4.1 Contract Types and Required Elements

Contract Types and Required Elements

A contract is a legally enforceable agreement between competent parties to do, or refrain from doing, some legal act, supported by consideration. Real estate practice runs on contracts: listing agreements, buyer-agency agreements, purchase contracts, options, leases, and escrow instructions. The national exam tests whether you can name the required elements, classify a contract, and spot what makes an agreement fail.

The four required elements

Every valid contract must contain all four of the following. If any is missing, the agreement is not a valid contract.

Real estate contracts add a fifth practical requirement: most must be in writing under the Statute of Frauds.

Classifying contracts

Exam writers describe the same contract three different ways. Learn all three axes so an unfamiliar phrasing does not throw you.

The three classification axes

• Express vs. implied. An express contract is stated in words (oral or written). An implied contract is created by the conduct of the parties without spoken or written terms.
• Bilateral vs. unilateral. In a bilateral contract, both parties promise to perform (a purchase agreement: buyer promises to pay, seller promises to convey). In a unilateral contract, only one party is obligated until the other acts; an open listing and an option are classic unilateral examples.
• Executory vs. executed. An executory contract has acts still to be performed (a signed purchase agreement before closing). An executed contract is fully performed by both sides (after closing).

A single contract carries one label on each axis. A signed purchase agreement awaiting closing is an express, bilateral, executory contract. Memorize that example.

Void, voidable, unenforceable

These three terms are heavily tested and easily confused.

A voidable contract is binding on the non-protected party; only the protected party may rescind. An unenforceable contract may still be honored voluntarily, but a court will not compel performance.

The Statute of Frauds

The Statute of Frauds requires certain contracts to be in writing and signed by the party to be charged in order to be enforceable. In real estate this captures: contracts for the sale of real property, leases longer than one year (the threshold varies by state, commonly one year), and agreements that cannot be performed within one year.

Worked example: A seller orally agrees to sell a lot for $90,000 and accepts a $5,000 cash deposit. The buyer later sues for specific performance. Because the sale of land is within the Statute of Frauds, the oral agreement is unenforceable even though a deposit changed hands. The buyer's remedy is return of the $5,000, not transfer of the land. Partial performance doctrines exist in some states, but the default exam answer is that the oral land contract cannot be enforced.

Why writing protects the licensee

A written contract fixes price, parties, property description, and terms, reducing disputes and protecting the broker's right to a commission. Listing agreements in nearly every state must be written to be enforceable for compensation. When a fact pattern gives you an oral promise of commission, the default exam answer is that the broker cannot enforce it.

Reality vs. fraud and duress

Mutual assent must be genuine. Assent obtained by fraud (intentional misstatement of a material fact), misrepresentation (innocent or negligent false statement), duress (force or threat), menace, or undue influence makes the contract voidable by the injured party. Note the pattern: defective assent yields a voidable contract, while an illegal object yields a void contract. A buyer who signs after the seller lies about the square footage may rescind; the contract was not void from the start, only voidable at the buyer's option.

Finally, distinguish a valid contract from a mere agreement to agree. An offer with an open price term, or terms "to be negotiated later," usually lacks the definiteness needed for mutual assent and is unenforceable until the essential terms are settled in writing.

Electronic signatures, offer mechanics, and the parol evidence rule

Modern transactions rely on electronic signatures. Under the federal E-SIGN Act and the state-level UETA, an electronic signature on a real estate contract is generally as valid as an ink signature, provided both parties consented to transact electronically. Expect a question contrasting a clicked or DocuSigned acceptance with a "wet" signature — both create a binding contract.

Offer-and-acceptance mechanics generate many points:

• An offer must be communicated to be effective; a signed-but-undelivered acceptance does not yet bind.
• A counteroffer is simultaneously a rejection of the prior offer and a new offer, flipping the roles of offeror and offeree.
• Death, insanity, or destruction of the property before acceptance terminates the offer automatically.
• Acceptance must mirror the offer's terms (the mirror-image rule); any change is a counteroffer, not acceptance.

The parol evidence rule bars a party from using prior oral statements to contradict the terms of a final written contract. If the written purchase agreement omits the seller's earlier oral promise to leave the riding mower, the buyer generally cannot enforce that promise — the writing controls. This dovetails with the Statute of Frauds: not only must land contracts be written, but the writing is treated as the complete agreement.

Worked trap: a seller orally promises a $3,000 repair credit, but the signed contract contains an "entire agreement" (integration) clause and no credit. The buyer cannot enforce the oral credit because parol evidence is excluded — the exam answer is that the written contract governs.