National Real Estate Exam (PSI)ContractsEasy
Two parties sign a written agreement in which one party agrees to pay the other to store illegal narcotics in a rental property. Both parties have capacity, there is mutual consent, and consideration is exchanged. Why is this agreement not a valid, enforceable contract?
- AIt lacks capacity because criminal activity automatically disqualifies both parties
- BIt lacks mutual assent because the parties did not negotiate terms
- CIt lacks consideration because storage fees are not sufficient value
- DIt lacks legal purpose, since a contract formed for an illegal objective is void
Show answer & explanationAnswer & explanation
Correct answer: D. It lacks legal purpose, since a contract formed for an illegal objective is void
A valid contract requires a lawful objective; agreements formed to accomplish an illegal act are void from the start regardless of whether the other elements (offer, acceptance, consideration, capacity) are present. Consideration and capacity issues do not apply here since money was exchanged and both parties are competent adults.
Why the other options are wrong
- A. Capacity refers to legal competence (age, mental state), not the criminal nature of the act.
- B. Mutual assent existed since both parties signed the agreement knowingly.
- C. Storage fees can be valid consideration; the problem is the illegal purpose, not the payment.
Legal Purpose
One of the essential elements of a valid contract; the objective of the agreement must be lawful, or the contract is void.
- Essential elements: offer & acceptance, consideration, capacity, mutual consent, legal purpose
- A contract for an illegal act is void, not merely voidable
- Void contracts have no legal effect and cannot be enforced by either party
Memory trick: 'OCCLP' — Offer, Consideration, Capacity, Legal purpose, Personal (mutual) consent