Chapter 9

Question 1

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

Answer 1

Contract

Question 2

An _________________ is one in which all the terms and covenants of the agreement have been clearly stated and agreed to by all parties, whether verbally or in writing.

Answer 2

Express contract

Question 3

6 elements of an express contract:

Answer 3

1) Competent Parties
2) Consideration
3) Mutual Agreement
4) Lawful Objective
5) In Writing and Signed by the Parties
6) Contain a Legal Description

Question 4

An ______________ is an unstated or unintentional agreement that may be considered to exist when the actions of any of the parties suggest the existence of an agreement.

Answer 4

Implied contract

Question 5

To establish the existence of an implied contract, it is necessary to show:

Answer 5

1) an unambiguous offer
2) unambiguous acceptance
3) mutual intent to be bound
4) consideration.

Question 6

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

Answer 6

Bilateral contract

Question 7

In a _________________, 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.

Answer 7

Unilateral contract

Question 8

In a ___________________, there is only one promise, and it is contained in the offer. The offer is accepted by performance of whatever is called for in the offer.

Answer 8

Unilateral contract

Question 9

An ________________ is one that has been fully performed and fulfilled: neither party bears any further obligation.

Answer 9

Executed contract

Question 10

An _______________ is one in which performance is yet to be completed.

Answer 10

Executory contract

Question 11

In a unilateral contract, there is only one promise. Where is this promise?

Answer 11

It is contained in the offer. The offer is accepted by performance of whatever is called for in the offer.

Question 12

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

Answer 12

1) Valid
2) Valid but unenforceable
3) Void
4) Voidable

Question 13

A ________ contract is one which meets the legal requirements for validity.

Answer 13

Valid

Question 14

A ______ contract is an agreement 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.

Answer 14

Void

Question 15

A _____________ contract is one which initially appears to be valid, but is subject to cancellation by a party to the contract who is believed to have acted under some kind of disability.

Answer 15

Voidable

Question 16

State laws declare that some contracts are enforceable only if they are in writing. These laws apply in particular to the transfer of interests in real estate. What type of contract does this describe?

Answer 16

Valid but unenforceable

Question 17

A _____________ has the legal capacity to enter into a contract and may be held to the promises made in the agreement. An _________________ may not be held to the terms of the contract.

Answer 17

Competent party, incompetent party

Question 18

The parties to a contract must have the capacity to contract, and there must be at least two such parties. Capacity to contract is determined by three factors:

Answer 18

1) Legal age
2) Mental competency
3) Legitimate authority

Question 19

_____________ is the exchange of promises offered by one party to another to do or not do something. It separates contractual obligations from a gift. It is usually something of value being exchanged by one party to receive something of value from the other party.

Answer 19

Consideration

Question 20

_____________ shows the serious intent of the buyer and may serve as liquidated damages in the event of breach of contract.

Answer 20

Earnest money

Question 21

_________________ are funds paid by the defaulting party to the non-defaulting party according to the terms of the contract.

Answer 21

Liquidated damages

Question 22

One type of contract that requires a purchaser to pay money to bind the contract is the ________________. A thing of value, usually money, must be given in exchange for the promise of the property owner.

Answer 22

Option contract

Question 23

The full consent of all parties to a contract is ______________________.

Answer 23

Mutual agreement or mutual assent

Question 24

When the parties mutually agree to voluntarily cancel a contract it is _________________.

Answer 24

Mutual rescission

Question 25

Contracts are not valid that require performance that is ___________.

Contracts must state a lawful objective or they are void.

Answer 25

Unlawful

Question 26

The _______________ in Texas requires that all contracts affecting title to or interest in real estate be in writing and signed by the parties. An oral agreement of sale is unenforceable.

Answer 26

Statute of Frauds

Question 27

There is one exception to the Statute of Frauds requirement that all real estate contracts must be in writing and signed by all parties.

Answer 27

Leases for one year or less may be oral and are enforceable.

Question 28

What element required for a valid contract is unique to real estate?

Answer 28

Legal description

Question 29

A real estate contract that transfers property or any interest in property must include a ___________________.

Answer 29

Legal description

Question 30

The two commonly used types of legal description are:

Answer 30

1) Metes and bounds

2) Reference to a platted subdivision (lot, block, section, and subdivision name)

Question 31

A _______ is a negligent or wrongful act concerning a breach of duty rising out of law. It is an act that damages another person and may bring about legal action.

Answer 31

Tort

Question 32

Discharge, cancellation, or termination of a contract may occur for the following reasons:

Answer 32

1) performance
2) infeasibility
3) mutual agreement
4) operation of law
5) assignment of a contract

Question 33

_______________ is when a contract terminates when fully performed by the parties.

Answer 33

Performance

Question 34

When the defendant has failed to complete performance of an agreement according to its terms, the plaintiff may recover such damages as will compensate him or her to the same extent as though the contract had been completely performed. This is referred to as ____________________.

Answer 34

Partial performance

Question 35

________________ is when a court determines a party has sufficiently performed the contract, even though not to the full extent of every provision.

Answer 35

Sufficient performance

Question 36

If the performance tendered is either of no value or unsuitable for the purpose that the contract contemplated, the proper measure of damages is the sum that is necessary to repair the defect. This is called ________________.

Answer 36

Defective performance

Question 37

An otherwise valid contract can be canceled if it is not possible to perform. This is called _____________.

Answer 37

Infeasibility

Question 38

There are two types of infeasibility of performance that discharge the duty of performance under a contract.

Answer 38

1) subjective infeasibility (ex. Illness or death)

2) objective infeasibility (no one can render the performance)

Question 39

___________ is when parties wish to create a new contract to replace the cancelled contract. They must comply with the validity requirements for the new contract.

Answer 39

Novation

Question 40

Discharging a contract by mutual agreement is called _________.

Answer 40

Rescission

Question 41

When a person _______________, the person’s obligations under existing contracts is terminated as of the filing date.

Answer 41

Files for bankruptcy

Question 42

The _______________ restricts the time period for which an injured party in a contract has the right to bring a lawsuit against the other party.

Answer 42

Statute of Limitations

Question 43

A _______________ is a failure to perform according to the terms of the agreement. Also called default, it gives the damaged party the right to take legal action.

Answer 43

Breach of contract

Question 44

In Texas, the statute of limitations to sue for breach of contract in real estate is years from the time the breach occurred.

Answer 44

Four

Question 45

In a breach of contract suit, the damaged party may elect the following legal remedies:

Answer 45

1) Rescission (cancels contract)
2) Forfeiture (ex. Buyer who defaults on sales contract may have to forfeit the earnest money deposit)
3) Suit for damages (in civil court within time specified in Statute of Limitations)
4) Suit for specific performance (an attempt to force the defaulting party to comply)

Question 46

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

Answer 46

Liquidated damages

Question 47

When a contract does NOT state the total amount due to a damaged party in the event of a breach, the compensation is known as ________________.

Answer 47

Compensatory damages

Question 48

Sometimes a contract does not accurately reflect the intentions of the parties because of some mechanical or clerical error in the document. When this happens a legal action called a _____________ is necessary to correct or modify the contract.

Answer 48

Reformation

Question 49

The standard measure of _____________________, for a total breach, would encompass the difference between the agreed contract price and the market value of the property on the date of breach.

Answer 49

Loss of bargain damages

Question 50

There are two categories of special damages which a non-breaching party could recover. Both of these damages MUST satisfy a foreseeability test.

Answer 50

1) expenses reliant on the contract (expenses a non-breaching party incurred in reliant on the contract)
2) loss of profit

Question 51

Objective infeasibility

Answer 51

Means that no one can render the performance