Section 3: Consumers and the Law

The Five Elements of a Contract

A contract is any agreement between two parties that the law will enforce. Not all agreements are contracts; to be an enforceable (or valid) contract; an agreement must have five essential elements. They are as follows

a genuine offer and acceptance
consideration
legal capacity
genuine consent
lawful purpose

Here's a brief explanation of these five elements:

Element 1:

There must be a genuine offer and a genuine acceptance of that offer. The offer must be clear, exact, and intended seriously as an offer. The acceptance has to be unqualified and clear, and it has to agree with the precise terms of the offer.

Here's an example of a clear offer and acceptance: "I'll sell you this computer right now for $2000 cash" (offer). "I'll take it right now for that amount" (acceptance).

Now, here's an example of an unclear offer: "I'm thinking of putting my house on the market for around $280 000."

And here's an inadequate acceptance of the preceding offer: "Tell you what: I'll give you $250 000 for it." This is not an agreement to the original offer; rather, it's a brand new offer.

Element 2:

There must be consideration on both sides-a legal term meaning something of value. Consideration can be money, goods, services, or something else. It can't, however, be something abstract like love or gratefulness. In the area of consumer law, of course, contracts normally consist of goods or services on one side that are exchanged for money on the other. These goods, services, and money are all types of consideration in contract law.

Element 3:

The people making the agreement must have the legal capacity to form a contract. People who are legally insane, intoxicated, or underage lack the legal capacity to make binding contracts-with a few exceptions that you'll be looking at later on.

Element 4:

There must be genuine consent on both sides. For example, intimidation or misrepresentation (fraud) can't be present.

Element 5:

The purpose of the agreement must be lawful. For example, the courts won't enforce an agreement in which a drug pusher contracted to sell crack cocaine to an addict.