Prepare for real estate contract questions with these exam prep answers. This guide covers purchase agreements, listing contracts, leases, and contract contingencies.
Q: 4 elements required of every contract
Answer: CLOC:(C)ompetent Parties(L)egal Object(O)ffer and acceptance(C)onsideration
Q: valid contract
Answer: contains all the essential elements and is binding and enforceable upon both parties to the contract.
Q: voidable contract
Answer: has all of the elements necessary to create the contract and is enforceable but is subject to rescission by one of the parties to the contract.It is legally sufficient and recognized by law and, therefore, binding on the parties. However, it can be made void. But, if the injured party does not take any action, the contract is considered valid and enforceable.
Q: What can make contract generally voidable?
Answer: – was a minor- was misled- did not agree to contract voluntarily- later found to have lacked competency at time of entering contract
Q: void contract
Answer: Has no force or effect in law, so it will not be enforced in a court of law. A contract is void if it is missing any of the essential elements of a contract: competent parties, a legal object, mutual consent, consideration or, in some cases, being put in writing.
Q: Statute of Limitations
Answer: specific period of time available, to take action to enforce a contract, set by state
Q: laches
Answer: This principle allows a court to declare a contract unenforceable due to neglect or undue delay in bringing about a legal claim or asserting a right even though the Statute of Limitations has not expired.
Q: capacity to contract
Answer: Each party to the contract must be legally competent in order to be capable of contracting.
Q: Statute of Frauds
Answer: The purpose of this statute is to prevent perjury and dishonest conduct in proving the existence and terms of certain important contracts.
Q: parol evidence rule
Answer: requires that evidence of the agreement cannot be received other than in writing. Spoken words (parol evidence) cannot be used in court to change, modify or contradict the terms of a written agreement that appears complete.
Q: material fact
Answer: an important fact which significantly affects a person’s decision to enter into the contract
Q: Coercion or duress
Answer: forcing a person to do something against his will, including using threats to force a person to do something.
Q: Menace
Answer: a show of an intention to inflict harm.
Q: Undue influence
Answer: involves taking unfair advantage of a position of confidence or authority or of a person’s distress or weakness of mind (such as when a person is intoxicated, ill, or enfeebled).
Q: consideration
Answer: something of value given by one party in exchange for something of value from the other party to the contract.
Q: unilateral
Answer: one-sided contract in that only one party has an obligation to perform under the contract. One party makes a promise in order to induce an act by the second party.
Q: bilateral
Answer: when each party makes a promise. In such a contract, a promise is exchanged for a promise, and both parties are equally obligated to perform. Failure of either party to perform is a breach of the contract.
Q: executory contract
Answer: a contract that is to be performed
Q: executed contract
Answer: When both parties to the contract have fully performed the terms
Q: time is of the essence
Answer: If the contract does not specify a time for performance, it is implied that performance is required within a reasonable time.
Q: waiver
Answer: unilateral act with legal consequences
Q: Novation
Answer: substitution of a new obligation for an existing one with the intent to cancel the existing one.
Q: Full performance
Answer: all parties have performed all of their duties under the contract.
Q: Partial performance
Answer: exists when one party performs part of the obligations and the other party relieves him of the obligation to perform the rest.
Q: Substantial performance
Answer: when one party has substantially performed but failed to perform exactly as the contract requires
Q: mutual release
Answer: cancellation of the contract rather than rescission
Q: unilateral rescission
Answer: when an injured party goes to court to void a voidable contract. Upon finding that the contract had been voidable and should be declared void, the court would rescind the contract and attempt to restore each party to its condition in terms of money and property prior to the contract.
Q: impossibility of performance
Answer: This occurs when the subject matter of the contract is destroyed (e.g., in a fire), or when changes in law make performance illegal.
Q: operation of law
Answer: when a contract is unenforceable due to bankruptcy or expiration of the time set in the Statute of Limitations.
Q: Liquidated damages
Answer: amount determined in advance to be paid in the event of a breach
Q: Compensatory damages
Answer: an amount determined by a court or arbitrator to cover the actual amount of the loss suffered as a result of the breach
Q: Specific performance
Answer: a legal procedure or action (court action or lawsuit) brought by either party to a contract to enforce the terms of the contract and force the defaulting party to perform the contract.
Q: mediation
Answer: a third party tries to get the parties to the contract to agree to a resolution of their conflict, but neither party would have to agree to mediation or be bound by the mediation process.
Q: arbitration
Answer: a third-party arbitrator serves as a judge, hearing both parties and making a decision which is binding on the parties.
Q: assignment
Answer: transfer all interests and rights to others
Q: rescission
Answer: terminate all obligations under the contract