of the bargain, even if the work wasn't quite what he expected.
The listing agreement states that a property is 5.1 acres. The purchase and sale agreement states that it's 5.12 acres. The mortgage notes that the property is 5.22 acres, while the deed states that the lot's size is 5.21 acres. If there is a dispute, which of the documents will take precedence? Select your answer below: A.Deed B.Listing agreement C.Mortgage D.Purchase and sale agreement
A.Deed Various documents make up an agreement to transfer property from a seller to a buyer (the mortgage and listing agreement are not really part of that transfer, however). Two rules apply here. First, when the documents making up a contract conflict, the one signed last usually controls. Also, deeds tend to control over purchase and sale agreements.
When can a minor enter into a binding contract? Select your answer below: A.If a guardian co-signs B.If the contract is witnessed C.If the minor is at least 16 years of age D.Never
A.If a guardian co-signs
A contract for the purchase and sale of real property does not contain an adequate land description. The agreement is: Select your answer below: A.unenforceable B.valid C.void D.voidable
A.unenforceable A real estate purchase and sale agreement without an adequate description of the property does not fulfill the requirements of the statute of frauds, so as a general rule it will be unenforceable.
Clark made friends with an elderly homeowner and then persuaded him to sell Clark his house for much less than its fair market value. This is an example of: A. duress B. undue influence C. menace D. fraud E. constructive fraud
B. undue influence Undue influence typically involves taking advantage of a person's trust and vulnerability to persuade or pressure him to enter into a contract.
Joe and Clarissa enter into a purchase and sale agreement. While they were negotiating the price, Joe claimed that a basement could be built despite the property's rocky soil. He was wrong. This contract is: Select your answer below: A.voidable by Joe because he was wrong about the soil B.voidable by Clarissa because Joe misrepresented the soil's condition C.voidable by neither D.void
B. voidable by Clarissa because Joe misrepresented the soil's condition The contract is voidable by the buyer. Whether the misinformation was deliberate (actual fraud) or an innocent misrepresentation (constructive fraud), the buyer is not getting what she bargained for. She can rescind the contract if she wants, or she can complete the sale anyway.
A buyer and seller sign a contract for deed. Two weeks later, the buyer is declared mentally incompetent. The buyer's guardian contacts the seller and says that he can continue to make the buyer's payments as agreed. Which of the following is true? Select your answer below: A.The buyer can disaffirm the contract within a reasonable period of time B.The buyer can finish out the contract as the buyer's guardian has proposed C.The seller can agree to receive payments from the guardian and if the payments become unreliable, the seller can then cancel the contract D.The contract is automatically voided because of the buyer's incapacity, regardless of what the guardian wants
B.The buyer can finish out the contract as the buyer's guardian has proposed
A minor leases an apartment right before he turns 18. Immediately after he reaches the age of majority, he contacts the landlord and says he's terminating the lease. Which is true? Select your answer below: A.This is possible only if the landlord already knew the tenant was a minor, and not if the tenant initially misled the landlord about his age B.This is possible, because he notified the landlord within a reasonable amount of time after having reached the age of majority C.This isn't possible, because tenants are subject to caveat emptor D.This isn't possible, because the tenant can't void the lease after having taken possession
B.This is possible, because he notified the landlord within a reasonable amount of time after having reached the age of majority A person can usually void a contract he entered into as a minor; however, once he reaches majority he has to act fairly quickly. Here the tenant appears to have done so.
John negotiated an option contract with Margaret, in which Margaret had three months to purchase John's property. In the second month, Margaret found another buyer. Margaret can probably transfer her right to purchase the property to another buyer because of the right of: Select your answer below: A.novation B.assignment C.first refusal D.rescission
B.assignment Margaret may assign the option contract to another buyer (unless there is a clause in the contract prohibiting assignment).
Sally made an offer and gave the seller three days to accept. The next day, she found another property she liked better. Sally called the agent and revoked her offer. Sally must: Select your answer below: A.make sure the seller has been notified of the revocation before making an offer on the second property B.do nothing; she notified the agent of her decision to rescind the offer C.give the seller three days to accept or reject, as stated in her original offer D.None of the above
B.do nothing; she notified the agent of her decision to rescind the offer
Marci, a home owner, hired Charles to do ongoing general maintenance on her property. They entered into a one-year contract. Six months later, Charles got married and his wife wanted to move to another state. Charles knew someone else--Marian--who provided excellent home maintenance services. Everyone agreed that Marian would take over for Charles. Marci and Marian entered into a new contract, and Marci's contract with Charles was canceled. This arrangement is a/an: Select your answer below: A.assignment B.novation C.breach D.tender of performance
B.novation When one party is substituted for another, a novation has taken place.
The term "meeting of the minds" is associated with: Select your answer below: A.full performance of a contract B.offer and acceptance C.execution D.tender of an offer
B.offer and acceptance "A meeting of the minds" means that the parties have reached an agreement: they've mutually consented to the terms of the contract through the process of offer and acceptance.
When the parties to a contract put themselves back into the same positions they were in before they entered into the contract, the contract has been: Select your answer below: A.canceled B.rescinded C.revoked D.performed
B.rescinded A rescission can be by agreement of the parties or by order of the court. In either case, a rescission calls for each party to return any money or other property previously exchanged.
There are written contingencies in a purchase and sale agreement. This contract is potentially: Select your answer below: A.unilateral B.voidable C.executed D.contrary to public policy
B.voidable A contract with contingency clauses is valid, but it becomes voidable if a contingency is not fulfilled.
W, age 17, enters into an installment contract to purchase a five-year-old car from S, an adult. From a legal point of view, the contract is: Select your answer below: A.void B.voidable by W only C.voidable by S only D.voidable by either S or W
B.voidable by W only
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. A contract that results from a misrepresentation like this is: Select your answer below: A.voidable by either party B.voidable by the aggrieved (injured) party C.a valid contract D.void
B.voidable by the aggrieved (injured) party The contract is voidable by the buyer. Whether the misinformation was deliberate (actual fraud) or an innocent misrepresentation (constructive fraud), the buyer is not getting what she bargained for. She can rescind the contract if she wants, or she can complete the sale anyway.
A potential buyer gives a seller an offer that doesn't meet the seller's demands in the listing. What has the buyer given? Select your answer below: A.Contract of sale B.Counteroffer C.Offer to purchase D.Option
C.Offer to purchase An offer simply must express a willingness to contract, and be certain in its terms. It does not need to match the seller's listing. (Note that the listing is not an offer, it's an ad; it can't simply be accepted to form a binding contract. So the buyer's offer is the first offer in a typical transaction, not a counteroffer.)
The Taylors sign an exclusive right to sell listing that expires in six months. A short time later they change their minds and decide not to sell. Can they terminate the listing? Select your answer below: A.No, they must wait for the listing to expire in six months B.No, an exclusive right to sell listing is binding on both parties C.Yes, if the parties mutually consent D.Yes, either side may freely rescind a listing agreement without penalty
C.Yes, if the parties mutually consent Both parties to a contract can mutually agree to rescind a contract before it is scheduled to expire.
In a bilateral contract: Select your answer below: A.a duty will be performed by one party only B.one party can restrict the performance of another party C.two parties have exchanged promises, and both parties are obligated to perform D.all parties have fully performed their duties
C.two parties have exchanged promises, and both parties are obligated to perform
A buyer failed to sign her offer to purchase a property. Her offer is: Select your answer below: A.valid B.voidable C.void D.enforceable
C.void
A 17-year-old purchased a house. He moved in, lived in it for a year, and then decided he didn't want the responsibility of owning a home. He refused to honor the contract. In this case the contract: Select your answer below: A.is valid; the buyer must abide by its terms B.is voidable; the buyer can choose whether or not to carry out its terms C.was voidable when signed; however, the buyer probably ratified it by living in the house D.is void; it was missing an essential contract element
C.was voidable when signed; however, the buyer probably ratified it by living in the house Generally, a contract entered into by a minor is voidable, which means it can be rescinded by the minor. However, if the minor does not act promptly, the contract may be deemed to have been ratified.
Agent Bob receives a deposit with a written offer that includes a five-day acceptance clause. On the second day, Buyer Martha notifies Agent Bob that she is withdrawing her offer and wants her deposit returned. Seller Lou hasn't accepted the offer yet. In this situation: Select your answer below: A.Bob notifies Lou that Martha is withdrawing her offer, and Bob and Lou each keep half of the deposit B.Bob keeps the entire deposit as his commission C.Martha can't withdraw her offer; it must remain open for the full five days D.Martha has the right to revoke her offer and get her money back at any time before Lou accepts the offer
D.Martha has the right to revoke her offer and get her money back at any time before Lou accepts the offer
Mark is selling his property, which has an unfinished basement. He gets a full-price offer from Susan, but the offer requires Mark to finish the basement prior to closing. Do Mark and Susan have a binding contract? Select your answer below: A.Yes, because both parties have made offers to each other B.Yes, because Susan made a full-price offer C.No, because a valid offer must be written and recorded D.No, because Mark has not accepted Susan's offer
D.No, because Mark has not accepted Susan's offer For a valid contract to exist, there must be offer and acceptance. An advertisement (like a listing) is not considered an offer, only an invitation to negotiate. The buyer's offer is just that: an offer, without an acceptance.
After a purchase agreement has been signed, but before the transaction closes, the buyer attempts to have the contract voided. It is likely he will be able to prove that, because of bipolar disorder, he was mentally incompetent at the time the contract was signed. Is the contract still valid? Select your answer below: A.Yes, because mental illness does not factor into questions of contractual capacity B.Yes, because the deed has already been placed into escrow C.No, because buyers are entitled to rescind contracts before closing D.No, because his temporary incapacity allows him to rescind the contract
D.No, because his temporary incapacity allows him to rescind the contract A contract signed by a person who was temporarily incompetent at the time may be voidable, if the person takes action within a reasonable period of time after regaining competency.
To be enforceable, a contract for the sale of real estate must be in writing and signed by the parties. This is true because of which law? Select your answer below: A.Real Estate License Law B.Uniform Commercial Code C.Real Estate Settlement Procedures Act D.Statute of Frauds
D.Statute of Frauds The statute of frauds requires certain contracts, including nearly all real estate contracts, to be in writing.
Mutual consent (offer and acceptance) is one of the requirements of a valid contract. All of the following are true regarding offer and acceptance, except: Select your answer below: A.a counteroffer changes the legal position of the offeror to offeree, and the offeree becomes the offeror B.an offer can be revoked before it is accepted C.the offeree can accept an offer, reject an offer, or make a counteroffer D.an offer to purchase real estate will become a binding contract when it's accepted orally
D.an offer to purchase real estate will become a binding contract when it's accepted orally The statute of frauds requires real estate contracts to be in writing. An oral acceptance of an offer will not create a binding contract.
A real estate contract, in order to be valid, must include: Select your answer below: A.a contingency B.a "time is of the essence" clause C.an option D.consideration
D.consideration Any contract, whether for real estate or anything else, must include consideration as one of the four basic elements.
A homeowner with a mortgage sells his home to a purchaser who agrees to assume the mortgage. The purchaser applies for and obtains the lender's approval, and the seller is released from liability for the mortgage. This is an example of: Select your answer below: A.assignment B.subrogation C.subordination D.novation
D.novation This assumption is actually a novation, because the lender released the seller from liability. The purchaser has entered into a new loan agreement with the lender that replaces the original agreement between the seller and the lender.
A property is listed for $275,000. The buyers offer $265,000, and insist that the gourmet six-burner stove remain with the property. When the signed offer is presented to the sellers, the sellers accept the price, but want to take the stove with them. They cross out the item about the stove, sign the form, and return it to the buyers. Under these circumstances: Select your answer below: A.there is now a valid contract that has been signed by all parties B.the offer has been invalidated and the buyers will need to begin looking for a new property C.the sellers can turn around and accept the original offer, if the buyers won't go along with giving up the stove D.the original offer is terminated, and the sellers have made a counteroffer
D.the original offer is terminated, and the sellers have made a counteroffer Even though the sellers accepted the price change, they still changed the terms of the offer by altering the part about the stove. This had the effect of terminating the offer and creating a counteroffer. The sellers, in essence, become the new offerors.
The parties negotiate the sale of a property by writing letters to each other (in the old-fashioned way, by hand). Their agreement is: Select your answer below: A.invalid; the parties must meet with each other in person B.invalid; the parties must use a preprinted form C.invalid; each letter is only a counteroffer to the previous letter D.valid; under the statute of frauds, contracts to sell real estate are enforceable if they are in writing
D.valid; under the statute of frauds, contracts to sell real estate are enforceable if they are in writing The statute of frauds requires contracts for the sale of real estate to be in writing. Simple notes, memoranda, or a series of letters can be sufficient to meet the requirement, as long as they identify the property adequately, indicate agreement between the parties, and are signed by the parties.
Forbes signed a contract without reading it first, only to discover later that the terms of the contract were not what she originally believed they were. What can she do about the contract? A. Terminate the contract on grounds of undue influence B. Terminate the contract, claiming she signed it under duress C. Terminate the contract; its terms were not fully explained to her D. Withdraw from the agreement, claiming constructive fraud E. Nothing; she is bound by the terms of the contract
E. Nothing; she is bound by the terms of the contract A person who signed a contract without reading it is not excused from performance.
True or False? An open listing agreement that has been put into writing is an implied contract.
False An open listing agreement that has been put into writing is an implied contract.
True or False? A contract signed by someone who is intoxicated is void.
False This contract may be voidable but is not automatically void
A broker, abusing the trust a property owner has placed in him, convinces the owner to list her home at a price she later determines to be well below market value. When she asks the broker to release her from the listing contract, the broker refuses. What is the status of the contract for the property owner?
The contract is voidable by the property owner. The broker exercised undue influence by abusing the trust the property owner placed in her. A contract that one party signed as a result of undue influence is voidable by that party.
Stanton tells a broker he can list her commercial lot, but they don't put their agreement in writing. Within three weeks the broker finds a buyer for the property. At closing Stanton refuses to pay the brokerage commission she agreed to when the listing was negotiated. What is the status of the listing for the broker?
The listing agreement is unenforceable. According to the statute of frauds, a contract concerning real estate—such as a listing agreement—must be in writing to be enforceable.
Six months ago, Dunn was declared mentally incompetent by a court. Now Dunn has just signed a contract to sell his home. What is the legal status of the contract?
The contract is void. An incompetent person does not have contractual capacity, and an agreement signed by an incompetent person is void.
A contractor agrees in writing to build a triplex on Dudley's vacant lot. After the contract has been signed, the contractor discovers the lot is zoned for single-family residential use only. What is the status of the contract?
The contract is void. It would be unlawful to build a triplex on a single-family lot. A contract with an unlawful objective is void.
True or False? A listing agreement, prior to the close of the transaction, is an executory contract.
True
True or False? For someone to have the legal capacity to enter into a contract, he must have reached the age of majority and be mentally competent.
True
True or False? If a minor signs a contract, the contract is voidable only by the minor, not by the other party.
True
True or False? After the expiration of a 12-month lease, a tenant continues to make rental payments to her landlord, who accepts the payments. The contract they have formed is an implied contract.
True An implied contract is created by the actions of the parties, not by express agreement.
True or False? A borrower has made the last payment on a loan agreement. The loan agreement is now an executed contract.
True The terms of the agreement have been fulfilled, so the contract is executed.
what is mutual consent in pertaining to a contract.
mutual consent is achieved through offer and acceptance
what is novation of a contract?
one of the original parties withdraws and is replaced by a new party, but in novation the withdrawing party is released from any further liability and always requires the consent of the other party.
