Module 4 of 13 / National concepts
Contracts and agency fundamentals
Read the parties’ promises, conditions, deadlines and relationships before selecting a remedy or duty.
Outline allocation: 16 of 80 scored questions. Reviewed October 15, 2026.
What you will learn
- Recognize valid formation and enforceability problems.
- Apply contingencies, assignment and remedies.
- Connect agency relationships with duties.
Formation and contract status
A valid contract requires legally competent parties, genuine agreement, lawful purpose and consideration. Bilateral contracts exchange promises; unilateral contracts exchange a promise for an act. Express terms are stated; implied terms arise from conduct where the law recognizes them. Void means without legal effect; voidable means a protected party can avoid it; unenforceable means a legal enforcement barrier exists. Statute-of-frauds rules generally require qualifying real estate agreements to be in writing and signed by the party to be charged. Source note: California DRE chapters support general concepts only; use the Pennsylvania modules and linked Pennsylvania authorities for state-specific rules.
Work through an example
A buyer promising to buy and a seller promising to sell form a bilateral exchange. A signed agreement awaiting closing is generally executory.
Remember: A contract can exist yet still face an enforceability problem.
Offer, counteroffer and contingencies
Acceptance must match the offer and be communicated as required. Changing a material term ordinarily creates a counteroffer rather than an acceptance. A contingency conditions performance or supplies termination rights under stated circumstances; it is not permission to ignore deadlines. Read who may act, which notice is required and when it must arrive. Earnest money helps secure performance but is not the sole possible form of consideration. Equitable title under an executory purchase agreement differs from legal title conveyed at closing.
Work through an example
A buyer has ten days to terminate under an inspection clause. Ordering an inspection on day nine does not extend the notice deadline by itself.
Remember: A condition and the deadline for invoking it must both be satisfied.
Performance, transfer and remedies
An executed contract is fully performed; an executory one still has performance due. Assignment transfers contractual rights, while delegation concerns duties; an assignment alone does not necessarily release the original party. A novation substitutes a new obligation or party with the required consent and release. A breach may lead to damages, rescission or specific performance depending on contract and law. A liquidated-damages clause states an agreed damage measure and must meet enforceability rules; it does not authorize a broker to decide a disputed deposit.
Work through an example
A seller accepts a replacement buyer and expressly releases the first buyer through a valid novation. Merely signing an assignment would not necessarily release the first buyer.
Remember: Identify the remedy in the agreement before assuming a deposit is forfeited.
Agency is about whom you represent
An agent acts for a principal within an agreed scope. Duties commonly include loyalty, obedience to lawful instructions, disclosure, confidentiality, reasonable care and accounting. A customer can be owed honesty and material disclosures without becoming a client. An agent must not obey an unlawful instruction, conceal a material defect or secretly profit from the relationship. Agency termination does not automatically erase confidentiality. State rules govern creation, documentation and permitted dual representation. Pennsylvania’s written business-relationship requirements are covered separately.
Work through an example
A seller instructs an agent to conceal a known structural failure. The agent cannot use obedience as a reason to comply.
Remember: Lawful instructions only; material-fact duties survive sales pressure.
Check your understanding
Close your notes and explain the rule in your own words. Change one fact in an example: does the answer change? Use topic practice in the study room, then return to any rule you missed.
Sources and further reading
California DRE references support general national concepts only. Their California-specific rules are not Pennsylvania law; use the PA sources for state requirements.
Supplemental study only. State rules and transaction details matter; consult the linked official sources for the complete requirements. This lesson provides no prelicensing credit.