Contract Fundamentals
Contract Law Rules Every Candidate Must Know
General principles carry across jurisdictions, but the forms licensees may prepare, the signatures and disclosures required, and the limits on unauthorized practice of law are set by state statute and commission rule. Verify those against your own state's materials.
Almost nothing in a transaction happens outside a written agreement. Listings, offers, leases, options and management arrangements are all contracts, which is why this material shows up across the whole exam rather than in one tidy block.
You are not being asked to practice law. You are being asked to read a short fact pattern and say whether an enforceable agreement exists, what stage it has reached, and what a wronged party can ask a court to do about it.
What an Enforceable Agreement Requires
Strip an agreement down and four requirements remain. Take any one away and the fact pattern changes its answer.
Agreement on the same bargain. One side proposes definite terms and the other accepts those terms without altering them. If the response changes anything of substance, the parties have not agreed on the same thing and no contract has formed yet.
An exchange that costs each side something. Each party has to give up something of legal value: money, a promise, property, or the surrender of a right they were free to exercise. A one-sided promise to hand over a gift is not a bargain, and courts will not enforce it as one.
Parties the law lets contract. Capacity covers age of majority and the mental ability to understand what is being signed. Where an entity signs, the person signing must also hold authority to bind it, which is why questions push at trustees, corporate officers and attorneys in fact.
A lawful object. The purpose and performance must both be legal. An arrangement to conceal a defect from a lender, to steer buyers by protected class, or to pay an unlicensed person for licensed activity is not merely risky. It is unenforceable at the outset.
How an Offer Lives and How It Dies
An offer is a proposal a person can turn into a contract by accepting it. Until that happens, it is fragile, and exam items spend more time on how offers end than on how they form.
An offer terminates when the offeror revokes it before acceptance, when the stated time limit runs out, when a reasonable time passes if none was stated, when the offeree rejects it, or when either party dies or loses capacity beforehand. A response that adds, removes or changes a term is a rejection and a fresh proposal, which flips control of the bargain to the other side. Watch that reversal, because scenario questions build entire timelines out of it.
Acceptance has to be communicated the way the offer allows, and it has to happen while the offer is still open. A signature sitting in a desk drawer accomplishes nothing. So the sequence in the question matters more than the content: read the dates and the deliveries first, then decide whether anyone ever accepted anything.
One arrangement resists all of this. Where the buyer pays for the right to keep a proposal open, the seller has sold away the power to revoke for that period. The buyer bought a choice, not an obligation, and can let the period run out without owing performance.
Classifying the Agreement in Front of You
No legal effect at all
The law treats the arrangement as though it never existed, so neither side can enforce it and neither has to disaffirm it. Illegal objects and agreements with a party already adjudicated incompetent land here.
Enforceable until someone objects
The agreement stands, but one identified party holds the power to undo it. Fraud, duress, undue influence, material misrepresentation and agreements signed by a minor all put that power in the injured or protected party's hands. The other side does not get to use it.
Real but not provable in court
Everything needed for formation is present, yet a legal barrier blocks enforcement. The usual barrier is the writing requirement; an expired limitations period is another. The parties may still perform voluntarily.
Still being performed
At least one obligation is outstanding. A signed purchase agreement stays in this state through the entire escrow period, which is why a question describing a deal before closing is describing an agreement in progress.
Finished
Every promise has been carried out and nothing remains to be done. Candidates lose points by confusing a fully performed agreement with one that has merely been signed by everybody.
Promise traded for promise
Both sides commit, and each commitment supports the other. Purchase agreements and most listing arrangements work this way. The contrast is the arrangement where only one side is bound and the other performs or walks away, which is how an option and an open listing behave.
The Writing Requirement and Why Handshakes Fail
A rule inherited from English law requires certain agreements to be evidenced in writing and signed by the party being held to them. Agreements transferring an interest in land are squarely inside it, and in most states so are longer leases and the commission arrangements a broker relies on to get paid.
The writing does not have to be elegant. It has to identify the parties, describe the property well enough to be certain, state the price or how the price is determined, show the intent to transfer, and carry the signature of the party to be charged. Courts have enforced spare documents that did those things and refused to enforce polished ones that missed one.
The practical consequence for a licensee is a discipline about timing. Oral side agreements, verbal price changes and promises made on the phone are not reliable, and neither are amendments everyone assumes are understood. If a term matters, it belongs in a signed writing before anyone acts on it.
When Someone Fails to Perform
Failure to perform without a legal excuse is a breach. What the wronged party can do about it depends on the seriousness of the failure and on what the agreement says.
Money damages. The default. The wronged party is put financially where performance would have left them, which usually means the loss actually caused rather than a windfall.
An order to perform. Because no two parcels are interchangeable, a court may order the sale to go through rather than settle for money. Buyers ask for this far more often than sellers do, and the remedy exists precisely because land is treated as unique.
Unwinding the deal. Rescission cancels the agreement and returns the parties to their prior positions, deposits included. It fits misrepresentation, mutual mistake and agreements the injured party was entitled to void.
Keeping the deposit. Many purchase forms let a seller retain the earnest money as agreed compensation for a buyer's default. Whether the seller may also pursue other remedies depends on the wording, so read the paragraph rather than assuming.
Correcting the document. Where the writing does not reflect what both sides actually agreed, a court can reform it. This addresses drafting mistakes, not regret about a bad bargain.
A strict-deadline clause changes the calculus. When the agreement states that timing is essential, a missed date is a material failure on its own. Without that language, courts often accept performance that is close enough and slightly late.
The Status Labels, Defined
Items in this topic often turn on a single label. These are the eight worth being able to state in a sentence.
Valid Contract
An agreement carrying all four formation requirements, so a court will hold either side to it on the other's request.
Void Contract
An arrangement the law never recognized, such as one with an illegal object or with a party already adjudged incompetent; neither side can enforce it and neither needs to cancel it.
Voidable Contract
A contract that binds both sides until the party the law protects chooses to undo it, which is the position of a minor or of someone induced by fraud, duress or undue influence.
Unenforceable Contract
A properly formed agreement that a court will not compel because some outside barrier blocks it, most often the absence of the signed writing the statute of frauds demands.
Executed Contract
One in which every promise has been carried out and nothing is left for either party to do.
Executory Contract
One with obligations still outstanding on at least one side, which describes a signed purchase agreement for the whole stretch between signing and closing.
Bilateral Contract
An arrangement in which each side gives a promise and each promise supports the other, the ordinary shape of a purchase agreement.
Unilateral Contract
An arrangement binding only one side, who must perform if the other chooses to act; an option works this way, since the holder may exercise it or simply let it lapse.
Contract Questions That Trip Candidates Up
Is an unenforceable agreement the same as a void one?
No, and the exam tests the gap. A void arrangement never had legal existence. An unenforceable one was formed properly and simply cannot be compelled in court, most often because it was never put in writing. The parties can still perform it if they choose.
Who can escape a voidable agreement?
Only the party the rule protects. A minor may disaffirm; the adult who contracted with the minor may not. A party induced by fraud may rescind; the party who committed the fraud cannot use it as an exit. Identify the protected party before answering.
Does a response changing one small term still accept the offer?
Not if the change is substantive. Acceptance must match the proposal. Altering price, dates, included items or terms rejects what was offered and puts a new proposal on the table, which the original offeror is then free to accept, reject or counter.
Can a licensee write custom contract language?
That line is drawn by state law and it is narrow. Most states let licensees complete approved forms and fill in negotiated blanks, while drafting original provisions can amount to practicing law without a license. Complicated terms belong with an attorney.
What happens to an agreement when one party dies before closing?
A signed purchase agreement generally survives, and the estate steps in to perform because the obligation runs with the property rather than the person. Personal service arrangements behave differently: a listing agreement typically ends on the death of the principal or the broker.
Does either side get to walk away during an attorney review window?
Where state practice provides such a period, the agreement can usually be disapproved within it on notice, and the details of who may cancel, how long the window runs and how notice is given are governed locally. Do not carry one state's approach into another.