Ch 1 Section 3 Real Estate Contract Law

Question 1

What are the essential characteristics of contracts ?

Answer 1

• Legally competent parties
• Clearly identified property description
• Meeting of the minds as to the essential terms
• Consideration
• A legal purpose
• usually 18

Question 2

Legally component parties

Answer 2

There must be two or more legally competent parties to a contract

Question 3

A person with LIMITED capacity to contract may enter a valid contact under circumstances :

Answer 3

• Minors are persons under the legal age of majority according to state law ( in most states individuals under 18 years of age) and they have limited capacity to contract
• Persons who were intoxicated or influenced by drugs and who can establish incompetence at the time of the contract , may be permitted to void their contract, if they act promptly.
• People with no capacity to enter into a contract such as those who are adjudicated incompetent or insane, may be party to a legally binding contract

Question 4

Clearly Identified Property Description

Answer 4

Real estate must be described so that all parties can clearly identify the subjects property

Question 5

Meeting of the minds

Answer 5

Means that all parties clearly understand what the agreement is

Question 6

Offers may be terminated in ways:

Answer 6

-acceptance, in which case a contract results.
-revocation by offer or caused by the offeror’s withdrawal prior to acceptance
-rejection by offerree
-counteroffer, in which case offered becomes new offeror
-lapse of time when the offeree has set a deadline for acceptance
-Death or insanity of either party prior to acceptance

Question 7

Consideration

Answer 7

The contract must be supported by a valid or sufficient, lawful consideration

Question 8

Valuable consideration

Answer 8

Usually consists of money or property, but. May also be an enforceable promise

Question 9

Good consideration

Answer 9

Is often used for a gift deed and is frequently love and affection

Question 10

Legal Purpose

Answer 10

Courts cannot be called upon to enforce contracts that require one to break the law.

Question 11

Valid Contract

Answer 11

Is one that has all of the essential elements plus any additional, special details necessary to the contract.

Question 12

Void Contract

Answer 12

Is one that has one or more of the five essential elements. Missing, and thus has no legal force or binding effect.

Question 13

Voidable Contract

Answer 13

A contract that appears valid on its face, meaning that it appears to have all of the five essential elements, but that is subject to rescission by one of its parties.

Question 14

Fraud

Answer 14

Is any form of deceit by which one party intentionally attempts to gain unfair advantage over another. Key word is “intentional”.

Question 15

Misrepresentation

Answer 15

Is a false statement or concealment of a material fact.

Question 16

Mistake

Answer 16

Is an error or misunderstanding

Question 17

Puffing

Answer 17

A harmless statement of exaggeration that a reasonable person would be expected to recognize such as “This is the most beautiful house in the city.”

Question 18

Undue Influence

Answer 18

(Such as taking advantage of grieving widow)

Question 19

Duress

Answer 19

(The use of force of threatened force)

Question 20

Statue of Frauds

Answer 20

Laws that require certain contracts must be in writing to be enforced.

Question 21

State statue of fraud require:

Answer 21

-all real estate contracts involving the sale of land
-transfer of any ownership interest in land
-be in writing and signed in order to be enforced in a court of law

Question 22

Statues of Limitations

Answer 22

Are state laws that prescribe time limits on legal actions, meaning that lawsuits seeking enforcement of contracts must be started within a specified period of time. Protect people against state claims.

Question 23

Death of Parties

Answer 23

real estate sales contracts survive the death of the parties
-death of either party terminates a personal service contract such as a listing
-death of either party also terminates an offer that has not been accepted

Question 24

Ways in which a contract may be discharged or terminated

Answer 24

-Performance
-Abandonment by one party or both partes
-Lapse of time, whether specified, or a reasonable time
-Revocation by a party legally entitled to revoke
-Breach by one party, giving the other party the right to terminate
-Rescission by a purchaser if exercised during the legally allowed time frame

Question 25

Breach of Contract

Answer 25

Occurs when there is violation of any of the terms or conditions of a contract without legal excuse

Question 26

Rescission

Answer 26

-Is a legal remedy that terminated the contract
and returns the parties to their original positions
-rescission period during which time they may rescind a contract for any reason whatsoever
It is usually from 3-10 days
-cooling off period

Question 27

Federal Truth in Lending Law

Answer 27

Guarantees a rescission period as do most state time-share and condominium laws

Question 28

Contracts

Answer 28

Voluntary agreements that conform in character to certain laws governing their creation.

Question 29

Express Contract

Answer 29

Is one in which all terms and conditions are mentioned and agreed to in writing, orally ,or both.

Question 30

Implied Contract

Answer 30

Is one in which certain terms have not been expressly stated, but they can be inferred from the nature of the transaction or the conduct of the parties

Question 31

When is a contract unilateral?

Answer 31

When one party obligates to perform without receiving a promise of performance from the other party.

Question 32

When is a contract bilateral?

Answer 32

When both parties make promises of performance

Question 33

Examples of Bilateral Contracts

Answer 33

-a real estate sales contract where the buyer promises to buy and the seller promises to sell
-certain listing contracts signed by both seller and broker, where the seller promises to pay, and the broker also promises to do certain things such as advertise the property, use his best effort to sell the property, etc.

Question 34

A contract is executory when:

Answer 34

-When one or both parties has not yet performed.
-example would be a sales contract where a seller has pledged to sell, a buyer pledged to buy, but neither has yet performed

Question 35

A contract is executed when:

Answer 35

-There is nothing left to be done by either party.
-Example, a real estate sales contract becomes executed at closing, upon delivery and acceptance of the deed

Question 36

Covenant

Answer 36

-A solemn promise intended as binding
-It is an agreement or a pledge between two or more parties

Question 37

Condition

Answer 37

A condition is something that is established, or is agreed upon, as a prerequisite to the doing or taking effect of something else.

Question 38

Restrictions

Answer 38

There are private restrictions that apply to property.

Question 39

Private Covenants Conditions and Restrictions

Answer 39

-(Sometimes abbreviated as CCRs) may be imposed on the use of real property by owners.
-restrictive covenants written into real property instruments such as deeds, leases, and condominium declarations

Question 40

Questions of Time

Answer 40

-If specific times have not been stated for
performance, the law
will imply that a razonable time was meant.
- Reasonable is what may be fairly allowed and required considering the nature of the act to be performed.
-When parties specify a definite time and further agree that time is of the essence.

Question 41

Assignment

Answer 41

the substitution of a new debtor, or the substitution of a new creditor.

Question 42

Novation

Answer 42

Novation is the substitution of a new legal obligation for an old one, such as the substitution of a new contract

Question 43

What is an assignment?

Answer 43

-Is the transfer of the right, title, or interest of one person (assignor) to another (assignee).
-(mortgage contracts, trust deeds, contracts for sale, lease contracts, options)

Question 44

Power of Attorney

Answer 44

-A power of attorney is a legal, written document in which one person appoints another to be his attorney-in-fact and authorizes him to act on his behalf (ex: to buy or sell land, or to sign a lease)
-may buy or sell a piece of real property for another without real estate license, provided the attorney-in-fact is not actually engaged in a brokerage business and purposefully trying to evade the state’s license law.
-A general power of attorney authorizes the attorney-in-fact to carry out a wide range of activities, whereas a specific or limited power of attorney would be limited to certain acts (usually one single act)
-remember that the power of attorney is the document; the attorney-in-fact is the person

Question 45

Estoppel

Answer 45

Is a legal doctrine that stops, or prevents, a person from asserting certain rights, or stating certain facts, if such action is judged to be inconsistent with, or contrary to, a previous position.

Question 46

Estoppel Certificate

Answer 46

(Certificate of no defense, estoppel letter) is a legal document that clarifies the exact amount of debt owed by one party to another party and/or the situation between the parties as of a certain, specified date.

Question 47

Riders, Addenda, and Amendments

Answer 47

contract form are used frequently in real estate transactions.

Question 48

A rider or addendum

Answer 48

-Is normally used to add a provision to a preprinted contract
-a rider or addendum could be used to add this provision

Question 49

An amendment

Answer 49

Is used to change a provision in a signed contract