Introduction to Contracts Flashcards
What is an agreement between 2+ parties, where each party agrees to do or not to do something?
A contract
What are common contracts used to transfer rights in real estate manners (5 total)?
Contract for sale (Agreement of sale), mortgage, lease, deed, and listing
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?
Statute of Frauds (every state has this provision). Exception: leases of one year or less need not be in writing.
The party who gives the contract has ___ suffix. The one who receives the contract has ___ suffix.
”–or” and “–ee”
Vendor is the ___. Vendee is the ____.
Seller; buyer
Party who grants a deed is the ___. The one who receives the deed is the ____.
Grantor; grantee
Party who gives property for another’s use is ____. The user is the ____.
Lessor; lessee
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 ______.
Mortgagor; mortgagee
All contracts must have these 4 elements:
Mutual agreement (offer and acceptance), consideration, legally competent parties, lawful purpose.
Some contracts must have a legal form that includes certain elements. For example, a deed requires…?
A property description
Explain mutual agreement
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.
Explain consideration
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.
What is an executed contract?
A completed contract
What is an executory contract?
A contract that is missing something, such as signatures. A contract for sale is executory until a closing occurs.
What are legally competent parties?
In real estate, they are adults age 18 or 21 in most states (not minors), who are mentally competent.
Can an illiterate person be a legally competent party?
Yes, they may enter a contract when the written words have been read or explained.
Can a contract with a minor be voided? If so, when?
Yes, it is voidable by the minor (the other party is bound) while still a minor or shortly after attaining majority age.
Can a mentally incompetent person enter a contract?
No, the contract is void. A legal guardian may contract for that party who is mentally incompetent (ex: dementia).
Explain lawful purpose & how it relates to a contract.
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.
How can contracts be prepared? What contract requires a legal form that describes the property?
Contracts may be prepared in any form most of the time. A deed.
What is duress? How does it impact contracts?
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.
What is misrepresentation? What can happen to party at fault?
The misstatement or the nondisclosure of a material fact. The party injured may sue for damages or rescind the contract.
What is fraud? What can happen to the party at fault?
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.
What is discharge?
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.
When does a breach occur?
When a party violates a provision or makes it impossible for the other party to perform.
Explain specific performance and how it relates to breaching contracts?
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.
What are liquidated damages?
Enforcement of the amount specified in a contract that must be paid by the party who breached the contract.
