TREC- Promulgated Contracts, Top Exam Questions and answers, VERIFIED.

TREC- Promulgated Contracts, Top Exam Questions and answers, VERIFIED. Owner-Provided Contract Forms - -There is, however, one exception to this rule. When it comes to contracts for property sales or leases, license holders must use the appropriate TREC-promulgated form UNLESS another contract form has been prepared by, and is REQUIRED by, the property owner. It's important to note that in this instance, the property owner must require the use of their own contract form (or a contract prepared by their attorney) in order for a license holder to be excused from using the appropriate TREC-promulgated form. If a property owner does NOT require their own contract form (or a contract from their attorney), then the license holder is still bound to use all TREC-promulgated forms required by the transaction. A license holder should - -disclose all material facts to the client Consideration - -A valuable item that each party exchanges in order to demonstrate that they agree to the contract terms Five Elements of a Valid Contract - -Competent Parties Mutual Agreement Lawful Objective Consideration In Writing Majority laws - -protect minors from entering into agreements that they may not have the experience or knowledge to understand. This means that if anyone under the age of 18 enters into a contract, the contract is considered voidable. Once the minor reaches the age of majority, all contracts entered into with a minor as one of the parties may be either ratified or voided. void - -contract means that the contract has no legal effect. In essence, it cannot be enforced or carried out because the terms of the contract do not create legal rights or the terms call for illegal acts. voidable - -contract has all of the essential elements of a legally enforceable contract, but one or more of the parties has the authority to rescind the contract. Usually, in a voidable contract, one party is either mentally incompetent, or a minor, or the contract involves fraud or duress. Mutual agreement! - -In order for a contract to be legally enforceable, there must be mutual assent (that is, agreement) among the parties in the contract. If either party disagrees to any terms or provisions within the contract, there is no contract. Typically, prior to the creation of a contract, there must be a meeting of the minds — this means that all parties that are to be bound by the contract must meet and come to mutually acceptable terms. mutual assent - -All parties in a contract can express mutual assent through their actions and words. Therefore, mutual assent can be expressed or implied through actions. For a contract to exist, there must be some form of mutual assent, either through a written agreement or actions. And if the contract is for real estate in Texas, it must always be written. Elements of mutual agreement: - -There must be an offer and acceptance There can be an offer and a counteroffer The contract must not contain any form of fraud, misrepresentation, or duress There cannot be mistakes in the terms and conditions of the contract Misrepresentation: - -A false statement of fact made by one party to another party to induce that party into a contract. If the other party depends on misrepresented information and then experiences a loss, the party that committed the misrepresentation is guilty. Fraud: - -A situation where the misrepresentation is intentional in order to influence someone to enter into a contract Duress - -When a party is acting while under threat or in some manner is being forced into the contract lawful objective - -This means that the contract cannot call for any illegal activities. When a contract contains lawful objectives, it takes all necessary laws and statutes into consideration. . Lawful Objective: Legal Purpose - -A legally valid contract adheres to all federal and state laws. For example, if a seller wishes to sell property that has been declared hazardous by the EPA due to a leaking underground storage tank, the property cannot be sold until the seller mitigates the hazardous condition. If a buyer buys the property and learns of the condition, it would be found out that the contract was void from the beginning. Consideration - -Consideration is something valuable that each party exchanges in order to demonstrate that they agree to the contract's terms. It can be a promise, money, property, forbearance, or services. In most real estate transactions, consideration is met in the form of a promise for a promise. However, most people consider money to be the most popular form of consideration. Consideration - -If there is no consideration, then the contract is not legally binding. The legal philosophy is that a person cannot do something of value without receiving something in turn. This basically means that each individual (or party) must suffer a detriment in order to gain a benefit. In a real estate contract, the exchange of promises acts as consideration. The buyer promises to pay a monetary amount for the property and the seller promises to give a deed. Earnest money given at the beginning of a transaction is not the consideration. The promise of the entire sum is the consideration. Property Management Trust Accounts - -Brokers who practice property management or allow their agents to practice property management will need to establish a trust account. This is usually a non-interest bearing account in which the broker will hold security deposits received from tenants. If the broker chooses to, they could also keep earnest money in the account, but from a liability standpoint it is easier to have the title company hold the funds. The broker is NOT allowed to place any of their own funds into this account. That would be considered commingling, and is a violation of TREC rules. What Does E-Sign Mean For the Statute of Frauds? - -The Electronic Signatures in Global and National Commerce Act (ESIGN) was signed by Congress in 2000 to regulate e-signatures in interstate and foreign transactions. And while this particular law is at the federal level, every state has at least one state law dealing with e-signatures. ESIGN states that: (1) a signature, contract, or other record relating to such transaction may not be denied legal effect, validity, or enforceability solely because it is in electronic form; and (2) a contract relating to such transaction may not be denied legal effect, validity, or enforceability solely because an electronic signature or electronic record was used in its formation. Parol Evidence Rule - -The parol evidence rule prevents a party to a written contract from presenting additional evidence that adds to the written terms of the contract. The contracting parties have made their agreement to a single and final writing, and evidence of past agreements or terms should not be considered when interpreting that writing, as the parties ultimately decided to leave them out of the contract. In other words, you can't use evidence made prior to or after the written contract to contradict the writing. Whatever is in writing is what will be accepted in court. EPA Real Estate Partnership v. Hee Duk Kang - -As an example of how parole evidence rule is viewed by the court, we will look at the case of EPA Real Estate Partnership v. Hee Duk Kang. EPA Real Estate Partnership was the owner of an apartment complex. EPA signed a listing agreement with commercial broker Feher Young to market the property. The listing agreement had a clause which entitled Young to a commission if EPA agreed to sell the property during the listing period. Shortly before the listing period was over, Kang went directly to EPA and made an offer in writing to buy the complex from EPA. But EPA told Kang that they could not accept the offer because of their obligation to pay a commission to Young. Kang agreed to change his offer to include a promise to hold EPA harmless if Young sued EPA for his commission. But it wasn't until after the listing agreement expired that Kang and EPA signed an agreement for Kang to buy the property. However, this agreement did not contain the "hold harmless" section (known as an indemnity provision). Kang did buy the complex from EPA, and EPA did not pay a commission to Young. Young sued EPA and received almost $300,000. EPA turned around and sued Kang because of the hold harmless clause that was in the first offer to buy. The trial court rejected EPA's claims and made a judgment in favor of Kang. EPA appealed and affirmed the decision of the lower court, citing the parol evidence rule that the "hold harmless" clause was not in the second offer made to purchase the property, which was the agreement that transferred the ownership of the property. So, EPA lost the case and the appeal simply because the clause wasn't integrated into the second agreement for Kang to purchase the apartment complex. Important information should always be included in the written contract.