Chapter 7: Contracts

Question 1

What are the four essential elements of a valid (binding & enforceable) contract?

Answer 1

1. Capable parties (at lease 18 years old; sound mind; possesses civil rights)
2. Mutual consent (offer, acceptance, communication)
3. Legal object
4. Consideration

Question 2

Can a valid contract be unenforceable?

Answer 2

Yes, for example, an oral contract for more than a year may be valid but unenforceable.

Question 3

Does an exclusive listing require a termination date?

Answer 3

Yes.

Question 4

“Without recourse” on the back of a check creates what kind of endorsement?

Answer 4

“Without recourse” on the back of a check creates a qualified endorsement, suggesting the endorser set restrictions on the check.

Question 5

The right of possession and equitable title is held by the:
A. Vendee
B. Vendor
C. Trustee
D. Trustor

Answer 5

A. The reference to “equitable title” indicates this question is framed in the context of a land sales contract in which the participants are the vendor (seller) and vendee (buyer). The vendee has possession and equitable title of a property, but not legal title.

Question 6

Under a land sales contract for sale of real property, legal title is held by:
A. Trustor
B. Beneficiary
C. Vendee
D. Vendor

Answer 6

D. The vendor (seller) holds legal title to the property until the debt is repaid in full.

Question 7

What does lis pendens mean?

Answer 7

A notice recorded for the purpose of warning all persons that the title or right to possession of the described real property is in litigation; literally suit pending; recorded to give constructive notice of pending litigation.

Question 8

Under the default of a buyer under a land sales contract, what would the seller do?

Answer 8

Under the default of a buyer under a land sales contract, the seller would file a quiet title action.

Question 9

Unlike a transfer by grant deed, a land sales contract needs to be signed by one or both parties?

Answer 9

Unlike a transfer by grant deed, a land sales contract needs to be signed by both parties. The signatures require acknowledgment before a notary public to be recorded.

Question 10

What percentage are liquidated damages limited to on the sales price of one-to-four unit residential properties (protected properties)?

Answer 10

Liquidated damages are limited to 3% of the sales price on one-to-four unit residential properties (protected properties).

Question 11

The authority of the broker to accept a good faith deposit from a buyer is provided for in the:

Answer 11

Listing agreement

Question 12

The hold harmless clause in a listing agreement protects the agent from liability for:

Answer 12

Misinformation about the property from the seller.

Question 13

Brokers Phoebe and Saul both have an open listing on a property. Broker Phoebe showed the property to a prospective buyer, and the buyer decided not to buy. Two weeks late, Broker Saul contacted the same buyer and arranged a sale of the property. How is the seller obligated to pay a commission to?

Answer 13

An open listing guarantees the entire commission to the procuring broker (Saul in this example).

Question 14

Broker Matthews took a 90-day exclusive agency listing to sell a property owned by Tyler. After 30 days without selling the property, Tyler sent Broker Matthews a letter cancelling the listing. One week later, Tyler enters into open listings with several other brokers. Two weeks later, one of the brokers sold the property. In this situation, who does Tyler owe a commission to?

Answer 14

The open listing guaranteed payment to the procuring broker. The exclusive listing is a bilateral contract which cannot be voided unilaterally. Therefore, the seller owes a commission to both brokers.

Question 15

A buyer and seller initial the liquidated damages clause in a real estate purchase agreement. The buyer later defaults. The amount recoverable is:
A. given to the seller when escrow opens
B. limited to 3% of the selling price
C. given to the seller after default
D. used to pay any costs incurred by the seller and then returned to the buyer

Answer 15

C. The amount recoverable under a liquidated damages provision in a purchase agreement is not always limited to 3%, only for one-to-four unit residential property.

Question 16

What limits a buyer’s ability to rescind an offer?

Answer 16

It is the communication of the acceptance of the offer to the buyer that limits their ability to rescind the offer.

Question 17

Anita signs a real estate purchase contract as a buyer. The contract states the offer to purchase is valid for three days. One day later, Anita wishes to rescind her unaccepted offer. Which of these answers is correct?

Answer 17

Anita may revoke the offer and recover her deposit.

Question 18

When damages resulting from a breach of the contract are not adequate, each of the following may request specific performance, except the:
A. Purchaser
B. Broker
C. Attorney-in-fact for one of the principals
D. Seller of a parcel of land

Answer 18

B. The parties to an escrow do not include the broker. Thus, the damages described do not include the broker’s fee nor would the broker have any authority to demand specific performance.

Question 19

A husband signed a contract to sell community real estate without his wife's signature. The contract is:
A. Voidable
B. Binding
C. Unenforceable
D. Void

Answer 19

C. Both owners of community property need to be involved in the sale of property held by both parties.

Question 20

Does the listing of a business opportunity need to be in writing to be enforceable?

Answer 20

No

Question 21

Any intentional concealment of material facts by an agent is regarded as misrepresentation or fraud?

Answer 21

Fraud