Topic 11.1: Contracts in General

Learning Objectives

After successfully completing this topic, you will be able to
• list the types of contracts a real estate broker can legally prepare,
• distinguish between the statute of frauds and the statute of limitations, and
• distinguish between void, voidable, and unenforceable contracts.

Definition of a Contract

A contract is an agreement between two or more parties to do, or to abstain from doing some legal act for an adequate compensation. Contracts can be written or oral. Oral contracts are usually enforceable in a court of law if evidence of the agreement is sufficient.

Brokers and sales associates can prepare
• seller brokerage agreements (listings),
• buyer-brokerage agreements,
• sales contracts,
• option contracts, and
• leases, if filling in the blanks on a Florida Supreme Court-approved lease form.

Preparation of Contracts

Persons who are not attorneys may not prepare deeds, mortgages, promissory notes or any legal documents for other persons. The unauthorized practice of law is a third-degree felony. Licensees who prepare such documents also face penalties from the FREC.

Statute of Frauds

The statute of frauds requires that contracts pertaining to the transfer of real property (or that will not be performed within one year) must be written and signed to be enforceable. If the contract has been performed, meaning the parties have closed the transaction, the statute of frauds is no longer applicable. There are two exceptions—if a portion of the purchase price has been paid and
• the buyer has moved in, or
• the buyer has made improvements to the property.

The Florida Statute of Frauds, Chapter 725.01 …No action shall be brought…upon any contract for the sale of lands, tenements or hereditaments, or of any uncertain interest in or concerning them, or for any lease thereof for a period longer than 1 year, or upon any agreement that is not to be performed within the space of 1 year from the making thereof…  

Statute of Limitations

The Statute of Limitations sets the maximum time to prosecute individuals for crimes or to enforce contracts. This section relates to real estate and other types of contracts. Florida law provides that written contracts are enforceable for five years, and oral contracts for four years. The statute of limitations requires courts to dismiss a suit to enforce a contract after that period.

Valid, Void, Voidable, and Unenforceable Contracts

Valid Contract 

A valid contract is legally sufficient and has all the essential elements to create a contract. A valid contract is usually enforceable but a court challenge may change that. For example, an oral contract for the sale of real estate is valid, but not enforceable by a court.

Void Contract

A contract that has no legal effect is a void contract. It may appear to be a contract, but cannot be enforced. For example, a contract for an illegal purpose is void at the outset.

Voidable Contract

A voidable contract has all the requirements of a valid contract, but gives one or both parties the right to back out. For example, a written contract for the sale of a house is contingent on a satisfactory home inspection report. If the report is unsatisfactory to the buyer, the buyer may void the contract and request a return of the earnest money deposit. A voidable contract is valid until one of the parties exercises the right to void the agreement.

Unenforceable Contract

An unenforceable contract is a valid contract until a court is called upon to enforce it. For example, if a contract for the sale of real property is not written, it is still a valid agreement that may be closed by the parties. However, if one party does not want to continue, a court will rule that the contract cannot be enforced because of the statute of frauds.