3.1 Tennessee Contract Requirements

A real estate contract is enforceable only if it meets both the general elements of a contract and Tennessee's writing requirement.

Statute of Frauds

Under Tennessee's Statute of Frauds, a contract for the sale of an interest in real property must be:

• In writing, and
• Signed by the party to be charged (the party against whom enforcement is sought) or that party's authorized agent.

Key point: Oral agreements to buy or sell real estate are generally unenforceable in Tennessee. Leases longer than one year and listing agreements also fall under the writing requirement.

Essential Elements of a Valid Contract

A contract missing an essential element may be void (no legal effect) or voidable (one party may cancel, e.g., a minor's contract).

Earnest Money Handling

Earnest money is the buyer's good-faith deposit. Its handling is a favorite exam topic because it ties contract law to escrow law.

Critical: An affiliate broker may not hold a buyer's check in a desk drawer for days. Funds must move to the principal broker and into escrow promptly once the offer is accepted. Holding or delaying deposit is an escrow violation.

Common Contingencies

Contingencies let a party cancel if a stated condition is not met.

Waiving a contingency removes that exit right, so deadlines matter.

Offers, Counteroffers, and Termination

A contract may end by performance (both sides complete), mutual rescission, failure of a contingency, breach, or impossibility.

'Time Is of the Essence'

When a Tennessee contract states that 'time is of the essence,' deadlines are strict; missing one can be a material breach. Extensions must be in writing and signed.

Executory vs. Executed

Exam trap: Do not confuse an executed contract (fully performed) with an execution (signing). A contract can be signed yet still executory until closing.

Statute of Limitations and Records

Keeping records seven years exceeds the six-year limitations period, protecting licensees against late claims.

Void, Voidable, and Unenforceable

A recurring contract distinction is the status of a defective agreement. A void contract has no legal effect from the start (for example, an agreement for an illegal purpose). A voidable contract is valid until a protected party chooses to cancel it - a minor's contract or one induced by fraud or duress is voidable by the innocent party. An unenforceable contract is one a court will not enforce even though it is otherwise valid, which is exactly what happens to an oral land-sale agreement under the Statute of Frauds.

Matching the fact pattern to the right label is worth several points and often determines whether earnest money is returned or forfeited.

The Statute of Frauds also reaches beyond the sale contract itself. Listing agreements, buyer-representation agreements, and leases longer than one year generally must be in writing to be enforceable. A licensee who relies on a handshake listing has no enforceable claim to a commission, which is why every representation relationship - consistent with Tennessee's facilitator-to-agent rule - is reduced to a signed writing.

Earnest Money, Liquidated Damages, and Specific Performance

Earnest money is not a fee the broker keeps; it is the buyer's deposit applied to the purchase or handled per the contract if the deal fails. If the buyer defaults, the contract usually lets the seller retain the earnest money as liquidated damages - an agreed, reasonable estimate of harm - rather than suing for actual losses. If the seller defaults, the buyer can typically recover the deposit and may pursue specific performance, a court order compelling the seller to convey, because each parcel of real estate is considered unique.

The broker, holding the funds in escrow, must not pick a side when the parties dispute who is entitled to the deposit; the dispute-resolution tools from the escrow chapter apply.

The exam also tests assignment and novation. Many purchase contracts are assignable unless they say otherwise, transferring the buyer's rights to a new buyer while the original party may remain liable; a novation substitutes a new party and releases the old one. Recognizing that an assignment does not automatically release the original buyer, while a novation does, is a common discriminator among answer choices.