The statute of limitations designates the period of time during which the terms of a contract may be enforced. It protects people from being compelled to perform the otherwise be sued after a period of time has expired. The rimes vary, depending on whether it is an oral contract or a written contract:
- Written contracts- Five years
- Oral Contracts-four years
- Partly written and partly oral- Five years for the written portion and four years for the oral portion
In addition to the four essential elements required in any contract, to be enforceable in court, real estate sale and purchase contracts must be in writing and signed by all parties who are bound by the agreement. Real estate contracts are not required to be witnessed or notarized.
A contract does not have to be in any particular format to be valid, as long as it contains all of the essential elements. The contract should have unambiguous property identification. Because a contract agreement designed to spell out clearly the meeting of the minds between parties on a particular subject, it creates certain enforceable rights. It also provides remedies for the affected parties if the contract is breached.
Contracts can be classified by their method of formation, their content, or their legal effect. The first classification is formal and informal contracts.
Formal and Informal Contracts
Formal Contracts. Historically, a formal contract was in written form and under seal. The seal has evolved from the old wax impression on a document to the word seal or the letters L.S. (locus sigilli, Latin for “the place of the seal”) that appear after the signatures of the parties signing the contract. The term formal contract also refers to a contract that depends on a particular form. For example, a negotiable instrument such as promissory note is called a formal contract. Today, the seal is not required to make contracts valid.
Parol (Informal) Contract. An oral agreement is a parol contract. Some oral real estate contracts are recognized by law as enforceable.
Other Contract Classifications
The very name of the contract classification often indicates the way in which the contract was arranged the requirements for its performance, or even the type of parties bound by the contract. Contracts can be either bilateral or unilateral.
Bilateral and Unilateral Contracts. A bilateral contract obligates both parties to perform in accordance with the terms of the contract. A sale contract is an example of bilateral contract because both the sellers and the buyer are obligated to perform.
A unilateral contract obligates only one party to an agreement. There is no obligation on the part of the party involved; an example of unilateral contract is the ordinary option.
If the person asking for an option (the optionee) gives a consideration to the person granting the option (the optionor), the optionor is obligated not to sell to anyone other than the optionee during the life of the option. The optionee, however is not obligated to buy. An optionee may choose to exercise the option. The optionor then is bound to honor the option on notification of the optionee’s intent to exercise it. The option (unilateral contract) becomes a bilateral contract when the optonee has promised to exercise the option specified in contract.
Express or Implied Contracts. Contracts may be classified as either express or implied.
An express contract exits when all the terms and conditions have been spelled out and a meeting of the mind is reached in words of agreement and mutual understanding. An express contract may be wither written or parol: that is, it may be in writing, oral, or be a combination of the two. The primary requirements in an express contract are mutual understanding and agreement.
An implied contract is one in which some or all of the obligations or conditions of a contract are not stated expressly (in words) but may be reasonably implied by the acts of the parties or by the nature of the transaction. Every day, we enter into implied contracts. For example, if a person walks into a restaurant and orders dinner, an implied contract has been created. It is implied that the customer will pay for the service after enjoying the meal without actually discussing the actual payment or agreeing to pay for the meal until after the service has been rendered. In real estate dealings, if a For-Sale-By-Owner (FSBO) seller knowingly accepts the services of a real estate licensee and the licensee is the procuring cause of the sale, a real estate commission may be due. Obviously, implied contracts are not a professional way of transacting real estate business.
The various categories of the contracts are not mutually exclusive. For example, a particular contract may be described as parol, bilateral, and express.
Executory or Executed Contracts. Contracts also may be called executory or executed contracts.
Assume a contract has been formed between parties, but something remains to be done by one or both parties to fulfil the conditions of the contract. It is an executory contract because it is not yet a fully performed contract. A real estate sale contract, between the time of signing the contract and the time of closing the transaction, is an executory contract.
When all parties to a contract have completely performed all the obligations and promises contained in the contract, it is an executed contract. For instance, a real estate sale contract becomes an executed contract after the title closing and all the promises of both buyer and seller have been fulfilled.