Chapter 9- Contracts Flashcards

0
Q

What are the 3 most common contracts used in residential real estate ?

A

Listing contract
Buyer agency contract
Agreement of sale

  • includes lease, mortgage, option, property management agreement, installment contract
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1
Q

What is a Contract

A

Voluntary agreement between competent parties to perform or refrain from performing some legal act. Supported by legal consideration.

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2
Q

Which 6 components are necessary for a contract to be legal and enforceable?

A

(1) Written and signed as required by the statute of Frauds
*lease of 3years or less through oral discussion is considered by law to be a binding contract
(2) Legal Purpose- legality of object
(3) Specific identification of Property-
A way to distinguish a property from all others through either a property address, tax parcel number, deed book, legal land description
(4) Competent Parties- 2 or more parties legal age of 18 or older, not intoxicated via alcohol or drugs or insanity to point of mental incapacity
(5) Consideration- an exchange of something of value between the parties
(6) Mutual Consent- agreement between parties. “Offer and acceptance” “meeting of minds” “mutual agreement”

*** applies to any/all contracts

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3
Q

What is the “Statute of Frauds”?

A

Requires all contracts regarding the sale of real estate, and all documents regarding the transfer of title to real property, to be in WRITING and signed.

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4
Q

Courts stress rule of “Parole Evidence Rule” which indicates ______?

A

Oral statements CANNOT be used to change or contradict the terms of a clearly written contract.

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5
Q

Define a Valid Contract

A

Legal & Enforceable. Contains all the necessary components.

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6
Q

Define a Void contract

A

Not legal & UNenforceable. Missing 1 or more necessary components.

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7
Q

When is a contract “unenforceable”

A

When it cannot be carried out according to the law.

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8
Q

What makes a voidable contract?

A

When it is able to be made void.

Voidable if:

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9
Q

What is a Bilateral Contract?

A

Agreement between 2 parties in which both make promises, and each party can enforce the promises of the other party.

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10
Q

What is a Unilateral Contract?

A

Agreement in which one party promises ONLY if the other party acts in a certain way.

Example of this is an Option Contract.
Optionor must act if optionee exercises the option. If optionee fails to exercise option by the time limit, option money is typically forfeit to Optionor and the right to purchase ends. If optionee dies exercise option, Optionor must sell for agreed price in contract.

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11
Q

What is an Express Contract?

A

An agreement in which terms & conditions are clearly stated in words, in writing and/or orally.

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12
Q

Define an implied contract

A

Am agreement carried out through actions of a party.

Example: this occurs when a person gets his/her haircut at a barber/salon since that action implies the person will pay for the service.

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13
Q

What is the difference between an Executed Contract and an Executory Contract?

A

Executed: All parties have fulfilled their promises. Also refers to the signing of a contract.

Executory: parties have entered into contract and are in process of fulfilling contract but not yet completed all terms & conditions

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14
Q

Almost all contracts will contain a legal phrase such as “Time is of the essence”

A

Without inclusion of specific time limit, courts have indicated that a contract needs to be fulfilled within a reasonable period of time.

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15
Q

What does the contract term Assign mean?

A

To transfer one’s interest over to another party. It is possible through assignment for someone to purchase real estate and prior to settlement turn the buying rights over to another party. Allows lenders to sell mortgages obtained to a purchaser in secondary mortgage market.

16
Q

What is a notation?

A

A new contract used to extinguish and simultaneously replace one or more persons or conditions in an old contract.

17
Q

What does the default of a contract mean?

A

The breaking of one or more of the terms of the contract by a party and consequently represents failure to perform as previously agreed in the contract, also called breach of contract.

18
Q

What should the purchaser do if the seller defaults on an agreement of sale?

A

Purchaser has following choices:

(1) File a lawsuit to make seller honor the terms of the agreement, known as “suit for specific performance”
(2) File a lawsuit to recover any money lost as a result of the default, known as “suit for compensatory damages
(3) Unilaterally cancel the agreement, known as contract “rescission”

19
Q

What should the seller do if the purchaser defaults on the agreement of sale?

A

The seller has the following choices:

(1) File a lawsuit for the purchase price and transfer of the deed.
(2) file a lawsuit for compensatory damages
(3) Rescind the contract
(4) Accept the earnest money deposit as “liquidated damages”

20
Q

In the event the default results in either a monetary loss to non-defaulting party, or the failure of a debtor to pay a debt, what can be used as means of protection?

A

A confession of judgement.

Which represents a written and voluntary agreement by a debtor to allow the attorney of a creditor to seek a court order for the recovery of a specific amount if money.

21
Q

What is the Statute of Limitations?

A

A law that establishes a period of time during which a party to a contract has the opportunity to file a lawsuit to enforce one’s rights. In Pennsylvania,limitations on contracts is 4years from the time of the breach of the contract.

22
Q

Define a Contingency.

A

A condition in a contract on which the successful performance of the contract by the parties is dependent. Mortgage contingency provision allows buyer to legally get out of a binding sale if a mortgage cannot be obtained for the buyer.

23
Q

What are the basic ways of terminating a real estate contract?

A

(1) Performance- indicates contract parties have fulfilled the terms & conditions. Contract is completed and ended.
(2) Expiration- occurs when a contract is dependent upon a party acting by a defined time limit and no action has been taken within time limit
(3) Mutual agreement- agreeing in writing to terminate contract
(4) Breach of Contract- could result in action by the non-defaulting sorry that could terminate contract.
(5) Law- will at times, supersede a contract (eminent domain)