Unit 5: Classification and Stages of Contracts Flashcards
What are the 3 classifications of contracts?
1) Valid
2) Void
3) Voidable
What makes a contract valid?
The contract meets all the legal requirements, contains all the essential elements, and is binding and enforceable in court by both parties.
What makes a contract void?
The contract lacks one or more of the essential elements of a valid contract.
T/F A void contract has no legal effect and is not enforceable in court by either party.
True
What makes a contract voidable?
The contract appears to be valid, but one party may disaffirm it because the party is a minor or was subject to duress, fraud, or misrepresentation.
What are the stages of a contract?
1) Letter of Intent
2) Offer
3) Contract
4) Termination
In what kind of sale do you see letters of intent?
Commercial sales
What is the letter of intent?
It is a way for the buyer to seek information about a potential transaction but it does not have any legal obligation.
What contract stage is known as the negotiation period?
Offer
T/F Offers can continue to be countered after a meeting of the minds.
False. Offers may be countered and new offers made UNTIL there is a meeting of the minds.
What is a meeting of the minds?
An understanding or mutual agreement between two or more parties and their understanding of that agreement.
T/F In the offer stage, earnest money is not usually deposited because there is not a contract yet.
True
When is a contract formed?
Upon a meeting of the minds and communication of acceptance by the parties.
How can the terms of a contract be changed?
Through an amendment that is signed by all parties.
T/F The original offer still stands even after changes are made.
False. Any change to an offer WILL TERMINATE the offer and create a new offer.
