Legal Aspects of Real Estate Chapter 6

List the six elements required of a valid contract.

Competent parties, consideration, mutual agreement, lawful objective, in writing and signed by the parties, contain a legal description

Define consideration.

Consideration is the exchange of promises offered by one party to another to do or not do something.

If deliberate deception, fraud, or false information is present, the agreement is what?

Not enforceable

What are the two commonly used legal descriptions in a contract?

Metes and bounds
Reference to a platted subdivision (lot, block, section, and subdivision name)

Explain performance and forbearance in contracts.

In contract language, "performance" means to do what one agreed to do. Some contracts require a party to refrain from doing something and that is called "forbearance". Contracts may include both performance and forbearance requirements. 

Define express and implied contracts.

An express contract is one in which all the terms and covenants of the agreement have been clearly stated and agreed to by all parties, whether verbally or in writing.

An implied contract is an unstated or unintentional agreement that may be considered to exist when the actions of any of the parties suggest the existence of an agreement.

List three types of contracts that California’s Statute of Frauds does NOT allow to be made orally. (Additional answers on page 15.)

• A contract for the sale or interest of real estate.

• An agreement authorizing or employing an agent, broker, or any other person to purchase or sell real estate.

• A lease of real estate for a term longer than one year.

What is needed to establish the existence of an implied contract?

To establish the existence of an implied contract, it is necessary to show an unambiguous offer, unambiguous acceptance, mutual intent to be bound, and consideration. However, these components do not need to be in writing or oral; they could be the actions of the parties.

Define bilateral and unilateral contracts.

A bilateral contract is one in which both parties promise to perform their respective parts of an agreement in exchange for performance by the other party.

In a unilateral contract, only one party promises to do something, provided the other party does something. The latter party is not obligated to perform any act, but the promising party must fulfill the promise if the other party chooses to perform.

The same criteria need to be proven to enforce a bilateral or unilateral contract in court. The four criteria needed are what?

The contract existed
The contract was broken
A loss was suffered
The person challenged was responsible

In its simplest terms, unilateral contracts involve what?

An action undertaken by one person or group alone

Are options always unilateral or bilateral contracts?

Unilateral

Define executed contract.

An executed contract is one that has been fully performed and fulfilled: neither party bears any further obligation.

Explain executory contract and give one example.

An executory contract is one in which performance is yet to be completed. A sales contract prior to closing is an example of an executory contract.

When all the requirements of an executory contract have taken place, the contract becomes what?

An executed contract

How can contract interpretation issues be avoided?

Contracts should always be in writing, terms or phrases that could have more than one meaning should be clearly defined, and parties to a contract should review the contract closely before signing.

In terms of validity and enforceability, a court may construe the legal status of a contract in one of four ways. What are the four ways?

Valid, valid but unenforceable, void, voidable

Real estate contracts aren’t enforceable unless the parties have exchanged something of value. This value is called what?

Consideration

A voidable contract is one which initially appears to be valid, but is subject to what?

Cancellation by a party to the contract who is believed to have acted under some kind of disability

Explain the Doctrine of Laches.

1. The Doctrine of Laches states that a court has determined a contract is unenforceable due to needless delay or neglect in filing a claim even though the Statute of Limitations may not have expired.

What are contingencies?

Contingencies are conditions that must be met in order for a contract to be performed.

What must parties to a contract do when a contingency is removed or satisfied?

The parties are required to perform according to the contract terms or be in breach of contract.

List the four questions licensees should ask themselves to clearly understand a contingency?

• Who is required to act?

• What should be done

• When must it be done?

• How is the contingency removed or satisfied?

What does California law require the parties of a contract to do in order to fulfill a contingency.

California law requires all parties to a contract to use reasonable due diligence to fulfill a contingency requirement.

A contract terminates when fully executed by the parties. This is called what?

Performance

Parties to a contract can agree to terminate, or renounce, the contract. What is the term for this action?

Mutual Agreement

Explain assignment of a contract.

A real estate contract that is not a personal contract for services can be assigned to another party unless the terms of the agreement specifically prohibit assignment. Sales contracts are assignable because they involve the purchase of real property rather than a personal service.

If an assignor does not receive a novation, what does this mean in regards to his or her obligations to a contract?

Unless the assignor receives a complete release from liability (a novation), the assignor would be secondarily liable if the assignee did not perform according to the contract terms.

Define breach of contract.

A breach of contract is a failure to perform according to the terms of the agreement. Also called default, a breach of contract gives the damaged party the right to take legal action.

What is the Statute of Limitations to sue for breach of contract in California?

Four years from the time the breach occurred

What is a tort?

Tort is a civil wrong or wrongful act, whether intentional or accidental, that the law recognizes as grounds for a lawsuit.

List five common tort claims made against real estate licenses. (Additional answers on page 60.)

• Fraud

• Breach of Duty

• Breach of Contract

• Negligence

• Bodily Injury / Property Damage