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CH 5] Business 101 5-15

consideration, legal and serious purpose, and capacity. Note that a contract does not have
to be written to be valid. However, if one pillar is missing, then no contract exists.
The first pillar to a contract is that the parties must be in agreement regarding the act agreement
Where the parties concur
or thing specified. There are no one-sided agreements. All parties must agree or else the that an act or thing is
contract does not exist. specified.
The next element to a contract is consideration. Consideration is a benefit and
exchange that one party provides and one receives; there must be an exchange between the consideration
parties involved, a quid pro quo (this for that). Consideration represents value or benefit to The value or benefit one
each party. When you go to your local store for a pair of shoes, you exchange money for party provides to the
others with whom a
the shoes, this is the consideration—tangibly you give money and you receive ownership contract is made.
of shoes, the store gives shoes and receives money in exchange; quid pro quo. When you
go to work your agreement with your employer is that you will perform work and the
employer will pay you; quid pro quo. Consideration can also be intangible such as love and
affection—in marriage love and affection are exchanged. Another example of intangible
consideration could be when your grandfather says to you, “If you earn an ‘A’ in your
Introduction to Business class, I will take you fishing.” This example, as weak as it is, is legal and serious
not unfamiliar, and demonstrates love and affection, non-the-less, in a familial sense. purpose
The next pillar of a contract is that the contract must have a legal and serious purpose. The activity must be legal
Agreements made in a joking manner or relating to purely social matters are not and not of a frivolus
nature.
enforceable in that they are not serious. Agreements regarding the commission of a crime
are not enforceable as legal contracts because crimes are illegal. Any agreement made with
the intention that the parties will violate the law is not enforceable under contract law. capacity
The last pillar that must be present for a contract to exist is that the parties to the The legal ability of a party
contract must possess capacity. Capacity is the legal term that refers to the inherent ability to enter into agreements.
of a party to enter into agreements. An individual judged legally insane does not hold
capacity to enter a contract. An individual so ill, that his faculties are tainted do not possess
capacity. Minors, unless they are granted capacity (emancipated) by the courts or statute, 5
do not possess capacity to enter contractual agreements until they reach the age of majority
(usually 18 years old is the age of majority).
You will note that one of the elements many people believe must be present for a
contract to be enforceable is that it must be in writing, but this is not the case. One
individual does work for another, and the party receiving the benefit of the labor pays the

Illustration 5.3 The Four Pillars of a Contract

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