Ch 15: Contract Law

Question 1

A contract could BEST be described as a/an:

a. Written offer and acceptance between parties to do or not do some legal act
b. Offer and acceptance between competent parties upon consideration to do or not do some legal act
c. Offer and acceptance between parties to do a legal
d. A written agreement between competent parties to do or refrain from doing a legal act

Answer 1

b. Offer and acceptance between competent parties upon consideration to do or not do some legal act

Under general contract law a valid contract does not need to be in writing unless the Statute of Frauds is involved. A contract requires; Competent Parties, Offer and Acceptance, Consideration and the agreed-upon act must be Legal.

Question 2

A written agreement whereby the seller agreed to convey title to a house for $180,000 and the buyer agreed to purchase the house for $180, 000 with the sale to be completed within 30 days is:

a. An express bilateral executory contract
b. An express unilateral executory contract
c. A valid bilateral implied executory contract
d. An express bilateral executed contract

Answer 2

a. An express bilateral executory contract

Question 3

Equitable title under an executory purchase contract would refer to:

a. Broker’s interest
b. Buyer’s interest
c. Buyer’s and seller’s interest
d. Seller’s interest

Answer 3

b. Buyer’s interest

Question 4

An offer to purchase contract becomes a binding contract between seller and purchaser:

a. At the moment the seller has accepted the offer to purchase
b. At the time the purchaser has signed the offer to purchase
c. At the time purchaser has been notified of the seller’s written acceptance of the offer to purchase
d. At the time the broker accepts the earnest money deposit.

Answer 4

c. At the time purchaser has been notified of the seller’s written acceptance of the offer to purchase

To have a binding contract there must be notification of Mutual Assent or the purchaser has been notified of the seller’s written acceptance of the offer to purchase.

Question 5

To create a binding contract for real property, the acceptance of the offer MUST be signed by the:

a. Offeror, offeree and Agent
b. Offeree
c. Offeree and the Agent
d. Offeror and the offeree

Answer 5

b. Offeree

The question is who must sign to indicate acceptance of an offer and the answer is the OFFEREE. After acceptance by the offeree, the contact will have been signed by the Offeror and the Offeree.

Question 6

Under contract law the following is required for a valid contract:

a. Contract must be in writing
b. Signature must be notarized
c. Parties must be at least 21 years old
d. Offer must be accepted

Answer 6

d. Offer must be accepted

This question does not specify that the contact is for the purchase of real property; hence the Statute of Frauds does not apply; so the contract does not need to be in writing. Signatures do not need to be notarized for a valid contract and parties to a contract must be at least 18 years of age, not 21. The correct answer is: Offer must be accepted.

Question 7

Under the Statute of Frauds, which of the following would NOT be covered?

a. A lease for more than one year
b. A purchase contract
c. A listing contract
d. An agreement between two brokers to split commissions

Answer 7

d. An agreement between two brokers to split commissions

An agreement between two brokers to split commissions is not covered by the Statute of Frauds. This is an agreement that does not involve the sale or leasing of real property, but how Agents are going to share commissions and therefore is not subject to the Statute of Frauds.

Question 8

All transfers of real property MUST be in writing as required by the:

a. Statute of Limitations
b. Statute of Liberties
c. Statute of Frauds
d. Law of evidence

Answer 8

c. Statute of Frauds

It is the Statute of Frauds.

Question 9

The Statute of Frauds was passed to prevent:

a. Forgery
b. Bribery
c. Perjury
d. Embezzlement

Answer 9

c. Perjury

The Statute of Frauds, which requires that contracts related to real property be in writing, was adopted to eliminate the false testimony under oath (Perjury) when oral contacts could be used to transfer real property.

Question 10

Every contract MUST include:

a. A grantee
b. A grantor
c. An offer and acceptance
d. A notary acknowledgment

Answer 10

c. An offer and acceptance

All contracts must include offer and acceptance, which is sometimes referred to as Mutual Assent. A notary acknowledgment is NOT required for a purchase contract. The Grantor and Grantee are parties to a deed.

Question 11

The offeror dies just prior to the offeree acceptance of the offer. The contract is:

a. Illegal
b. Valid
c. Unenforceable
d. Voidable

Answer 11

c. Unenforceable

The contract is unenforceable because the agreement is VOID since the Offeror died before the contract was formed by the Offeree’s acceptance and notification.

Question 12

A contract for the purchase of real estate made by a 17 year old person who intends to reside in the property is:

a. Enforceable
b. Indefeasible
c. Invoidable
d. Voidable

Answer 12

d. Voidable

A contract signed by a 17-year-old is Voidable since a 17-year-old does not have Capacity or is not considered under the law a Competent Party.

Question 13

A void contract is a contract that is:

a. Not in writing
b. Not capable of enforcement
c. A voidable contract
d. Required to be renewed

Answer 13

b. Not capable of enforcement

A void contract is a contract that is NOT capable of enforcement because it does not exist as a contract. A contract is void if it does not have all of the elements required for legal enforcement.

Question 14

A waiver is a:

a. Contractual rescission
b. Bilateral contract that leaves the parties where they are
c. Unilateral act
d. Substitution of parties

Answer 14

c. Unilateral act

A waiver is a unilateral act; it means that a party to a contract gives up a right

Question 15

The provision in a purchase contract that provides that the buyer shall forfeit the deposit if the buyer fails to complete the purchase is known as:

a. The safety clause
b. Liquidated damages
c. The subordination clause
d. Punitive damages

Answer 15

b. Liquidated damages

Question 16

A client refuses to sell his property when presented with an offer according to the terms of a valid listing. The client:

a. Can be sued for damages by the buyer
b. Can be sued by the salesperson who wrote the offer.
c. Does not have to sell
d. May be sued for specific performance

Answer 16

c. Does not have to sell

The listing contract is an agreement between the seller and the broker for the broker to find a ready, willing and able buyer. An offer received by such a potential buyer does not have to be accepted by the seller as the listing contract is not an offer to sell, but a personal service contract with the broker.

The broker could sue the seller for the commission earned by producing the buyer under the terms of the valid listing, but the salesperson could not sue.

Question 17

Which of the following would NOT terminate an offer?

a. Revocation by offeror
b. An acceptance contingent upon a change in price
c. A request by offeree for more time for acceptance
d. The death of the offeror.

Answer 17

c. A request by offeree for more time for acceptance

The request by the offeree for more time would not by itself terminate an offer, but if the offeror did not grant the extension and time expired the offer would terminate. The other answer choices all terminate the offer.

Question 18

The earnest money given with an offer to purchase and held in the broker’s trust account is said to belong to:

a. The buyer
b. The broker and seller
c. The buyer and seller
d. The seller

Answer 18

a. The buyer

The earnest money deposit is a “good faith” deposit that is held in the broker’s trust account or the escrow trust account, but the deposit so held is still the property of the buyer. At the close of escrow the earnest deposit is transferred in accordance with the terms of the contract, which generally calls for the deposit to be used as part of the total purchase price to be paid by the buyer to the seller.

Question 19

A property is listed for sale with an agent for $190,000; a buyer submits an offer of $185,000. Which of the following statements is TRUE?

a. The agent need not bother to submit such a low offer to his principal
b. The buyer may withdraw his offer at any time prior to acceptance by the seller
c. The seller is legally bound to either accept or reject the offer in writing
d. The buyer is bound to the offer the moment he signs it.

Answer 19

b. The buyer may withdraw his offer at any time prior to acceptance by the seller

Question 20

Which of the following is FALSE regarding an option?

a. Consideration is necessary for a valid option
b. An option is assignable unless prohibited
c. Optionee has a legal right to return of consideration if option is not exercised
d. Optionee has the option to refrain from exercising the option.

Answer 20

c. Optionee has a legal right to return of consideration if option is not exercised

Question 21

A contract was ambiguous in that the numbers written as words differed from the numerals. Which of the following statements is TRUE?

a. Numerals take precedence over words
b. Words take precedence over numerals
c. Contract is void
d. Contract is voidable

Answer 21

b. Words take precedence over numerals

Just like a check numbers written as words prevail over numerals. Such a conflict would not make a contract Void or Voidable.

Question 22

If upon receipt of an offer to purchase under certain terms the seller makes a counter offer, the prospective purchaser is:

a. Relieved of his/her original offer
b. Bound to accept the counter offer
c. Bound by the agent’s decision
d. Bound by the original offer

Answer 22

a. Relieved of his/her original offer

A counteroffer, sometimes in test questions referred to as a “contingent acceptance”, relieves the original offeror of his /her offer.

Question 23

An option does NOT become a binding contract on both parties until the:

a. Expiration of the option period
b. Option is exercised
c. Option is signed by both parties
d. Consideration is paid

Answer 23

b. Option is exercised

When the option is exercised by the Optionee the contract then becomes a bilateral contract and the agreement is then binding on both parties

Question 24

An offer to purchase states that it would be kept open for acceptance for three days. The day after making the offer, and before acceptance, it is withdrawn. The real estate agent should inform the offeror that:

a. It will mean the forfeiture of earnest money
b. He may withdraw without penalty
c. Only death can revoke the offer
d. The offer is irrevocable

Answer 24

b. He may withdraw without penalty

The real estate agent should inform him that he may withdraw without penalty. An offer may be withdrawn at any time before communication of acceptance without penalty.

Question 25

Which of the following MUST be included in an Arizona Real Estate Purchase Contract?

a. State how title is to be taken
b. Must state the proration settlement between buyer and seller
c. State the form of earnest money deposit
d. Notarized signatures of buyer and seller

Answer 25

c. State the form of earnest money deposit