4.1 Contract Types and Required Elements

What a contract is, and is not

A contract is a legally enforceable agreement between two or more parties to do, or not do, a specific thing. On the national portion you will be asked to recognize valid, void, voidable, and unenforceable contracts, and to classify a contract by how it is formed and how it is performed. Memorize the four buckets first, then the required elements.

Contracts are the backbone of nearly every transaction you will handle, so the exam tests them heavily. Roughly one in six national questions touches contract law or agency, and most are scenario-based rather than definitional. Your goal in this chapter is not to memorize trivia but to read a fact pattern and instantly classify it: which type of contract, which element is missing, and what remedy or duty follows.

A valid contract meets all legal requirements and binds both parties. A void contract has no legal effect from the start (for example, a contract for an illegal act). A voidable contract is valid but one party may cancel it (a contract with a minor, or one induced by fraud). An unenforceable contract was valid but cannot be enforced in court, usually because it violates the Statute of Frauds (an oral land sale) or the statute of limitations has run.

The difference between void and voidable is the single most-tested contract distinction. A void agreement never had legal life — there is nothing to cancel because nothing existed. A voidable agreement is alive and enforceable until the protected party chooses to disaffirm it. Notice that in a voidable contract, only one side typically holds the power to cancel: the minor, the defrauded buyer, or the party under duress. The other party cannot use the same defense to escape.

The required elements

Every valid contract needs the same core elements. A common exam trap is listing "earnest money" as required — it is not; consideration need not be money, and earnest money is merely evidence of good faith.

Classifying by formation and performance

Contracts are described by how they form: an express contract states terms in words (written or oral); an implied contract arises from conduct. They are described by who is obligated: a bilateral contract is a promise for a promise (a typical purchase agreement — both sides promise), while a unilateral contract is a promise for an act (an open listing where the broker is paid only if it produces a buyer).

They are also described by performance status: an executory contract is not yet fully performed (a signed sale awaiting closing), while an executed contract is fully performed (after closing). Note the language trap: "executed" sometimes loosely means "signed," but on the exam an executed contract is one that has been completely performed. A signed-but-not-closed purchase agreement is executory, not executed.

Statute of Frauds worked example

The Statute of Frauds requires contracts that transfer an interest in real estate, and most leases longer than one year, to be in writing and signed to be enforceable. Suppose a seller orally agrees on Monday to sell a lot for $90,000 and the buyer hands over a $5,000 check. On Friday the seller backs out.

Because nothing was signed, the buyer generally cannot force the sale — the agreement is unenforceable, even though both parties intended it, and the $5,000 must be returned. This is why agents reduce every accepted offer to a signed writing immediately. The exam reward here is recognizing that an oral land contract is unenforceable, not void: it had every element except the required writing, so it would have been valid had it been signed.

Offer, counteroffer, and termination

An offer can be terminated by lapse of time, revocation before acceptance, rejection, counteroffer, death or incapacity of a party, or destruction of the property. The most-tested point: a counteroffer is a rejection of the original offer plus a new offer. Once a buyer counters, the seller's original price is dead and cannot be "reaccepted" unless re-extended.

Acceptance must also be communicated to the offeror to form the contract — a silent or uncommunicated acceptance is not binding. Likewise, an offer is only revocable until acceptance is communicated; after that, a binding bilateral contract exists. Earnest money, again, is not an element of the contract; it is evidence of the buyer's good faith and a potential source of liquidated damages, but a contract can be valid with no earnest money at all.

To lock in these distinctions, practice translating each fact pattern into a one-line label before you read the answer choices. "Oral, land, unsigned" should immediately read as unenforceable; "minor" as voidable; "illegal object" as void; "both promised, not yet closed" as bilateral and executory. That habit prevents the most common error — picking a technically true but irrelevant label — and lets you move quickly through the dozen or so contract-classification questions you will likely see.