law of contracts Flashcards by Judy Borgmann

_____________ is a law handed down by the legislature,

Statutory law

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____________ law handed down by the courts or regulatory law from the executive branch

common

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Many times the law does not speak to specific situations. When this occurs, the case can be

referred to a court.

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Decisions by the courts can sometimes help to interpret some laws and their applications. When this happens, they are called

precedents

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can be cited by others in future decisions.

precedents

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An ___________ agreement is one that is between two or more parties, usually written and enforceable by law.

expressed

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An agreement created by the actions of the parties involved but it is not written or spoken. Sometimes it is not intended or known by the parties who created it.

IMPLIED:

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Sometimes called a “promise for a promise”, a____________ is one in which both parties are obligated to perform.

bi-lateral contract

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An example of a bi-lateral contract would be

a contract to purchase real estate.

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A _______________ contract is one in which only one party is obligated to perform.

unilateral

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An example would be if the seller promises to pay the broker a bonus if the broker produces a full price offer in 30 days. If the broker produces, the seller would be obligated to pay, however, the broker is not under any obligation to perform.

unilateral contract

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An _____________ contract is one in which all parties have agreed in writing. This contract has been signed by the appropriate parties, all changes have been initialed and notice has been given to all parties, in writing, that the contract is _______________.

executed

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In an executed contract, the contract does not have to be delivered in writing to the other party, only ________________________

written notice that it is executed.

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EXECUTORY:

A contract that has some unfinished details. This can fall into two categories:

When a “One to Four Family Residential Resale Contract” is agreed to and properly executed by all parties, it will enter into the “Executory Stage”.

A Lease Purchase, Lease Option or Contract for Deed is considered to be an executory contract.
Any contract that has a closing day longer than 180 days from the “executed date” will fall into this category.

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If a written contract conflicts with an oral contract, the ___________ will prevail in court.

written contract

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A valid contract is one which is binding and enforceable on both parties. It must be entered into as a free and voluntary act of each party. In addition, it includes all the essential elements of a contract. In Texas, they are:

Identification of the parties. These parties must be competent. 2. Offer and acceptance
Consideration
Legality of object, and
Signatures of the parties.

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In a TREC One-to-Four Family sales contract, in order for the contract to be valid, it must include:

Legal Description
Names of the parties and
Sales Price

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VOID:
One that has no legal force or effect because one or more of the essential elements is absent. If the contract is for an illegal purpose, it is missing one of the elements of a valid contract and is considered _________.

Void

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A ___________ contract is one that is binding upon one party but not the other.

voidable

For example, a contract with a minor would be voidable at the option of the minor, while legally enforceable on the other non-minor party.

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If ______________ can be proved, that contact can be voidable.

duress, fraud or misrepresentation

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An _________________ contract has all of the elements of a valid contract; however, neither party can sue the other to force performance.

unenforceable

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When the contract was negotiated, the property was in good condition. However, due to acts of nature, it was destroyed before closing. The seller could not sue the buyer to perform even though all “elements” of the contract were ‘valid’.
Example: of an

unenforceable contract

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In some cases, a __________________ of a party can make the contract an unenforceable contract. This is true in both sales and listing contracts.

death or incapacity

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An oral contract to lease real estate for a four year period is ____________________

unenforceable

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A seller or a seller's agent has a duty to disclose which of the following? A) a suicide on the property B) the death on the property by natural causes C) an owner or previous owner had a HIV illness D a material fact

D a material fact

As per the terms of the Residential Listing Agreement, the broker is NOT entitled to a commission for all of the following reasons EXCEPT A) the seller cannot deliver a deed or the title policy as required by the contract B) the property is foreclosed upon C) the broker puts the property in the Multiple Listing Service system D) property cannot sell as a result of a casualty loss that is not restored by the seller

C) the broker puts the property in the Multiple Listing Service system

``` Whose signature is required on the deed to transfer ownership? A) Trustee B) Grantee C) Grantor D) all of the above ```

C) Grantor

A novation is BEST defined as A) the substitution of one party for another in a contract wherein both the original parties remain liable B) substitution of a new contract for an existing agreement with the intent of extinguishing the old contract C) the same as an assignment D) means of acquiring title by adverse possession

B) substitution of a new contract for an existing agreement with the intent of extinguishing the old contract

The buyer as well as the seller must initial each page of the Residential Listing Agreement. Choose one answer. A) True B) False

B) False

Which of the following actions might leave a licensee open to a charge of practicing law without a license? Choose one answer. A) licensee advises the seller that the property probably won't sell because its overpriced B) licensee advises the buyer that a title policy should be obtained as well as a survey C) licensee advises both the seller and the buyer that, in his opinion, title to the subject property is encumbered D) licensee adds factual statements and business details to a promulgated form as requested by the client

C) licensee advises both the seller and the buyer that, in his opinion, title to the subject property is encumbered

``` The owner affirms that he owns the property and that there are no defects in title that occurred while he held ownership is what kind of deed. Choose one answer. A) Special Warranty Deed B) General Warranty Deed C) Quit Claim Deed D) Sheriff's Deed ```

A) Special Warranty Deed

``` This document states that the seller does indeed have possession of the property and has the right to sell it. Choose one answer. A) fee simple clause B) habendum clause C) covenant of seisen D) deed of trust ```

C) covenant of seisen

``` Jointly agreeing to provide a legal debt or obligation for a previous one is called Choose one answer. A) Novation B) Substitution C) Assignment D) Transfer ```

A) Novation

``` During the period after a real estate sales contract is signed, but before title actually passes, the status of the contract is: Choose one answer. A) executed B) executor C) unilateral D) implied ```

B) executor

Under the statute of frauds, contracts for the sale of real estate must be in writing to be enforceable. Choose one answer. A) True B) False

A) True

The Seller's Disclosure Notice is part of: Choose one answer. A) Texas Property Code B) closing documents from the title company C) the paperwork the lender will require D) none of the above

A) Texas Property Code

``` This document is designed for the transfer of personal property. Choose one answer. A) Deed B) Bill of Sale C) Deed of Trust D) General Warranty Deed ```

B) Bill of Sale

Once a seller receives an offer: Value Score Choose one answer. A) the seller has no requirment to respond B) the seller has to wait until all offers have been presented before making a decision C) the seller has to counter the first offer received before moving to the next D) the seller may counter all of the offers to see which one will accept his terms

A) the seller has no requirment to respond

Steering or (channeling) is directing a minority to or away from an area to maintain or change the character of the neighborhood. An agent is not allowed to steer even if the client ask the agent to steer. Choose one answer. A) True B) False

A) True

The Deceptive Trade Practices Act does not require the presence of fraud to be proved; an innocent misrepresentation is actionable. Choose one answer. A) True B) False

A) True

A buyer makes an offer to purchase a property and specifies that the owner accept or reject the offer within 48 hours. Before hearing back from the owner, the buyer locates a more attractive property and withdraws the offer. Is the buyer legally entitled to withdraw the offer? Choose one answer. A) Yes, either party may withdraw an offer or counteroffer at any time prior to its acceptance B) No, the offer is binding until the 48-hour time period expires. C) Yes, an offer with a condition to respond in 48 hours is not valid. D) No, the owner must be allowed an opportunity to respond to the offer.

A) Yes, either party may withdraw an offer or counteroffer at any time prior to its acceptance

``` Certain elements must be present in the TREC One-to Four Family Residential Sales Contract if the contract is to be valid. Which of the following elements is NOT necessary? Choose one answer. A) legal description B) sales price C) names of the parties D) type of deed ```

D) type of deed

``` What do you call a deliberate act of deception for the purpose of inducing another to part with something of value or to enter into a contract? Choose one answer. A) innocent misrepresentation B) duress C) mistake D) fraud ```

D) fraud

``` When you assign a contract, you are transferring Choose one answer. A) Benefits and obligations B) Ownership and deed C) Deed and deed of trust D) Title and disclosures ```

A) Benefits and obligations

Who drafts and revises the promulgated sales contracts? Choose one answer. A) the Standards and Practices Committee B) the Texas Real Estate Commissioners C) the Broker-Lawyer Committee D) the Justice Department

C) the Broker-Lawyer Committee

``` The clause in the deed that begins with, “To have and to hold…”, is called Choose one answer. A) Habendum Clause B) Covenant of Seisen C) Conveyance Clause D) Acceleration Clause ```

A) Habendum Clause

If the seller defaults on a real estate contract, the buyer may cancel the contract, file a suit for specific performance, or sue the seller for compensatory damages. Choose one answer. A) True B) False

A) True

``` A(n) ________________is an intention expressed in writing to enter into an agreement. Choose one answer. A) contract B) offer C) listing D) disclosure ```

B) offer

``` Mortgagee’s title policy is issued to Choose one answer. A) The seller B) The buyer C) The lender D) The title company ```

C) The lender

``` This type of contract is binding only on the seller Choose one answer. A) Implied contract B) Expressed contract C) Option contract D)Voidable contract ```

C) Option contract

When a licensee acts in the capacity of a principal, he may create his own contract form. Choose one answer. A) True B) False

A) True

``` Essential elements of a contract include: Choose one answer. A) Competent parties. B) Offer and acceptance. C) Consideration D) all of the above ```

D) all of the above

``` When the law does not speak to specific situations, it is decided by Choose one answer. A) Texas Real Estate Commission B case law C) real estate law D) agency law ```

B case law

Recovery under the DTPA for knowingly misrepresenting information is limited to: Choose one answer. A) three times the amount of the total damages B) economic damages C) mental anguish D) all of the above

D) all of the above

Which is NOT one of the four steps to have a proper effective date? Choose one answer. A) Acceptance must be unequivocal B) Earnest money must be deposited with the title company C) All of the parties must sign D) Communication must be given to the other party

B) Earnest money must be deposited with the title company

``` Earnest money: Choose one answer. A) Constitutes consideration. B) is required on all valid contracts C) is always 1% of the sales price. D) is a gesture of good faith. ```

D) is a gesture of good faith

``` Which of the following creates a "Rights of Survivorship"? Choose one answer. A) Tenancy in Common B) Joint Tenancy C) Tenancy in Entirety D) all of the above ```

B) Joint Tenancy

``` The most common form of listing agreement is the: Choose one answer. A) net listing B) exclusive agency listing C) open listing D) exclusive right-to-sell listing ```

D) exclusive right-to-sell listing

Fee Simple Estate means Choose one answer. A) The highest form of ownership in real estate B) The easiest form of ownership in real estate C) Only one property in involved in this transaction D) There is only one fee necessary to purchase this type of real estate

A) The highest form of ownership in real estate

``` A contract in which both parties have fulfilled their promises and have performed on the contract is a(n): Choose one answer. A) law contract B) executed contract C) executor contract D) voidable contract ```

B) executed contract

When no promulgated form meets the needs of a particular transaction, the licensee may use which of the following? Choose one answer. A) any standard form sold at the office supply store B) a form created by a Texas licensed attorney for that type of transaction C) any of the State Bar standard forms D) a form structured and approved by a licensed broker

B) a form created by a Texas licensed attorney for that type of transaction

The Texas Property Code requires which one of the following documents to be filled out to the best of the seller's knowledge? Choose one answer. A) Seller's Disclosure B) One-to-Four Family Residential Contract C) The Home Owner's Addendum D) The Bill of Sale Addendum

A) Seller's Disclosure

``` A seller, age 45, enters into a contract with a buyer, age 17. The contract is: Choose one answer. A) valid for both parties B) void for both parties C) voidable by the buyer D) none of the above ```

C) voidable by the buyer

``` An ownership interest held by one has no legal title to the property Choose one answer. A) Fee Simple Title B) Deed of Trust Title C) Equitable Title D) Deed Title ```

C) Equitable Title

What has to happen for the offer to become a contract? Choose one answer. A) the cocntract does not need to be delivered to the other party, just written notice B) it must be fully negotiated C) it must be signed by all parties D) all of the above

D) all of the above

``` Which of the following is NOT a fiduciary duty? Choose one answer. A) accountability B) confidentiality C) delivery D) loyalty ```

C) delivery

``` On the seller's default, what should happen to the earnest money? Choose one answer. A) it belongs to the broker 0 B) it should be returned to the buyer C) it should be placed in an escrow fund D) it should be retained by the seller ```

B) it should be returned to the buyer

``` One form of title insurance is a: Choose one answer. A) title policy B) title commitment C) binder D) deed of trust ```

A) title policy

When the licensee functions as a principal and not an agent: Choose one answer. A) particular care must be taken to use TREC forms B) a form other than one promulgated may be used 1 0 C) he/she need not disclose that he/she is a licensee D) an attorney must draw the contract

B) a form other than one promulgated may be used

When presenting an offer to the seller, the agent's responsibility is to: Choose one answer. A) counsel, where necessary, but do not put words in the seller's mouth B) be sure the seller understands completely all terms and conditions C) present the entire offer objectively and as favorably as possible D) all of the above

D) all of the above

``` A contract which states that one promise is given in exchange for another can best be described as a(n): Choose one answer. A) unilateral contract B) executed contract C) voidable contract D) bilateral contract ```

D) bilateral contract

``` A contract between a landowner (a principal) and a licensed real estate broker (agent) by which the broker is employed to sell real estate on the owner’s terms within a given time, for which service the landowner agrees to pay a commission is a Choose one answer. A) sales contract B) buyer's representation agreement C) listing agreement D) none of the above ```

C) listing agreement

``` This deed does not profess that the title is valid. Choose one answer. A) quit claim deed B) special warranty deed C) sheriff's deed D) general warranty deed ```

A) quit claim deed

A contract is said to be bilateral if: Choose one answer. A) one of the parties is a minor B) only one party to the agreement is bound to act C) all parties of the contract are bound to act D) the contract has yet to be performed

C) all parties of the contract are bound to act

``` Sometimes a "limited agent" is also referred to as a: Choose one answer. A) special agent B) general agent C) gratuitous agent D) universal agent ```

A) special agent

``` An oral contract to lease real estate for a four year period is: Choose one answer. A) voidable B) unilateral C) void D) unenforceable ```

D) unenforceable

``` An agreement created by the actions of the two parties involved, sometimes not intended Choose one answer. A) Implied contract B) Bi-lateral contract C) Voidable contract D) Expressed contract ```

A) Implied contract

Once a counter offer has been made, it cannot be withdrawn. Choose one answer. A) True B) False

B) False

``` The downside of assigning a contract is Choose one answer. A) You may lose money B) You may remain responsible for the performance of the contract C) It is illegal D) You will be investigated by TREC ```

B) You may remain responsible for the performance of the contract

``` Which situation is not covered by title insurance? Choose one answer. A) Square footage miscalculations B) Fraud C) Forgery D) Undisclosed heirs ```

A) Square footage miscalculations

``` The Civil Rights Act of 1866 is a federal law and the only protected class is: Choose one answer. A) children B) disability C) sex D) race ```

D) race

``` Statutory law is handed down by Choose one answer. A) The legislature B) The federal government 0 0 C) The Texas Real Estate Commission D) The president ```

A) The legislature

``` This date is the most crucial date on the contract Choose one answer. A) Effective date B) Start date C) Close date D) Option date ```

A) Effective date

In a DTPA suit, the consumer must prove: Choose one answer. A) that the rules governing disclosure were intentionally violated B) that the defendant intended to hurt him C) reliance on his detriment upon the act or omission of the defendant D) all of the above

C) reliance on his detriment upon the act or omission of the defendant

intention expressed in writing to enter into an agreement.

offer i

_______________ will complete a purchase contract stating terms they are willing to accept and present the offer to the seller or his agent.

The buyer or his agent

an offer made in response to an offer

A counter offer

If any of the ____________ of the offer are changed by the seller, the original offer is rejected and no longer valid, even if the seller later changes his mind

terms

A contract is an offer that is ______________.

fully negotiated, agreed to and signed by all parties Once all parties agree in writing, and all signatures and initials are completed, the offer becomes a contract.

In order to be properly executed in Texas, the final acceptance must be ________________

delivered, in writing, to the other party. NOTE: Only the acceptance of the final offer has to be delivered, not the contract.

The ________________ has the responsibility to present all offers prior to the seller’s acceptance of any offer.

listing agent

Fiduciary duties include disclosure. This means that the seller is entitled to

examine all offers presented for the purchase of his property.

If one of the offers is a buyer that is represented by the same agent or broker, the seller is _______________________

entitled to this information.

An offer can be terminated by____________. If a seller rejects the buyers offer and presents a counter offer,

a counter offer the original offer has been terminated.

An offer can be terminated before acceptance of the other party with a written withdrawal notice to the other side. This can be accomplished by___________________. There are no _____________ forms for this.

email, fax or any other delivery service promulgated

A broker may hire an unlicensed person to act as a host or hostess at a property being offered for sale by the broker, provided the unlicensed person ______________________

engages in no activity for which a license is required.

Preparation for presenting an offer:

Preparation 1. Analyze the offer. This includes not only the money aspects, but other items such as closing date and repair requests. 2. Discuss the buyer’s attributes and qualifying with the selling agent. The agent who works with the buyer should present to the seller documentation regarding the buyer’s credit worthiness as well as other factors pertinent to the sale of the property. 3. Complete the last page of the contract form showing the commission agreement between brokers. 4. Prepare a seller’s net sheet based on the offer. 5. Call the seller for an appointment. The best case scenario is a face-to-face meeting with your seller.

Presentation: As the seller’s agent, your responsibility is to:

1. Present the entire offer objectively and as favorably as possible. 2. Be sure the seller understands completely all terms and conditions. 3. Go over the net sheet. 4. Counsel, where necessary, but do not put words in the seller’s mouth. Do not confuse counseling with the giving of legal advice!! 5. Suggest alternatives, which might overcome any objections. 6. Suggest any additions or deletions, which may be necessary to protect the interests of all parties or to clarify any provisions. 7. Keep the offer alive

When the last principal signs the contract, one of the agents should then fill in the ________________.

effective date

It is the responsibility of the ____________ to deliver notice of acceptance to the other party.

agent

The seller may make a counter offer to the buyer.

The agent: a. You should draw a line through any rejected term. b. Write in the seller’s counter proposal. c. All changes, additions, and deletions to the offer must be initialed by the seller. d. The counteroffer is delivered back to the selling agent as quickly as possible and presented to the buyer. e. At this point, there is no contract. f. The seller may withdraw his counteroffer at any time up until acceptance by the buyer. This process is called rescission.

Seller’s Options

1. The seller may accept the offer exactly as it is written 2. The seller may make a counter offer to the buyer 3. The seller may also reject the offer.

real estate transfer taxes are

state and local taxes that are assessed on real property when ownership of the property is transferred between parties

The listing agent should only disclose factual information about the property. Factual statements may include that

- the property has been rezoned or | - that the property is overpriced

The fiduciary duties an agent has with his seller include:

a. Obedience b. Loyalty c. Confidentiality d. Disclosure e. Accountability f. ReasonableCare

If the information required by the disclosure notice is unknown to the seller, the seller shall indicate that fact on the notice and by that act

is in compliance with this section.

lets an owner sell her home by herself. It is a non-exclusive agreement, meaning the owner may execute open listings with more than one real estate broker and pay only the broker who brings an able buyer whose offer the owner accepts

OPEN LISTING

A broker may not take net listings unless

the principle requires a net listing and the principle appears to be familiar with current market values of real property.

A discharged contract is a contract that has been completely performed, with all terms carried out. A contract may be discharged by several methods.

1. Complete performance by all parties and the closing completed. 2. Partial performance of the terms along with a written acceptance. 3. Substantial performance where one party has substantially performed the contract but does not complete the details exactly as the contract requires. 4. Impossibility of performance in which an act required by the contract cannot be accomplished legally. 5. Mutual agreement where both parties agree to cancel the contract. 6. Operation of law, as in the voiding of a contract with a minor or fraud.

If the seller defaults on a real estate contract, the buyer has three alternatives:

1. Rescind or cancel the contract and recover the earnest money. 2. File a court suit, known as a “suit for specific performance”, forcing the seller to perform on the terms of the contract. 3. Sue the seller for compensatory damage (a personal judgment).

If the buyer defaults, the seller has four alternatives:

1. Declare the contract forfeited. This would mean that the seller could email, fax, hand-deliver or send by mail a notification that the contract is hereby “forfeited” according to Paragraph #21 of the One-to-Four Family Residential Resale Contract. 2. Rescind the contract (terminate). 3. Sue for specific performance, forcing the buyer to perform the terms of the contract. 4. Sue for compensatory damages.

A lawsuit designed to force the defaulting party, either buyer or seller, to perform on the terms of the contract

SUIT FOR SPECIFIC PERFORMANCE:

Four elements must be satisfied for final acceptance to take place.

1. The final contract must be in writing (typically satisfied when negotiations are made using promulgated forms). 2. Both buyer and seller must sign the final contract (including the initialing of any handwritten changes to the initially drafted offer, if applicable). 3. Acceptance must be unequivocal. 4. The last party to accept must communicate acceptance back to the party (or the other party’s agent).

The time period between the time the contract is signed (executed) and before title actually passes.

EXECUTORY CONTRACT:

One who has the right to sign the name of a principal on a sales contract.

ATTORNEY-IN-FACT: