4.1 Contract Types and Required Elements

Contract Types and Required Elements

A contract is a legally enforceable agreement to do, or not do, a specific thing. On the national exam, roughly one in eight questions touches contract law, so you must know the essential elements cold and be able to spot which one is missing in a fact pattern.

The five essential elements

Every valid contract — real estate or otherwise — must contain these elements. Memorize them as a checklist; the exam removes one and asks you what is wrong.

Remember: earnest money is not an essential element. A purchase contract is valid without earnest money — the consideration is the mutual promises of the parties.

Classifications you must distinguish

Express vs. implied

An express contract is stated in words (oral or written). An implied contract is created by the conduct of the parties (a buyer who uses a broker's services may create an implied agency).

Bilateral vs. unilateral

• Bilateral — a promise exchanged for a promise. A typical purchase agreement is bilateral: seller promises to convey, buyer promises to pay.
• Unilateral — a promise exchanged for an act. An open listing or an option is unilateral: only one party is obligated, and the other performs (or not) at will.

Valid, void, voidable, unenforceable

Executory vs. executed

An executory contract has unperformed obligations remaining (a signed contract before closing). An executed contract is fully performed by both sides (after closing). Do not confuse "executed" in this sense with merely "signed."

The Statute of Frauds

The Statute of Frauds requires that contracts for the sale or transfer of real estate, and leases for more than one year, be in writing and signed by the party to be charged to be enforceable in court.

Worked example: A seller orally agrees to sell a lot for $90,000 and the buyer hands over a $4,000 deposit. The seller backs out. Because the agreement was never reduced to writing, the buyer generally cannot force the sale — the contract is unenforceable, not void. The deposit must be returned because the seller cannot retain consideration for an unenforceable bargain.

What must be in writing

• Contracts for sale of real property
• Leases longer than one year
• Listing agreements (in most states, to collect a commission)
• Options to purchase real estate

Parol evidence rule (related trap)

Once parties reduce their agreement to a complete written contract, the parol evidence rule bars using prior oral statements to contradict the writing. The exam pairs this with the Statute of Frauds: writing makes a contract enforceable AND limits what outside evidence can change it.

Offer, counteroffer, and the meeting of the minds

Mutual assent is the heart of every contract, and the exam tests it through the offer/counteroffer chain. An offer is a definite proposal; acceptance must mirror the offer exactly (the mirror-image rule). Any change in terms is a counteroffer, which rejects and destroys the original offer.

Worked example: Buyer offers $200,000. Seller responds "I accept at $205,000." That is a counteroffer, not an acceptance — the $200,000 offer is dead and the buyer is now the offeree. If the buyer says nothing, no contract exists. Silence is generally not acceptance.

Ways an offer ends before acceptance

1. Revocation by the offeror before acceptance is communicated.
2. Rejection or counteroffer by the offeree.
3. Lapse of a stated time, or a reasonable time if none is stated.
4. Death or incapacity of either party before acceptance.
5. Destruction of the subject property.

Reality of consent

Mutual assent must be genuine. It is destroyed by fraud (intentional misrepresentation), misrepresentation, undue influence, duress (threat), and mutual mistake of a material fact. Fraud and duress make the contract voidable by the injured party — the wronged party may enforce it or walk away.

Knowing this ladder lets you answer "void vs. voidable" questions quickly: illegality voids; defects in consent make a contract merely voidable by the protected party.