Ch. 12

Question 1

Addendum

Answer 1

Any provision added to an existing contract without altering the content of the original. Must be signed by all parties.

Question 2

Amendment

Answer 2

A change to the existing content of a contract (e.g. if words or provisions are added to or deleted from the body of the contract). Must be initialed by all parties.

Question 3

Bilateral Contract

Answer 3

A legally enforceable promise or set of promises that must be performed and for which, if a breach of the promise occurs, the law provides a remedy. A contract made be either unilateral, by which only one party is bound to act, or bilateral, by which all parties to the instrument are legally bound to act as prescribed.

Question 4

Breach of Contract

Answer 4

Violation of any terms or conditions in a contract without legal excuse; for example, failure to make a payment when it is due.

Question 5

Consideration

Answer 5

(1) That received by the grantor in exchange for the deed. (2) Something of value that induces a person to enter into a contract.

Question 6

Assignment

Answer 6

The transfer in writing of interest in a bond, mortgage, lease, or other instrument.

Question 7

Contingencies

Answer 7

Provisions in a contract that require a certain act to be done or a certain event to occur before the contract becomes binding.

Question 8

Contract

Answer 8

A legally enforceable promise or set of promises that must be performed and for which, if a breach of the promise occurs, the law provides a remedy. A contract made be either unilateral, by which only one party is bound to act, or bilateral, by which all parties to the instrument are legally bound to act as prescribed.

Question 9

Counteroffer

Answer 9

A new offer made in response to an offer received. It has the effect of rejecting the original offer, which cannot be accepted thereafter unless revived by the offeror.

Question 10

Disclosure

Answer 10

Relevant information or facts that are known or should have been known.

Question 11

Earnest Money

Answer 11

Money deposited by a buyer under the terms of a contract, to be forfeited if the buyer defaults but to be applied to the purchase price if the sale is closed.

Question 12

Enforceable Contract

Answer 12

A contract that meets all the elements of a valid contract, including compliance with any applicable statue of frauds or other law that requires it to be in writing and signed by the parties.

Question 13

Executed Contract

Answer 13

A contract in which all parties have fulfilled their promises and thus performed the contract.

Question 14

Executory Contract

Answer 14

A contract under which something remains to be done by one or more of the parties.

Question 15

Express Contract

Answer 15

An oral or written contract in which the parties state the contract’s terms and express their intentions in words.

Question 16

Implied Contract

Answer 16

A contract under which the agreement of the parties is demonstrated by their acts and conduct.

Question 17

Land Contract

Answer 17

A transaction in which the sales price is paid in two or more installments over two or more years. If the sale meets certain requirements, a taxpayer can postpone reporting such income until future years by paying tax each year only on the proceeds received that year.

Question 18

Liquidated damages

Answer 18

An amount predetermined by the parties to a contract as the total compensation to an injured party should the other party breach the contract.

Question 19

Novation

Answer 19

The substitution of a new contract to replace an earlier one.

Question 20

Offer and Acceptance

Answer 20

Two essential components of a valid contract; a “meeting of the minds.”

An offer is a promise made by the offeror, requesting something in exchange for that promise.

Acceptance is a promise by the offeree to be bound by the exact terms proposed by the offeror.

Question 21

Option

Answer 21

An agreement to keep open for a set period an offer to sell or purchase property.

Question 22

Owner Financing

Answer 22

The seller is the primary lender, securing the property by means of a deed, note and mortgage, deed of trust, or contract for deed. In it’s traditional form, the buyer takes possession of the property and the seller retains legal title until paid in full, but some states have softened this outcome to provide that the buyer is entitled to legal title after a specified period of successful loan payments.

Question 23

Purchase Money Mortgage

Answer 23

A note secured by a mortgage or deed of trust given by a buyer, as borrower, to a seller, as lender, as part of the purchase price of the real estate.

Question 24

Rescission

Answer 24

The practice of one-party counseling or terminating a contract, which has the effect of returning the parties to their original positions before the contract was made.

Question 25

Statute of Frauds

Answer 25

That part of a state law that requires certain instruments, such as deeds, real estate sales contracts, and certain leases, to be in writing to be legally enforced.

Question 26

Suit for Specific Performance

Answer 26

A legal action to compel a party to carry out the terms of a contract.

Question 27

“Time is of the Essence”

Answer 27

A phrase in a contract that requires the performance of a certain act within a stated period of time.

Question 28

Unenforceable Contract

Answer 28

A contract that has all the elements of a valid contract, yet neither party can sue the other to force performance of it. For example, an unsigned contract is generally unenforceable.

Question 29

Unilateral Contract

Answer 29

A one-sided contract wherein one party makes a promise so as to induce a second party to do something. The second party is not legally bound to perform; however, if the second party does comply, the first party is obligated to keep the promise.

Question 30

Valid Contract

Answer 30

A contract that complies with all the essentials of a contract and is binding and enforceable on all parties to it.

Question 31

Void Contract

Answer 31

A contract that has no legal force or effect because it does not meet the essential elements of a contract.

Question 32

Voidable Contract

Answer 32

A contract that seems to be valid on the surface but may be rejected or disaffirmed by one or both of the parties.