In Arizona, a contract is binding when:
Audio Lesson
Duration: 2:37
Question & Answer
Review the question and all answer choices
The buyer signs
Option A is incorrect because a contract cannot be binding when only one party signs. The buyer's signature alone does not constitute acceptance by the seller, leaving the contract incomplete without mutual assent.
The seller signs
Option B is incorrect because a seller's signature alone does not create a binding contract. The buyer must formally accept the terms and communicate this acceptance to complete the mutual assent required for a valid contract.
All parties have signed and acceptance is communicated
Earnest money is deposited
Option D is incorrect because earnest money deposit, while important in real estate transactions, is evidence of the contract rather than its creation. A binding contract exists when all parties have signed and acceptance is communicated, regardless of whether earnest money has been deposited.
Why is this correct?
Option C is correct because a legally binding contract requires mutual assent from all parties. Signing by all parties AND communication of acceptance creates this mutual assent, fulfilling the essential elements of contract formation in Arizona.
Deep Analysis
AI-powered in-depth explanation of this concept
In real estate practice, understanding when a contract becomes binding is crucial because it determines when obligations, rights, and liabilities attach to all parties. This question tests the fundamental principle of contract formation in Arizona, which follows general contract law principles. The core concept is that a contract requires mutual assent (offer and acceptance), consideration, and legal capacity. For a contract to be binding, all parties must agree to its terms and communicate this acceptance. Option A (buyer signs) is incomplete because the seller hasn't accepted yet. Option B (seller signs) is equally incomplete as the buyer hasn't formally accepted. Option D (earnest money deposited) is related but not determinative - earnest money is evidence of the contract but doesn't create it. Option C correctly identifies that all parties must sign AND acceptance must be communicated, completing the mutual assent requirement. This question challenges students by testing their understanding that signing alone isn't sufficient - the communication of acceptance is essential to complete the agreement.
Knowledge Background
Essential context and foundational knowledge
Contract formation in Arizona follows the general principles of contract law established in the Restatement (Second) of Contracts. A valid contract requires an offer, acceptance, consideration, capacity, and legality. The communication of acceptance is a critical element because it completes the 'meeting of the minds' between parties. In real estate transactions, this often occurs when all parties sign the contract and the signed copies are exchanged or otherwise communicated to each party. Arizona is generally considered a 'mailbox rule' state, meaning acceptance is generally effective upon dispatch (when properly sent), not upon receipt.
SAC - Sign All parties and Communicate acceptance
Remember that for a contract to be binding, you need both S (signing by all parties) and C (communication of acceptance) - the SAC of contract formation.
For contract formation questions, remember that mutual assent requires both signing AND communication of acceptance. Look for options that include both elements.
Real World Application
How this concept applies in actual real estate practice
Imagine a buyer signs a purchase agreement but fails to communicate the signed copy to the seller. The seller, unaware of the buyer's acceptance, continues showing the property to other potential buyers. If the buyer later claims the contract was binding when they signed, they would be mistaken. The contract only became binding when the buyer communicated their acceptance by delivering the signed copy to the seller. This scenario highlights why communication of acceptance is as crucial as signing itself in creating a binding agreement.
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