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A real contract under common law is a legal term for an agreement that pertains to land and property transactions. In civil law, the term includes money and other personal property as well as real property. A contract to take on secured debt is therefore considered a real contract in civil law. Real property agreements do not have to involve the transfer of property in order for them to be real contracts. The agreement can restrain an act that pertains to real estate, such as a promise not to build a type of structure on land that’s purchased. In most real contracts, there is a promise or actual delivery of property or a thing, which is what makes it real.
The main reason for distinguishing real contracts from other contracts is because the former is often required to be in writing for it to be valid. For example, an agreement granting an easement is a type of real contract that must be in writing, and courts will often find that a verbal easement contract is invalid. Other formal requirements, such as witness signatures, may also be required to make certain types of real contracts valid.
A common agreement that is classified as a real contract is a real property sales contract. The seller agrees to convey simple ownership, which is property title and possession, to the buyer for an agreed upon price. Contracts involving land often have to be in writing and signed by the parties for them to be valid. Some jurisdictions also specify the amount of time in which the property must be conveyed in order for it to be a valid contract under property laws, such as no longer than one year from signing the agreement. The real estate that is transferred in the agreement is the subject of the agreement.
Personal property is another form of real contract in civil law, because a thing is the subject of the contract. For example, the owner of a car might enter into a sales agreement with a buyer for the car. The car is personal property and is the subject of the contract, which makes the agreement a real contract. Another common type of real contract involves secured debts. The borrower promises to pay a loan for a period, and in the event of default, the lender can claim the property that is securing the debt. The debt itself is a thing, which is the subject of the agreement, and therefore the agreement is considered a real contract.
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