- Official section
- National V: Contracts
- Broker weight
- 19% of the national broker portion
- Expected scored items
- Formation is one part of about 19 of 100 items
Contracts topic guide
Contract formation, validity, and enforceability
A contract question becomes manageable when you separate three stages: Was an agreement formed? Is it valid? Can a court enforce it? The same fact can produce a different answer at each stage.
What does this exam area cover?
Short answer: Know offer, termination of offer, acceptance, counteroffer, communication, mutual assent, consideration, capacity, lawful purpose, definite terms, the Statute of Frauds, electronic signatures, authority, and the difference among valid, void, voidable, and unenforceable agreements.
Contracts is the largest national exam area. This guide concentrates on formation and enforceability. Contract status, performance, remedies, options, purchase agreements, leases, and multiple offers receive their own focused guides.
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What is on the official outline?
- Topic
- Offer
- What to know
- Present intent to contract, definite parties and property, essential business terms, communication to the offeree, and power of acceptance
- Best exam move
- Ask whether accepting exactly what was proposed would create a binding agreement.
- Topic
- Ending an offer
- What to know
- Revocation before acceptance, rejection, counteroffer, expiration, lapse of reasonable time, death or incapacity, destruction of property, and illegality
- Best exam move
- Build the timeline and locate the event that ended the power of acceptance.
- Topic
- Acceptance
- What to know
- Unqualified assent, mirror-image principle, authorized method, communication, timing, delivery, and execution
- Best exam move
- Compare every accepted term to the offer and distinguish signing from effective communication.
- Topic
- Counteroffer
- What to know
- Changed price, date, financing, property, contingency, personal property, or other material term; rejection of original offer; and new power of acceptance
- Best exam move
- A material change is a new offer, even if the document is labeled acceptance.
- Topic
- Mutual assent and definite terms
- What to know
- Objective agreement, meeting of the minds, identity of parties and property, price or method, obligations, timing, and language showing intent to be bound
- Best exam move
- Use outward words and conduct, not a party's unexpressed private intention.
- Topic
- Consideration
- What to know
- Bargained exchange, promise for promise, act, forbearance, value versus adequacy, and distinction from earnest money
- Best exam move
- Find what each party legally gives, promises, or refrains from doing.
- Topic
- Capacity and authority
- What to know
- Age, mental competence, intoxication, guardianship, entity authority, power of attorney, and authorized signatures
- Best exam move
- Identify both the party's capacity and the signer's authority to bind that party.
- Topic
- Lawful purpose
- What to know
- Illegal subject matter, discriminatory terms, fraud, unlicensed activity, and agreements contrary to public policy
- Best exam move
- A court will not validate a bargain whose object is unlawful.
- Topic
- Statute of Frauds
- What to know
- Sale of land, interests in land for longer than one year, memorandum or note, material terms, signature of party to be charged, authorized signer, and distinction between validity and enforceability
- Best exam move
- Ask whether this type of agreement needs a signed writing before calling it void.
- Topic
- Electronic records and signatures
- What to know
- Agreement to transact electronically, legal recognition, writing and signature equivalence, attribution, retention, delivery, errors, and paperless-transaction risks
- Best exam move
- Electronic form can satisfy formality, but it does not replace consent, authority, accurate terms, or secure delivery.
- Topic
- Contract status
- What to know
- Valid, void, voidable, and unenforceable, plus executed versus executory as a separate performance classification
- Best exam move
- Do not use status words interchangeably. State the legal defect and who may assert it.
Which distinctions produce the most mistakes?
- Terms
- Offer vs. invitation to negotiate
- Difference
- An offer gives a specific offeree power to accept and create a contract. A listing or advertisement usually invites offers.
- Question cue
- Can the recipient form a contract simply by saying yes?
- Terms
- Acceptance vs. counteroffer
- Difference
- Acceptance agrees to the offer as made. A counteroffer changes a material term and replaces the offeree with a new offeror.
- Question cue
- Look for even one changed business term.
- Terms
- Consideration vs. earnest money
- Difference
- Consideration is the bargained legal exchange required for a contract. Earnest money is a deposit and is not the only possible consideration.
- Question cue
- Exchange of promises exists even if no check accompanies the offer.
- Terms
- Capacity vs. authority
- Difference
- Capacity concerns a party's legal ability to contract. Authority concerns whether one person may bind another person or entity.
- Question cue
- Minor owner versus unauthorized corporate employee.
- Terms
- Void vs. voidable
- Difference
- A void agreement has no legal effect. A voidable contract can be avoided by the protected party and may be ratified in some situations.
- Question cue
- Illegal object versus a defect protecting one party.
- Terms
- Void vs. unenforceable
- Difference
- Void means no contract in law. Unenforceable means a legal defense prevents a court from enforcing an otherwise recognizable agreement.
- Question cue
- Oral covered land agreement points to Statute of Frauds, not automatic illegality.
- Terms
- Valid vs. executed
- Difference
- Valid describes legal sufficiency. Executed describes completion of performance; a valid contract may still be executory.
- Question cue
- Contract signed today, closing next month.
- Terms
- Electronic signature vs. digital security
- Difference
- An electronic signature can carry legal effect, while authentication, access control, audit trail, and accurate delivery address manage proof and fraud risk.
- Question cue
- Legal recognition does not prove who actually clicked.
How should you solve a contract-formation question?
- Identify the alleged offeror, offeree, property, and proposed essential terms.
- Ask whether a definite offer was communicated and remained open.
- Compare the response word for word with the offer; a material change is a counteroffer.
- Check when and how acceptance became effective under the offer and applicable law.
- Verify consideration, capacity, authority, lawful purpose, and objective mutual assent.
- Test the Statute of Frauds and any required signature without assuming that noncompliance makes the agreement void.
- For an electronic transaction, confirm consent to electronic means, attribution, retention, and delivery.
- Classify the result precisely as no contract, valid, void, voidable, or unenforceable.
- Fact pattern
- Material term changed in response
- Likely classification
- No acceptance; counteroffer
- Reason
- Mirror image is missing
- Fact pattern
- Lawful bargain with all elements
- Likely classification
- Valid
- Reason
- Formation requirements are present
- Fact pattern
- Agreement requires illegal act
- Likely classification
- Void
- Reason
- Unlawful purpose
- Fact pattern
- Protected party faced actionable duress
- Likely classification
- Voidable
- Reason
- Protected party may avoid
- Fact pattern
- Covered land agreement lacks signed writing
- Likely classification
- Unenforceable
- Reason
- Statute of Frauds defense
- Fact pattern
- Signed contract awaits closing
- Likely classification
- Valid and executory
- Reason
- Obligations remain
How do the rules work in scenarios?
A changed closing date
Scenario: A seller offers to sell for $310,000 with closing on September 1. The buyer signs but changes closing to September 15 and returns the document.
- The seller made a definite offer.
- The buyer changed a material performance term.
- The response is not an unqualified acceptance.
Answer: The buyer made a counteroffer. The seller may accept it, reject it, counter again, or let it expire.
Promises without an earnest-money check
Scenario: A signed agreement states that the seller promises to convey the identified parcel and the buyer promises to pay the stated price, but no earnest money is deposited.
- The parties exchanged legally significant promises.
- Those promises can supply consideration.
- A separate earnest-money payment is not the universal formation element.
Answer: Lack of earnest money alone does not establish lack of consideration.
An oral land-sale agreement
Scenario: A buyer and seller orally agree on a parcel and price, but neither signs a memorandum.
- The agreement concerns the sale of land.
- The Illinois Statute of Frauds calls for a writing signed by the party to be charged.
- The exam classification for this formality problem is unenforceable rather than automatically void.
Answer: The oral agreement generally faces a Statute of Frauds defense. Fact-specific exceptions require legal analysis beyond the exam rule.
An electronic acceptance from the wrong account
Scenario: A seller receives an electronic acceptance from an email address that the buyer never used, and the buyer immediately denies signing.
- Electronic form alone does not prove attribution.
- Illinois recognizes an electronic signature when it is the person's act.
- Security procedures, context, and surrounding circumstances matter.
Answer: Do not assume a binding signature merely because the file is electronic. Attribution must be established.
What are the common exam traps?
- Trap
- The listing price is a standing offer to every buyer.
- Correction
- A listing or advertisement usually invites buyers to make offers.
- Trap
- Signing always completes acceptance.
- Correction
- The offer, delivery method, communication, and timing determine when acceptance becomes effective.
- Trap
- A small change still counts as acceptance.
- Correction
- A material change creates a counteroffer and rejects the original offer.
- Trap
- Earnest money is required in every purchase contract.
- Correction
- The parties' mutual promises can provide consideration.
- Trap
- Consideration must be economically equal.
- Correction
- Courts generally look for a bargained legal exchange, not equal market value.
- Trap
- Every oral real estate agreement is void.
- Correction
- The more accurate exam category for a covered agreement lacking the required writing is generally unenforceable.
- Trap
- A contract signed by an agent is valid even without authority.
- Correction
- The signer must possess authority to bind the principal.
- Trap
- Electronic contracts do not satisfy the Statute of Frauds.
- Correction
- Applicable electronic-transactions law can allow an electronic record and signature to satisfy writing and signature requirements.
- Trap
- An electronic signature platform cures missing terms.
- Correction
- Technology does not create mutual assent, definite terms, capacity, or lawful purpose.
- Trap
- Executed means legally valid.
- Correction
- Executed concerns completion of performance; validity concerns legal sufficiency.
Can you answer these original practice questions?
These questions are original study items aligned to the published outline. They are not copied, recalled, or predicted PSI questions.
1. A buyer signs a seller's offer but increases the requested seller credit. What has the buyer created?
- An acceptance
- A counteroffer
- An executed contract
- A unilateral option
Show answer and explanation
Answer: B
Changing a material financial term prevents mirror-image acceptance and creates a counteroffer.
2. Which item is consideration in a typical bilateral purchase agreement?
- Only the earnest-money check
- The exchanged promises to convey and pay
- The broker's advertising expense
- The recorded deed
Show answer and explanation
Answer: B
The seller's promise to convey and the buyer's promise to pay form the bargained exchange.
3. Which classification best fits a covered oral land-sale agreement that fails the Statute of Frauds?
- Executed
- Unenforceable
- Automatically illegal
- Unilateral
Show answer and explanation
Answer: B
The Statute of Frauds creates an enforceability defense rather than making the subject matter illegal.
4. What fact best establishes mutual assent?
- One party's secret intention
- Objective words and conduct showing offer and acceptance
- A later appraisal
- The broker's hope that the parties agree
Show answer and explanation
Answer: B
Contract law evaluates outward expressions of agreement rather than undisclosed private intent.
5. Under Illinois electronic-transactions law, what is needed before the Act governs the parties' electronic transaction?
- Both parties must agree to conduct the transaction electronically
- Every document must be notarized
- The county recorder must approve the platform
- The parties must waive the Statute of Frauds
Show answer and explanation
Answer: A
The Act applies to a transaction between parties who have agreed to conduct it electronically, as shown by context and conduct.
How should you study this area?
- Session
- 1. Offer
- Focus
- Intent, definite terms, communication, invitation to negotiate, and power of acceptance
- Proof you are ready
- Classify 10 statements as offer or invitation and explain why.
- Session
- 2. Acceptance
- Focus
- Mirror image, counteroffers, communication, delivery, lapse, rejection, and revocation
- Proof you are ready
- Build timelines for six offer-and-response scenarios.
- Session
- 3. Validity
- Focus
- Mutual assent, consideration, capacity, authority, legality, and definite terms
- Proof you are ready
- Name the missing element in 10 short scenarios.
- Session
- 4. Statute of Frauds
- Focus
- Covered interests, signed writing, party to be charged, authority, and classification
- Proof you are ready
- Separate valid, void, voidable, and unenforceable examples.
- Session
- 5. Electronic transactions
- Focus
- Consent, recognition, attribution, retention, delivery, and security risk
- Proof you are ready
- Audit one sample electronic contract workflow from invitation through receipt.
- Session
- 6. Mixed review
- Focus
- Formation timeline plus precise status vocabulary
- Proof you are ready
- Score at least 90% and explain the legal defect before naming the result.
Do not count recognition as mastery. Close the notes and explain the rule, apply it to a new fact pattern, and identify why each distractor fails.
Real Estate Contract Formation and Validity FAQ
What makes a real estate contract valid?
The exam model looks for mutual assent through offer and acceptance, consideration, legally capable parties, a lawful purpose, and sufficiently definite terms. Real estate agreements may also need a signed writing to be enforceable under the Statute of Frauds.
Is an advertisement or listing an offer?
Usually it is an invitation for buyers to submit offers, not a promise that gives every reader the power to create a contract by accepting. A true offer must show present intent to be bound and contain terms definite enough for acceptance.
What happens when an offeree changes a term?
A purported acceptance that changes a material term is generally a counteroffer. The counteroffer rejects the original offer and creates a new offer that the original offeror may accept, reject, counter, or allow to expire.
Does earnest money make a purchase contract valid?
Earnest money is evidence of good faith and may serve practical purposes, but a separate deposit is not universally required for contract formation. Consideration can consist of the parties' exchanged promises.
What does the Statute of Frauds do?
It requires specified agreements, including contracts for the sale of land or an interest in land for a term longer than one year under Illinois law, to be evidenced by a writing signed by the party against whom enforcement is sought or a lawfully authorized person.
Is an oral real estate contract void?
Not automatically. A contract that falls within the Statute of Frauds but lacks the required writing is generally described on the exam as unenforceable, not void. State-law exceptions and equitable doctrines can be fact-specific.
Can an electronic signature satisfy a writing requirement?
Generally yes when the electronic-transactions law applies and the parties agreed to transact electronically. Illinois law says a record or signature cannot be denied effect solely because it is electronic, but electronic form does not cure an illegal bargain, missing authority, or indefinite terms.
What is the difference between void and voidable?
A void agreement has no legal effect from the outset. A voidable contract can be avoided by a protected party, such as a party affected by certain capacity defects, duress, fraud, or misrepresentation, but may remain effective until avoided.
What is an unenforceable contract?
It may contain the basic elements of an agreement, but a legal defense prevents judicial enforcement. A common exam example is a covered land-sale agreement that fails the Statute of Frauds.
Are these practice questions from PSI?
No. They are original study questions aligned to the public national outline. They do not reproduce or predict confidential exam items.
Primary sources
- PSI Illinois Candidate Information Booklet dated June 24, 2026
- 740 ILCS 80/2, Illinois Statute of Frauds
- 815 ILCS 333, Illinois Uniform Electronic Transactions Act
- 15 U.S.C. 7001, federal E-SIGN validity rule
- Cornell Legal Information Institute, contract overview
The current official outline controls the tested scope. Statutes, regulations, and official agency materials control when a general study rule and a jurisdiction-specific rule differ.