3.1 Montana Contract Requirements
Key Takeaways
- Montana's Statute of Frauds (MCA 28-2-903) requires real estate contracts to be in writing and signed by the party to be charged
- A valid contract needs offer, acceptance, consideration, legal capacity, lawful purpose, and (for real estate) a writing
- Earnest money is delivered to the supervising broker's trust account, not held by the salesperson
- Common contingencies include financing, inspection, appraisal, and — in Montana — water rights verified through the DNRC
- Montana practitioners typically use Montana Association of REALTORS standardized forms, and 'time is of the essence' clauses make deadlines binding
Montana real estate contracts must satisfy both general contract law and Montana-specific requirements to be enforceable.
Statute of Frauds (MCA 28-2-903)
Under Montana's Statute of Frauds, a contract for the sale of real property must be:
- In writing, and
- Signed by the party to be charged (the party against whom enforcement is sought) or their authorized agent.
Key point: Oral agreements to buy or sell real estate are generally unenforceable in Montana. A handshake deal on land does not bind. Leases longer than one year and other interests in land also fall within the writing requirement.
Essential Elements of a Valid Contract
| Element | Description |
|---|---|
| Offer | A definite proposal with clear terms |
| Acceptance | Unequivocal agreement to those terms (mirror image) |
| Consideration | Bargained-for value exchanged (usually money) |
| Legal capacity | Parties competent (of age, sound mind) |
| Lawful purpose | The object must be legal |
| In writing | Required for real estate (Statute of Frauds) |
A counteroffer rejects the original offer and creates a new one — the original offeree becomes the offeror. Acceptance must match the offer; any change in terms is a counteroffer, not an acceptance.
Montana Forms
Most licensees use Montana Association of REALTORS (MAR) standardized forms — Buy-Sell Agreements, listing agreements, buyer-broker agreements, and the Owner's Property Disclosure Statement. Standardized forms reduce drafting errors, but a licensee fills in blanks and selects contingencies — they do not practice law by drafting custom clauses.
Earnest Money Handling
Earnest money (a good-faith deposit) signals the buyer's serious intent and is credited at closing.
| Requirement | Detail |
|---|---|
| Who holds it | The broker (trust account) or an authorized title/escrow company — never the salesperson personally |
| Deposit timing | Per the contract (commonly within a few business days of acceptance) |
| Disbursement | Per contract terms or the parties' written agreement |
Critical rule: A salesperson who receives earnest money must promptly deliver it to the supervising broker for deposit into the brokerage trust account. A salesperson cannot hold or deposit client funds in their own account — doing so is commingling/conversion and grounds for discipline (Chapter 4).
Common Contingencies
Contingencies let a party exit if a condition is not met:
| Contingency | Purpose |
|---|---|
| Financing | Buyer may cancel if a loan is not obtained by a deadline |
| Inspection | Buyer may inspect and negotiate repairs or cancel |
| Appraisal | Protects the buyer if value comes in below the price |
| Title | Marketable title must be delivered |
| Water rights | Montana-specific — verify rights exist and transfer |
The Montana water-rights contingency
Because water rights can be severed from the land and are administered by the DNRC (Department of Natural Resources and Conservation), rural Montana buy-sell agreements frequently include a water-rights contingency: the buyer investigates the existence, type, priority date, and transferability of the rights through the DNRC and may accept, renegotiate, or cancel based on the findings.
Montana-specific: Expect at least one question pairing water rights with contract contingencies — the water-rights contingency is the signature Montana add-on.
Time, Performance, and Termination
"Time is of the essence"
Many Montana contracts state that time is of the essence, making deadlines strict and binding. Missing a financing or inspection deadline can constitute a breach; extensions require a written agreement.
Executory vs. executed
- An executory contract is signed but not yet fully performed (between acceptance and closing).
- An executed contract has been fully performed (after closing).
Ways a contract terminates
| Method | Description |
|---|---|
| Performance | Both parties fulfill their obligations (closing) |
| Mutual rescission | Both agree to cancel |
| Contingency failure | A stated condition is not met |
| Breach | One party fails to perform; remedies may include damages or specific performance |
| Impossibility | Performance becomes objectively impossible |
Exam tip: Because land is unique, the remedy of specific performance (compelling the sale) is available in real estate disputes in a way it is not for ordinary goods.
Offer, Acceptance, and the Mechanics of a Binding Deal
The precise moment a contract forms is a frequent question. Key rules:
- An offer can be revoked any time before acceptance is communicated — even if the offeror promised to keep it open (unless the buyer paid for an option).
- Acceptance must be communicated to the offeror to bind the deal; a signed-but-undelivered acceptance does not yet form a contract.
- A counteroffer terminates the original offer; the original offeror is then free to accept, counter, or reject the new terms.
- Death or incapacity of a party before acceptance generally terminates the offer.
Buyer remedies vs. seller remedies on breach
| Breaching party | Non-breaching party's options |
|---|---|
| Buyer defaults | Seller may keep earnest money as liquidated damages (if the contract so provides), sue for actual damages, or seek specific performance |
| Seller defaults | Buyer may sue for damages or seek specific performance to force the conveyance |
Liquidated damages: Many Montana buy-sell forms let the seller retain the earnest money as the agreed remedy if the buyer defaults. That clause caps the seller's recovery to the deposit unless the contract preserves other remedies — read the form's default box carefully.
Exam tip: "Time is of the essence" plus a missed contingency deadline usually means the deadline controls — a party who blows the financing date without an extension can lose the right to that contingency's protection.
Under Montana's Statute of Frauds (MCA 28-2-903), a contract to sell real estate must be:
A salesperson receives an earnest money check from a buyer. What must the salesperson do?
Which contingency is distinctively common in Montana rural real estate contracts?