4.1 Contract Types and Required Elements

The five required elements

The national exam tests contracts as a system of building blocks. A contract is a legally enforceable agreement, and to be enforceable it must contain five elements. Miss one and the agreement is not a binding contract — it may be void or merely a negotiation.

• Offer and acceptance (mutual assent / meeting of the minds): one party offers definite terms, the other accepts those exact terms. Any change is a counteroffer, which kills the original offer.
• Consideration: something of legal value each party gives. Earnest money is evidence of consideration but is not itself the consideration; the mutual promises are.
• Legal capacity: parties must be of legal age and mentally competent. Minors and persons adjudicated incompetent lack capacity.
• Legal purpose (legality of object): the objective cannot be illegal. A listing to refuse buyers by race is void as illegal.
• In writing (for real estate): the Statute of Frauds requires real-estate sales and most leases over one year to be written and signed to be enforceable.

Statute of Frauds

The Statute of Frauds is the rule the exam loves: contracts for the sale of real estate, and leases longer than one year, must be in writing and signed by the party to be charged. An oral agreement to sell a house is not enforceable in court even if both parties admit it. A 6-month oral lease, however, is generally enforceable because it falls under the one-year threshold.

Bilateral vs unilateral; status grid

A bilateral contract is a promise for a promise — a standard purchase agreement, where the buyer promises to pay and the seller promises to convey. A unilateral contract is a promise in exchange for a completed act; only one party is obligated unless and until the act is performed. The classic example is an option: the optionor (seller) is bound to keep the offer open, but the optionee (buyer) is not obligated to buy — only if the optionee performs (exercises) does a bilateral sale arise.

Executed vs executory

Do not confuse "executed" (fully performed by both sides — e.g., after closing) with merely "signed." An executory contract has remaining duties; a signed purchase agreement before closing is executory.

The status grid (high-yield)

Trap: A contract signed by a minor is voidable (the minor may disaffirm), not void. A contract with an illegal purpose is void. An oral land-sale contract is unenforceable, not automatically void — the parties may still voluntarily perform.

Trap: "Valid but unenforceable" still means a real contract exists; if both parties perform voluntarily, neither can later undo it by claiming the writing defect.

Offer, acceptance, and the mailbox rule

Mutual assent forms the instant a valid acceptance is communicated. The exam drills the mechanics:

• An offer can be revoked any time before acceptance is communicated, unless the offeree paid for an option to hold it open.
• A counteroffer rejects and terminates the original offer; the original offeror is now free to walk away.
• A death or incapacity of either party before acceptance terminates the offer.
• The mailbox rule (where it applies) makes an acceptance effective when dispatched by the authorized method, but most modern real-estate contracts require acceptance to be delivered/communicated to bind — read the contract's notice clause.

Trap: Silence is not acceptance. A seller who receives an offer and says nothing has not accepted; the offer simply lapses at its stated deadline or after a reasonable time.

What makes assent defective

Even with all five elements physically present, assent can be undermined, making a contract voidable by the injured party:

Worked distinction: If a seller knowingly states the roof is two years old when it is fifteen, and the buyer relies and buys, that is fraud — the contract is voidable and the buyer may also recover damages. If the seller honestly but wrongly believed it was two years old, it is innocent misrepresentation, generally giving rescission but not punitive damages. The presence or absence of intent to deceive separates the two, and the exam often hinges the answer on that word.

Earnest money's real role

Earnest money demonstrates the buyer's good faith and serves as evidence of consideration, but the binding consideration is the exchange of promises themselves. A purchase contract with $0 earnest money can still be fully valid if both parties exchanged promises. The deposit's significance appears later, at breach, where a liquidated-damages clause may let the seller keep it.