Assingment 7 Flashcards
Contracts for Real Estate Transactions and Agency of Law
1
Q
- Which of the following regarding the Property Disclosure Statement (PDS) is TRUE?
(1) Once the PDS is filled out, the licensee is no longer liable for misrepresentations regarding the physical aspects of the property.
(2) The PDS will not form part of the contract of purchase and sale unless so agreed by the parties.
(3) A residential seller who does not fill out a PDS can still list with the multiple listing service, even if the board has adopted the use of the PDS.
(4) It is acceptable for a licensee to accept everything which a vendor includes on the PDS at face value.
A
- Answer: 2
The PDS is intended to shift some of the risk for a misrepresentation to the vendor. However, licencees are still under an obligation to independently verify the information included. Where a board has adopted the use of a PDS, it must be included in a residential listing or the listing will be rejected from the MLS7. The PDS will not form part of the contract of purchase and sale unless this is specifically agreed to by the parties.
2
Q
- Which of the following regarding the termination of an agent’s authority is FALSE?
(1) Because the relationship between principal and agent depends upon their mutual consent, either party can terminate the authority at will.
(2) If the principal finds a buyer, and sells the home on his or her own, even though the principal has a listing contract with a licensee, the licensee’s authority is terminated.
(3) The authority of an agent can only be revoked by written notice.
(4) If the principal sells his or her property without the help of the agent, the principal may still be liable to the agent for commission even though the agent’s authority was terminated upon the sale of the property.
A
- Answer: 3
Either the principal or the agent can terminate the agent’s authority. The authority of an agent can be revoked by the principal either expressly or by conduct. An act inconsistent with the agent’s authority will represent a revocation of authority. Frustration of the contract will also operate to remove the agent’s authority.
3
Q
- Vikram is a licensee who obtained a lucrative deal to sell all of the units in a 75-unit townhouse development on behalf of the developer, Ego Developments. The units ranged in price from $150,000 to $305,000. Vikram ordered a huge sign which he erected on the front of the property. The sign displayed a large photograph of a unit, showing a large kitchen-family room. The sign read:
Fabulous townhomes! Two bedrooms and den. Marble foyers, jacuzzi baths and more! These units represent superb value. Priced from $150,000. Contact Vikram at Ego Developments!
The unit that was displayed on the picture had a price tag of $289,000, and the $150,000 units had only one bedroom and no den. None of the units below $200,000 had marble foyers or jacuzzis. Of the 75 units in the development, only 15 were priced below $200,000.
Vikram is being prosecuted under section 52 of the Competition Act. Which of the following statements is TRUE?
(1) As long as the sign used by Vikram is literally true, there will be no breach of section 52.
(2) An oral representation that a licensee makes to a prospective purchaser does not fall within the scope of section 52; however, written communication, such as Vikram’s sign, is subject to section 52.
(3) To convict Vikram under section 52, the Crown must prove its case on the balance of probabilities.
(4) For a representation to offend section 52, the representation must be false or misleading in a material respect.
A
- Answer: 4
The Crown must prove a criminal offence, such as section 52, beyond a reasonable doubt. When examining representations under section 52, a court will consider both the literal meaning and the general impression conveyed by the advertisement. Section 52 covers a broad category of representations made to the public, including oral, written and electronic advertising.
4
Q
- Jay and Caro are the only two sales licensees in a city. In order to maximize the profitability of their businesses, the two licensees decide that they will each control certain parts of the city: Jay will only represent clients west of the railroad tracks, and Caro will only represent clients east of the railroad tracks. They also agree that they will both charge a flat $1,000 commission on every property listed with their respective firms. Jay and Caro do not tell anyone about their agreement, and they do not put the agreement in writing. Which of the following statements is TRUE?
(1) Jay and Caro cannot be convicted under section 45 of the Competition Act unless their agreement is in writing.
(2) Agreeing to only represent clients on a particular side of the city is not an offence under the Competition Act. However, agreeing to charge a $1,000 flat commission is an offence under the Competition Act.
(3) To convict Jay and Caro under section 45, the Crown must prove that the agreement adversely affected competition in the city.
(4) None of the above
A
- Answer: 4
An implied or unrecorded agreement is sufficient to found a conviction under section 45 of the Competition Act. Under section 45, allocating territories and fixing commission rates are both offences. For a conviction under section 45, the Crown has no obligation to prove that the agreement adversely affected competition in the market.
5
Q
- Which of the following is/are FALSE regarding amendments to a contract of purchase and sale?
A. An amendment does not require consideration or a seal, so long as the original contract is properly enforceable with good consideration and/or a seal.
B. Re-opening negotiations between the parties will not terminate the original contract if the parties agree that the original contract of purchase and sale is binding until any amendment is finalized.
C. Where the original contract includes a time is of the essence clause, unless the amended contract contains an identical clause, the law presumes that time will no longer remain of the essence.
D. At law, an amendment constitutes a contract to change an already existing and legally enforceable contract.
(1) A and C only
(2) B and D only
(3) A, C, and D only
(4) A only
A
- Answer: 1
An amendment is a contract to change a contract; it always requires either consideration or a seal in order to be enforceable. Where an original contract stipulates time is of the essence, the law presumes that time remains of the essence unless the circumstances would make it unjust to do so. Reopening negotiations may be interpreted as a breach of the original contract, so it must be made clear that the original contract is still in place and enforceable.
6
Q
- When a licensee is acting not only as the listing brokerage for a property but also as the agent for the buyer, the company has become a dual agent. This situation presents an obvious conflict; however, the company can continue to act for both parties if the licensee promptly:
A. makes full disclosure to both the vendor and the purchaser of the existence of the dual agency.
B. obtains permission from both principals to proceed in the matter.
C. obtains a new listing contract from the purchaser outlining the dual agency role.
D. discloses the identity of both the vendor and the purchaser to the opposite party. Which of the following is TRUE?
(1) A and B only
(2) A, B, and C only
(3) D only
(4) The licensee must cease to act in the situation.
A
- Answer: 1
It is permissible for an agent to act in a dual agency situation, provided the agent makes full written disclosure to both the vendor and the purchaser at the time that it becomes apparent and provided that the agent obtains permission from both principals. Purchasers do not sign listing agreements, nor is a new listing agreement with the vendor required. Disclosing the parties’ identities to each other may violate their explicit instructions and is not necessary.
7
Q
- Section 54 of the Law and Equity Act permits a party to a contract which is subject to a condition precedent to waive the condition precedent even though its fulfilment is dependent on the action of a third party. Which of the following is NOT a requirement for the operation of this provision?
(1) The condition precedent must benefit only the party waiving its performance.
(2) The waiver must be made within the period allotted for fulfilment of the condition precedent.
(3) The condition may only be waived with the authorization of the third party upon whom its performance was dependent.
(4) The contract must remain capable of being performed without the fulfilment of the condition precedent.
A
- Answer: 3
Section 54 of the Law and Equity Act allows the unilateral waiver of the benefit of a condition precedent in some circumstances. The authorization of the third party upon whom the condition’s performance is dependent is not required. Each of the other options is a requirement for a unilateral waiver.
8
Q
- Mike wanted to purchase a ten acre waterfront lot on Saltspring Island from Janice. He intended to subdivide the lot into ten 1-acre parcels and to sell nine of the resulting lots to finance the construction of a vacation home for his family on the remaining lot. In order to protect himself, he made the contract subject to his receiving approval of the subdivision plans from the Island Trust, one of the Gulf Island approving authorities. Mike later found another ten acre parcel which he preferred, and because he had not yet applied for the approval of the subdivision from the Island Trust, he decided to delay applying for the subdivision in order to use the condition precedent to avoid purchasing Janice’s lot.
Which of the following is TRUE?
(1) Because the contract of purchase and sale between Mike and Janice did not contain a promise that Mike would use his best efforts to satisfy the condition, Mike can successfully use the condition precedent to avoid purchasing Janice’s lot.
(2) Fulfilment of the condition precedent can be waived by Janice so that the approval of the subdivision is not necessary in order for her to ensure that the transaction completes.
(3) If Mike changes his mind and waives the fulfilment of the condition precedent requiring that he receive the Island Trust’s approval, he may be still be liable to Janice for any increased construction costs caused by his delay in obtaining subdivision approval.
(4) Mike is under an implied obligation to use his best efforts to secure performance of the condition, and therefore Mike cannot use the condition to avoid the contract unless he has failed after using his best efforts to obtain subdivision approval.
A
- Answer: 4
The courts will imply an obligation on the part of the person who controls the situation to use his or her best efforts to proceed with proper attention to satisfying the condition. It is unnecessary for the contract to specifically impose that duty. A condition precedent may only be waived by the party who is to benefit from the condition, therefore the vendor in this case cannot waive performance. If Mike waives fulfilment of the condition, the transaction will close on time and no costs will be incurred by Janice. The only party to suffer potential damage from a delay in construction will be Mike himself. The implied obligation to use best efforts applies to Mike and Mike would not be able to avoid the obligation to complete by avoiding applying for the approval.
9
Q
- Claude and Mathilde entered into a contract of purchase and sale whereby Claude agreed to sell his property to Mathilde for the price of $100,000. Fifty thousand dollars was to be paid in cash. Claude agreed to carry the balance by way of a mortgage. A term in the contract stated that the contract was not assignable. Which one of the following is TRUE?
(1) Mathilde may assign the contract only if she is a guarantor of the mortgage.
(2) The contract is assignable if the assignee is more financially secure than Mathilde, because Claude’s rights would not be prejudiced.
(3) Because 50% of the price is payable by cash, Claude cannot object to an assignment of the contract.
(4) Mathilde is not entitled to assign the contract.
A
- Answer: 4
It is important to realize that the terms of a contract are the first place to look in determining a party’s legal rights. Where a contract is silent, or contemplates the possibility of assignment, a party may assign its rights if that does not prejudice the rights of the other party to the contract. However, if a contract specifically states that it cannot be assigned, that governs the parties’ rights. Here, the contract was not assignable.
10
Q
- With respect to the standard form listing agreement, which of the following statements is/are TRUE?
A. A prospective purchaser is entitled to rely upon the terms set out in a listing contract.
B. If a prospective purchaser offers exactly the price and terms set out in the listing contract, the vendor is legally obligated to accept the purchaser’s offer.
C. If a vendor refuses to accept an offer that contains exactly the price and terms set out in the listing contract, the licensee acting for the vendor is nevertheless likely entitled to be paid the commission as if the sale of the property had been completed.
D. A prudent listing licensee who reviews a plan of the property available for inspection in the land title office can use the plan as a survey of the property.
(1) A, B, and D only
(2) B only
(3) C only
(4) All of the above statements are true.
A
- Answer: 3
Only statement C is true: although a seller is not obliged to accept an offer that meets the terms set out in the listing (Statement B), such satisfaction of the terms of the listing will likely trigger the payment of commission by the seller. Statement A is false because a listing agreement is a contract between the seller and the brokerage. The purchaser is not a party to the contract and therefore cannot rely on any of the terms of the listing. Statement D is false because a plan is not a survey and therefore cannot be relied upon as such. A prudent licensee will obtain an actual survey to ensure that the property dimensions are accurate.
11
Q
- A “Norfolk v. Aikens clause” in a contract of purchase and sale is necessary to:
(1) give the conveyancers permission to use the purchaser’s money to clear title.
(2) tie up the property until a condition precedent has been satisfied.
(3) identify the physical characteristics and problems that the property might have.
(4) ensure that the contract is enforceable.
A
- Answer: 1
The contract of purchase and sale usually specifies that the vendor shall transfer clear title, for the purchaser’s cash. However, the vendor usually has granted a mortgage on the property, and will not be able to transfer clear title until the mortgage is paid out. Similarly, the purchaser requires a mortgage to make the purchase, but a mortgage company is unwilling to advance the funds because the purchaser does not have title to the property being used to secure the mortgage. The deadlock is broken through the use of the addendum which permits the conveyancers to complete the transaction on the strength of undertakings.
12
Q
- Preparation is crucial to any negotiation. Three of the following statements regarding preparing for a negotiation are true. Which one is FALSE?
(1) By preparing a list of all the potential issues that could come up during negotiations, the likelihood of developing a creative solution is increased.
(2) During preparations, if you can understand the interests of the opposing party and appreciate why they are seeking what they are, your negotiating position will be strengthened.
(3) An essential step during preparation is to determine possible alternatives to a negotiated solution so that you will know when it is appropriate to walk away.
(4) By prioritizing your issues in order of importance before negotiations take place, you can successfully achieve your goal: a zero-sum game.
A
- Answer: 4
The first three options are all true regarding the lead up to a negotiation. Option (4) is incorrect as the likelihood of a zero-sum game is unrelated to the prioritizing of issues. In addition, negotiations are not necessarily zero-sum games nor would the occurrence of a zero-sum game represent a “success”.
13
Q
- Which of the following are TRUE statements about the relationship between the agent and principal?
A. In buyer-agency the vendor and the buyer each enter into a separate agency relationship with their respective agent.
B. Agency has been interpreted to require that an agent’s primary responsibility is to protect and promote his or her principal’s interests while remaining responsible for fair and honest dealing with all parties.
C. In sub-agency both the listing agent and the selling agent have the vendor as their principal.
D. In sub-agency the selling agent has obligations to the vendor, and the buyer is the third party.
(1) A and C only
(2) B and D only
(3) A, B, and D only
(4) All of the above
A
- Answer: 4
All of the statements regarding agency are true.
14
Q
- Joe is Mario’s agent. Joe has acted beyond his authority in agreeing to sell Mario’s horse to Giuseppe for $1,200. The following statements deal with the legal consequences of ratification. Which one of them is TRUE?
(1) If Mario chooses not to ratify Joe’s action, he could sue Joe for breach of warranty of authority.
(2) If Mario chooses not to ratify Joe’s action, Giuseppe could sue Joe for breach of warranty of authority.
(3) Even if Mario ratifies Joe’s action, Giuseppe can sue Joe for breach of contract.
(4) If Mario chooses not to ratify Joe’s action, Joe can sue Mario for breach of the agency contract.
A
- Answer: 2
The relationship between the principal and the agent is governed by the agency contract. If the agent acts beyond his authority he has breached that contract and the principal. If the principal suffers damages, he can sue the agent for breach of contract. That could arise where the Court holds that apparent authority exists which requires the principal to honour the contract entered into by his agent. Where the agent enters into a contract which is beyond his authority and his principal refuses to ratify his actions, it is the third party who suffers damages (unless he can prove apparent or usual authority). In such a case the third party can sue the agent for breach of warranty of authority because the law implies that the agent warranted he had the authority he purported to exercise.
15
Q
- Good negotiators will attempt to develop creative ways to exchange resources so that both parties benefit from the agreement. Which of the following is/are FALSE regarding the facilitation of this exchanging of resources?
A. By focusing on the parties’ underlying interests, negotiators can avoid becoming entrenched in, and unwilling to move from, their positions.
B. By making multiple or successive concessions, a negotiator may be inadvertently establishing a climate whereby the opposing side is LESS likely to participate in the negotiations.
C. “Packaging” issues together is not advisable, as a negotiator is left with fewer potential combinations of solutions and is LESS likely to come to a mutually satisfactory solution.
D. By deciding on an objective standard prior to discussing potential solutions, the parties are MORE likely to come to a final agreement that both view as fair.
(1) A only
(2) A and B only
(3) C and B only
(4) C only
A
- Answer: 4
With the exception of C, all of the above are true based on the text. Research has shown that “packaging” solutions together leads to better solutions. “Packaging” allows the parties to reveal less information to the other party and allows for more creative solutions to be created.
