Chapter 4 Contract - The Basics

Question 1

express contract

Answer 1

which the parties declare the terms and put their intentions in words, either oral or written A lease or rental agreement, for example, is an express contract. The landlord agrees to allow the tenant to live in the apartment and the tenant agrees to pay rent in return

Question 2

implied contract

Answer 2

which agreement is shown by act and conduct rather than words. We create a contract when we go into a restaurant and order food, go to a movie, or have a daily newspaper delivered

Question 3

bilateral contract

Answer 3

agreement in which each person promises to perform an act in exchange for another person’s promise to perform

Question 4

unilateral contract

Answer 4

contract in which a party promises to perform without expectation of performance by the other party

Question 5

executory contract

Answer 5

something remains to be performed by one or both parties

Question 6

executed contract

Answer 6

parties have performed completely. One of the meanings of execute is to sign, or complete in some way

Question 7

void contract

Answer 7

no contract at all or no legal effect (lack of capacity, illegal subject matter

Question 8

voidable contract

Answer 8

is valid and enforceable on its face, but may be rejected by one or more of the parties (induced by fraud, menace, duress

Question 9

unenforceable contract

Answer 9

valid, but for some reason cannot be proved by one or both of the parties (an oral agreement should be in writing because of the statute of frauds

Question 10

valid contract

Answer 10

binding and enforceable has all the basic elements required by law

Question 11

Basic Elements of Valid Contracts

Answer 11

In order for a contract to be legally binding and enforceable, there are four requirements: (1) legally competent parties, (2) mutual consent between the parties, (3) lawful objective, and (4) sufficient consideration

Question 12

legal capacity

Answer 12

Almost anyone is capable, with a few exceptions. A person must be at least 18 years of age unless married, in the military or declared emancipated by the court.

Question 13

ratified

Answer 13

ratified (approved after the fact) depending on the parties

Question 14

revocation

Answer 14

A power of attorney can be cancelled by the principal at any time by recording a revocation

Question 15

Mutual consent (or mutual assent), is sometimes called a meeting of the minds

Answer 15

In a valid contract, all parties must mutually agree

Question 16

Methods to Terminate an Offer

Answer 16

• Lapse of time: an offer is revoked if the offeree fails to accept it within a prescribed period
• Communication of notice of revocation: notice is filed by the offeror anytime before the other party has communicated acceptance
• Failure of offeree to fulfill a condition of acceptance prescribed by the offeror
• A qualified acceptance, or counteroffer by the offeree
• Rejection by the offeree
• Death or insanity of the offeror or offeree
• Unlawful object of the proposed contract

Question 17

Genuine assent

Answer 17

A final requirement for mutual consent is that the offer and acceptance be genuine and freely made by all parties. does not exist if there is fraud, misrepresentation, mistake, duress, menace, or undue influence involved in reaching an agreement.

Question 18

consideration

Answer 18

something of value such as a promise of future payment, money, property, or personal services. For example, there can be an exchange of a promise for a promise, money for a promise, money for property, or goods for services

Question 19

Forbearance

Answer 19

forgiving a debt or obligation, or giving up an interest or a right, qualifies as valuable consideration. Gifts such as real property based solely on love and affection are good consideration. They meet the legal requirement that consideration be present in a contract

Question 20

Contracts That Must Be in Writings

Answer 20

• An agreement for the sale of real property
• An agreement that cannot be performed within a year from its making. This includes a lease for longer than one year
• An agreement to employ an agent, broker, or other person to purchase, sell, or to lease real estate for longer than one year, for compensation or a commission
• An agreement by a purchaser of real property to pay an indebtedness secured by a mortgage or deed of trust upon the property purchased, unless the purchaser’s assumption of the indebtedness is provided for in the conveyance of the property

The statute of frauds also affects personal property. Personal property valued at more than $500 must be accompanied by a written bill of sale

Question 21

parol evidence rule

Answer 21

extends this meaning and prohibits introducing any kind of outside evidence to vary or add to the terms of deeds, contracts or other writings once executed. Under the parol evidence rule, when a contract is intended to be the parties’ complete and final agreement, no further outside promises, oral or written, are allowed. Occasionally a contract is ambiguous or vague. Then the courts will allow use of prior agreements to clarify an existing disputed contract.

Question 22

Order of Resolving Contradictory Statements in Contracts

Answer 22

1. Handwritten content
2. Typewritten content
3. Attached addenda
4. Preprinted material

Question 23

can you initial changes made to a contract and still be valid?

Answer 23

Many real estate forms are now electronic and can be downloaded.

When preparing a contract, if the parties involved want to make handwritten changes and initial them, those changes control the document

Question 24

Discharge of contract

Answer 24

refers to the cancellation or termination of a contract. Contracts are discharged by performance, release, assignment, novation, and breach

Question 25

When are Contracts discharged?

Answer 25

performance, release, assignment, novation, and breach

Question 26

tender of performance

Answer 26

an offer by one of the parties to carry out his or her part of the contract. Usually, a tender is made at the time to close escrow. The person to whom the tender is made must state any objections at that time or they are waived

Question 27

waiver

Answer 27

relinquishment or refusal to accept a right. A person must take advantage of his or her rights at the proper time. If they do not, they give up (waive) their rights

Question 28

Specific performance

Answer 28

court action brought about by one party to force the other (breaching) party to fulfill the conditions of the contract.

Question 29

Assignment

Answer 29

An assignment will transfer all the interests of the assignor (principal) to the assignee. The assignee takes over the assignor’s rights, remedies, benefits, and duties in the contract. In this situation, the assignor is not completely released from the obligations for the contract and remains secondarily liable.

Question 30

novation

Answer 30

That is the substitution, by agreement, of a new obligation for an existing one, with the intent to extinguish the original contract. For example, novation occurs when a buyer assumes a seller’s loan, and the lender releases the seller from the loan contract by substituting the buyer’s name on the loan

Question 31

breach of contract

Answer 31

failure to perform on part or all of the terms and conditions of a contract. A person harmed by non-performance can accept the failure to perform or has a choice of three remedies: (1) unilateral rescission, (2) lawsuit for money damages, or (3) lawsuit for specific performance.

Question 32

Unilateral rescission

Answer 32

is available to a person who enters a contract without genuine assent because of fraud, mistake, duress, menace, undue influence, or faulty consideration. Rescission may be used as a means of discharging a contract by agreement, as we have mentioned.

Question 33

lawsuit for specific performance

Answer 33

This is an action in court by the injured party to force the breaching party to carry out the remainder of the contract according to the agreed-upon terms, price, and conditions. Generally, this remedy occurs when money cannot restore an injured party’s position. This is often the case in real estate because of the difficulty in finding a similar property.

Question 34

90 Days

Answer 34

Civil actions to recover personal property such as suitcases, clothing, or jewelry alleged to have been left at a hotel or in an apartment; must begin within 90 days after the owners depart from the personal property

Question 35

6 Months

Answer 35

Action against an officer to recover property seized in an official capacity—such as by a tax collector

Question 36

1 Year

Answer 36

Libel or slander, injury or death caused by wrongful act, or loss to depositor against a bank for the payment of a forged check

Question 37

2 Years

Answer 37

Action on a contract, not in writing; action based on a policy of title insurance

Question 38

3 Years

Answer 38

Action on a liability created by statute; action for trespass on or injury to real property, such as encroachment; action for relief on the grounds of fraud or mistake; attachment

Question 39

4 Years

Answer 39

Action on any written contract; includes most real estate contracts.

Question 40

10 Years

Answer 40

Action on a judgment or decree of any court in the United States.