Kovats Real Estate School Practice Test

What happens to contracts with principals if a broker incorporates their business and subsequently dies?

1. Contracts automatically terminate

2. Contracts require renegotiation

3. Contracts do not terminate upon death of the broker

4. Contracts become void

The correct answer is: Contracts do not terminate upon death of the broker

In the scenario where a broker incorporates their business and subsequently dies, the contracts with principals do not automatically terminate. This is primarily due to the legal nature of corporations, which are considered separate legal entities. When a broker operates under an incorporated business structure, the corporation itself is typically a party to the contracts rather than the individual broker. Thus, in the event of the broker's death, the corporation can continue to operate and fulfill the terms of the contracts. Additionally, the contracts may have provisions that allow for the transfer of obligations to other licensed agents or brokers within the corporation, ensuring that clients are still taken care of and that their agreements remain valid and enforceable. This continuity is essential for maintaining trust and stability in business relationships, especially in real estate transactions where parties rely on the broker's services. The other choices suggest scenarios that do not accurately reflect the legal implications of business incorporation. Contracts automatically terminating or becoming void would disrupt business operations and disregard the ongoing responsibilities owed to clients, which is not how corporate structures are designed to function. Renegotiation, while sometimes necessary in certain contexts, is not a default requirement upon the death of the broker, especially when the incorporated entity continues to exist.