Contracts & Legal

Contract Essential Elements

One of the most important issues to understand about contract law is how a contract is formed. Many agreements may be legally unenforceable or “void” because they lack one of the essential elements for a valid contract. The five essential elements are:

  1. Offer: An offer is a specific promise and a specific demand. For example: “I will pay $13,000 for the car.”
  2. Acceptance: The acceptance may be in the form of a promise or an act. The acceptance must “mirror” the offer. If it changes the terms of the offer, it is a counteroffer. For example: “I agree to sell you the car for $13,000.”
  3. Consideration: The consideration is the receipt of a legal benefit or the suffering of a legal detriment. It may be a promise, an act or monetary. In the example of the sale of the car, the $13,000 would be the consideration.
  4. Capacity: A party to a contract must have the ability to enter into a legal contract. Courts have held 3 classes of persons lack capacity to be bound by contractual promises – minors, intoxicated persons, and mentally incompetent persons.
  5. Lawful purpose: A valid contract must have a legal purpose. For example, a “contract” to murder someone would not be enforceable in court.

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Updated: 8/3/2021

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