Introduction to Contracts

Question 1

What is an agreement between 2+ parties, where each party agrees to do or not to do something?

Answer 1

A contract

Question 2

What are common contracts used to transfer rights in real estate manners (5 total)?

Answer 2

Contract for sale (Agreement of sale), mortgage, lease, deed, and listing

Question 3

Contracts involving real estate manners must meet the same requirements as other contracts. What is the name of a state provision that requires contracts to be in writing to be enforceable? What is the one exception to this rule?

Answer 3

Statute of Frauds (every state has this provision). Exception: leases of one year or less need not be in writing.

Question 4

The party who gives the contract has ___ suffix. The one who receives the contract has ___ suffix.

Answer 4

”–or” and “–ee”

Question 5

Vendor is the ___. Vendee is the ____.

Answer 5

Seller; buyer

Question 6

Party who grants a deed is the ___. The one who receives the deed is the ____.

Answer 6

Grantor; grantee

Question 7

Party who gives property for another’s use is ____. The user is the ____.

Answer 7

Lessor; lessee

Question 8

Party who pledges property as collateral for a debt (the borrower) is the ______. The lender receives the mortgage, which is the collateral for a debt, and so the lender is the ______.

Answer 8

Mortgagor; mortgagee

Question 9

All contracts must have these 4 elements:

Answer 9

Mutual agreement (offer and acceptance), consideration, legally competent parties, lawful purpose.

Question 10

Some contracts must have a legal form that includes certain elements. For example, a deed requires…?

Answer 10

A property description

Question 11

Explain mutual agreement

Answer 11

Parties must agree. There is an offer and acceptance of that offer. Any change that a party makes to an offer received constitutes a rejection of that offer and, if presented, a substitution of a new offer is called a counteroffer.

Question 12

Explain consideration

Answer 12

Something of value that is provided. Most often in real estate, valuable consideration is money given in exchange for property. Another common form, in a gift, is love and affection, called good consideration.

Question 13

What is an executed contract?

Answer 13

A completed contract

Question 14

What is an executory contract?

Answer 14

A contract that is missing something, such as signatures. A contract for sale is executory until a closing occurs.

Question 15

What are legally competent parties?

Answer 15

In real estate, they are adults age 18 or 21 in most states (not minors), who are mentally competent.

Question 16

Can an illiterate person be a legally competent party?

Answer 16

Yes, they may enter a contract when the written words have been read or explained.

Question 17

Can a contract with a minor be voided? If so, when?

Answer 17

Yes, it is voidable by the minor (the other party is bound) while still a minor or shortly after attaining majority age.

Question 18

Can a mentally incompetent person enter a contract?

Answer 18

No, the contract is void. A legal guardian may contract for that party who is mentally incompetent (ex: dementia).

Question 19

Explain lawful purpose & how it relates to a contract.

Answer 19

This means that the object of the contract is a lawful one. A contract to do something illegal, such as to pay someone to rob a store or to murder, is void.

Question 20

How can contracts be prepared? What contract requires a legal form that describes the property?

Answer 20

Contracts may be prepared in any form most of the time. A deed.

Question 21

What is duress? How does it impact contracts?

Answer 21

Duress is pressure. If a certain type of duress is present, such as threat against the life of a party by the one who stands to benefit, the contract is void.

Question 22

What is misrepresentation? What can happen to party at fault?

Answer 22

The misstatement or the nondisclosure of a material fact. The party injured may sue for damages or rescind the contract.

Question 23

What is fraud? What can happen to the party at fault?

Answer 23

Intentional, willful deceit. It may be a crime. The party injured may be able to recover losses and punitive damages. The perpetrator may be prosecuted as a criminal.

Question 24

What is discharge?

Answer 24

It is reached when no one must perform any longer. Often a contract is discharged when all parties perform under the contract or all parties mutually agree to cancel the contract.

Question 25

When does a breach occur?

Answer 25

When a party violates a provision or makes it impossible for the other party to perform.

Question 26

Explain specific performance and how it relates to breaching contracts?

Answer 26

If a real estate seller breaches a contract, the buyer may go to court to require specific performance, that is, make the seller do what the contract requires. In transactions involving real estate, specific performance is often enforced by the court because each parcel of real estate is unique and cannot by exactly replaced by a substitute property.

Question 27

What are liquidated damages?

Answer 27

Enforcement of the amount specified in a contract that must be paid by the party who breached the contract.