Chapter 6: Contracts

Question 1

A CONTRACT is an agreement to do or not to do a certain act or service.

Question 2

An EXPRESS CONTRACT describes a contract that is expressed in words, either oral or written. IMPLIED CONTRACT is created when an agreement is made by acts and conduct (implication) rather than by words.

Answer 2

A contract defined in words, oral or written (paper or digital files), is an express contract and is preferred by most real estate professionals.

Question 3

When only one party makes a promise for an act, the agreement is called a UNILATERAL CONTRACT.

A BILATERAL CONTRACT is a promise for a promise.

Question 4

Classification of Contracts:

Answer 4

• VALID: A fully operative contract that is binding and enforceable in a court of law is VALID CONTRACT.
• VOIDABLE: A VOIDABLE CONTRACT can be affirmed or rejected at the option of a party. The partycan rescind, cancel, or annul. A voidable contract remains binding until it is rescinded.
• VOID: A VOID CONTRACT has no legal force or effect. It does not exist for enforcement purposes. It lacks one of the essential elements of a contract.
• UNENFORCEABLE: An UNENFORCEABLE CONTRACT is a valid contract that for some reason cannot be enforced in court (proved or sued upon).

Question 5

These are the four elements of any contract:

Answer 5

1) capacity,
2) mutual consent,
3) legality, and
4) consideration.
Often, in real estate, a proper writing is required, making this the fifth element.

Question 6

A contract has 3 phases:

Answer 6

A contract has three phases: negotiation, performance, and completion.
If some provision of a contract is not yet fulfilled, it’s called an executory contract.
If it has been discharged or performed, it’s considered an executed contract.

Question 7

A contract for personal property can be oral or written but the Statute of Frauds requires that real estate contracts be in writing.

Question 8

California, local, and federal laws mandate most of the disclosures required in a real estate sale. The following are the 5 Forms in the “Purchase Agreement Package” that must be signed by both seller and buyer:

Answer 8

1. Disclosure Regarding Real Estate Agency Relationship (AD)
2. Possible Representation of More Than One Buyer or Seller –Disclosure and Consent (PRBS)*
3. Wire Fraud and Electronic Funds Transfer Advisory (WFA)*
4. California Residential Purchase Agreement and Joint Escrow Instructions (RPA-CA)
5. Buyer’s Inspection Advisory (BIA)

Question 9

A covenant in a purchase agreement is a promise between the parties to contract.
A contingency clause is an “if” situation, also referred to as conditions or “subject to” provisions that, if not met, can make the contract voidable.

Question 10

novation is the substitution of a new contract for an old one.

Question 11

Remedies for a Breach:

Answer 11

Acceptance of Breach
Unilateral Rescission
Action for Dollar Damages
Possible action for specific performance