Arizona Real Estate License Contract Law and Practice 3 — Questions and Answers
Question 1: A contract that has been fully performed by both parties is described as:
- Executory
- Executed (Correct answer)
- Voidable
- Implied
Correct answer: Executed
An executed contract is one in which all parties have completely fulfilled their obligations.
Question 2: Which of the following would render a real estate contract void rather than merely voidable?
- Signed under undue influence
- An illegal purpose such as selling to evade zoning fraud (Correct answer)
- Signed by a person later found mentally incapacitated
- Based on innocent misrepresentation
Correct answer: An illegal purpose such as selling to evade zoning fraud
A contract with an illegal objective is void from the outset and unenforceable.
Question 3: In Arizona, if a buyer breaches the purchase contract and the agreement contains a liquidated damages clause, the seller is typically entitled to:
- Sue for specific performance only
- Retain the earnest money as agreed damages (Correct answer)
- Collect triple the purchase price
- Nothing until a court rules
Correct answer: Retain the earnest money as agreed damages
A liquidated damages clause commonly allows the seller to keep the earnest money as the agreed remedy for buyer default.
Question 4: The legal remedy compelling a party to complete a real estate sale as agreed is called:
- Rescission
- Specific performance (Correct answer)
- Novation
- Reformation
Correct answer: Specific performance
Specific performance forces completion of the contract because real property is considered unique.
Question 5: Substituting a new party into a contract, releasing the original party from obligation with all parties' consent, is known as:
- Assignment
- Novation (Correct answer)
- Subordination
- Ratification
Correct answer: Novation
Novation replaces a party or obligation and releases the original party by mutual agreement.
Question 6: An 'as-is' clause in an Arizona purchase contract primarily means the seller:
- Waives the buyer's inspection rights entirely
- Will not make repairs but must still disclose known material defects (Correct answer)
- Guarantees the property's condition
- Is exempt from all disclosure laws
Correct answer: Will not make repairs but must still disclose known material defects
An as-is clause means no repairs, but the seller must still disclose known material defects.
Question 7: Time is of the essence in an Arizona contract means:
- Deadlines are flexible guidelines
- Performance must occur by the stated dates or a party may be in default (Correct answer)
- Only the closing date matters
- The contract expires after one year
Correct answer: Performance must occur by the stated dates or a party may be in default
This clause makes stated deadlines strictly enforceable, so missing them can constitute default.
Arizona Real Estate License Contract Law and Practice 3
A contract that has been fully performed by both parties is described as: