Contract Law Fundamentals for the Texas Exam

Contracts are the backbone of the Contracts and Agency area, because almost every real estate transaction is a contract. This spoke covers the fundamentals: what makes a contract valid, the four status labels, and the ways contracts are classified. It is part of the Contracts and Agency area.

The exam tests this topic with definitions and quick scenarios. Learn the essential elements, the four statuses, and the bilateral-versus-unilateral split, and most questions become easy.

What makes a contract valid?

A valid contract needs four things: competent parties with legal capacity, mutual agreement through offer and acceptance, consideration meaning an exchange of value, and a legal purpose. Miss one and there is no valid contract. Writing is a separate requirement that does separate work, covered below.

A contract is a legally enforceable agreement, and it needs a specific set of ingredients.

Some study guides list a fifth element, written form, and that is where candidates get tripped. For the exam framework, writing is not treated as what makes the oral agreement exist; it determines whether a listed agreement is enforceable. Texas says so in the statute itself: Business and Commerce Code Section 26.01(a) provides that a listed agreement "is not enforceable unless" it is in writing and signed. Not automatically void. Generally unenforceable.

The distinction has a right answer attached to it. If writing were an element of formation, an oral agreement to sell land would be no contract at all, and the exam would label it void. It does not. The exam labels it unenforceable, which is a different status with different consequences, and that is the section further down.

Valid, void, voidable, and unenforceable

Every contract falls into one of four statuses. Valid means it has all essential elements and is binding and enforceable. Void means it never had legal effect, often because it lacked an essential element like a legal purpose. Voidable means it is valid but one party has the right to cancel it. Unenforceable means it may be valid but a court will not enforce it, often because it is not in writing.

These four labels are the most tested part of the topic, so keep them straight.

Think of them as a spectrum of enforceability. A valid contract binds both parties. A void contract binds no one, because it was never a real contract. A voidable contract binds the parties unless the protected party cancels it. An unenforceable contract exists but cannot be enforced in court. The two the exam confuses most are void and voidable, so take them next.

Void versus voidable

Void and voidable sound alike but are opposites in effect. A void contract has no legal force at all, usually because it lacks an essential element, such as an illegal purpose. A voidable contract is valid and enforceable unless the disadvantaged party chooses to cancel it. Contracts made by a minor, or induced by fraud, duress, misrepresentation, or undue influence, are voidable, not void.

The difference is who can walk away. A void contract binds no one because it was never valid. A contract to do something illegal is void. There is nothing to enforce, and neither party can breathe life into it.

A voidable contract is fully valid and binding, but one party, the disadvantaged one, has the option to cancel it. The classic examples are a contract signed by a minor, or a contract a party was tricked or pressured into through fraud, duress, misrepresentation, or undue influence. The injured party may enforce it or cancel it. Remember void equals dead on arrival, while voidable equals cancelable by one side.

Capacity is where void and voidable split

This is the sentence candidates get wrong, because "lack of capacity" sounds like it should always mean void, and it does not.

Notice which way the protection runs. Voidable exists to give the vulnerable party a choice, so if a question hands you someone the law is protecting and asks for the status, voidable is usually right. Void is the exam label for an illegal object or a party with no legal power to contract. In practice, capacity and guardianship outcomes are fact-specific and can turn on the court order.

The trap is a distractor that says a minor's contract is void "because a minor cannot contract." A minor can contract. A minor can also walk away, and the other party cannot.

Unenforceable and the statute of frauds

An unenforceable contract may be valid between the parties but generally cannot be enforced in court. The most tested reason in real estate is the statute of frauds, which requires a contract for the sale of real estate to be in writing and signed by the person to be charged. The exam ordinarily labels an oral land-sale agreement unenforceable, but Texas recognizes narrow equitable exceptions, including partial performance in qualifying circumstances. A limitations defense can separately bar an untimely contract claim.

Unenforceable is the subtle status. The contract may have all its elements, but the law will not let a court enforce it. In real estate, the leading reason is the statute of frauds.

Writing and signature requirements

Texas puts it in Business and Commerce Code Section 26.01. Subsection (a) sets the rule, and it takes two things, not one:

1. the promise, agreement, or a memorandum of it is in writing, and
2. it is signed by the person to be charged with the promise, or by someone lawfully authorized to sign for them.

Candidates remember the writing and forget the signature. The signature requirement is why a party who never signed generally cannot be held to the deal even when a written document exists, and it is why the phrase is "the person to be charged" rather than "both parties."

Transactions the statute covers

Subsection (b) lists what the rule catches. Two entries matter for this exam:

That second one gets tested often. A lease of exactly one year or less falls outside the statute and can be oral. Read the question for the word "longer."

Equitable exceptions and limitations

An oral deal to sell a house might hold together while both sides cooperate, but if one side backs out, the other generally cannot force performance in court. Texas courts recognize narrow exceptions; partial performance, for example, requires conduct unequivocally referable to the alleged agreement and more than payment alone. That is why the safe exam rule and transaction practice are both to use a signed writing. See the addenda and statute of frauds guide for the Texas detail.

A Texas breach-of-contract claim is generally subject to the four-year residual limitations period in Civil Practice and Remedies Code Section 16.051, measured from accrual. Limitations is an affirmative defense and can involve claim-specific accrual, tolling, or another statute, so do not treat the passage of four years as automatically changing the contract's legal status in every case.

Does an electronic signature satisfy the statute of frauds?

It can. The Texas Uniform Electronic Transactions Act, Business and Commerce Code Chapter 322, says an electronic record can satisfy a writing requirement and an electronic signature can satisfy a signature requirement. Section 322.007(a) also says a record or signature may not be denied legal effect solely because it is electronic. The signature must still be attributable to the signer under Section 322.009.

There is a limit worth knowing. Section 322.005(b) applies the chapter only to transactions between parties each of which has agreed to conduct transactions by electronic means, and whether they agreed is judged from the context and their conduct, not from a signed consent form. Section 322.005(a) makes the point from the other direction: nothing in the chapter requires anyone to use electronic records at all.

So the exam answer is that an electronic record and electronic signature can satisfy the writing and signature requirements when UETA applies, the parties agreed to transact electronically, the signature is attributable to the signer, and the record contains the agreement's required terms. Email alone is not a magic cure for a missing signature or inadequate property description.

Bilateral versus unilateral contracts

A bilateral contract is a promise for a promise: both parties are obligated, each promising to perform. Most real estate sales contracts are bilateral, since the buyer promises to buy and the seller promises to sell. A unilateral contract is a promise for an act: only one party is obligated unless and until the other performs. An option contract and a reward are classic unilateral examples.

Contracts are classified by how the obligations run. In a bilateral contract, both sides make promises, so both are bound from the start. A standard purchase agreement is bilateral: the buyer promises to pay and the seller promises to convey. Each promise is the consideration for the other.

Unilateral contracts

In a unilateral contract, only one party is bound at first. One side makes a promise, and the other is free to act or not. The promisor becomes obligated only if the other party performs. A classic option contract fits here: the seller is bound to keep the offer open, but the option holder is not obligated to buy. A reward offer is another example, since no one must act, but performing earns the reward. For the exam, bilateral is a promise for a promise, and unilateral is a promise for an act.

The Texas option-paragraph caution

One Texas caution, because the words collide. The termination option in the TREC One to Four Family Residential Contract is not a standalone option contract. Paragraph 5B grants the buyer an unrestricted right to terminate during the option period, but that right sits inside a bilateral purchase contract the buyer has already signed. The buyer is obligated to buy, subject to a paid right to walk. So a question about a Texas option period is asking about a bilateral contract with a termination right, while a question about "an option contract" in the abstract is asking about the unilateral classic. Read which one the stem means. The earnest money and option period spoke works through the Texas version.

Express, implied, executed, and executory

Contracts are also classed by how they form and how far they have progressed. An express contract states its terms, orally or in writing. An implied contract is formed by the conduct of the parties. An executed contract is fully performed, with nothing left to do. An executory contract is still in progress, with obligations unfinished, like a signed purchase contract that has not yet closed.

Two more pairs round out the vocabulary. The first pair is about how the contract is formed. An express contract has terms that are stated, either spoken or written. An implied contract arises from the parties' conduct, without stated terms, when they act as though an agreement exists.

The second pair is about progress. An executed contract is fully performed, with every obligation complete. An executory contract still has something left to do. A purchase contract that is signed but has not closed is executory, since performance is pending. Once closing happens and both sides finish, it is executed. Do not confuse executed as in signed with executed as in fully performed. On the exam, executed means completely performed.

How to study contract law for the exam

Study contract law in three layers. First, memorize the four essential elements: competent parties, mutual agreement, consideration, and legal purpose. Second, learn the four statuses, especially void versus voidable, and keep the statute of frauds filed under unenforceable rather than under the elements. Third, learn the classifications: bilateral versus unilateral, express versus implied, and executed versus executory. Then practice labeling contracts in short scenarios.

Build the layers in order. The elements tell you whether a contract is valid at all. The statuses tell you how enforceable it is. The classifications tell you what kind it is. Most questions test one of these three layers.

Keep this spoke tied to its neighbors. The offer, counteroffer, and acceptance spoke goes deeper on mutual agreement, the earnest money and option period spoke shows consideration and the Texas termination option in action, and the Contracts and Agency hub ties the area together.

Frequently asked questions

What are the essential elements of a valid real estate contract? Four: competent parties with legal capacity, mutual agreement through offer and acceptance, consideration or an exchange of value, and a legal purpose. Missing any of them means there is no valid contract. Writing is a separate enforceability requirement. Under Business and Commerce Code Section 26.01, the exam generally labels an unwritten land-sale agreement unenforceable rather than void, although narrow equitable exceptions can apply under Texas law.

What is the difference between a void and a voidable contract? A void contract has no legal effect at all and binds no one, usually because it lacks an essential element, like an illegal purpose. A voidable contract is valid and binding, but one party, the disadvantaged one, may choose to cancel it. Contracts made by a minor or induced by fraud, duress, or misrepresentation are voidable, not void.

Is a contract with someone who lacks capacity void or voidable? It depends on the source and extent of incapacity. A minor's contract is generally tested as voidable at the minor's option, and a contract made by an adult who lacked mental capacity but was not under an operative guardianship restriction is also generally treated as voidable. For a person under guardianship, the actual court order and retained rights control; a licensing-exam stem that says the person had no legal power to contract usually expects “void.” Real capacity questions require counsel and the governing order.

Why must real estate contracts be in writing? Because of the statute of frauds. Business and Commerce Code Section 26.01(a) makes a listed agreement unenforceable unless it is in writing and signed by the person to be charged, and Section 26.01(b)(4) puts a contract for the sale of real estate on that list. An oral agreement to sell land may be honored voluntarily, but if one party backs out, the other generally cannot force performance unless a recognized exception is proved.

Does a lease have to be in writing in Texas? Only if the term runs longer than one year. Section 26.01(b)(5) covers a lease of real estate for a term longer than one year, so a lease of exactly one year or less falls outside the statute and can be oral. Watch the wording of the question, because "one year" and "longer than one year" give opposite answers.

Does an electronic signature satisfy the statute of frauds? It can. Business and Commerce Code Section 322.007(c) provides that an electronic record satisfies a law requiring a writing, and Section 322.007(d) provides that an electronic signature satisfies a law requiring a signature. The chapter applies only between parties who agreed to transact electronically under Section 322.005(b), and the signature still must be attributable to the signer under Section 322.009.

Is a signed purchase contract that has not closed executed or executory? It is executory. An executory contract still has unfinished obligations, and a signed purchase contract awaiting closing has performance pending on both sides. Once the sale closes and both parties complete their obligations, the contract becomes executed, meaning fully performed. Do not confuse executed with merely signed.

Practice questions

1. A contract is signed by a party who is a minor. The contract is: A. Void, because a minor cannot form any agreement B. Voidable, because the minor may choose to cancel it C. Valid and fully binding on the minor D. Unenforceable by both parties

Answer: B. A contract with a minor is voidable, meaning it is valid but the minor may cancel it. It is not automatically void (A), it does not fully bind the minor (C), and the issue is the minor's option to disaffirm, not general unenforceability (D). Voidable protects the minor by giving the minor the choice, and the adult on the other side stays bound.

2. Two parties make an oral agreement to sell a house, but nothing is put in writing. What is the status of this agreement? A. Void from the start B. Fully enforceable if witnessed C. Unenforceable under the statute of frauds D. Automatically valid because they agreed

Answer: C. That is the standard licensing-exam classification. Business and Commerce Code Section 26.01(a) makes an agreement described in Section 26.01(b) unenforceable unless it is in writing and signed, and Section 26.01(b)(4) lists a contract for the sale of real estate. It is not automatically void (A), witnesses alone do not satisfy the signed-writing rule (B), and agreement alone does not make it enforceable (D). A real dispute can involve narrow equitable exceptions not stated in this question.

3. In a standard real estate purchase agreement, the buyer promises to buy and the seller promises to sell. This is a: A. Unilateral contract B. Bilateral contract C. Void contract D. Implied contract

Answer: B. When both parties exchange promises, the contract is bilateral, and a standard purchase agreement is the classic example. A unilateral contract is a promise for an act (A), the contract is valid rather than void (C), and its terms are expressly stated, not implied (D).

4. A purchase contract is signed but has not yet closed. This contract is best described as: A. Executed B. Executory C. Void D. Unilateral

Answer: B. A signed contract with performance still pending is executory. It becomes executed only when fully performed at closing (A). It is a valid contract, not void (C), and it is bilateral, not unilateral (D).

5. A landlord and tenant agree orally to a 12-month lease. Is the agreement within the statute of frauds? A. Yes, all leases must be in writing B. No, because the term is not longer than one year C. Yes, because it concerns real estate D. Only if rent exceeds $500 per month

Answer: B. Section 26.01(b)(5) reaches a lease of real estate for a term longer than one year, so a 12-month lease sits just outside it. All leases are not covered (A), and the statute lists specific agreements rather than everything touching real estate (C). There is no rent threshold in the statute (D).

Sources and methodology

This guide teaches exam-level concepts, not legal advice. It was reverified on August 12, 2026. The general contract-law material is common law as applied to real estate, and every Texas rule below is cited to the section it comes from.

• The four essential elements of a valid contract, competent parties, mutual agreement, consideration, and legal purpose, come from general contract law as applied to real estate.
• The four contract statuses, valid, void, voidable, and unenforceable, and their definitions come from general contract law. So does the split between void and voidable on capacity.
• The classifications of bilateral versus unilateral, express versus implied, and executed versus executory come from general contract law.
• The writing and signature requirements come from Texas Business and Commerce Code Section 26.01(a). The clause covering a contract for the sale of real estate is Section 26.01(b)(4), and the clause covering a lease for a term longer than one year is Section 26.01(b)(5).
• Electronic records, signatures, party agreement, and attribution come from the Texas Uniform Electronic Transactions Act, Business and Commerce Code Sections 322.005, 322.007, and 322.009.
• The general four-year limitations period for contract claims comes from Civil Practice and Remedies Code Section 16.051; limitations is pleaded as an affirmative defense under Texas Rule of Civil Procedure 94.
• The narrow partial-performance exception and its unequivocally-referable requirement are discussed by the Texas Supreme Court in Westergren v. National Property Holdings, L.P.
• The Texas termination option described under bilateral and unilateral contracts is Paragraph 5B of the TREC One to Four Family Residential Contract (Resale), TREC No. 20-19, adopted by reference at 22 TAC Section 537.28.

Verify all contract rules against the current Texas statutes and qualified counsel before you rely on them in practice.

Official source links

• Texas Business and Commerce Code, Chapter 26 (Statute of Frauds)
• Texas Business and Commerce Code, Chapter 322 (Uniform Electronic Transactions Act)
• Texas Civil Practice and Remedies Code, Chapter 16 (Limitations)
• Texas Supreme Court, Westergren v. National Property Holdings, L.P.
• Texas Real Estate Commission, Contracts and Forms

This article is exam-prep education for the Texas real estate sales agent license. It is not legal advice, and it does not create an agency relationship. Contract law is technical and depends on the specific facts and current law. Always confirm the current Texas statutes and work under the supervision of your sponsoring broker before acting.