4.1 Contract Types and Required Elements

The five required elements

Every valid real estate contract rests on five elements the exam tests by name. Memorize them as a checklist because a fact pattern that removes one element is the most common way questions create a void or voidable contract.

Consideration need not be money. A promise to do something, or to refrain from doing something one is legally entitled to do, is valid consideration. Courts generally do not weigh whether the consideration is adequate, only that it exists.

The Statute of Frauds

The Statute of Frauds requires that contracts conveying an interest in real estate, and leases longer than one year, be in writing and signed by the party to be charged. An oral listing or oral purchase agreement is generally unenforceable even if both parties admit the terms.

Worked trap

A seller orally agrees to sell a lot for $90,000 and accepts a $2,000 deposit, but nothing is signed. The buyer later sues to force the sale. Even though money changed hands, the contract for the sale of land is unenforceable under the Statute of Frauds — the writing requirement controls. The exam distinguishes unenforceable (valid but the court will not enforce) from void (never a contract at all). Here, it is unenforceable, not void.

Note the one-year lease line: a 12-month lease can be oral; a 13-month lease must be written. The exam loves the boundary case.

Classifying contracts

The exam expects you to label a contract along three axes:

• Express vs. implied — an express contract states its terms in words (written or oral); an implied contract arises from the parties' conduct.
• Bilateral vs. unilateral — a bilateral contract is a promise for a promise (both bound, as in a typical purchase agreement). A unilateral contract is a promise for an act; only one party is bound until the other performs.
• Executory vs. executed — executory means something is still left to do (a signed sale before closing); executed means all parties have fully performed (after closing).

The option contract

An option is the textbook unilateral contract. The optionor (seller) is bound to keep the offer open; the optionee (buyer) pays option consideration but is not obligated to buy. If the optionee exercises, the option ripens into a bilateral purchase contract. Tip: option consideration is generally non-refundable and may or may not apply to the purchase price depending on the contract terms.

Void, voidable, and unenforceable — drawing the lines

The single most-tested vocabulary cluster in contract law is the status spectrum. Pin down each term with a one-fact test:

• Valid — all five elements present; fully enforceable by both parties.
• Void — no contract ever existed; an illegal object (e.g., a contract to defraud) is void from the start ("void ab initio"). Neither party can enforce it.
• Voidable — a valid contract that one party may cancel because the law protects them: a minor, an incompetent person, or a party who was defrauded or under duress. It stays in force until that party disaffirms.
• Unenforceable — valid in substance, but a court will not enforce it, usually because of the Statute of Frauds (no writing) or an expired statute of limitations.

Why this matters on the exam

Questions plant one defect and ask you to name the status. "Contract to sell stolen goods" is void. "Contract signed by an intoxicated person who could not understand it" is voidable by that person. "Oral agreement to sell land" is unenforceable. "Seller lied about a known foundation crack" makes the contract voidable by the defrauded buyer, who can rescind or sue.

A useful memory aid: capacity and consent problems create voidable contracts (the innocent party chooses); legality problems create void contracts (no one can choose); writing/timing problems create unenforceable contracts. Keep illegal (void) separate from improper-form (unenforceable) — that is the trap most candidates fall into under time pressure.

Genuine assent and the defenses that unwind a contract

Even when all five elements exist, genuine (mutual) assent can be attacked. Memorize the defenses and their effect:

Void vs. voidable is the single most-tested distinction. A void contract never had legal effect (illegal subject, no capacity). A voidable contract is valid until the injured party disaffirms (a minor's contract, one signed under duress). An unenforceable contract is valid but a court will not enforce it — typically because it violates the Statute of Frauds (not in writing) or the limitations period has run.

Worked assent scenario

A seller tells a buyer the roof is "two years old" when the seller knows it is fifteen. The buyer relies on the statement and closes. This is intentional misrepresentation (fraud), so the contract is voidable by the buyer, who may rescind and recover damages. Contrast puffing — "this is the best view in town" — which is non-actionable opinion. The exam separates a verifiable false statement of fact (actionable) from sales opinion (not actionable).

Earnest money and option consideration

Earnest money is not required for a valid contract; the mutual promises supply consideration. An option contract is a separate unilateral agreement: the optionee pays option money for the right, not the obligation, to buy within a set time. Worked example: a buyer pays $5,000 for a 90-day option at $400,000. Exercise it, and the $5,000 is often credited to price; let it lapse, and the seller keeps it and the buyer owes nothing further.