Chapter 9: Basic Contract Law

Question 1

addendum

Answer 1

A rider to a contract with additional terms or conditions

Question 2

amendment

Answer 2

A change to contractual terms or conditions

Question 3

assignment

Answer 3

The transfer to another party in writing of rights or interest in a bond, a mortgage, a lease, or another instrument

Question 4

auction

Answer 4

A form of selling property where oral bids are taken and the property is sold to the highest bidder

Question 5

bilateral contract

Answer 5

All parties in a contract are legally bound to act as prescribed

Question 6

breach of contract

Answer 6

The violation of any terms or conditions in a contract without legal excuse; for example, failure to make a payment when it is due.

Question 7

compensatory damages

Answer 7

Money damages awarded to the injured party to compensate them for the breach of contract but not to punish the breaching party.

Question 8

consequential damages

Answer 8

Award of special damages if the breaching party entered the contract with plans to breach; injured party may sue for lost profits

Question 9

consideration

Answer 9

(1) That received by the grantor in exchange for a deed.

(2) Something of value that induces a person to enter into a legally enforceable contract

Question 10

contract

Answer 10

A legally enforceable promise or set of promises between legally competent parties that must be performed for consideration. If a breach of the promise occurs, the law provides a remedy. A contract may be either unilateral, by which only one party is bound to act, or bilateral, by which all parties to the instrument are legally bound to act as prescribed.

Question 11

counteroffer

Answer 11

A new offer made in response to the offer received. It has the effect of rejecting the original offer

Question 12

earnest money deposit

Answer 12

Money deposited by a buyer under the terms of a contract, to be forfeited if the buyer defaults but applied to the purchase price if the sale is closed.

Question 13

executed contract

Answer 13

A contract in which all parties have fulfilled their promises in the contract

Question 14

executory contract

Answer 14

A contract under which something remains to be done by one or more of the parties.

Question 15

express contract

Answer 15

An oral or written contract in which the parties state the contract’s terms and express their intentions in words.

Question 16

implied contract

Answer 16

A contract under which the agreement of the parties is demonstrated by their conduct

Question 17

legality of object

Answer 17

The purpose of a legally enforceable contract cannot be for illegal actions or acts against public policy

Question 18

legally competent parties

Answer 18

People who are recognized by law as being able to contract with others; those of legal age and sound mind; a requirement of a legally enforceable contract

Question 19

liquidated damages

Answer 19

An amount predetermined by the parties to a contract as compensation to an injured party if the other party breaches the contract

Question 20

“meeting of the minds”

Answer 20

mutual assent; A deliberate agreement between parties; offer and acceptance; A requirement of a legally enforceable contract

Question 21

mutual assent

Answer 21

A deliberate agreement between parties; offer and acceptance; “meeting of the minds.” A requirement of a legally enforceable contract

Question 22

novation

Answer 22

Substituting a new contract for an old one or substituting new parties to an existing contract

Question 23

offer

Answer 23

The promise by one party to act or perform in a certain manner if the other party agrees to act or perform as requested; shows an intention to enter into a contract

Question 24

offeree

Answer 24

The person receiving the offer

Question 25

offeror

Answer 25

The person who makes the offer

Question 26

offer and acceptance

Answer 26

A deliberate agreement between parties. Two essential components of a valid contract.

Question 27

parol evidence rule

Answer 27

A rule of evidence providing that a written agreement is the final expression of the agreement of the parties, not to be varied or contradicted by prior or contemporaneous oral or written negotiations

Question 28

reality of consent

Answer 28

If misrepresentation, fraud, mistake of fact, undue influence or duress are absent in contract formation, good contract is formed.

Question 29

rescission

Answer 29

The legal remedy of cancelling, terminating, or annulling a contract and restoring the parties to their original positions. Contracts may be rescinded due to mistake, fraud, or misrepresentation. There is no need to show any money damage.

Question 30

specific performance

Answer 30

A legal action to compel a party to carry out the terms of a contract

Question 31

statute of frauds

Answer 31

A state law that requires that certain instruments that convey interest in real estate be in writing to be legally enforceable, such as deeds, real estate sales contracts, and certain leases

Question 32

statute of limitations

Answer 32

That law pertaining to the period of time within which certain actions must be brought to court or be lost

Question 33

time is of the essence

Answer 33

A phrase in a contract that requires the performance of a certain act no later than a stated time or the noncompliant party is in breach and the contract may be voidable by the opposite party

Question 34

unenforceable contract

Answer 34

A contract that has all the elements of a valid contract, yet neither party can sue the other to force performance of it. For example, a verbal contract is generally unenforceable

Question 35

unilateral contract

Answer 35

A one-sided contract wherein one party makes a promise to induce a second party to do something. The second party is not legally bound to perform; however, if the second party does comply, the first party is obligated to keep the promise

Question 36

valid contract

Answer 36

A contract that complies with all the essentials of a contract and is binding and enforceable on all parties to it

Question 37

voidable contract

Answer 37

A contract that seems to be valid on the surface but may be rejected or disaffirmed by one or both of the parties

Question 38

void contract

Answer 38

A contract that has no legal force or effect because it does not meet the essential elements of a contract

Question 39

What are the essential elements of a valid contract?

Answer 39

1. mutual agreement 2. competent parties 3. consideration 4. legal purpose