Chapter 10 - Real Estate Contract Law

Question 1

According to contract law, every valid contract is also

Answer 1

enforceable or unenforceable

Question 2

A seller immediately accepts a buyer’s offer but waits 8 days before returning the accepted document to the buyer. Meanwhile, the offer has expired… the buyer

Answer 2

has no obligations to the seller whatsoever

Question 3

The guardian for a mentally incompetent party enters into an oral contract with another party to buy a trade fixture. This contract

Answer 3

is possibly valid and enforceable

Question 4

The purpose of the statute of frauds is to

Answer 4

require certain conveyance-related contracts to be in writing

Question 5

A contract may be defensibly terminated without damages if

Answer 5

it is impossible to perform

Question 6

The statute of limitations requires that parties to a contract who have been damaged or who question the contract’s provisions…

Answer 6

must act within a statutory period

Question 7

A contract is an

Answer 7

agreement between two or more parties who, in a “meeting of the minds,” have pledged to perform or refrain from performing some act.

Question 8

A valid contract is one that is

Answer 8

legally enforceable by virtue of meeting certain requirements of contract law

Question 9

In terms of validity and enforceability, a court may construe the legal status of a contract in one of four ways:

Answer 9

 valid
 valid but unenforceable
 void
 voidable

Question 10

A valid contract is one which

Answer 10

meets the legal requirements for validity

A valid contract that is in writing is enforceable within a statutory time period. A valid contract that is made orally is also generally enforceable within a statutory period

Question 11

Valid but unenforceable.

Answer 11

State laws declare that some contracts are enforceable only if they are in writing

while an oral contract may meet the tests for validity, if it falls under the laws requiring a written contract, the parties will not have legal recourse to enforce performance

Question 12

A void contract is an agreement

Answer 12

that does not meet the tests for validity, and therefore is no contract at all. If a contract is void, neither party can enforce it.

Question 13

A voidable contract is one which initially

Answer 13

appears to be valid, but is subject to rescission by a party to the contract who is deemed to have acted under some kind of disability.

Question 14

A voidable contract differs from a void contract in that the

Answer 14

latter does not require an act of disaffirmation to render it unenforceable.

Question 15

A contract is valid only if it meets:

Answer 15

-competent parties
-mutual consent
-valuable consideration
-legal purpose
-voluntary act of good faith

Question 16

The parties to a contract must have the

Answer 16

capacity to contract, and there must be at least two such parties

Question 17

Capacity to contract is determined by three factors:

Answer 17

 legal age
 mental competency
 legitimate authority

Question 18

Mutual consent, also known as

Answer 18

offer and acceptance and meeting of the minds, requires that a contract involve a clear and definite offer and an intentional, unqualified acceptance of the offer

Question 19

A contract must contain a two-way exchange of

Answer 19

valuable consideration as compensation for performance by the other party. The exchange of considerations must be two-way. The contract is not valid or enforceable if just one party provides consideration.

Question 20

The content, promise, or intent of a contract must be

Answer 20

lawful. A contract that proposes an illegal act is void.

Question 21

The parties must create the contract in

Answer 21

good faith as a free and voluntary act. A contract is thus voidable if one party acted under duress, coercion, fraud, or misrepresentation.

Question 22

a contract that conveys an interest in real estate must:

Answer 22

 be in writing
 contain a legal description of the property
 be signed by one or more of the parties

Question 23

The statute of limitations restricts

Answer 23

the time period for which an injured party in a contract has the right to rescind or disaffirm the contract. A party to a voidable contract must act within the statutory period.

Question 24

The statute of frauds requires that

Answer 24

certain contracts must be in writing to be enforceable.

Question 25

The mutual consent required for a valid contract is reached

Answer 25

through the process of offer and acceptance:

Question 26

An offer expresses

Answer 26

the offeror’s intention to enter into a contract with an offeree to perform the terms of the agreement in exchange for the offeree’s performance.

Question 27

An offer gives the offeree the power of accepting. For an acceptance to be valid, the

Answer 27

offeree must manifestly and unequivocally accept all terms of the offer without change, and so indicate by signing the offer, preferably with a date of signing.

Question 28

By changing any of the terms of an offer, the offeree creates a

Answer 28

counteroffer, and the original offer is void

Question 29

An offer may be revoked, or withdrawn, at any time before

Answer 29

the offeree has communicated acceptance. The revocation extinguishes the offer and the offeree’s right to accept it.

Question 30

Any of the following actions or circumstances can terminate an offer:

Answer 30

 acceptance: the offeree accepts the offer, converting it to a contract
 rejection: the offeree rejects the offer
 revocation: the offeror withdraws the offer before acceptance
 lapse of time: the offer expires
 counteroffer: the offeree changes the offer
 death or insanity of either party

Question 31

A real estate contract that is not a personal contract for services can be

Answer 31

assigned to another party unless the terms of the agreement specifically prohibit assignment

Listing agreements, for example, are not assignable, since they are personal service agreements between agent and principal

Question 32

State laws define the extent to which real estate brokers and agents may

Answer 32

legally prepare real estate contracts. Such laws, referred to as “broker-lawyer accords,” also define what types of contracts brokers and agents may prepare.

Question 33

Oral vs. written contracts

Answer 33

A contract may be in writing or it may be an oral, or parol, contract. Certain oral contracts are valid and enforceable, others are not enforceable, even if valid

For example, most states require listing agreements, sales contracts, and leases exceeding one year to be in writing to be enforceable

Question 34

An express contract is one in which

Answer 34

all the terms and covenants of the agreement have been manifestly stated and agreed to by all parties, whether verbally or in writing.

Question 35

An implied contract is an unstated or unintentional agreement that may

Answer 35

be deemed to exist when the actions of any of the parties suggest the existence of an agreement.

Question 36

A bilateral contract is one in which

Answer 36

both parties promise to perform their respective parts of an agreement in exchange for performance by the other party.

Question 37

In a unilateral contract,

Answer 37

only one party promises to do something, provided the other party does something. The latter party is not obligated to perform any act, but the promising party must fulfill the promise if the other party chooses to perform.

Question 38

An executed contract is one that

Answer 38

has been fully performed and fulfilled: neither party bears any further obligation.

Question 39

An executory contract is one in which

Answer 39

performance is yet to be completed

Question 40

Termination of a contract, also called cancellation and discharge, may occur for any of the following causes:

Answer 40

-performance
-infeasibility
-mutual agreement
-cooling-period rescission
-revocation
-abandonment
-lapse of time
-invalidity of contract

Question 41

Forms of contract
termination: Performance

Answer 41

 partial performance, if the parties agree
 sufficient performance, if a court determines a party has sufficiently performed the contract, even though not to the full extent of every provision

Question 42

Forms of contract
termination: mutual agreement

Answer 42

Parties to a contract can agree to terminate, or renounce, the contract.

Question 43

novation

Question 44

Forms of contract
termination: cooling-period recission

Answer 44

is the act of nullifying a contract. In many states, parties to certain contracts are allowed a statutory amount of time after entering into a contract, or “cooling period”, to rescind the contract without cause

Question 45

Forms of contract
termination: revocation

Answer 45

is cancellation of the contract by one party without the consent of the other

Question 46

Forms of contract
termination: abandonment

Answer 46

Abandonment occurs when parties fail to perform contract obligations.

Question 47

Forms of contract
termination: lapse of time

Answer 47

If a contract contains an expiration provision and date, the contract automatically expires on the deadline

Question 48

Forms of contract
termination: invalidity of contract

Answer 48

If a contract is void, it terminates without the need for disaffirmation. A voidable contract can be cancelled by operation of law or by rescission.

Question 49

A breach of contract is

Answer 49

a failure to perform according to the terms of the agreement. Also called default, a breach of contract gives the damaged party the right to take legal action.

Question 50

The damaged party in a breach of contract may elect the following legal remedies:

Answer 50

 rescission
 forfeiture
 suit for damages
 suit for specific performance

Question 51

Breach of contract: Recission

Answer 51

A damaged party may rescind the contract. This cancels the contract and returns the parties to their pre-contract condition, including the refunding of any monies already transferred.

Question 52

Breach of contract: forfeiture

Answer 52

A forfeiture requires the breaching party to give up something, according to the terms of the contract. For example, a buyer who defaults on a sales contract may have to forfeit the earnest money deposit.

Question 53

Breach of contract: Suit for damages.

Answer 53

A damaged party may sue for money damages in civil court. The suit must be initiated within the time period allowed by the statute of limitations.

Question 54

If the contract does not specify the amount, the damaged party may sue in court for

Answer 54

unliquidated damages

Question 55

When a contract states the total amount due to a damaged party in the event of a breach, the compensation is known as

Answer 55

liquidated damages.