I85PREP
⌘ K
SD Real Estate study materials
SD Real Estate study resources

SD Real Estate practice questions

One question at a time. Build your SD Real Estate understanding.

First 50 of 200 questions. Each one lists the choices, the correct answer, and an explanation. The checker at the top of this page saves progress in this browser when it is available.

Continue in the practice tool above to load more questions, 50 at a time.

Question 1Agency Relationships and Fiduciary Duties

Which of the following is a fiduciary duty that a real estate agent owes to the agent's own principal?

  1. Free legal advice about the contract forms
  2. A guarantee that the property will appraise at the contract price
  3. A warranty that the roof will not leak
  4. Loyalty Correct answer.

Explanation

Agents owe their principals a set of fiduciary duties that traditionally include loyalty, obedience, disclosure, confidentiality, accounting, and reasonable care. Appraisal outcomes, legal advice, and property condition warranties are not among them.

Question 2Agency Relationships and Fiduciary Duties

When must a South Dakota licensee disclose to a prospective buyer or seller which party the licensee represents?

  1. At the first substantial contact with the prospective party Correct answer.
  2. Only if the prospect asks whether the licensee represents someone
  3. At the closing table
  4. Only after a written offer has been submitted

Explanation

Agency disclosure is meant to happen early, at the first substantial contact, so the consumer knows whose interests the licensee serves before sharing confidential information. Waiting until an offer, a closing, or a direct question defeats that purpose.

Question 3Agency Relationships and Fiduciary Duties

Before a licensee can act for both the buyer and the seller in the same transaction, the licensee must

  1. Obtain written informed consent from both parties Correct answer.
  2. Obtain permission from the South Dakota Real Estate Commission
  3. Reduce the total commission charged to the parties
  4. Notify only the seller, since the seller usually pays the commission

Explanation

Dual agency places the licensee in a conflict of interest, so it requires the informed written consent of both parties after full disclosure. Notifying one side or discounting the fee does not cure the conflict.

Question 4Agency Relationships and Fiduciary Duties

A buyer asks the listing agent how low the seller will go. The agent should

  1. Tell the buyer but ask the buyer to keep it quiet
  2. Tell the buyer the seller is eager because of a pending divorce
  3. Refuse to share it without the seller's permission Correct answer.
  4. Tell the buyer the seller's bottom line to speed up negotiations

Explanation

A principal's motivation, financial circumstances, and negotiating limits are confidential information that the agent may not reveal to the other side without the principal's authorization. Sharing it with a request for silence does not cure the breach.

Question 5Agency Relationships and Fiduciary Duties

A buyer's broker is paid out of the commission offered by the seller. Which statement best describes the agency relationship?

  1. The buyer cannot be the broker's principal unless the buyer pays the broker directly
  2. Paying the commission automatically makes the payer the broker's principal
  3. The broker owes fiduciary duties to whoever pays the largest share of the commission
  4. Agency comes from the written agreement, not from who pays Correct answer.

Explanation

Who pays the commission is a matter of compensation, not of agency; the parties' agreement defines whom the broker represents. A buyer's broker can be paid from the seller's offered commission and still owe full fiduciary duties to the buyer.

Question 6Agency Relationships and Fiduciary Duties

A seller tells the listing agent not to hold open houses. The agent disagrees and holds one anyway. Which fiduciary duty has the agent breached?

  1. Disclosure
  2. Accounting
  3. Obedience Correct answer.
  4. Confidentiality

Explanation

The duty of obedience requires the agent to follow the principal's lawful instructions about marketing and management of the property. Personal disagreement with the instruction does not give the agent authority to override it.

Question 7Agency Relationships and Fiduciary Duties

A licensee wants to buy a home that her own brokerage has listed. What does her duty of loyalty require?

  1. She should disclose her licensee status and her interest to the seller in writing Correct answer.
  2. She should wait until the listing expires and then buy it quietly
  3. She may buy it without disclosure because licensees may purchase listed property
  4. She should have a colleague present the offer so she need not disclose anything

Explanation

An agent may not acquire an interest in the principal's property without full disclosure and the principal's informed consent. Using a colleague as a screen does not remove the conflict; the seller must know who the real buyer is.

Question 8Agency Relationships and Fiduciary Duties

An agency relationship between a licensee and a client is created by

  1. Showing a property to a prospective buyer
  2. The licensee advertising the client's property in the multiple listing service
  3. A handshake and a deposit of earnest money
  4. A written agreement authorizing the licensee to act Correct answer.

Explanation

Agency arises from the agreement of the parties, and South Dakota requires that representation be documented in writing. Advertising and showings are acts performed within an agency relationship, not the source of it.

Question 9Agency Relationships and Fiduciary Duties

Which event terminates an agency relationship by operation of law?

  1. The seller's request to lower the listing price
  2. The principal's decision to reject a low offer
  3. The agent taking a vacation
  4. The death of the principal Correct answer.

Explanation

Death or incapacity of a party terminates an agency by operation of law, without any action by either party. Rejecting offers, taking time off, or changing the list price are ordinary events within the ongoing relationship.

Question 10Agency Relationships and Fiduciary Duties

A broker receives a $5,000 earnest money deposit. The broker must

  1. Deposit it in the brokerage's general operating account
  2. Deliver it to the seller regardless of the contract terms
  3. Hold it in a trust or escrow account and account for it Correct answer.
  4. Apply it immediately to the broker's commission

Explanation

Funds held for others must be kept in a trust or escrow account and disbursed according to the agreement; the duty of accounting requires a clear record. Commingling with operating funds or premature disbursement exposes the broker to discipline.

Question 11Agency Relationships and Fiduciary Duties

A buyer's agent tells the buyer that a home is 2,400 square feet based on a guess rather than verifying the source. The home is actually 1,900 square feet. The agent has most likely breached the duty of

  1. Reasonable care and diligence Correct answer.
  2. Confidentiality
  3. Obedience
  4. Accounting

Explanation

The duty of care requires the agent to verify facts the agent presents to the client rather than state guesses as fact. Confidentiality, obedience, and accounting concern information, instructions, and funds respectively.

Question 12Agency Relationships and Fiduciary Duties

After a listing agreement expires, the broker's duty to keep the seller's confidential information confidential

  1. Ends when the listing expires, because the agency has terminated
  2. Ends when the broker is paid
  3. Ends only if the seller sends written notice
  4. Continues, so the information may not be revealed later Correct answer.

Explanation

Confidentiality survives the end of the agency relationship; the duty is not extinguished by expiration or payment. Only the principal's release of the information authorizes later disclosure.

Question 13Agency Relationships and Fiduciary Duties

Which action is consistent with the role of a licensee who represents both parties with written consent?

  1. Advocating only the seller's position in negotiations
  2. Advocating only the buyer's position in negotiations
  3. Keeping each side's confidences while treating both honestly Correct answer.
  4. Revealing to each party everything the other has said about price

Explanation

A dual agent must remain neutral: it may not disclose one party's confidences to the other and may not advocate for one side over the other. Honest and fair treatment of both parties replaces the full advocacy a single-agent role would allow.

Question 14Agency Relationships and Fiduciary Duties

A listing broker owes fiduciary duties to

  1. The seller, the broker's principal Correct answer.
  2. The buyer in the transaction
  3. Both parties in every transaction
  4. The lender financing the purchase

Explanation

Fiduciary duties run to the principal, the party who engaged the broker, not to the other side, the lender, or both parties by default. A buyer becomes a principal only through a separate agency agreement.

Question 15Agency Relationships and Fiduciary Duties

A buyer's agent shows a home; the buyer later returns alone and buys it directly from the seller. Whether the agent is owed a commission depends mainly on

  1. How long the agent has been licensed
  2. The buyer-broker agreement and procuring cause Correct answer.
  3. Whether the seller knew the agent had shown the home
  4. Whether the buyer and agent got along well

Explanation

Commission entitlement turns on the written buyer-broker agreement and on whether the broker was the procuring cause of the sale. Personal rapport, tenure, or the seller's awareness do not establish the claim.

Question 16Agency Relationships and Fiduciary Duties

A seller's agent knows the basement floods every spring. What does the duty to treat the buyer honestly and fairly require?

  1. Disclosure only if the seller first agrees
  2. A hint that the buyer should look closely at the basement
  3. Nothing, because the buyer is not the agent's client
  4. Disclosure of the known material defect to the buyer Correct answer.

Explanation

While fiduciary duties run to the principal, every licensee owes honesty and fair dealing to the other party, which includes disclosing known material defects rather than concealing them. Silence with hints, or waiting for the seller's permission, does not satisfy that duty.

Question 17Agency Relationships and Fiduciary Duties

A licensee representing both parties with written consent receives an offer well above asking. Another buyer asks whether other offers exist. The licensee should

  1. Not reveal the amount and advise the second buyer as the seller allows Correct answer.
  2. Reveal the exact amount of the competing offer so the second buyer can bid higher
  3. Refuse to forward the first offer because it favors one party
  4. Say there are no other offers in order to create urgency

Explanation

A dual agent may not disclose one party's offer terms to another party and may not misrepresent the state of negotiations. Information may be shared only as the seller authorizes, and every offer must be presented.

Question 18Agency Relationships and Fiduciary Duties

A broker who represents only the seller meets a buyer who has no agent. The broker must

  1. Refuse to show the property to an unrepresented buyer
  2. Treat the buyer as a client by default because no other agent is involved
  3. Tell the buyer in writing that the broker represents the seller Correct answer.
  4. Charge the buyer half of the commission

Explanation

A licensee must make the representation clear in writing so an unrepresented party understands that the licensee is not acting for that party. The buyer remains a customer, not a client, unless a separate agency agreement is formed.

Question 19Agency Relationships and Fiduciary Duties

To a party the broker does not represent, the broker owes

  1. A duty to obtain the lowest possible price
  2. No duties at all
  3. Full fiduciary duties
  4. Honest and fair dealing Correct answer.

Explanation

Even without an agency relationship, the licensee owes the public honesty, fair dealing, and disclosure of known material facts. Full fiduciary duties arise only from an agency relationship.

Question 20Agency Relationships and Fiduciary Duties

Under an exclusive right-to-sell listing, the seller personally finds the buyer during the listing term. The broker is

  1. Entitled to the agreed commission no matter who found the buyer Correct answer.
  2. Not entitled to a commission, because the broker did not find the buyer
  3. Entitled to a commission only if the broker introduced the buyer
  4. Entitled to half the commission

Explanation

An exclusive right-to-sell entitles the broker to the agreed commission if the property sells during the term, no matter who produced the buyer. That is what distinguishes it from an exclusive agency listing, where the seller keeps the right to sell without paying.

Question 21Agency Relationships and Fiduciary Duties

A licensee recommends a particular lender and receives a fee from that lender without telling the client. The licensee has

  1. Breached loyalty by failing to disclose the compensation Correct answer.
  2. Acted properly, because lenders routinely pay referral fees to licensees
  3. Acted properly as long as the loan terms are competitive
  4. Breached a duty only if the loan is later denied

Explanation

Loyalty requires the agent to disclose any compensation the agent receives in connection with the transaction, so the client can judge whether the recommendation is influenced by the payment. Competitive loan terms and later approval do not cure the undisclosed conflict.

Question 22Agency Relationships and Fiduciary Duties

The agent's duty of disclosure to the principal requires the agent to

  1. Disclose material facts only after closing
  2. Disclose only information the agent believes will be favorable to the deal
  3. Disclose material facts only if the other party consents
  4. Disclose all material known facts affecting the principal's interests Correct answer.

Explanation

The duty of disclosure requires the agent to relay all material facts the agent knows that bear on the principal's decision, whether favorable or not. Timing and the other party's consent are not conditions.

Question 23Agency Relationships and Fiduciary Duties

A seller revokes a listing agreement before its expiration date, in breach of the agreement. The agency relationship

  1. Cannot be revoked once it is signed, because both parties are bound
  2. Ends, though the seller may owe damages for wrongful revocation Correct answer.
  3. Continues until the listing term ends
  4. Continues, but the broker may not be paid

Explanation

Agency is consensual, so the principal may revoke it at any time, and revocation ends the relationship even if it breaches the listing contract. The remedy for a wrongful revocation is a damages claim, not continued agency.

Question 24Agency Relationships and Fiduciary Duties

A listing agent who receives multiple written offers must

  1. Hold all offers until the seller asks for them
  2. Present only the highest offer
  3. Screen out offers the agent considers unrealistic
  4. Present every offer to the seller promptly Correct answer.

Explanation

The agent must promptly transmit every offer to the seller, even offers the agent considers weak, so the seller can decide. Screening or delaying offers deprives the principal of the duty of disclosure.

Question 25Agency Relationships and Fiduciary Duties

A licensee who has not been given authority to sign documents for the client

  1. May sign if the licensee verbally tells the other party
  2. May sign for the client if the client is out of town
  3. May sign if the licensee holds a valid license and the form is standard
  4. Cannot bind the client by signing the client's name Correct answer.

Explanation

An agent's authority is limited to what the principal has granted, and signing a contract on the client's behalf requires express authority. Without that authority the signature does not bind the client.

Question 26Agency Relationships and Fiduciary Duties

A seller tells the listing agent to reject every offer submitted by buyers of a particular religion. How should the agent respond to this instruction?

  1. Withdraw from the listing but keep screening offers that way until a new broker takes over.
  2. Refuse it, because the duty of obedience does not extend to instructions that violate fair housing law. Correct answer.
  3. Carry it out, because the duty of obedience requires following the principal's directions.
  4. Carry it out only after the seller signs a written indemnification agreement.

Explanation

Fiduciary duties such as obedience apply only within the limits of the law; an agent may not participate in discriminatory housing practices even when the principal directs it. The agent should explain the legal constraint to the seller and decline the instruction, and may terminate the representation if the seller insists.

Question 27Contracts and Contract Law

Which of the following agreements must be in writing to be enforceable under the statute of frauds?

  1. A contract for the sale of a house Correct answer.
  2. An oral month-to-month residential rental agreement
  3. A contract to mow a lawn for one summer season
  4. A contract to repaint a house, to be finished in two weeks

Explanation

The statute of frauds requires that contracts for the sale of an interest in real property be evidenced by a signed writing. Service contracts and short-term leases that can be performed within one year generally fall outside the requirement.

Question 28Contracts and Contract Law

A 17-year-old signs a contract to purchase a condo. What is the legal status of that contract?

  1. It is voidable at the election of the minor Correct answer.
  2. It may be disaffirmed by the seller but not by the minor
  3. It is void and binds neither party from the outset
  4. It becomes fully enforceable the moment the minor turns 18, with no further action

Explanation

Contracts made by minors are generally voidable, meaning the minor may disaffirm the agreement while still a minor or within a reasonable time after reaching majority. The adult party remains bound if the minor chooses to enforce the contract.

Question 29Contracts and Contract Law

Why are courts willing to order specific performance for a breach of a real estate purchase contract?

  1. Courts order specific performance in every breach of contract case
  2. Sellers may force a buyer to close only when the earnest money exceeds 20 percent
  3. Land is treated as unique, so money damages are inadequate Correct answer.
  4. Buyers of land are never entitled to money damages

Explanation

Each parcel of real property is regarded as unique, which makes money damages an inadequate substitute for the promised performance. That is why courts commonly grant specific performance to enforce land sale contracts.

Question 30Contracts and Contract Law

An offeror makes an offer but does not specify how or whether acceptance must be communicated. What is required for a contract to be formed?

  1. The offeree must communicate acceptance, because acceptance must generally be conveyed to the offeror Correct answer.
  2. Formation occurs when the offeror receives the consideration, even if the offeree never responds
  3. Silence by the offeree counts as acceptance in every case
  4. Nothing further; the contract forms when the offeree privately decides to accept

Explanation

Unless the offer states otherwise, acceptance must be communicated to the offeror before a contract exists. An unexpressed intention to accept does not create a contract.

Question 31Contracts and Contract Law

In a contract for deed (installment land contract), how is title held during the payment period?

  1. The buyer receives a deed at signing and the seller keeps a mortgage
  2. Title automatically passes to the buyer when the contract is recorded
  3. The buyer holds legal title but the seller holds equitable title
  4. The seller keeps legal title until the contract is paid in full Correct answer.

Explanation

Under a contract for deed the seller retains legal title while the buyer takes possession and builds equity through payments. The deed is delivered only after the contract is satisfied.

Question 32Contracts and Contract Law

An offeree replies to an offer by accepting it but adding a new term that materially changes the deal. How is that reply treated at common law?

  1. It forms a contract on the original terms, ignoring the new term
  2. It operates as a counteroffer rather than an acceptance Correct answer.
  3. It is ignored unless the offeror objects within 24 hours
  4. It accepts the original offer and adds a separate side agreement

Explanation

At common law, acceptance must match the offer exactly. A reply that varies material terms is not an acceptance but a counteroffer, which the original offeror may accept or reject.

Question 33Contracts and Contract Law

Two parties sign an agreement to sell stolen goods across state lines. What is the effect of the illegality on the contract?

  1. It is enforceable because both parties understood the purpose
  2. It is voidable at the option of the party who performed first
  3. It is void and unenforceable Correct answer.
  4. It remains valid until a court issues an injunction

Explanation

A contract whose object is illegal is void from the beginning, and courts will not enforce it. Neither party can obtain the aid of the courts to carry out or recover on an illegal bargain.

Question 34Contracts and Contract Law

What will satisfy the signature requirement of the statute of frauds for a real estate purchase contract?

  1. Only a handwritten signature in ink
  2. Signatures of both parties on the same physical paper copy
  3. Only a signature acknowledged before a notary
  4. Any mark or electronic signature made with intent to authenticate the writing Correct answer.

Explanation

The statute of frauds requires a signing by the party to be charged, but a signature can be any mark, including an electronic signature, made with the intent to authenticate. Notarization and ink are not required.

Question 35Contracts and Contract Law

A buyer offers $300,000 for a property. The seller responds in writing with a counteroffer of $310,000. The buyer rejects the counteroffer and then attempts to accept the original $300,000 offer. Which statement is correct?

  1. The original offer remains open for a reasonable time and can still be accepted
  2. The original offer stays open until the seller formally revokes it
  3. The original offer was terminated when the counteroffer was made Correct answer.
  4. The counteroffer changed only the price, so the original offer survives

Explanation

A counteroffer operates as a rejection of the original offer and terminates it. Once terminated, the original offer cannot later be accepted unless the offeror revives it.

Question 36Contracts and Contract Law

A seller grants a buyer a 30-day option to purchase a parcel for $250,000, supported by $2,000 paid to the seller. Which statement describes the arrangement?

  1. The option lapses only if the seller dies during the 30 days
  2. The option is a separate contract that keeps the offer open for the 30-day period Correct answer.
  3. The seller may revoke the offer at any time before the buyer accepts
  4. The option must be exercised in person to be effective

Explanation

An option is a contract in which the optionor sells the right to accept an offer within a set period. Because consideration has been paid, the offer cannot be revoked during the option term.

Question 37Contracts and Contract Law

An offeror mails a revocation of an outstanding offer on Monday. The offeree receives it on Wednesday and had not yet accepted. When is the revocation effective?

  1. Monday, when the offeror decided to revoke
  2. Monday, when it was mailed
  3. Only after the offeree acknowledges the revocation in writing
  4. Wednesday, when the offeree received it Correct answer.

Explanation

A revocation is effective only when it is received by the offeree. Mailing or privately deciding to revoke does not end the power of acceptance.

Question 38Contracts and Contract Law

A purchase agreement provides that if the buyer defaults, the seller keeps the $10,000 earnest money as liquidated damages. What must be true for that clause to be enforced?

  1. The parties must have agreed to the amount in a notarized writing
  2. The amount must be at least double the actual earnest money
  3. The amount must be proven at trial to equal the actual loss
  4. The amount must be a reasonable forecast of probable loss rather than a penalty Correct answer.

Explanation

A liquidated damages clause is enforceable only if the stipulated sum is a reasonable estimate of anticipated loss at the time of contracting and actual damages would be difficult to determine. A provision designed to punish the breaching party is an unenforceable penalty.

Question 39Contracts and Contract Law

A buyer's offer includes a financing contingency stating the purchase is contingent on obtaining a loan at 6.5 percent within 30 days. The buyer applies promptly and in good faith but is denied because rates rose. What is the likely result?

  1. The buyer must close anyway and find alternative financing
  2. The buyer is excused only if the lender's name appears in the contract
  3. The seller keeps the earnest money as liquidated damages
  4. The buyer is excused from closing and generally recovers the earnest money Correct answer.

Explanation

A financing contingency is a condition precedent to the buyer's duty to close. If the buyer makes good-faith efforts and the condition fails, the buyer's performance is excused and the deposit is normally returned.

Question 40Contracts and Contract Law

A fully integrated written purchase agreement is silent about a swimming pool, but the buyer claims the seller orally promised to leave the pool heater. What does the parol evidence rule do?

  1. It allows any oral statement to override the writing
  2. It generally bars prior or contemporaneous oral terms that contradict or add to a complete writing Correct answer.
  3. It applies only to commercial leases, not home sales
  4. It bars evidence of fraud in the inducement

Explanation

When the parties intend a writing to be the final and complete expression of their agreement, prior or contemporaneous oral statements cannot be used to vary or supplement it. Exceptions exist, such as evidence of fraud, mistake, or a collateral agreement supported by separate consideration.

Question 41Contracts and Contract Law

A buyer under a purchase agreement assigns the contract to a third party. The seller later discovers the buyer had already breached an obligation owed to the seller before the assignment. What is the assignee's position?

  1. The assignment terminates the contract and creates a new one
  2. The assignee takes the contract subject to defenses the seller had against the assignor Correct answer.
  3. The assignment requires the seller's consent in every case
  4. The assignor is released from all liability once the assignment is made

Explanation

An assignee steps into the assignor's shoes and takes the assigned rights subject to the defenses and claims the obligor could have asserted against the assignor. The assignor also remains liable unless a novation occurs.

Question 42Contracts and Contract Law

A property owner, a buyer, and a new investor agree that the investor will take over the buyer's obligations and the buyer will be released entirely. What is this arrangement?

  1. An assignment of rights
  2. A novation, which requires the consent of all parties and discharges the original party Correct answer.
  3. A sublease of the purchase contract
  4. A delegation of duties that leaves the buyer liable

Explanation

A novation substitutes a new party for an original party and extinguishes the original party's obligations. It requires the agreement of all parties, including the party being released.

Question 43Contracts and Contract Law

A tenant abandons a commercial space with eight months left on the lease. What duty does the landlord have regarding the lost rent?

  1. The landlord must make reasonable efforts to re-let and credit the proceeds against the tenant's debt Correct answer.
  2. The tenant owes nothing once the keys are returned
  3. The landlord may leave the space empty and collect the full remaining rent
  4. The landlord must re-let at the original rent or forfeit all damages

Explanation

A landlord has a duty to mitigate damages by making reasonable efforts to re-let the premises. Amounts actually received from a replacement tenant reduce the original tenant's liability.

Question 44Contracts and Contract Law

A homeowner contracts with a builder for a new roof, and the contract states that the homeowner's lender will pay the builder directly. The lender refuses to pay. Who may enforce the contract against the lender?

  1. The builder only after the contract is recorded
  2. Any neighbor who benefits from the improved property
  3. The homeowner, as an intended beneficiary of the lender's promise Correct answer.
  4. No one, because a third party can never be sued on a contract

Explanation

A third party may enforce a contract only if the contracting parties intended to benefit that party. Here the homeowner is the intended beneficiary of the lender's promise to pay, so the homeowner may enforce it.

Question 45Contracts and Contract Law

A purchase contract states that "time is of the essence" and sets a firm closing date. The buyer arrives three weeks late with no excuse. What is the effect of the clause?

  1. It makes the contract void as of the closing date
  2. It removes the need for a written agreement
  3. It makes late performance a material breach, allowing the seller to terminate Correct answer.
  4. It applies only if both parties separately initial the clause

Explanation

A time-is-of-the-essence clause elevates the stated dates to material terms, so an unjustified delay is a material breach. The nonbreaching party may then treat the contract as ended and pursue remedies.

Question 46Contracts and Contract Law

A homeowner hires a contractor to build a custom staircase, a task that depends on the contractor's personal skill. The contractor attempts to hand the work to a subcontractor. What is the result?

  1. Delegation is permitted only if the contract is notarized
  2. Duties may be delegated unless personal performance is required, as it is here Correct answer.
  3. Delegation always requires the other party's written consent
  4. Delegation discharges the contractor from any further liability

Explanation

Contract duties are generally delegable, but delegation is improper when the contract calls for personal performance or the obligee has a substantial interest in the original obligor's performance. A custom staircase built on the contractor's skill fits that exception.

Question 47Contracts and Contract Law

An optionee mails written notice exercising a real estate option on the last day of the option period, and the optionor receives it two days later. When is the exercise effective?

  1. When the notice is mailed, under the mailbox rule
  2. When the optionor receives the notice Correct answer.
  3. At the moment the option was originally granted
  4. Five days after mailing, regardless of receipt

Explanation

Option contracts are a recognized exception to the mailbox rule. Acceptance of an option is effective only upon receipt by the optionor, so a notice mailed but not received in time may be too late.

Question 48Contracts and Contract Law

A buyer and seller orally agree on the sale of a lot. The buyer pays the full price, takes possession, builds a garage, and landscapes the yard. The seller later invokes the statute of frauds. What is the likely outcome?

  1. Payment of the price alone is sufficient, regardless of possession or improvements
  2. Part performance can remove the agreement from the statute of frauds Correct answer.
  3. The statute of frauds bars enforcement because no writing exists
  4. Only a written admission by the seller can overcome the statute

Explanation

The doctrine of part performance allows enforcement of an oral land contract when the buyer has paid, taken possession, and made valuable improvements in reliance on the agreement. Those acts make the oral agreement reliable and prevent unjust enrichment.

Question 49Contracts and Contract Law

A commercial purchase agreement contains a clause stating that the written document is the entire agreement of the parties. What is the primary effect of that clause?

  1. It merges the deed into the purchase contract at closing
  2. It makes the contract void if any term was discussed orally
  3. It requires the deed to be recorded before closing
  4. It reinforces integration of the writing and limits reliance on prior statements Correct answer.

Explanation

An entire-agreement or merger clause signals that the writing is the complete expression of the parties' bargain, which strengthens the case for integration under the parol evidence rule. It limits later claims based on prior or contemporaneous statements outside the document.

Question 50Contracts and Contract Law

A builder finishes a custom home but installs a slightly different trim than specified, with a small cost to cure. What is the builder's recovery under the doctrine of substantial performance?

  1. Only the value of the materials actually used
  2. The full contract price with no offset
  3. The contract price less the cost to cure the deficiency Correct answer.
  4. Nothing, because any deviation is a total breach

Explanation

A party that substantially performs in good faith may recover the contract price, reduced by the cost of correcting any minor, nonmaterial defects. This avoids forfeiture for trivial deviations.