Ch 3: The Land-Sales Contract Flashcards
(30 cards)
How is a land-sales contract formed? (T)
A contract for the sale of land requires an offer, acceptance, and consideration—just like any other contract.
What do real estate brokers do? (T)
The sale of real property often involves a real estate broker, who acts as an agent of the seller (or less often, the buyer). A real estate broker owes the same duties to the principal as other agents, including the fiduciary duties of loyalty, care, competence, diligence, disclosure, and confidentiality. The listing broker and the selling broker generally share the commission from the sale.
What is a listing broker? (T)
Sets the asking price and advertises the property.
What is a selling broker? (T)
Serves as a subagent of the listing broker and finds a buyer
What is a dual agent? (T)
A dual agent represents both the buyer and the seller, but such agents are prohibited in many jurisdictions due to conflict of interest.
What is a transactional broker? (T)
A transactional broker does not represent the buyer or the seller—it facilitates the sale (e.g., finds a lender). A transactional broker owes each party a duty to perform with skill, care, diligence, and fairness— but does not owe a duty of loyalty.
What is required for a real estate contract to satisfy the statue of frauds? (T)
The Statute of Frauds requires that a real estate contract:
Be in writing (physical or electronic)
Be signed by the party to be charged (e.g., handwritten or electronic signature, letterhead) and
Contain all the essential terms.
What are some exceptions to the statue of frauds for real estate contracts? (T)
Part performance, full performance, detrimental reliance, and admission of the contract’s existence. (T)
What is part performance? (T)
Either party may seek specific performance when the acts of performance constitute persuasive evidence that a contract exists. Most jurisdictions require proof of at least two of the following:
○ Payment of all or part of the purchase price
○ Possession by the purchaser
○ Substantial improvement of the property by the purchaser
What is full performance? (T)
When the seller actually conveys the real property interest, the seller can enforce the other party’s oral promise to pay money for the property.
What is detrimental reliance? (T)
Specific performance may be permitted when the party seeking enforcement has reasonably relied on the contract and would suffer hardship without its enforcement.
What is admission of the contract’s existence and how does is it used in land-sales contracts? (T)
A party may be able to enforce an oral land-sale contract when the other party admits that the contract exists.
What is the implied covenant of marketable title? (T)
Land-sale contracts include an implied covenant of marketable title that guarantees that the title is free of undisclosed defects that create an unreasonable risk of litigation.
What does the implied covenant of marketable title require? (T)
This covenant requires that the seller deliver marketable title on the day of closing. If the seller fails to do so (and the buyer does not waive the defect), the buyer may (1) rescind the contract and recover out-of-pocket costs, (2) sue for breach and seek damages, or (3) bring an action for specific performance.
What are some “red flags” for marketable title? (T)
“Red flags” for marketable title include covenants, easements, leases, liens, gaps in the chain of title, boundary disputes, existing zoning violations, and adverse possession.
What does it mean when “time is of the essence?” (T)
Time is of the essence—and strict adherence to the closing date is required—only when it is expressly stated in the land-sale contract or implied by the circumstances. But even when time is not of the essence, a party that fails to render performance on the date of closing is in breach and may be liable for incidental losses (e.g., taxes, interest).
What is the implied warranty of fitness or suitability? (T)
A warranty of fitness or suitability is implied in the sale of newly constructed homes. It generally covers latent construction defects (i.e., defects that cannot be discovered by reasonable observation or inspection).
May the implied warranty of fitness or suitability be disclaimed by the builder or waived by the buyer? (T)
Yes. This warranty may be disclaimed by the builder or waived by the buyer if done so with language that is clear and unambiguous. However, a general disclaimer (e.g., “property is sold as is”) is typically not sufficient.
What is the seller’s duty to disclose defects? (T)
The seller of a residence must disclose all known material physical defects to the buyer if they are not readily observable.
What is a defect? (T)
A defect is material if it substantially affects the value or desirability of the home or the health and safety of its occupants.
What is the merger doctrine? (T)
The merger doctrine refers to the shift in the transaction from performance of a contract to performance of obligations under the deed. At closing, the land-sale contract is completely performed and no longer governs the transaction. This means that ongoing warranties or promises made by the seller must be in the deed to be enforceable after closing, and the buyer must sue under the deed after the closing has occurred.
What are the exceptions to the merger doctrine? (T)
The parties intended that the obligation survive past the closing, or the obligation is collateral to and independent of the conveyance.
What damages may a nonbreaching party recover? (T)
In the event of a breach, the nonbreaching party can recover expectation damages (i.e., the difference between the contract price and the market value on the date of performance).
In about half of the jurisdictions, if the seller breached because of a good-faith inability to deliver marketable title, what is the buyer able to recover? (T)
In about half of the jurisdictions, if the seller breached because of a good-faith inability to deliver marketable title, then the buyer is limited to out-of-pocket expenses.
