Unit 11/Class 10 - Contracts Flashcards
What is a contract?
An enforceable promise between two or more people
To be enforceable, what there must be “what” within a contract?
Must be an offer and an acceptance by legally competent parties consderation legal form property description signatures
Is a contract required to be written in Kentucky?
yes
Give some details of a bilateral contract
Two parties are exchanging promises
Examples: sales contracts and leases
Give some details of a unilateral contract
Created when only one side becomes obligated to perform an act
Example: option contract
What is an executed contract?
One that has been fully performed
all parties have fulfilled their obligations
*Closing happens and the transaction is completed
What is an executory contract?
has not been performed; parties still have obligations to perform.
when a buyer and seller enter into a sales contract, it is an executory contract. Signed, but not closed.
maybe you have contingencies/items to still be performed
What are the essential elements to a valid contract?
offer and acceptance legal form (written) property description consideration legally competent signatures
An executed contract means what
Transaction has closed
title has been conveyed
Offer and acceptance is sometimes called…..
meeting of the minds
An ____________ is created when an offer does not contain clear and definite terms. This type of offer does not create binding contracts
Illusionary Offer
Consideration is ___________________________. The sales price offered by a purchaser in a sales contract would be valuable consideration. Consideration can also be a _________ which is a promise NOT to do something
Something of value given in exchange for a promise
Forbearance
What does reality of consent mean?
parties have entered into the contract of their own free will
The Statute of __________ requires certain agreements to be in writing. Listings and leases that are _______ year can be oral. The sale of personal property under $____ can be oral. in addition the contract must contain the 5 items: 1,2,3,4,5
Frauds
less than 1 year
$500
names terms consideration property description signatures
The word _____ oral.
parol
The parol evidence rule prohibits the admission in court of prior oral or written evidence that changes the written contracts
What is a valid contract?
one that contains all the legal requirements and is enforceable
What is a void contract
One that is missing something that was legally required or contains an illegal agreement.
A contract with no consideration would be void
What is a voidable contract
Appears to be valid but can be voided by one of the parties.
Examples: minors or insane people
What is an unenforceable contract?
Unenforceable contract is one that is a valid contract when made but one that will not be enforced by the courts. One example would be an oral sales contract. An oral contract may be valid between the parties but would not generally be enforced in a court of law.
What are the ways to end a contract?
Performance breach of contract agreement merger bankruptcy
What are situations that would NOT terminate a lease
death
destruction
*material changes in circumstances do not ordinarily terminate contracts. One exception is a personal service contract like a listing contract
When no time limits for completion are in a contract, the law says that the contract ends when?
“allows a reasonable time”
What does it mean if “time is of the essence” is in the contract
everything must be completed within a specific time frame
Assignment vs. Novation
Assignment - liability is not transferred. First person still on the hook/liable. The assignor’s rights to the contract are terminated, but he still holds liability
Novation - Liability transferred. Release of BOTH liability and rights to the contract. Novation may be given when a buyer assumes a seller’s existing loan thereby releasing the seller from liability.
What is “specific performance”
A lawsuit to force the completion of a contract
Suit for damages
Either party may sue for any loses they ahve incurred as a result of a breach
Statute of limitations
A law that limits the time frame and injured party has to file a suit against a defaulting party
Laches
similar to statute of limitations, that bars someone from filing a suit if htey do not file within a certain time frame
Upon a breach of contract, disputes may be solved via what two ways
mediation (the two parties make the decision)
arbitration (the third party makes the decision)
________ means to correct errors in a contract
Reformation
Once an offer is accepted and a contract exists, any corrections or changes should be made through a ____________ to the contract
Amendment
A contract exists when…
Sales contracts are ______ contracts and ordinarily dont become binding on the parties until ________________
When an offer to purchase is accepted without change
Bilateral
communication of acceptance has been made to the offeror.
Upon acceptance and the creation of a binding contract, the buyer has an ______ interest in the property. This type of interest is also called ________ interest.
Equitable
Insurable interest
Unless the agreement states that the seller will retain all liability in the property, the buyer should obtain insurance immediately upon acceptance of an offer. This is also called ____________
equitable title
__________ is when a broker uses escrowed funds for his own personal use. This activity is ILLEGAL
Conversion
Typical contingency clauses in a contract are _________ and ___________
financing and inspections
What is an addendum
An addition made to a contract after its creation or added during the creation of a contract because of a lack of space on the contract form.
To be valid, what are the four contents of an option?
Specified price
time period
terms of sale
option money
*option money does not apply to the purchase price unless it is stipulated in the contract and is retained by the seller if the buyer fails to exercise the option.
A contract for deed or land contract is __________; however, there is no mortgage given by the purchaser.
Who holds the title?
seller financing
The SELLER holds the title AND the deed until the property is fully paid for.
Vendee’s Interest
Under a land contract, the buyer has possession and equitable title in the property.
(but remember, the seller still has legal title/deed)
In a land contract/contract for deed, what happens if the buyer doesnt pay
The seller has to foreclose on the property so they can get the equitable interest back
With seller financing, the seller who finances a sale can also make use of a ____________ in which the buyer receives title to the property but places a security interest on it - the mortgage - in favor of the seller.
Purchase money mortgage
Assignment vs Novation
Assignment - transfer of rights
Novation - substitute a new contract or party for the original
A legally enforceable agreement under which both parties promise to do something for each other is called a ….
bilateral contract
A person approaches an owner and say i’d like to buy your house. The owner says “sure” and they agree on a price. What kind of contract is this?
Unenforceable, because its oral
A contract is said to be bilateral if…
both parties on the contract exchange binding promises
During the period after a real estate sales contract is signed, but before title actually passes, the status of the contract is…
executory
–terms not yet carried out
A buyer makes an offer on a seller’s house and the seller accepts. Both parties sign the sales contract. at this int, the buyer has what type of title to the property?
Equitable
An option to purchase bind which of the following parties
Seller only
The purchaser of real estate under and installment contract has….
only equitable interst in the proeprty’s title
Under the statute of frauds, all contracts for the sale of real estate must be…
in writing to be enforceable
Specific performance would most likely be a remedy a buyer or seller would seek if…
one of the parties breached the contract
A valid sales contract must contain….
consideration
signatures
offer and acceptance
property description/location
The recission of a contract occurs when….
The parties are returned to their positions as though there were no contract
A void contract would be a contract that….
lacks legal purpose
What activity would be enforceable under the Statute of Fraud?
conveyance of a property by deed
An option that is exercised by an optionee becomes a…
bilateral sales contract
