Contract Law Flashcards
Unilateral vs bilateral contracts
Unilateral contract exists only if one party is obligated to perform, as with an option to purchase an open listing. Bilateral is when both parties are promising to do something.
Executory vs. Executed contract
Executory - one in which both parties have not yet completed their performance obligations.
Executed - A contract which has been fully performed.
What are the elements of a valid contract?
The capacity to contract - 18+ years old, mentally competent. A guardian may be able to sign on behalf of a minor, or someone could be represented by another who has the authority to sign.
Mutual Consent (offer and acceptance). Illiteracy or failure to read the contract does not excuse from performance.
Lawful objective. No usury.
Consideration
In writing - for most contracts
What is constructive fraud?
A person who occupies a position of confidence and trust makes a false statement without the intent to deceive. As opposed to actual fraud, where the intent is to deceive (or the truth is unknown and they make the statement anyway).
What is the statute of frauds?
It is a requirement that certain types of contracts be in writing and signed, this includes PSAs, listing agreements, mortgage assumptions and leases for more than a year. If it falls under the statute and isn’t in writing, it’s unenforceable.
When is a contract void vs. Voidable?
Void is no contract at all (one of the essential elements is missing).
Voidable if signed as a result of fraud, undue influence, under duress, or by a minor. Damaged party must rescind a voidable contract or it will become valid through ratification.
What contracts are unenforceable?
Oral contracts are unenforceable under the statute of frauds.
What happens if there is a conflict between valid contracts?
The one most recently signed will take precedence.
How is a contract dischrarged?
- Full performance
- Agreement between the parties (rescission, cancellation, assignment, novation)
What is the difference between rescission and cancellation?
Recission returns both parties to their original positions (can be by agreement or court order). Cancellation terminates the contract but previous acts are unaffected.
What is a breach of contract?
Unexcused failure to perform a contractual obligation. A material breach is when that promise is an important part of the contract. The injured party can only seek remedies in court if it’s a material breach (rescission, liquidated damages, damages, specific performance).
What is a “Land Contract”?
Also called a real estate contract. Seller-financed transaction where the purchase price is paid in installments and the seller (vendor) retains legal title to the property. Buyer (vendee) has equitable title.
What is an option agreement?
It’s a contract to make a contract - a right to buy, sell, or lease property for a fixed price within a specified period of time. It is a unilateral contract because the optionee is not required to exercise the option.
Option money is typically not returned if the optionee doesn’t exercise the option. In a lease/option agreement, provisions of the lease are usually sufficient consideration for the option.
Can a purchase option be assigned?
Yes, unless there is language that specifically prohibits it or the option money is in the form of an unsecured promissory note.
Shound an option be recorded?
Yes the optionee can and should record the option agreement. This gives constructive notice to third parties, and if it’s exercised the priority dates back to the date the option was recorded.
