An Explanation of the Elements of a Contract

You may not be aware of it, but you probably enter into contracts nearly every day. Whether they are formal, informal, oral or multi-page documents, all contracts must have the same five elements to be considered valid. Those are offer, acceptance, financial consideration, sound mind, and lawful purpose.

Everyday contracts

Formal contracts are easy to spot. It’s all about signing your name on the dotted line. When you purchased your car, you entered into one contract. You executed a second contract when you bought insurance. If you own or rent a place of residence, you probably signed a lease or a mortgage contract.

There are lots of little contracts that you might not think about. When you order a package from an online store or step onto a bus, you are entering into a little contract. You make an oral contract each time you hire your neighborhood handyman to paint or the teenager to mow your lawn.


Your landlord’s “For Rent” sign or ad was his initial offer to rent. When you decided to buy your new home, you tendered an offer to the real estate broker. An online store offers merchandise for sale. When a handyman offers to paint your garage, that’s the beginning of an oral contract. When the bus pulls up at the curb, he’s offering to take you to any stop on his route. 


No one can be legally forced into an agreement, so a valid contract must have acceptance. You accepted the apartment. The homeowner accepted your bid to buy. Once you stepped onto the bus and it pulled away, you accepted the ride. Whenever you agree to purchase goods or services provided by someone else, you are moving forward with a contract.

Financial Consideration

The homeowner will want a big down payment, and the landlord will ask for a security deposit and rent. The online store will charge your credit card, and your handyman or teenage neighbor will want to know “how much” before they lift a finger. The bus driver may pull away from the curb with you on board but if you don’t put money in the fare box, he will probably put you off at the next stop because you didn’t present the financial consideration (bus fare) required.

Sound mind

You’ve probably executed many contracts without anyone asking for a clean bill of mental health; but since 1892 contracts executed with persons of unsound mind were inherently void. A recent DC Court of Appeals decision changed that somewhat. It ruled that an unsound mind made a contract voidable under certain circumstances instead of inherently void. Mental soundness that can void a contract is not just about mental illness. For the purpose of executing a contract, a person may not be considered of sound mind if they are under the influence of drugs or alcohol.  

Lawful purpose

If a landlord was trying to sublease his drug den, the owner of the home wasn’t really the owner at all, and the insurance company was a front for a money laundering scheme, any contract you executed would not be valid. If you paid for illicit drugs and the on-line seller didn’t deliver, or if you received the drugs but you asked for a credit card charge-back anyway, neither of you can sue the other for breach of contract. When the purpose of the contract is unlawful, there is no contract.  

You deal with contracts every day. Now that you know a little bit more about the elements that make them legally valid, perhaps you’ll see your handyman, your on-line purchases, and your morning bus commute in a whole new light.