Law Society of Ontario (LSO) Paralegal Practice Exam

What is considered an essential element of a contract?

1. Agreement by all parties to work together

2. Offer, mutual consideration, and communicated acceptance

3. Financial backing by an external party

4. Arbitration clause for dispute resolution

The correct answer is: Offer, mutual consideration, and communicated acceptance

An essential element of a contract includes the presence of an offer, mutual consideration, and communicated acceptance. This foundational principle establishes that for a valid contract to exist, one party must present an offer that another party can accept. Mutual consideration refers to something of value that each party agrees to exchange, which solidifies their commitment to the agreement. Communicated acceptance indicates that the acceptance of the offer must be clear and communicated back to the offering party, ensuring that both sides are aware of and agree to the terms. The other choices do not encapsulate the fundamental requirements for a contract. For instance, while working together may be beneficial, it does not constitute a binding agreement. Financial backing from an external party is not necessary for a contract's validity, as contracts can exist without such support. An arbitration clause, although important for resolving disputes, is not fundamental to the formation of a contract itself; rather, it is an optional component that may enhance the contract but does not affect its fundamental validity. Understanding these essential elements helps in recognizing what it takes to form a legally binding agreement.