Module 2 Contracts Flashcards
(113 cards)
1
Q
What needs to be included in an offer to purchase in the legal description of the property?
A
Legal description of the property:
Identifies boundaries
Address
2
Q
What are the contract elements of an express contract?
A
Competent Parties
Mutual Assent (Offer and Acceptance)
Consideration
Legality of Purpose (Lawful Object)
3
Q
All written contracts are what type of contract?
A
Express.
Oral contracts may not be enforceable
4
Q
What is an implied contract?
A
One created by implication or deduced
5
Q
What is a Unilateral versus a Bilateral contract?
A
Bilateral: both parties have mutual promises. They are enforceable against each other.
Unilateral: One party makes a promise
6
Q
What is the meaning of an executed and executory contract?
A
Refers to the stage of the contract and its performance.
Executory is one that has not been fully executed.
Executed has been performed.
7
Q
What are elements to a valid contract?
A
Competent parties
Mutual assent (Offer and Acceptance)
Consideration
Legality of purpose. (Legal Object)
8
Q
Must real estate contracts be in writing?
A
Yes
9
Q
Real estate contracts must generally include 3 elements:
WDA
A
Writing
An adequate Description
Communicated acceptance to the person who made the offer
10
Q
Competent parties relates to what 6 issues?
A
Age
Criminal History
Literacy
Identifiable Parties
Mental Capacity
Legal Authority
11
Q
If a person who does not have mental capacity enters into a contract the contract is…
A
Void. Unless that person had a court appointed guardian enter into that contract on their behalf.
12
Q
If a person makes an offer to enter into a contract, but dies before that contract is signed the contract is ….
A
Void
13
Q
If a person enters into a contract and it is finalized and then that person passes away the contract is..
A
Enforcable
14
Q
The four types of individuals considered to have legal authority are:
A
- Court Appointed Guardian
- A person holding Power of Attorney
- A duly appointed representative
- A person granted legal authority
15
Q
Examples of individuals granted legal authority are:
A
- A Corportations Bylaws or employment contract
- A General Partnership
- A Limited Partnership
- Trusts, Non Profits, Homeowners Associates, etc - Trustee or representatives may be granted by the charters or in the bylaws.
16
Q
How is Mutual Assent met?
A
A clear and definite offer, and an intentional unequivocal acceptance of it.
17
Q
What does Legality of Purpose mean?
A
The contract terms are legal. Note this includes for the term of the contract. If the consideration of the contract becomes illegal 2 years into the contract then the contract is then void.
18
Q
A lease of one years duration or less must be in writing…T/F
A
False. A lease of one year or less may be oral.
19
Q
A Written contract is a _______ Contract
A
Express
20
Q
An express contract is one having the following contract elements explicitly stated in words.
A
Competent Parties
Mutual Assent
Legal Object
Consideration
21
Q
An express contract is one expressed by words. An Implied contract is one deduced from implication
A
22
Q
What is a Nullity?
A
Something in a contract that makes it legally voidable
23
Q
What defines a voidable contract?
What is it called when the defect is cured?
A
Something in the contract that allows a party to declare the contract void without adverse legal effect.
Ratification. Makes a voidable contract enforceable.
24
Q
What is Rescission?
A
Makes a voidable contract unenforceable.
25
26
What are the types of conduct or behavior that can void a contract?
- Fraud in the execution
- Misrepresentation
- Actionable statements of opinion
- Concealment
- Duress
- Undue Influence
- Mutual Mistake
27
What does Fraud in the Execution mean?
Misrepresentation of essential terms of the contract or producing a contract different than what was signed.
28
What is misrepresentation, regarding a voidable contract?
A contract is entered into based on misrepresented information. The contract may be voided by the party to whom the misrepresentation was made.
29
What is False Representation?
A representation signed to give a false representation.
The property has a well. (But leaves out the fact that it is dry most the year)
OR
A party denies knowledge of a fact that it has knowledge of.
*The information falsified must be material to the information of the contract.
The well being dry means that the property does not function for the purpose of the sale.
30
What is concealment?
Hiding material fact that relates to the property.
Example: Putting furniture in front of a door leading to a cavity under the foundation.
31
What is Puffing?
A Licensee boasting about a properties benefits which are a matter of opinion and could lead to misrepresentation as a concealment of fact.
32
What is Duress in regard to voidable contracts?
Threat of harm against a contracting party. (Hard to prove)
33
What is the difference between Duress and Undue Influence?
Duress: Putting a gun to someone’s head
Undue Influence: refers to persuasion. Telling an elderly mother she has to buy a house for someone because otherwise they wont be able to be cared for.
34
What is a Mutual Mistake in relation to a voidable contract?
Mistaken assumption by both parties in a contract.
35
What things can make a contract unenforceable?
- Impossibility of Performance
- Subsequent Illegality
- Bankruptcy
- Laches
- Prevention not performance
- Conditions
- Breach
36
What defines Impossibility of Performance?
A contract is impossible to meet. The facts are such that nobody could perform the contract.
37
What is Subsequent Illegality?
A contract is for an act that is legal but subsequently becomes illegal.
38
Bankruptcy can cause an unenforceable contract because:
Real Estate contracts are discharged once a party files for bankruptcy.
39
What are Laches?
An excessive amount of time passes which has the effect of discharging a party, known as the Doctrine of Laches. The claim must be acted upon within a timely manner.
40
What does Prevention of Performance mean?
One party prevents the other party from performing.
A buyer makes a contingent offer on a home pending an inspection, however the seller refuses to allow inspectors access to the home. The buyer can be discharged from the contract.
41
What are Conditions or Contingencies in regard to an unenforceable contract?
When a action that must or must not happen is included as a requirement for the contract to be enforced.
42
May a Waiver be oral?
Yes, but since the sale agreement is subject to the Statute of Frauds you'd be cray cray.
43
If a buyer makes a contingency that says they must qualify for a loan but fails to apply for that loan can they be in breach?
Yes. Oregon law requires reasonable due diligence and contract law requires good faith.
44
What are the questions to include in drafting a contingency?
Who must act?
What has to be done?
When must the contingency be satisfied?
What is to happen if its not?
45
Would this be an example of a good contingency?
"A property inspection shall occur on the property and all elements and systems shall be inspected."
No. It doesn't say who is responsible for the inspection to occur.
46
Would the following be a good draft for a contingency?
"This transaction is subject to Buyer's attorney's approval."
No. It doesn't say what is specifically subject to the approval. A better version would be:
"This transaction is subject to Buyer's attorney's review and approval of all documentation including, but not limited to, the real estate sale agreement, attachments to it, and closing documentation."
47
Should Contingencies have a limitation on time?
Yes, otherwise the contingency is too open ended and difficult to enforce.
48
Contingencies should fulfill what three requirements?
Explicit, expire, require diligence in the effort to fulfill the contingency
49
The purpose of a contingency is:
To prevent a breach
50
A contingency is usually there to protect the...
Buyer
51
T/F Silence of a party benefitting from a contingency condition could be treated as an approval or a disapproval.
True
52
Can a buyer lose earnest money due to a contingency?
Yes, failure to fulfilling obligations can cause a forfeit of their earnest money.
53
Waiver means:
To voluntarily give up or surrender a right.
54
A breach of contract occurs when:
One or more parties fail to perform or incorrectly perform a contract duty.
55
The more material the breach, the more likely the breach will be considered a....
Total Breach
56
Which document would contain a liquidated damages clause?
A real estate agreement
57
Which statement about a total breach is false?
1. Total breach means that the other party is obligated to continue to perform
2. The more material the breach or more substantial the default, the more likely the breach will be total.
3. In cases of total breach, the major issue will be the amount of damages
4. The contract is terminated when there is a total breach
Total breach **does not** mean that the other party is obligated to perform. Instead it means that the contract can be terminated. In the case the contract is terminated, the remaining issue is to resolve that of damages owed.
58
Buyer Linda and Seller Marilyn entered into a purchase and sale agreement. Marilyn later stated she did not wish to sell the property. In order for Linda to force Marilyn to sell, Linda can sue for....
1. Assignment
2. Specific Performance
3. Foreclosure
4. Eminent Domain
2. Specific Performance will force Merilyn to sell, as it requires the breaching party to fulfill their end of the contract when other damages would not be suitable or otherwise make up for the breach of contract.
59
Which remedy applies to both a contract breach and a tort liability?
1. Rescission and Restitution
2. Monetary damages
3. Specific Performance
4. Liquidated Damages
2. Monetary damages can apply to both contract breach and tort liability. Lawyers may try to convert contract claims into tort liabilities since they often pay out more than contract claims.
60
The real estate market is rapidly increasing in value. James agrees to sell his property to Andrew for $250,000.By the date of closing, James concludes that his property is worth more than $290,000 and refuses to close the transaction. If Andrew really wants this house, his best remedy is to bring a court action for...
1.Rescission
2. Specific Performance
3. Foreclosure
4. Damages
2. Specific Performance. This could be granted by the court of equity by ordering the breaching party to perform their contract duties, in this case for the seller to sell the house. Specific Performance is not legal for real estate in every state.
61
The more material a contract breach or substantial the default, the more likely the breach will be a _/_/_/_ breach.
Total. If a guitarist was hired to play a performance but didn't bring his guitar that would likely be grounds for total breach. Whereas if it were just his pick he could probably find a remedy.
62
Restitution is ______________?
Trying to restore the parties to their position before the contract.
63
Rescission is ______________?
The cancelling or withdrawal of a contract.
64
All of the following statements about damages for breach of contract are true, EXCEPT:
1. The damages must be foreseeable
2. The injured party has no duty to mitigate damages
3. The purpose of paying damages is to place the injured party in the same position they would have been had the contract been fully performed
4. The damages have to be proved with reasonable certainty.
2. The injured party had a duty to mitigate damages, the landlord must try to find a new tenant as soon as possible.
65
Jay entered into an agreement to buy a house. He has made an earnest money deposit of 3% of the price. All of the contingencies in the agreement are removed by Jay but he decides to back out of the agreement.
Jay will give his earnest money deposit to the seller as:
1. Compensatory Damages
2. Liquidated Damages
3. Actual Damages
4. Provisional Damages
2. Liquidated damages, which are specified in advance for the breach of contract. Most of the pre-printed residential real estate agreements include a provision that the earnest money deposit will serve as liquidated damages.
66
Negligence is:
1. A contract breach
2. A breach of fair and honest dealing
3. An unintentional tort
4. An intentional tort
3. An unintentional tort. Intentions distinguish intentional torts from unintentional. By Definition, negligence is the failure to use care, resulting in damage or injury to another. The intention was not to induce damage or injury, but through carelessness, it resulted.
67
The rights and duties in the listing agreement flow...
1. From the property owner to the principal broker, then from the principal broker to the broker
2. From the principal broker to the owner, then from the owner to the broker
3. From the principal broker to the broker, then from the broker to the property owner
3. The rights and duties under the listing agreement flow from the principal broker, to the broker, to the property owner.
68
The four different types of listing agreements in Oregon are:
Open, Exclusive agency, Exclusive right to sell, Net
69
A open listing agreement is defined by:
A listing agreement where a seller may use any principal broker to complete the sale, and only pays a commission to the one that completes the sale.
70
What is the best definition of 'Procuring Cause'?
1. The broker who has a buyer broker agreement with the offering buyer.
2. The broker who introduced the buyer to the property regardless of which broker sells the property.
3. The broker claiming to represent the buyer at the time the buyer makes an offer.
4. The uninterrupted series of casual events that leads to a successful sale of the property.
Procuring Cause is defined by the NAR as **"the uninterrupted series of casual events that leads to a successful transaction."** It is the way to determine disputes about who deserves a real estate commission for causing a sale.
71
Exclusive Agency Listing
Gives one principal broker the right to sell the property, however the seller may still sell the property and if they do no commission is paid to the broker. They do expire.
72
Exclusive Right to Sell
The principal broker will earn their commission regardless of who sells it during the listing period. They do expire.
73
What is a 'Net Listing'?
Agent is paid everything over the minimum price set by the seller. Discouraged even where legal.
74
What is Eminent Domain?
The right of the government to take private property for public use by giving just compensation, or the destruction of property whether is is by human or natural causes.
75
Because a listing agreement is a personal service contract, what are the rules that apply to its cancellation?
-Specific Performance cannot be used to enforce the agreement
-The seller can revoke the authority at any given time before a sale, even if it has not expired.
-A contract is cancelled in the event of death, incompetence, or bankruptcy of either the principal or the agent.
-If an agent violated fiduciary obligations owed, the agreement can be rendered unenforceable, and any commission denied.
-Depending on the reasons of the termination and its terms, the seller might owe the agent damage.
76
What type of Buyer Agency Agreement types is this scenario:
Sheldon, a buyer, enters into an agreement with Elizabeth, a broker. The agreement says that the buyer will only work with Elizabeth as an agent, however he is also looking at a few For Sale by Owner properties and that Elizabeth will only earn a commission if she finds him a house isn't once of the For Sale by Owner properties.
Exclusive Agency
77
T/F A seller must be presented with all offers. Those offers do not require any response or proof they have been presented.
It is required to present all offers, unless there is written proof otherwise, however a seller must provide a signature that the offer has presented. If the seller refuses this must also be noted.
78
Do principal brokers have to retain copies of transaction paperwork?
Yes. Must be available for audit.
79
T/F
A broker can tell another broker that multiple offers exist, even when only one or none actually do.
False. It violates professional ethics of fair and honest dealings.
80
Can a buyer revoke an offer?
Yes, as long as its before the acceptance of that offer by the seller, afterwards there may be surrender of earnest money or other penalties.
81
What is 'equitable title'?
When a buyer has an accepted offer in the property but does not have the ACTUAL title.
82
If the seller changes the buyers offer, is the offer still valid and must the buyer proceed?
No, any change in the buyers offer by the seller creates a counter offer and the buyer has no obligation to proceed.
83
T/F.
If a buyer rejects a counter offer from the seller, and the seller now wants to accept the original offer from that buyer, there is no contract, nor can a brokerage fee been earned. The original offer was nullified when the counter was made.
True
84
A promissory note, which is a promise to pay an earnest money deposit, should be written to:
A) be made payable at closing
B) be made payable to the escrow company
C) be made payble to the seller on the date of mutual acceptance of the offer
C. The promissory note should be written to be payable to the seller upon mutual acceptance of the offer. One could add a provision such as, "within 3 days of mutual acceptance.
A promissory note should not be payable at closing. since it is promise to pay earnest money and earnest money is supposed to protect the seller if the buyer failed to close the transaction.
A promissory note CANNOT be made payable to the escrow company. Escrow is a third party.
85
T/F
If a seller is required to deliver a Sellers Disclosure Statement to the buyer, and doesn't, the buyer is allowed to withdraw from the transaction, however earnest money is forfeited.
FALSE. Earnest money would not be forfeited in this case.
86
Can a seller revoke a counter offer before it is accepted?
Yes. Either party can revoke an offer or counter before it is accepted.
87
A contract between a buyer and a seller that requires the seller to sell within a certain timeframe but doesn't require the buyer to buy during that same timeframe is known as:
A) Optional Agreement Contract
B) Mutually Exclusive Option
C) Option Contract
D) A Periodic Exclusive Contract Option
C - Option Contract.
An option contract is a unilateral contract that gives one party the exclusive right to buy, sell, or lease a property, at a specific price, within a specific period.
88
In regard to a land sale contract, is the seller known as the vendor or the vendee?
The seller is known as the vendor, the buyer is the vendee.
89
T/F
Land Sale Agreements only pertain to raw land.
False. Land sale agreements apply to both land and improved real estate.
90
A Land Sale Agreement is
A) The same as a contract of sale
B) An agreement that immediately gives the buyer, or vendee, actual title to the property
C) An agreement that gives a seller benefit of property value increases
D) A form of seller financing
D. A form of seller financing. The buyer does not hold actual title to the property until the contract obligations are fulfilled.
91
T/F
If Bob enters into a land sale contract with Elizabeth and Elizabeth finds gold on the land, Bob benefits from that find.
False. Bob cannot benefit from the find if he enters into a land sale contract with Elizabeth.
92
T/F
A real estate licensee can write land sale contracts.
False. A licensee cannot practice law. A lawyer should write up the contract in this case.
93
When does the buyer take title when property is financed under a land sale contract?
A) On Closing
B) When 50% of the mortgage is paid
C) When the land sale contract is paid in full
D) On whatever date is stated in the agreement for purchase
C) When the agreement is paid in full
94
If Ray agrees to sell to Shirley using a land sale contract, who will have legal title to the property the day after closure?
A) Shirley
B) Ray
C) the Trustee in the contract
D) the title company where the transaction closed.
B) Ray
95
A land sale contract is:
A) a document used to purchase real property
B) for the purchase of property in which the seller becomes the buyers lender
C) exclusively for the use of undeveloped land
D) selling of a properties mineral rights
B) Land sale contracts are used when a seller becomes the lender for the buyer. The seller retains actual title until the debt is retired.
96
If a buyer stops making payments to a seller using a land sale contract, which remedies are available?
A) Judicial Foreclosure
B) Suit for Installments
C) Strict Foreclosure
D) Forfeiture
All of them
97
What is the difference between a Holdover Tenancy and a Tenancy at Will?
A holdover Tenancy is where the tenant wrongfully resides in the premises but it not considered trespassing because they held a lease. A Tenancy at will is when a tenant possesses the property for an indefinite period.
98
A tenent offers rent to a landlord for the month. after a lease expires The landlord accepts.
This is known as a:
A) Holdover Tenancy
B) Tenancy at Will
C) Lease for a definite period
D) Periodic Lease
Tenancy at will
99
Net Lease: Tenant pays rent, plus expenses which could be taxes, insurance, maintenance, or repairs. This is common for commercial leases.
100
Gross Lease: Lessee pays rent to the lessor in a fixed amount. The Lessor pays all operating expenses. This is common for residential leases.
101
Percentage Lease: Fixed amount of rent plus a percentage of the income of the lessee's business. Used in Retail.
102
Ground Lease: Tenant rents land only and adds improvement at the tenants expense and the tenant owns those improvements.
103
Variable Lease: Allows for an increase in rent as the term progresses.
104
A indexed lease is:
A) Payments raised at specific intervals and are provided in advance.
B) Rent increases are tied to increases of a specific index.
B. An example would be a payment tied to the Consumer Price Index such as Year 1 and 2 is 1,200 dollars. If the COP increased 2% in year three and 4% in year four the increases would be 2% and 4% accordingly.
105
A tenant rented an apartment for one year. After the tenant's lease expired, the tenant dropped by the landlord's office and paid cash for one month's rent and got a receipt. What kind of leasehold does the tenant have?
A) Option to Renew
B) Tenancy at Will
C) Tenancy for a definite period
D) Temporary tenancy
B. When the tenant possesses the property for an indefinite period with consent of the landlord. If rent is offered and is accepted, the tenancy is extended.
106
Which long-term lease has pre-set payment increases?
A) Gross Lease
B) Variable lease - Graduated
C) Variable lease - indexed
D) Percentage Lease
B. Variable Lease - Graduated
107
A lease where the tenant pays a monthly amount, plus a portion of the monthly or annual gross sales generated by the business leasing the space as additional rent is a
A) Percentage Lease
B) Variable lease - Greaduated
C) Net Lease
A. Percentage Lease
108
A lease where the tenant is responsible for one or more property related expenses in addition to the monthly lease is a
A) Net Lease
B) Percentage Lease
C) Gross Lease
D) Variable Lease- Indexed
A. Net Lease
109
A lease where the tenant pays a flat monthly amount and the landlord pays all property related expenses such as taxes, is a
A) Variable lease - indexed
B) Variable lease - Graduated
C) Net Lease
D) Gross Lease
D. Gross Lease
110
Closing Occurs when:
-Choose all that apply
A) The funds are made available to the seller
B) The lender transfers loan proceeds to Escrow
C) The deed is recorded in the name of the buyer
D) The Principal brokers for the buyer and seller instruct escrow to close
A and C
111
A proper escrow should
A) Not be subject to control of any one interested party alone.
B) Be managed by a licensed broker
C) Be voidable at the option of either party
D) Be void a the sellers option
A. The escrow officer is an impartial property following the escrow instructions
112
When a real estate transaction is to be closed in escrow, the escrow agent:
A) Acts only on express written instructions of the broker
B) Serves as an attorney for the parties to the transaction
C) Protects the interest of each party to the transaction
D) Is a sub agent of the broker
C) Protects the interest of each party
113
