Chapter 6 - Contracts

Question 1

Elements (ingredients) to a contract

What makes it enforceable in court?

Answer 1

Competent Parties (legal age & sound mind)
Offer and Acceptance
Description of the property (legal description / address)
A legal object (legal purpose for the contract)
**—– you can’t have a contract for illegal doings - won’t hold up in court)
Consideration (anything of value offered and exchanged, can include money)

• TO BE ENFORCEABLE in court, must be in writing / signed
• If not, we don’t say it’s not valid (but it may not be enforceable)

Question 2

Expressed Contract

Answer 2

Clearly stated in words, orally or in writing

Question 3

Implied Contract

Answer 3

Brought about by actions of one or more parties. Some of the terms are not expressed in writing. It’s implied.

Question 4

When does an offer become a contract?

When can someone back out?

When does a broker submit an offer(s)?

When does an offer become null & void?

Answer 4

an offer = a proposal
It becomes a contract when BOTH PARTIES AGREE on everything.

Either party can back out at any time they want BEFORE CONTRACT IS LEGAL AND BINDING.

Broker submits offer ASAP / if two, submit at same time

Offer becomes null & void as soon as there is a counter offer.

Question 5

Offeror

Answer 5

The one who does the offering

Giver of the offer

Question 6

Offeree

Answer 6

Receives the offer

Question 7

Bi-lateral contract

Answer 7

(think bicycle)
Both parties to contract make promises and have to perform.
Sales contract is bi-lateral.

Question 8

Uni-lateral contract

Answer 8

(think unicycle)
Only one party offers promise and has to perform.
ex: seller offers promise to sell if buyer buys. However, buyer can offer to buy but doesn’t have to.

Question 9

Executory Contract

Answer 9

Pending Status

A contract at the signing and or prior to everything being completed

Question 10

Executed Contract

Answer 10

Closed Status

A contract that has been performed fully

Question 11

Statute of Frauds

fraudulent contract

Answer 11

All contracts must be in writing to be valid and enforceable.
Leases under one year do not have to be in writing, are still valid and enforceable.

Question 12

Equitable Title

Answer 12

The equitable right to obtain ownership.

What buyer receives at signing.

Question 13

Legal Title

*other name

Answer 13

Actual title the buyer receives at closing.

*Recorded Title

Question 14

Void Contract

Answer 14

No legal force or binding effect

Question 15

Voidable Contract

Answer 15

a contract that APPEARS valid and enforceable
But is subject to recission by one of the parties who acted under a disability
Disabilities: under age, under duress, undue influence etc.
*Doesn’t mean it WILL be voided, but could ne

Question 16

Valid Contract

Answer 16

Has all essential elements of contract

Legally binding

Question 17

Valid & Enforceable

Answer 17

Has all element and is in writing signed by all parties

Question 18

Amendment or Addendum

Answer 18

Amendment - something is changed

Addendum - something is added

Question 19

Novation

Answer 19

Cancel original agreement and draft a NEW contract

Question 20

Assignment

*What types of contracts can’t be reassigned

Answer 20

Transferring rights of one party in a contract to a third party
Ex: transferring a home loan to a new lender
*Listing contracts cannot be reassigned

Question 21

If buyer defaults on contract, seller could:

Answer 21

1) Rescind … both parties agree to cancel
2) Consider contract forfeited and keep earnest $ (liquid damages)
3) Sue for damages (repairs and $ spent on behalf of buyer)
4) File a SPECIFIC PERFORMANCE SUIT (court action) to make buyer buy because of breach

Question 22

If seller defaults on contract, buyer could:

Answer 22

1) Rescind … both parties agree to cancel
2) Sue for damages
3) File a SPECIFC PERFORMANCE SUIT (court action) to make seller sell because of breach

Question 23

Time is of the essence

Answer 23

legal terminology

Certain acts should be performing within the time periods stated

Question 24

Option

Answer 24

(like placeholder for buyer)
Unilateral contract
a ‘maybe contract’
Seller is optionor (gives buyer option to buy)
Buyer is optionee (has right to decide later if they want to buy)
Choosing to buy = exercising the option

Question 25

Choosing to buy

Answer 25

exercising the option

Question 26

Installment sale contract

Answer 26

Seller retains legal title
Buyer retains equitable title, while living in property and paying off loan
Buyer doesn’t receive legal title until payments are fully made

*Risky for buyer (seller could be sued for house, the payments would be considered void)

Question 27

Lease Purchase

Answer 27

You rent and get to decide to buy

Risky for seller because buyer may not buy.

Question 28

T / F: Once option is given it can’t be revoked

Answer 28

True

Question 29

Contingency clause

Answer 29

A clause in a contract that allows a party to back out because something did or didn’t happen

*loan contingency, appraisal contingency, inspection contingency