Chapter 6: Contract Law

Question 1

What is a contract?

Answer 1

A legally enforceable agreement to do or not do a specific thing.

Question 2

What is a contract to forbear?

Answer 2

a contract where one or both parties have agreed not to do some specific thing

Question 3

How are contracts created?

Answer 3

1. Expressed: Declare intentions orally or in writing

2. Implied: created by the behavior of the party

Question 4

Unilateral vs. Bilateral Contracts

Answer 4

1. Unilateral: only 1 party makes a promise

2. Bilateral: 2 parties make a promise (exchange of promises)

Question 5

What is an executory vs. executed contract?

Answer 5

Executory: contract is in the process of being fulfilled
Executed: contract is fully performed

Question 6

What is the Uniform Commercial Code (UCC)?

Answer 6

a body of law relating to commercial transactions which make state laws uniform

covers personal property transactions and oral contracts

Question 7

What is the Statue of Frauds?

Answer 7

requires that all contracts for the sale of land or any interest exceeding 1 year be in writing and signed by the parties to be enforceable

Leases for 1yr. or less are not required

Question 8

What is a valid contract?

Answer 8

1. complies with all essential elements of a contract

2. It is binding and enforcing on both parties

Question 9

What is a void contract?

Answer 9

1. Does not meet the essential elements of a contract
2. It is illegal (Has no legal force)
3. Ex. contract to commit a crime

Question 10

What is a voidable contract?

Answer 10

1. Seems to be valid on the surface but may be rescinded or disaffirmed by the party who might be “injured” if the contract were to be enforced.
2. One or both parties may disaffirm

Question 11

What is an unenforceable contract?

Answer 11

Has all elements of a valid contract; however, neither party can sue the other to force performance.

Something happens outside of the control of the parties requiring the contract to be unenforceable

Ex.: Someone no longer eligible for an FHA loan.

Question 12

What are the 5 essential elements needed for a contract to be legally valid?

Answer 12

1. Legally competent parties: Legal age
2. Mutual agreement: Both agree not under duress, etc
3. Lawful objective: For something legal
4. Consideration or cause
5. Contract in writing when required by law

Question 13

What does it mean to be legally competent in a contract?

Answer 13

1. Person must reach the age of majority
2. Minors do not have contractual capabilities
3. Minors can only enter contracts if it is for necessities (only exception)
4. Minors have normally have “voidable” contracts

Question 14

When are contracts valid or invalid due to intoxication?

Answer 14

1. Voluntarily intoxication: Contract is valid

2. Involuntarily intoxicated: Contract can be cancelled

Question 15

Unsound mind

Answer 15

1. Anyone declared incompetent by a judge may not make a valid contract. Any attempt to do so would result in a (VOID contract).
2. If a person is judged to be lucid upon entering into a contract, the contract remains valid he was later declared to be incompetent.

Question 16

What is a Power of Attorney

Answer 16

A document that gives another person the power to act on one’s behalf

Question 17

What is an “Attorney in Fact”

Answer 17

This is the person holding Power of Attorney

Question 18

What is the equal dignities rule?

Answer 18

states that when a contract is to be put in writing, the authority of the agent must also be in writing, be acknowledged, and have equal dignity.

Question 19

Corporations and contracts (Explain relationship)

Answer 19

1. Corporations are considered legally competent
2. Individuals from corporation must have permission from the “Board of Directors” to do contracting
3. Some states require that the corporate seal be affixed to contract
4. Partnership can contract in the name of the partnership or in the names of any of its general partners
5. Courts allow executors, administrators, and trustees to contract

Question 20

What does mutual agreement mean?

Answer 20

1. Both offeror and offeree must agree to the contract
2. There’s no fraud, misinterpretation, or mistake

A.K.A:

1. Mutual consent
2. Mutual assent
3. Meeting of the minds

Question 21

What is reality of consent?

Answer 21

1. There is no fraud, misrepresentation, or mistake

2. The agreement must be genuine and freely given

Question 22

Process of submitting and receiving an offer

Answer 22

1. Offeror provides an offer to the offeree
2. Offeree either accepts, rejects, or counter-offers
3. If accepted offeree must agree to every item in offer and communicate back that the offer was accepted.
4. The offeree can make changes to the agreement and submit an updated offer back to the original person

5.

Question 23

What are the forms one can use to accept an offer?

Answer 23

1. Can be in writing
2. Can be oral
3. Can be through any action that implies acceptance

Question 24

The process used to notify that an offer has been accepted is called?

Answer 24

Delivery

Question 25

How is an offer terminated?

Answer 25

1. By death of either party 2. Offer can be withdrawn up until acceptance 3. After contractual period of time or that set by courts

Question 26

When is an offer considered accepted?

Answer 26

When the offeror has been notified

Question 27

What is fraud?

Answer 27

1. Intentional misrepresentation 2. An act intended to deceive for the purpose of inducing another to part with something of value 3. Could be intentional lie or making a promise with no intention of keeping it

Question 28

What does it mean to rescind an offer?

Answer 28

To "cancel" an offer.

Question 29

What is innocent misrepresentation?

Answer 29

person did not intend to misrepresent for the purpose of deceiving.

Question 30

Mistake

Answer 30

1. Does not include ignorance, inability, or poor judgment | 2. Caused by ambiguity in negotiations and mistakes of material facts

Question 31

What is contractual intent?

Answer 31

1. Buyer shows intention to buy property 2. Jokes and jesting don't count towards a contract 3. Is shown via an "earnest deposit"

Question 32

Things that prevent mutual agreement

Answer 32

1. Duress: Use of force 2. Menance: Threat of violence 3. Undue influence: Unfair advantage

Question 33

What is consideration?

Answer 33

In real estate, it is the mutual exchange of promises by the buyer and seller to obligate themselves to do something they were not previously required to do. Seller agrees to sell on the terms agreed and buyer agrees to buy on the terms received. 1. Anything of value such as money, goods, services, or promises, given to induce another person to enter into a contract 2. Something bargained for and received by a promisor from a promisee 3. the benefit that each party gets or expects to get from the contractual deal

Question 34

Is earnest money considered consideration?

Answer 34

No, it only shows intention to buy or cover "damages" to the buyer if the seller renigs.

Question 35

What happens if either party loses consideration?

Answer 35

The contract is no longer legally-binding.

Question 36

What is the most common real estate contract that does not have to be in writing?

Answer 36

Month-to-Month rental agreement

Question 37

What is the order or priority for contracts?

Answer 37

1. Written 2. Typed, 3. Printed 4. Oral

Question 38

What is the pole evidence rule?

Answer 38

Permits oral evidence to complete an otherwise incomplete and ambiguous written contract

Question 39

How are contracts discharged?

Answer 39

1. Fully performed 2. Assign 2 someone: original party still liable/responsible 3. Novation: a substitution of a new contract between the same or new parties 4. Supervening legality: if contract objective becomes legally impossible to accomplish 5. Mutually agreement from both parties 6. If dead person in contract was the only person who could perform the task

Question 40

What is novation?

Answer 40

When a party, term, or obligation in a contract is replaced with another.

Question 41

What does it mean for contracts to be enforceable against the estate?

Answer 41

It means the estate can still be responsible for the contract even after the death of the person in the contract.

Question 42

What is a breach of contract?

Answer 42

When one party fails to perform as required by a contract and the law does not recognize the reason to be a valid excuse.

Question 43

How can the affected party respond to the breach of contract?

Answer 43

1. Accept partial performance 2. Rescind the contract unilaterally 3. Sue for specific performance 4. Sue for money damages 5. Accept liquidated money damages 6. Mutually rescind the contract

Question 44

What is partial performance?

Answer 44

person doesn't fully perform task as agreed upon

Question 45

What does it mean to unilaterally rescind?

Answer 45

Innocent party will not fulfill their obligation because offending party is not fulfilling their part of the agreement

Question 46

What is a specific performance?

Answer 46

an action taken to court by an innocent party to force the breaching party to carry out the remainder of the contract according to the precise terms, price, and conditions agreed upon.

Question 47

What are liquidated damages?

Answer 47

When seller retains earnest deposit because buyer did not meet their obligation.

Question 48

What is the Statute of Limitations?

Answer 48

The law limits the amount of time once can petition through the courts to seek justice for an action.