4.1 Contract Types and Required Elements

Why Contracts Dominate the National Exam

Roughly 12% to 17% of the national portion tests contracts. Examiners love this topic because every transaction rides on it: listing agreements, buyer-broker agreements, purchase contracts, options, and leases are all contracts. If you can recite the required elements and classify a contract correctly, you will capture easy points that many candidates miss by guessing.

The Essential Elements of a Valid Contract

A contract that is missing any essential element is void (a legal nullity that was never enforceable). Memorize these elements. A common mnemonic is "COLIC": Competent parties, Offer and acceptance (mutual assent), Legal purpose, In writing (when required), Consideration.

Mutual Assent: Offer and Acceptance Mechanics

An offer must be communicated, definite, and show intent to be bound. Acceptance must mirror the offer exactly — the mirror-image rule. Any change in price, terms, or dates is a counteroffer, which terminates the original offer and gives the original offeror the power to accept.

Acceptance is not effective until communicated back to the offeror. An offeror may revoke an offer any time before acceptance unless the offer is an option supported by consideration. The death or incapacity of either party before acceptance also terminates the offer.

Worked example: A seller lists at $400,000. A buyer offers $385,000. The seller counters at $395,000. The buyer's original $385,000 offer is now dead. If the seller later tries to "accept" the $385,000, no contract forms — the counteroffer extinguished it. To revive any number, a party must make a fresh offer the other side then accepts without change. Silence is generally not acceptance, and a deadline in the offer terminates it automatically once it passes.

Consideration and Earnest Money

Consideration is the bargained-for exchange. In a sale, the promise to pay and the promise to convey are mutual consideration. Earnest money is not consideration and is not legally required to form a binding purchase contract — the mutual promises supply the consideration. Earnest money simply demonstrates the buyer's good faith and provides a fund the seller may pursue if the buyer defaults.

The Statute of Frauds

The Statute of Frauds requires certain contracts to be in writing and signed by the party to be charged. For real estate, this captures: contracts for the sale of land or any interest in land, and leases longer than one year (the exact term varies by state, commonly one year). A purely oral listing may still be enforceable in some states, but an oral sale of land is not.

The writing does not have to be a single formal document. A series of signed notes, emails, or memoranda that together show the parties, the property, the price, and the essential terms can satisfy the statute. The classic exception is partial performance: if a buyer takes possession, pays part of the price, and makes improvements relying on an oral land contract, many courts will enforce it despite the lack of a signed writing.

Classifying Contracts by Validity and Form

The exam tests four validity buckets. Drill the distinctions until they are automatic:

• Valid — meets all elements; fully enforceable.
• Void — missing an essential element; never enforceable (e.g., illegal purpose).
• Voidable — valid until a disadvantaged party elects to disaffirm (e.g., minor, fraud, undue influence, duress).
• Unenforceable — valid in form but a court will not enforce it (e.g., violates Statute of Frauds, or the limitations period expired).

Other classification pairs you must know:

1. Bilateral vs. unilateral — a bilateral contract is a promise for a promise (a signed purchase agreement). A unilateral contract is a promise for an act; only one party is obligated unless the other performs. An option and an exclusive-agency-style "open listing" lean unilateral.
2. Express vs. implied — express is stated in words; implied arises from conduct.
3. Executed vs. executory — executed means fully performed (closed); executory means something remains to be done (after signing, before closing).

Void, Voidable, and Unenforceable — Precise Distinctions

The exam loves these three near-synonyms:

• Void — no contract ever existed (illegal purpose, or a party wholly lacking capacity). It has no legal effect from the start.
• Voidable — a valid contract that one party may cancel or affirm (e.g., signed by a minor, or induced by fraud, duress, or undue influence). It is binding unless the protected party rescinds.
• Unenforceable — valid in substance but a court will not enforce it for a technical reason (e.g., it fails the Statute of Frauds writing requirement, or the limitation period expired).

A contract with a minor is voidable by the minor; a contract to do something illegal is void.

The Statute of Frauds and Bilateral vs. Unilateral

The Statute of Frauds requires that contracts for the sale of real estate (and most leases over one year) be in writing and signed by the party to be charged. Oral real estate sales contracts are generally unenforceable — the leading reason oral side-deals fail.

Real estate also tests contract structure:

• Bilateral — a promise for a promise (a purchase agreement: buyer promises to buy, seller promises to sell).
• Unilateral — a promise for an act (an option, or an open listing where payment is owed only if the act of selling occurs).

Executory means not yet fully performed (between signing and closing); executed means fully performed (after closing).