Humber/Ontario Real Estate Course 1 Exam Practice

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Which of the following statements is correct regarding contract law?

  1. Both partners in a partnership must agree to the sale of a property in order to create an enforceable contract.

  2. If a person has 'capacity,' it means that the individual has sufficient funds to close a sale.

  3. A contract between two parties that specifically is designed to evade taxes is void and unenforceable.

  4. An unclear, indefinite contract is enforceable provided that it is in writing.

  5. All contracts must be notarized to be legally binding.

  6. Only written contracts can be considered legally binding and enforceable.

The correct answer is: A contract between two parties that specifically is designed to evade taxes is void and unenforceable.

The statement that a contract between two parties specifically designed to evade taxes is void and unenforceable is correct. This principle exists because the legal system does not recognize or enforce agreements that are formed for illegal purposes. Contracts must be created for lawful reasons and align with public policy. When a contract’s sole purpose is to evade taxes, it undermines the tax laws and the integrity of the legal system. Such contracts are not just unenforceable in a court of law; they may also expose the parties to legal penalties for tax evasion. Other options present varying misconceptions. The requirement for both partners in a partnership to agree reflects an important aspect of governance in business partnerships, yet it does not establish a blanket necessity for enforceability in every case. The notion that 'capacity' relates solely to financial resources misrepresents an essential legal concept, as it concerns an individual's ability to understand and enter into a contract. The idea that merely writing down an indefinite contract makes it enforceable neglects the necessity for clarity and intent needed in contracts. Moreover, the assertion that all contracts must be notarized to be legally binding is incorrect, as many contracts can be valid without notarization provided they meet other legal criteria. Lastly, the claim that only written contracts are

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