Canadian Accredited Insurance Broker (CAIB) One Practice Exam

What elements must be present to constitute a legal contract?

1. Parties to the contract, the contract itself, consideration

2. Parties to the contract, a written document, consideration, and legal purpose

3. Agreement, consideration, legality of object, legal capacity, genuine intention

4. Competent parties, consideration, warranty, and legal purpose

The correct answer is: Agreement, consideration, legality of object, legal capacity, genuine intention

To constitute a legal contract, it is essential that certain elements are present. The correct choice emphasizes the core components required for a contract to be valid: agreement, consideration, legality of object, legal capacity, and genuine intention. Agreement refers to the mutual understanding and consent between the parties involved, typically manifested in an offer and acceptance. Consideration is the value exchanged between the parties, which can be in the form of money, services, goods, or a promise to do or not do something. The legality of the object ensures that the contract’s purpose is lawful and not against public policy. Legal capacity addresses the ability of the parties to enter into a contract, meaning they are of legal age and sound mind. Genuine intention ensures that parties enter the contract with honest intentions and are not under duress or misrepresentation. While other options mention various components that are important in a contract, they do not encompass all the fundamental elements described above. For example, one option includes the requirement of a written document which, while often helpful and sometimes necessary for certain types of contracts, is not universally required to create a legally binding agreement. Emphasizing the key elements of agreement and consideration along with legality, capacity, and genuine intention encapsulates the fundamental aspects for a