Real Estate Contracts & Agency (Part 1)

What is an express contract?

A stated or written agreement between two parties.

What is an implied contract?

A contract created by the parties’ actions or behaviors rather than their words or a written agreement.

What is a bilateral contract?

A contract in which both parties have obligations.

What is a unilateral contract?

A contract in which only one party makes a promise.

What are the five elements of a valid contract?

Offer and acceptance, consideration, legal competence, legal purpose, and consent.

What is an offer?

A promise made by one party requesting something in exchange for that promise.

What is acceptance?

Agreement to be bound by the terms of an offer.

What is mutual agreement or a meeting of the minds?

Agreement between parties on the terms of a contract.

What is consideration?

Something of value exchanged, such as money, an item of value, or an agreement to do or not do something.

What is good consideration?

Intangible value, such as love and affection, that is still considered valuable consideration.

What is legal competence?

The legal and mental capacity to enter into a contract.

What happens when a person lacking legal capacity enters into a contract?

The contract is voidable by the party lacking capacity.

What is legal purpose?

The requirement that a contract be for a lawful purpose; otherwise, it is void.

What is consent?

Entering into a contract voluntarily, without undue influence or duress.

What is assignment of a contract?

Replacing one of the original parties with a substitute.

What is an assignor?

The original party being replaced in an assignment.

What is an assignee?

The substitute party receiving the assignment.

What consent is required for an assignment?

Consent of the original party being replaced and the substitute, provided the contract is assignable.

Who remains responsible if the assignee fails to perform?

The original party remains responsible unless released from the obligations.

Are all contracts assignable?

Contracts are generally assignable unless they state otherwise, except service contracts such as listing and buyer representation agreements.

What is novation?

A new contract substituted for a prior agreement, requiring agreement of all parties.

What happens to the original contract after novation?

The original contract is terminated, and the original party is no longer liable.

What is an executed contract?

A contract in which all parties have completed the terms.

When is a real estate sales contract executed?

When the deed is delivered and accepted and the purchase price is paid, generally at closing.

What is an executory contract?

A contract in which promises have not all been completed.

When is a real estate sales contract executory?

Until the deed is delivered and accepted.

What is a valid contract?

A contract containing all necessary elements and signed by all parties.

What is a void contract?

A contract that lacks one or more requirements for validity and has no legal force or effect.

What is a voidable contract?

A contract that appears valid but one or both parties have a legal right to cancel it.

What is an enforceable contract?

A contract that will stand up in court.

What is an unenforceable contract?

A contract that may be valid but is unlikely to stand up in court.

Is an oral contract for the sale of real estate enforceable?

No. The study sheet states that it is unenforceable even if it has all required contractual elements.

What is a breach of contract?

When a party fails to meet the contract’s obligations.

What is unilateral rescission?

Termination of a contract by the innocent party following a breach.

What happens when a contract is rescinded?

The contract is terminated, and the parties are legally returned to their positions before the contract existed.

How can a contract terminate?

Performance, accepted partial performance, substantial performance, impossibility, mutual agreement, operation of law, or expiration.

What is substantial performance?

When the contract terms have been substantially performed, although certain details may be lacking.

What is impossibility of performance?

An unforeseen situation makes performance difficult, impractical, or impossible.

What are liquidated damages?

An agreed-upon amount of damages the buyer will pay the seller if the buyer breaches the contract.

What are compensatory damages?

Monetary damages intended to compensate a party for actual loss based on the contract’s value.

What are punitive damages?

Damages exceeding compensatory damages; they are rarely awarded in breach-of-contract lawsuits.

What is specific performance?

A remedy requiring the seller to complete the property sale.

What may a seller do if the buyer defaults?

Sue for damages or for the property’s purchase price, depending on the circumstances.

What is an indemnification clause?

A contract provision that releases various parties from liability or loss.

What is the statute of frauds?

A law requiring certain contracts, including transfers of real property ownership, to be in writing to be legally enforceable.

What information does the statute of frauds require?

The parties must be identified, the party being charged must sign, and the contract must contain sufficient information to identify its terms.

What does “time is of the essence” mean?

The parties agree to strictly adhere to the deadlines in the contract.

What is the statute of limitations?

A law limiting the time frame in which a party may file a lawsuit.