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RE Contracts

Terms and Questions from Ch. 6 of Michigan RE Test Book

Contract Agreement between competent legal parties to do or not do a legal act in exchange for consideration
Express Contract Parties agree to all terms and conditions
Implied Contract Inferred from actions of one party without express agreement
Bilateral Contract A promise in exchange of a promise (Home purchase-buyer promises to purchase and seller promises to sell.)
Unilateral Contract A promise in exchange for performance (Options-Optionor promises to sell land to optionee at a certain price for a certain time period.)
Executed Contract Fully performed contract (signed).
Executory Contract Not fully performed yet. (Mortgage-contract ends when last payment is made.)
Valid Contract Binding and enforceable by law to all parties
Unenforceable Contract Appears to have validity but is not enforceable by law
Void Contract Essential elements may exist but is not legal. (Something illegal ie: contract to kill someone or Act of God or operation of law that take or destroy the property)
Voidable Contract Failure to meet some legal requirement in negotiating agreement. (Not fully disclosing property defects). Wronged party has ability to void contract. Contracts with minors only voidable by minor.
Certificate of Estoppel A document that provides for legal capacity(of age) to enter contract. If a minor who signed this later tries to claim contract is voidable this "estops" them from doing so.
What are the 7 essential Elements needed in a contract? 1. Offer 2. Acceptance(meeting of the minds) 3. Consideration 4. Legal capacity 5. Reality of consent(all parties know what is being agreed upon) 6. Legality of object 7. Possibility to complete
Counteroffer Acceptance that varies from the original offer. Voids the first offer.
What are the 6 ways in which an offer can be terminated? 1. Expiration of offeror time limit 2. Death/Insanity of either party prior to acceptance 3. Revocation by offeror prior to notice of acceptance 4."Reasonable" time period passes 5. Offeree fails to comply with terms 6. Rejection
Equitable Title Interest in Real Estate sufficient to warrant court protection of that interest
Legal Capacity/Competence Mental/Emotionally capable to enter into a contract
Valuable consideration Anything given in a contract to make valid and is based on dollars and cents. Can be promise of something valuable.
Reality of Consent Parties have accurate knowledge of terms and conditions in contract
Fraud Intentional deceit or lying about facts that someone else relies on to make a decision. Can void contract.
Misrepresentation Unintentional misstatement of facts. Can void contract
Puffery Exaggeration of Property benefits
Mutual Mistake Mistake by both parties. Makes voidable
Undue Influence Improper/wrongful control or influence by one person over another
Duress Threat of violence or fear of safety
Legality of Object Contract must have legal purpose
Condition Act or event other than time that affects duty to render performance. ie. a contingency
Condition Precedent act/event that must exist/occur BEFORE performance
Condition Concurrent Performances are exchanged at same time.
Condition Subsequent Discharges duty to perform if something happens to property before closing.
Express Condition Condition spelled out clearly or implied by fact(gathered from terms)
Constructive Condition Implied condition that is court constructed in interest of justice.
Statute of Frauds Real Estate contracts must be in writing and have all essential elements to be enforceable.
Parole Evidence Rule Oral explanation can support written contract but not contradict it.
What are the 4 ways in which a contract can be discharged/terminated? 1. Agreement of parties 2. Full Performance 3. Impossibility to perform(act of god) 4. Operation of Law
Novation substitution of new contract or new party for old in place of prior contract-only by agreement of all parties.
Assignment Transfer/Sale of contract rights Assignor transfers to receiving assignee.
Breach of Contract Default, does not discharge contract obligations only terminates their rights in the contract.
What are the 4 legal remedies against a defaulting party? 1. Specific Performance 2. Rescission 3. Compensatory Damages 4. Liquidated damages
Specific Performance Courts ordering that a contract will be completed as agreed due to the uniqueness of real property.
Rescission Court action to make contract void or as if never happened.
Compensatory Damages Actual amount of monies lost due to contract breach
Liquidated Damages Monies set forth in contract in case of breach of contract
Listing Contract Creates special agency relationship between seller of real property and a broker-to find a buyer.
Buyer's Contract Creates special agency relationship between purchaser of real property and broker-to find a property for purchase.
What two tests determine a broker/agent's entitlement to a commission? 1. Ready, willing, and able(buyer/seller) 2. Acceptance
Open Listing Seller lists property with one or more broker but seller can sell and broker not entitled to commission fee.
Exclusive Agency Listing Seller lists with one broker but seller can sell and broker not entitled to commission fee.
Exclusive Right-to-Sell Listing Seller lists with one broker and even if the sellers sells the property the broker is entitled to commission fee.
Why is the Exclusive Right-to-Sell listing best for both broker and seller? Broker has more opportunity to earn a commission and therefore spends more time, money, effort to sell.
Carryover Provision Allows broker to earn a commission is sold by their efforts after an expired listing.
Besides expiration, in what instances would a listing be terminated? Death/Incapacity of buyer or seller, property destruction, condemnation, seller or buyer bankruptcy, broker license revoked, mutual agreement, breach of terms by buyer/seller/broker.
What is the purpose of a Competitive Market Analysis? Measures similar/comparable sold property against subject property to arrive at fair market value
What is the purpose of a purchase agreement or offer to purchase? Bilateral express contract; buyer promises to buy under certain terms and conditions, seller promises to convey marketable title.
What is the purpose of Earnest Money? Given by buyer to show sincerity, financial capability, and possible liquidated damages. Note legally required for a valid offer to purchase.
Time is of the Essence Provision for timelines in a purchase agreement
Land Contract Also Contract for Deed, buyer pays purchase price in installments and seller transfers legal title upon full payment.
Vendor Seller in a land contract
Vendee Buyer in a land contract
Doctrine of Equitable Conversion Prevents vendor from doing anything to jeopardize the interest of the vendee.
Option Express Unilateral contract: An owner sells right to purchase property for a particular price for a specified time.
Optionor Seller in an Option
Optionee Buyer in an Option
Right of First Refusal Owner gives a person the First right to purchase property at whatever price is offered by another potential buyer.
Created by: jenkij
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