4.1 Contract Types and Required Elements
Key Takeaways
- A valid contract needs mutual assent, consideration, capacity, legal purpose, and a writing when the Statute of Frauds applies.
- A counteroffer rejects and terminates the original offer; it cannot be later accepted by the original offeror.
- Earnest money supports but is not required to form a valid contract.
- Void means no contract; voidable means a protected party may cancel; unenforceable means a court will not enforce a otherwise-valid deal.
- Executory means not yet fully performed; executed means both parties have fully performed.
Contracts are the backbone of every transaction, and the national exam tests classification and the required elements heavily. Learn to label a contract three ways and to spot a missing element.
Three Ways to Classify a Contract
- Express vs. implied — express is stated in words (written or oral); implied is inferred from conduct.
- Bilateral vs. unilateral — bilateral is a promise for a promise (a typical purchase contract); unilateral is a promise for an act (an open listing or a reward — only performance accepts).
- Executory vs. executed — executory means something is still left to do; executed means both parties have fully performed.
Exam trap: A signed purchase contract awaiting closing is executory, not executed. "Executed" here means fully performed, not merely signed.
The Required Elements of a Valid Contract
A contract is valid only when each element is present. A common mnemonic is COMIC L — but focus on the substance:
| Element | What it means | Failure example |
|---|---|---|
| Mutual assent (offer + acceptance) | A clear offer met by an unqualified acceptance — a "meeting of the minds" | A counteroffer, which rejects the original |
| Consideration | Something of legal value exchanged by each side | A bare promise to make a gift |
| Capacity | Legal ability to contract | A minor or a person adjudicated incompetent |
| Legal purpose | A lawful objective | A contract to violate fair-housing law |
| In writing | Required by the Statute of Frauds for real-estate sales and leases over one year | An oral land-sale promise |
Earnest money strengthens an offer and shows good faith, but it is not a required element — a contract can be valid without it. Consideration can be the mutual promises themselves.
Offer, Acceptance, and the Counteroffer
An offer must be communicated, definite, and made with intent to contract. Acceptance must be unqualified and communicated back. The instant the offeree changes any material term, the response becomes a counteroffer, which:
- Rejects and terminates the original offer, and
- Becomes a new offer the original offeror may accept or reject.
Worked example: Buyer offers $300,000. Seller responds "$310,000." That counteroffer kills the $300,000 offer. If the buyer then says no, the seller cannot circle back and accept the original $300,000 — it no longer exists. Either party may revoke an offer any time before acceptance is communicated, unless an option (paid-for promise to hold the offer open) exists.
Capacity Pitfalls
Contracts with a minor are generally voidable by the minor, who may disaffirm. Contracts with a person already adjudicated mentally incompetent are void. A party who is merely intoxicated may have a voidable contract depending on severity.
Void, Voidable, and Unenforceable
This trio is the most tested distinction in contract law.
- Void — no contract ever existed (an illegal purpose, or a deal with someone judged incompetent). Neither party can enforce it.
- Voidable — a valid contract that one protected party may cancel or affirm (a minor's contract, or one induced by fraud or duress). It is binding until the protected party disaffirms.
- Unenforceable — a contract valid in substance that a court will not enforce because of a technical defect (an oral land-sale contract barred by the Statute of Frauds, or one past the statute of limitations).
Worked example: An oral agreement to sell a house has all the substantive elements but no writing. It is unenforceable under the Statute of Frauds — not void, because the parties truly agreed; the defect is only the missing writing. By contrast, a contract to commit an illegal act is void from the start.
A buyer offers $250,000 for a home. The seller responds in writing offering to sell at $265,000. The buyer rejects that figure, then phones to say, 'Fine, I'll take it at my original $250,000.' What is the legal status of the $250,000 offer?
Two parties orally agree on all terms for the sale of a house, but nothing is put in writing. How is this agreement best classified?
Which of the following is NOT a required element for a valid real-estate sales contract?
The Statute of Frauds and Electronic Signatures
The Statute of Frauds requires certain contracts to be in writing and signed to be enforceable. In real estate this captures:
- Contracts for the sale of real property.
- Leases longer than one year.
- An agreement to pay a broker's commission (in many states).
A contract that should be written but is not is unenforceable, even though the parties truly agreed.
E-SIGN and UETA
Under the federal E-SIGN Act and the state UETA, electronic signatures and records are generally as valid as ink-on-paper for real-estate contracts, provided the parties intend to sign electronically. A clicked "I agree" or a DocuSign block can satisfy the writing requirement.
Exam trap: An oral 18-month lease is unenforceable under the Statute of Frauds (over one year), but an oral month-to-month lease can be valid.
Bilateral vs. Unilateral in Practice
Most real-estate contracts are bilateral (a promise exchanged for a promise): in a purchase contract, the buyer promises to pay and the seller promises to convey. A few are unilateral (a promise exchanged for an act): an open listing pays only the broker who actually produces the buyer, and an option binds the optionor while leaving the optionee free.
Exam trap: An option is unilateral, only the optionor is bound; the optionee may walk away and lose only the option fee.
Valid, Then Test for Defects
Work problems in two steps: first confirm the five elements plus any required writing are present (is it valid?); then test for a defect that downgrades it to void (illegal purpose or incompetent party), voidable (minor, fraud, duress), or unenforceable (no writing, or time-barred). This ordering prevents the classic mistake of calling an oral land-sale contract "void" when it is merely unenforceable.
Exam trap: A defect rarely makes a contract "void", reserve void for illegal purpose or a party already adjudged incompetent.