✍️ Contracts, Negotiation and Closing

1. Which list sets out the essential elements of a valid contract?

1. Offer, deposit, signatures, witnesses, registration and closing date
2. Offer, acceptance, a lawyer's review, a deposit and a registered caveat
3. Offer, acceptance, consideration, capacity, legality and intention
4. Listing, showing, written offer, conditions, possession and payment

A binding contract needs an offer, an unconditional acceptance of it, consideration (something of value given or promised by each side), parties with legal capacity, a legal purpose and an intention to create legal relations. A deposit, witnesses, a lawyer's review or a caveat can be useful, but none of them is an essential element of a contract. RECA's Fundamentals blueprint asks candidates to determine how these principles of contract law apply to real estate contracts and service agreements (LO 1.2.1).

2. A home is advertised on a listing service at $489,900. A buyer emails the listing brokerage: 'I accept your price.' How is the advertised list price best described in contract law?

1. A firm offer, so the email created a binding purchase contract
2. A unilateral contract that the seller must honour at the list price
3. A firm offer that becomes binding once the buyer's deposit clears
4. An invitation to receive offers, so the email is at most an offer

Advertising a property at a list price invites offers (an 'invitation to treat'); it is not an offer that a buyer can accept. The buyer's email is, at most, an offer that the seller may accept, counter or reject, and no contract exists until the seller accepts and that acceptance is communicated. Offer and acceptance are part of the contract law principles in RECA's Fundamentals blueprint (LO 1.2.1).

3. In contract law, what is 'consideration'?

1. The deposit a buyer must pay before any offer can be presented
2. Something of value that each party gives or promises to the other
3. The careful thought a party gives to the terms before signing them
4. The written reasons a party gives for accepting or rejecting an offer

Consideration is the price of a promise: something of value (money, property, an act or a promise) given or promised by each party in exchange for the other's promise. In a purchase contract the buyer's promise to pay the price and the seller's promise to transfer the property are the consideration. A deposit is not a legal requirement for consideration (RECA Fundamentals blueprint, LO 1.2.1).

4. A buyer asks his associate to prepare an offer showing a higher price than the one the parties actually agreed, so the lender will advance more money. How should the associate respond?

1. Prepare it, provided the seller also signs and initials the price
2. Prepare it, provided the buyer's lawyer approves the price change
3. Refuse, as this is a fraudulent purpose that the Rules prohibit
4. Prepare it, but record the true price in a separate side letter

A contract made for an illegal or fraudulent purpose lacks the essential element of legality, and a court will not enforce it. Rule 42(b) also prohibits licensees from participating in fraudulent or unlawful activities, and RECA's Fundamentals blueprint covers mortgage fraud (LO 1.2.2). The seller's initials, a lawyer's approval or a side letter cannot make a misleading price given to a lender lawful.

5. At a barbecue, two neighbours joke that one will 'sell the cabin for a dollar', and neither of them means it. Which essential element of a contract is missing?

1. Capacity of both parties to contract
2. Consideration of an adequate value
3. Intention to create legal relations
4. A legal purpose for the agreement

Both parties must intend their agreement to be legally binding. A joke at a social event shows no such intention, so no contract forms. The low price is not the problem: courts generally do not weigh whether consideration is adequate, and nothing suggests a lack of capacity or an illegal purpose (RECA Fundamentals blueprint, LO 1.2.1, principles of contract law).

6. A seller agrees in writing to sell a vacant lot to a longtime neighbour for well below its market value. A month later she argues the contract fails for lack of consideration. What is the general rule?

1. The contract is void because the price is below the assessed value
2. Courts do not usually weigh adequacy, so a low price can be valid
3. The contract is voidable by the seller until the transfer registers
4. The contract is valid once an appraiser confirms that it is fair

Consideration must have some value, but courts generally do not ask whether it is adequate or a good bargain. A low price agreed freely by a capable seller is still valid consideration. A very unfair price might point to another problem (such as undue influence or misrepresentation), but a low price alone does not void the contract or make it voidable (RECA Fundamentals blueprint, LO 1.2.1).

7. The seller signs the buyer's written offer but changes the possession date from June 1 to June 15 and initials the change. What is the legal effect?

1. It is an acceptance, with a minor change that binds the buyer
2. It is a conditional acceptance that becomes firm at possession
3. It is an acceptance, which the buyer may still cancel within 10 days
4. It is a counter-offer, which rejects and ends the buyer's offer

An acceptance must match the offer exactly. Any change, even to a date, turns the reply into a counter-offer, which rejects the original offer. A contract forms only if the buyer accepts the counter-offer and that acceptance is communicated in time. RECA's blueprints expect licensees to apply contract principles to offers and counter-offers (Fundamentals LO 1.2.1; Residential Practice 5.1 and 5.3).

8. Bernadette offers $410,000 for a condo. The seller counters at $425,000, and Bernadette rejects the counter. The next day the seller signs Bernadette's original $410,000 offer, still within its stated open time. Is there a contract?

1. Yes; the original offer stayed open until its stated time had passed
2. No; a seller who counters must wait 24 hours before signing an offer
3. No; the counter ended that offer, so the signature is only a new offer
4. Yes; a seller may revive an earlier offer until the buyer withdraws it

The seller's counter-offer rejected and terminated Bernadette's $410,000 offer, even though the offer's stated time had not expired. A terminated offer cannot later be accepted. The seller's signature on the old document is, at most, a new offer at $410,000 that Bernadette is free to accept or refuse (RECA Fundamentals blueprint, LO 1.2.1, principles of contract law).

9. A buyer's offer must be accepted and the acceptance communicated by 6:00 p.m. Friday. The seller signs at 5:30 p.m., but notice of the acceptance reaches the buyer's side at 7:15 p.m. What is the result?

1. A contract formed at 5:30 p.m., as the seller signed before 6:00
2. A contract formed, as a delay of under two hours is not material
3. No contract; the offer lapsed before the acceptance was communicated
4. A contract formed at 7:15 p.m., when the buyer's side received it

An acceptance must be communicated to the offeror in the manner and within the time the offer requires. Once the deadline passed, the offer lapsed, so the late acceptance cannot create a contract; at most it is a new offer that the buyer may choose to accept. RECA's Fundamentals blueprint stresses that agreements must be executed before the acceptance date (LO 4.1.1).

10. A buyer's offer is stated to be open until noon tomorrow. An hour later, before the seller has accepted, the buyer tells the listing associate in writing that she withdraws it. The seller signs the offer the next morning. What is the result?

1. A contract, because the buyer had said it was open until noon
2. A contract, because a withdrawal must come from the buyer's lawyer
3. No contract, because she withdrew it before any acceptance
4. No contract, because the seller should have countered instead

Until an acceptance is communicated, an offeror may generally withdraw an offer, even one stated to be open until a set time, unless the other party gave consideration to keep it open (an option). The withdrawal must be communicated before acceptance, which happened here. Licensees should seek broker or legal input when the timing of a withdrawal is disputed (RECA Fundamentals blueprint, LO 1.2.1).

11. In a residential purchase, the buyer who signs and submits a written offer is called the:

1. Offeror, because the buyer proposes the terms
2. Vendor, because the buyer signs the offer first
3. Offeree, because the buyer receives the reply
4. Grantor, because the buyer will receive the land

The party who makes an offer is the offeror; the party to whom it is made (here the seller) is the offeree. If the seller counters, the roles switch: the seller becomes the offeror of the counter-offer. 'Vendor' is the seller, and the 'grantor' is the one who transfers an interest in land, not the one who receives it (RECA Fundamentals blueprint, LO 1.2.1, parties to a contract).

12. Monday: a buyer offers $350,000. Tuesday: the seller counters at $365,000. Wednesday: the buyer counters at $358,000, and the seller accepts that night within the time allowed. Which document sets the binding terms?

1. The Wednesday counter at $358,000, as accepted by the seller
2. The Tuesday counter at $365,000, as the seller's last price
3. The Monday offer at $350,000, as the first document signed
4. None, as no contract can form after two counter-offers

Each counter-offer rejects the previous proposal and becomes a new offer. The Monday offer died when the seller countered, and the Tuesday counter died when the buyer countered. The seller's timely acceptance of the Wednesday counter-offer at $358,000 formed the contract. There is no limit on the number of counter-offers (RECA Fundamentals blueprint, LO 1.2.1; Residential Practice 5.3, managing offers and counter-offers).

13. A buyer's offer states: 'If I do not hear from you by Friday, I will assume you accept.' The seller never replies. Is there a contract?

1. No; the seller's silence is a counter-offer that the buyer must then accept
2. Yes; the seller accepted by not replying before the Friday deadline
3. Yes; the wording of the offer made silence a valid acceptance
4. No; silence generally cannot be imposed on a seller as an acceptance

Acceptance must be a clear, communicated assent. As a general rule, an offeror cannot impose silence on the offeree as acceptance, so the seller's lack of response does not create a contract. Silence is not a counter-offer either; the offer simply lapses on Friday (RECA Fundamentals blueprint, LO 1.2.1, principles of contract law).

14. A buyer's written offer sets no time limit for acceptance, and the seller neither accepts nor rejects it. Under general contract law, how long does the offer remain open?

1. Until the buyer withdraws it in writing, as it has no expiry date
2. For a reasonable time, judged by the circumstances of the deal
3. Until midnight on the day it is first presented to the seller
4. For 30 days, the standard open period for any written offer

An offer that sets no time for acceptance does not stay open indefinitely: it lapses after a reasonable time, which depends on the circumstances, such as the type of property and how quickly the market moves. The buyer may also withdraw it before an acceptance is communicated, but no withdrawal is needed for it to end, and no rule fixes a midnight or 30-day limit. In practice every offer should state a clear acceptance deadline, and RECA's blueprint stresses that agreements must be executed before the acceptance date (Fundamentals LO 1.2.1, principles of contract law; LO 4.1.1).

15. A buyer who is a minor signs a contract to buy a condominium unit, which is not a necessary of life. Under general contract law, the contract is:

1. Voidable at the seller's option
2. Binding on both parties as written
3. Void from the moment it is signed
4. Voidable at the minor's option

At common law a contract with a minor for something other than necessaries is generally voidable at the option of the minor, not of the adult party. The adult remains bound if the minor chooses to proceed. RECA's Fundamentals blueprint expects licensees to explain the parties to a contract and their capacity (LO 1.2.1), so licensees should confirm capacity before preparing documents.

16. An elderly seller with advanced dementia signs a purchase contract. Her son says she did not understand what she signed. When can such a contract generally be set aside?

1. Whenever the seller is over a set age and lives alone when signing
2. Where she could not understand it and the buyer knew or ought to have known
3. Where a court had declared her incapable before she signed, not otherwise
4. Whenever a family member objects to the sale before the closing date

A contract made by a person who lacks mental capacity is generally voidable if the person could not understand the nature and effect of the contract and the other party knew or ought to have known of the incapacity. Age alone, a relative's objection or the absence of a prior court declaration does not decide the question. Capacity of the parties is a Fundamentals blueprint outcome (LO 1.2.1).

17. A numbered company is selling a commercial bay, and one of its directors offers to sign the purchase contract. What should the listing licensee do?

1. Have each shareholder sign personally instead of the corporation
2. Accept the signature, as any director may sign for a corporation
3. Ask RECA's registrar to confirm who signs for the corporation
4. Confirm that the signer has authority to bind the corporation

A corporation contracts through the individuals it authorizes. The licensee should confirm that the person signing has authority to bind the corporation (for example, through its records or a resolution) so the agreement is signed by all relevant parties. Shareholders are not the seller, and RECA does not certify signing officers. See RECA Fundamentals blueprint LO 1.2.1 (capacity of parties) and LO 4.1.1 (signed by all relevant parties); Rule 41(b) (competent service).

18. Kofi registered a power of attorney that specifically describes his acreage and appoints his sister to sell it. Before revoking it, Kofi signs a transfer of the acreage himself. What does section 115(3) of the Land Titles Act provide?

1. His sister must countersign, as they now share ownership of the land
2. His own signature overrides the power of attorney once he signs
3. His own right to deal with the land for those purposes is suspended
4. His transfer is valid, as registering a power of attorney has no effect

Under s.115(3) of the Land Titles Act, until a power of attorney that specifically describes the land is revoked in the prescribed way, the owner's right to deal with the land for the purposes in it is suspended. By contrast, a general power of attorney does not affect the owner's right to deal with the land. The attorney acts for the owner and does not become a co-owner.

19. After a sale closed, the buyer promised in an email to pay the seller $3,000 'for leaving the hot tub', which the purchase contract already included. The buyer now refuses to pay. Is the promise enforceable?

1. Yes, because a promise in writing is enforceable as a contract
2. Yes, because the hot tub had a value well above the $3,000 promised
3. No, because nothing new was given in exchange for the promise
4. No, because chattels cannot be part of a real estate purchase

A promise is enforceable only if consideration is given for it. The seller was already bound by the contract to leave the hot tub, and had already done so; performing an existing contractual duty, or an act already completed (past consideration), gives nothing new in return for the $3,000 promise. Chattels can be included in a purchase contract, and writing alone does not supply consideration (RECA Fundamentals blueprint, LO 1.2.1, principles of contract law).

20. RECA's Fundamentals blueprint lists checks a licensee must make on agreements. Which set matches that list?

1. Witnessed by a lawyer, notarized and registered within 3 days
2. Signed by the buyer, approved by the broker and filed with RECA
3. Executed before the acceptance date, signed and initialled by all
4. Initialled by the licensees and countersigned by both lenders

Learning outcome 4.1.1 of the Fundamentals blueprint expects licensees to ensure agreements are executed before the acceptance date, signed by all relevant parties and initialled by all relevant parties. Purchase contracts are not filed with RECA, approved by lenders or notarized as a condition of validity.

21. A buyer's offer includes no deposit at all. The seller accepts it in time. Is the contract binding?

1. No; it binds the parties once a deposit is paid into the brokerage trust account
2. No; a purchase contract cannot bind the parties without a deposit
3. Yes; the mutual promises are the consideration, so no deposit is needed
4. Yes, but it is voidable by the seller because no deposit was offered

The buyer's promise to pay and the seller's promise to sell are consideration for each other, so a deposit is not needed for a valid contract. A deposit shows good faith and gives the seller security, which is why RECA's blueprint asks licensees to explain the advantages and disadvantages of stipulating a deposit (Fundamentals LO 1.4.2 and 1.2.1).

22. Which of these is a contract that a licensee enters into on behalf of the brokerage, with a client as the other party?

1. A residential purchase contract accepted by both principals
2. A lease signed between the property owner and a tenant
3. An exclusive seller brokerage agreement (a service agreement)
4. A mortgage commitment issued to the buyer by the lender

Under Rule 1 of the Real Estate Act Rules, an exclusive seller brokerage agreement is a written service agreement between a seller and a brokerage; the licensee signs it on behalf of the brokerage. Purchase contracts and leases are made between the principals, and a mortgage commitment is between borrower and lender. RECA's blueprint asks candidates to compare the types of contracts a licensee may negotiate or enter into (Fundamentals LO 1.2.1).

23. A purchase contract is firm, but the closing date is still two months away. How is the contract best described?

1. An executory contract, since obligations remain to perform
2. A void contract, since possession has not been given
3. An executed contract, since nothing remains to be done
4. An implied contract, since the terms were not written down

A contract is executory while one or both parties still have obligations to perform (here, paying the price and transferring title). It becomes executed once both sides have fully performed. The contract is not void just because possession has not passed, and a written purchase contract is express, not implied (RECA Fundamentals blueprint, LO 1.2.1, types of contracts).

24. A seller signs an acceptance at 2 a.m. after heavy drinking at a party. The buyer's associate who obtained the signature saw that she could barely stand or read. The contract is most likely:

1. Binding, since voluntary intoxication is no defence to a contract
2. Voidable, since she lacked capacity and the other side knew it
3. Void, since a contract signed after midnight has no legal effect
4. Unenforceable, since no sober adult witnessed the signature

Like mental incapacity, intoxication can make a contract voidable when the person could not understand what they were signing and the other party knew or ought to have known it. The associate saw her condition, so the seller may be able to set the contract aside. Obtaining a signature in these circumstances also raises conduct concerns under Rule 41(a) (act honestly). See RECA Fundamentals blueprint LO 1.2.1 (capacity).

25. Which group of terms must be certain for a purchase contract to be capable of enforcement?

1. The parties, the property and the price
2. The parties, the lender and the inspector
3. The property, the commission and the deposit
4. The price, the appraisal and the tax roll

A court can enforce an agreement only if its essential terms are certain. For a sale of land these include who the parties are, what property is sold and the price. Lenders, inspectors, commission, deposits, appraisals and tax information may matter to the transaction but are not essential terms of the sale. RECA's blueprint asks licensees to identify contractual issues that cause legal problems and how to prevent them (Fundamentals LO 1.2.1; 4.1.1 accuracy and clarity).

26. What is a condition precedent in a purchase contract?

1. A clause that lets either party end the deal for any reason before closing
2. A promise about the property that survives closing if it proves untrue
3. A term that fixes the price and the deposit the buyer must pay in trust
4. A future event that must occur before the parties must complete the sale

A condition precedent is an uncertain future event, such as the buyer obtaining financing or approving an inspection, that must be satisfied or waived before the parties are bound to complete. Until then the contract exists but performance is suspended. RECA's blueprints expect licensees to explain the reasons for conditions and to manage the removal or satisfaction of conditions precedent (Fundamentals LO 4.3.1; Residential Practice 5.4).

27. An offer is conditional on the buyer obtaining financing by May 10. Despite honest efforts, the buyer is refused by two lenders, and the condition is neither satisfied nor waived by the deadline. What follows?

1. The buyer is in breach, so the deposit must be paid to the seller
2. The contract stays alive until the buyer finds another willing lender
3. The seller may sue the buyer for specific performance of the sale
4. The contract ends, and neither party is in breach of that contract

When a true condition precedent is not satisfied or waived by its deadline, the contract comes to an end. The buyer has not broken a promise, so neither party is in breach and neither can sue for damages or specific performance. What happens to the deposit is then governed by the contract's terms. RECA's blueprint asks licensees to describe options and outcomes if conditions cannot be satisfied (Fundamentals LO 4.3.1).

28. A $400,000 purchase contract says the buyer must pay the seller $150,000 for any breach at all, even a one-day delay in delivering a document. If challenged, how is a court most likely to treat this clause?

1. As valid, since the parties freely agreed to the amount in writing
2. As a deposit, which the seller may keep in addition to all damages
3. As a penalty, as it is not a genuine pre-estimate of the likely loss
4. As valid, but payable to the seller's brokerage rather than the seller

A clause fixing the sum payable on breach is enforceable as liquidated damages when it is a genuine pre-estimate of the loss. A sum that is extravagant compared with any loss that could flow from the breach, such as $150,000 for a one-day delay on a $400,000 sale, is likely to be treated as an unenforceable penalty, leaving the seller to prove the actual loss. RECA's blueprint asks licensees to compare the remedies available to an innocent party and to describe contractual issues that give rise to legal problems (Fundamentals LO 2.2.1 and 1.2.1).

29. In contract law, what is the usual difference between breaching a 'condition' (an essential term) and breaching a 'warranty' (a minor term)?

1. Both allow the innocent party to terminate, but neither supports a damages claim
2. An essential term breach can allow termination; a warranty breach gives damages
3. A warranty breach allows termination; an essential term breach gives no remedy
4. Neither allows termination; both are resolved by RECA's registrar on complaint

A breach of an essential term (a 'condition' in the sense of a term going to the root of the contract) can allow the innocent party to treat the contract as ended and claim damages. A breach of a warranty, a minor term, gives a right to damages only, and the contract continues. Contract disputes are decided by the courts or by agreed dispute resolution, not by RECA. RECA's blueprint asks candidates to outline contract conditions and terms and the remedies for breach (Fundamentals LO 1.2.1 and 2.2.1).

30. A firm purchase contract included the dishwasher. The seller removes it before possession, and the sale closes. What remedy is the buyer most likely to have?

1. Rescission of the whole sale, as any breached term ends the contract
2. Damages for the value of the dishwasher, as it is a minor term
3. No remedy, because chattels cannot be included in a purchase contract
4. An order that the seller buy back the home at the price that was paid

Removing an included chattel breaches a minor term (a warranty) that does not go to the root of the contract. The usual remedy is damages, here the value of the dishwasher, not undoing the sale. Chattels can validly be included in a purchase contract. RECA's blueprint asks licensees to compare the remedies available to an innocent party when there is a breach of contract (Fundamentals LO 2.2.1).

31. How does a condition subsequent differ from a condition precedent?

1. It brings an existing obligation to an end if a stated event occurs
2. It is a minor promise whose breach gives a right to damages alone
3. It must be met before any binding contract can come into existence
4. It is a deadline that the brokerage sets for receiving the deposit

A condition precedent must be satisfied or waived before the parties' obligations to complete arise. A condition subsequent works the other way: the obligation already exists, but it comes to an end if a stated event later occurs. A minor promise enforceable by damages is a warranty. RECA's blueprint asks candidates to outline contract conditions and terms (Fundamentals LO 1.2.1) and the use of conditions precedent (LO 4.1.1).

32. What is the main difference between a claim in contract and a claim in tort, such as negligence?

1. A tort claim needs a signed contract; a contract claim does not
2. A contract claim enforces agreed promises; tort enforces legal duties
3. A contract claim is heard by RECA; a tort claim is heard by courts
4. A tort claim covers buyers; a contract claim covers sellers alone

A contract claim arises from breach of promises the parties agreed to. A tort claim, such as negligence or negligent misrepresentation, arises from breach of a duty imposed by law, so it can be brought by people who have no contract with the defendant, for example a buyer who relied on a listing licensee's careless statement. Both are decided by the courts, not by RECA. RECA's blueprint asks candidates to outline the effect of tort law on a real estate professional's activities (Fundamentals LO 1.1.2) and the principles of contract law (LO 1.2.1).

33. A buyer of a small rental building doubts whether the rent roll the seller supplied is genuine. Which approach best protects the buyer before the contract becomes firm?

1. A clause in which the seller states the rent roll is accurate on closing
2. A condition for review and approval of verified rent and lease records
3. A larger deposit, so the seller is motivated to supply honest records
4. An oral promise from the seller that the records will be checked later

A condition precedent lets the buyer verify the leases, rents and financial statements and walk away if they are not satisfactory, before being bound. A statement that the records are accurate helps only after a loss has occurred, a larger deposit puts the buyer at greater risk, and an oral promise is hard to prove. RECA's blueprint links conditions precedent to protection against fraudulent and dishonest acts (Fundamentals LO 4.1.1) and covers financial statements in transactions (LO 4.1.2).

34. Before signing, a seller orally promised to replace the back fence. The signed contract, which states that it contains the entire agreement, says nothing about the fence. What is the buyer's likely position?

1. The promise is likely unenforceable as a term, as it was left out
2. The promise binds the seller, as oral promises override the writing
3. The whole contract is void, because it leaves out a promise made
4. The seller's associate must replace the fence at the brokerage's cost

An entire agreement clause states that the written document contains all the terms, so an earlier oral promise left out of it generally cannot be enforced as a term of the contract (such clauses do not, however, shield a party from its own fraud). The lesson for licensees is to put every agreed term, including work to be done before closing, into the written contract. RECA's blueprint asks licensees to check that documents reflect the intended agreement and that clients understand all terms (Fundamentals LO 4.1.1).

35. A buyer and seller clearly agreed on a price of $485,000, as their emails show, but the signed contract mistakenly reads $458,000. If the buyer refuses to correct it, which remedy best fits the seller's situation?

1. Rescission, which sets aside the sale and returns the deposit
2. Damages equal to $27,000, the gap caused by the typing error
3. Specific performance of the contract at the $458,000 price
4. Rectification, which corrects the document to their true deal

Rectification is an equitable remedy that corrects a written document so it reflects what the parties actually agreed, where there is clear evidence (such as their emails) of a common intention that the document fails to record. Rescission would undo a deal both parties wanted, and specific performance would enforce the wrong price; $485,000 - $458,000 = $27,000 is simply the size of the error. Careful proofreading before execution prevents the problem: RECA's blueprint requires licensees to check contracts for accuracy and clarity (Fundamentals LO 4.1.1) and to know when legal input is required (LO 1.2.1).