3.1 Missouri Contract Basics
Key Takeaways
- Missouri's Statute of Frauds (RSMo 432.010) requires real estate sales contracts, leases over one year, and listing agreements to be in writing and signed to be enforceable
- A valid contract needs offer, acceptance, consideration, legal capacity (age 18+ and competent), and a lawful purpose
- Earnest money is customary but not legally required; a broker holding disputed funds may not unilaterally decide who gets them
- A counteroffer rejects the original offer and creates a new one, reversing the offeror/offeree roles
- When 'time is of the essence' appears, Missouri courts enforce deadlines strictly
Why Contracts Dominate the Missouri State Exam
The Missouri salesperson exam is administered by PSI and contains 140 scored items: 100 on the national portion and 40 on the Missouri state portion. You must score 30 of 40 (75%) on the state portion and 70 of 100 (70%) on the national portion to pass. Contracts, agency, and the Missouri broker-supervision rules carry the heaviest weight on the state side, so mastering the rules below directly moves your score.
Statute of Frauds (RSMo 432.010)
Missouri's Statute of Frauds requires certain agreements to be in a signed writing or they are unenforceable in court. A purely oral promise to sell a house cannot be enforced even if both parties admit it was made.
| Must Be in Writing | Why |
|---|---|
| Contract for sale of real estate | Any transfer of a real-property interest |
| Lease longer than one year | Short-term (month-to-month) leases are exempt |
| Listing / broker-employment agreement | Needed to enforce a commission claim |
| Option to purchase | Creates an enforceable right to buy |
Trap: A month-to-month lease and a 12-month lease are NOT covered (one year or less). A 13-month lease IS. Memorize the 'over one year' line.
The Five Essential Elements
- Offer — a definite proposal (parties, property, price, terms).
- Acceptance — unqualified 'mirror-image' agreement; any change is a counteroffer.
- Consideration — bargained-for value; earnest money or mutual promises qualify, but past consideration and illusory promises do not.
- Legal capacity — competent and at least 18; a minor's contract is voidable by the minor.
- Lawful purpose — an objective that does not violate law or public policy.
Worked Example
A buyer signs an offer at $250,000 with a 30-day financing contingency. The seller crosses out $250,000, writes $258,000, and signs. This is a counteroffer: the original $250,000 offer is dead, and the buyer is now the offeree who may accept, reject, or counter again. If the buyer says nothing and the seller later tries to enforce $250,000, no contract exists.
Earnest Money in Missouri
Earnest money is a good-faith deposit. It is customary but not legally required for a valid contract (mutual promises already supply consideration). Typical deposits run 1%–3% of price and are held in the broker's escrow/trust account or by the title company, never commingled with operating funds.
| Feature | Missouri Practice |
|---|---|
| Required? | No — customary only |
| Typical amount | 1%–3% of purchase price |
| Held by | Listing/managing broker trust account or title company |
| Applied at closing | Credited toward buyer's down payment/costs |
Disputed Earnest Money
If buyer and seller both claim the deposit, the broker is stuck in the middle and may not pick a winner. Missouri Real Estate Commission rules require the broker to keep the funds in trust until one of these resolves it:
| Method | How It Works |
|---|---|
| Mutual written release | Both parties sign; broker disburses per the signed terms |
| Interpleader | Broker deposits funds with the court and lets a judge decide |
| Mediation / arbitration | Neutral resolves if the contract requires it |
| Litigation | A court order directs disbursement |
Contingencies
A contingency lets a party cancel without breach if a stated condition fails. Each needs a deadline and a written waiver/removal.
| Contingency | Triggers Cancellation If |
|---|---|
| Financing | Buyer cannot obtain the specified loan |
| Inspection | Defects are unacceptable within the inspection window |
| Appraisal | Property appraises below contract price |
| Sale of buyer's home | Buyer's current home does not close |
| Clear title | Seller cannot deliver marketable title |
Time Is of the Essence and Offer Termination
When the contract states 'time is of the essence,' every deadline is a hard date; missing it can be a material breach. Without that clause, courts allow a 'reasonable time' to perform.
An offer terminates by: lapse of its stated time, revocation before acceptance, rejection, counteroffer, or the death/incapacity of either party before acceptance. Trap: death terminates an unaccepted offer but does NOT void an already-formed contract — the estate is bound.
Bilateral vs. Unilateral and Common Exam Traps
A Missouri purchase agreement is a bilateral contract: a promise (to buy) exchanged for a promise (to sell). By contrast, an open listing where the seller promises a commission only if a specific agent produces a buyer is closer to a unilateral promise (a promise exchanged for an act). The exam likes to ask you to classify these.
Watch these recurring distinctions, because the state portion phrases them precisely:
- Void vs. voidable vs. unenforceable. A contract for an illegal purpose is void (no legal effect ever). A minor's contract is voidable (the protected party can disaffirm). An oral land-sale contract is valid but unenforceable because it violates the Statute of Frauds — a critical distinction the exam tests.
- Executory vs. executed. Between signing and closing the contract is executory (promises still owed). After closing it is executed (fully performed).
- Assignment. Most Missouri purchase contracts are assignable unless they expressly prohibit it or involve unique personal performance; the original party remains liable unless released by a novation.
- Liquidated damages. Many contracts state that the seller's sole remedy for buyer default is to keep the earnest money — a pre-agreed liquidated-damages amount rather than open-ended actual damages.
Scenario
A buyer and seller sign a contract, then the seller verbally agrees to throw in the refrigerator. At closing the seller removes it. Because the side promise was oral and the original contract is within the Statute of Frauds, the buyer generally cannot enforce the verbal add-on; the lesson is to capture every change in a signed amendment or addendum before closing.
Under Missouri's Statute of Frauds (RSMo 432.010), which agreement is enforceable WITHOUT being in writing?
When a buyer makes a counteroffer in Missouri, what happens to the original offer?
Two parties dispute who is entitled to the earnest money after a deal collapses. Under Missouri Real Estate Commission rules, what may the broker holding the funds do?