PSI Exam Prep: Contracts – Vocabulary Flashcards

Vocabulary flashcards covering essential contract law terms and concepts for the PSI real estate licensing exam.

Consideration

Something of legal value offered by one party and accepted by another (e.g., buyer’s promise to pay and seller’s promise to convey title).

Statute of Frauds

Law requiring certain contracts—such as those transferring real property—to be in writing to be enforceable.

Legally Competent Parties

Individuals with the legal and mental capacity to enter a contract; contracts with an incompetent party are voidable at that party’s option.

Legal Purpose

Requirement that a contract’s objective be lawful; an illegal purpose makes the contract unenforceable.

Offer and Acceptance

Mutual assent formed when one party’s offer is accepted by the other, creating a contract.

Void Contract

Agreement lacking one or more essential elements of a valid contract; has no legal force or effect.

Voidable Contract

Contract that appears valid but may be rescinded by one party due to incapacity, mistake, misrepresentation, etc.

Unenforceable Contract

Valid agreement that cannot be enforced in court (e.g., oral contract for sale of real estate).

Bilateral Contract

Contract in which both parties make promises and have obligations; most real estate purchase contracts.

Unilateral Contract

Contract in which only one party is obligated to perform; an option contract is a key example.

Option Contract

Unilateral agreement giving the optionee the right (but not the obligation) to buy property within a set time for a fee.

Optionee

Potential buyer who holds the option right in an option contract.

Optionor

Seller who grants the option right and typically keeps the option fee if the option is not exercised.

Executed Contract

Contract in which all parties have fully performed; in real estate, occurs when deed is delivered and price paid.

Executory Contract

Contract in which obligations remain to be performed; a sale contract before closing.

Notices Clause

Section describing how contract-related notices may be delivered and when they are considered received.

Time Is of the Essence

Clause requiring strict adherence to stated deadlines; failure to perform on time constitutes breach.

Uniform Electronic Transactions Act (UETA)

Model law giving electronic signatures, records, and contracts the same legal weight as paper versions.

Electronic Signature

Electronic sound, symbol, or process attached to a record and executed with the intent to sign.

Good Faith

Implied duty of parties to act honestly and fairly in fulfilling contract obligations.

Breach of Contract

Failure of a party to meet contractual obligations.

Unilateral Rescission

Innocent party’s right to terminate a contract unilaterally after the other party’s breach.

Partial Performance

When one party fulfills only part of the contract and the other agrees to accept it, often with compensation.

Damages

Monetary compensation sought or awarded for harm caused by breach of contract.

Specific Performance

Court order compelling a breaching party to perform as agreed rather than paying damages.

Liquidated Damages Clause

Contract provision predetermining the amount of damages (e.g., forfeiture of earnest money) if a party breaches.

Release

Written agreement by which one party frees the other from further contractual obligations.

Mutual Agreement (Mutual Written Release)

Both parties’ written consent to terminate a contract and release each other from duties.

Assignment

Transfer of contractual rights or duties to a new party; original party remains liable unless released.

Novation

Substitution of a new contract or new party, releasing the original party from obligations.

Addendum

Document that adds new terms to an existing contract without altering the original text.

Amendment

Document that changes or modifies one or more terms of an existing contract.

Contingency Clause

Provision making the contract dependent on certain conditions being met to avoid breach.

Home Sale Contingency

Clause making the purchase dependent on the buyer selling an existing property.

Home Inspection Contingency

Clause making the sale dependent on a satisfactory home inspection report.

Financing/Mortgage Contingency

Clause making the sale dependent on the buyer obtaining financing; often paired with an appraisal contingency.

Counter-Offer

Response that alters original offer terms; voids the original offer and becomes a new offer.

Back-Up Contract

Accepted offer that becomes primary only if the first contract falls through.

Escalator Offer

Offer in which buyer agrees to top competing offers by a set amount up to a cap.

Severability

Contract concept in which unenforceable terms can be severed while the rest of the contract remains enforceable.

Indemnification Clause

Provision where one party agrees to compensate the other for loss, harm, or liability arising out of the contract.

Choice of Law

Clause specifying which jurisdiction’s laws will govern contract disputes.

Arbitration Clause

Provision requiring contract disputes to be resolved through arbitration.

Mediation Clause

Provision requiring parties to attempt mediation before arbitration or litigation.

Statute of Limitations Clause

Clause setting the period during which a lawsuit related to the contract may be filed.

Earnest Money Deposit

Buyer’s good-faith money held in escrow and credited at closing or forfeited if the buyer breaches.

Sales Contract / Purchase Agreement

Binding written agreement between buyer and seller once both have signed and acceptance is delivered.

Offeror

Party who makes an offer to contract.

Offeree

Party who receives and may accept or reject an offer.

Binding Acceptance

Point at which a signed contract is delivered back to the offeror within the required time, making it enforceable.