Nationwide Mortgage Licensing System (NMLS) Practice Exam

Which is NOT a component of a valid contract?

1. Agreement

2. Consideration

3. Two witnesses

4. Competent parties

The correct answer is: Two witnesses

A valid contract is typically recognized to have several essential components, which include agreement, consideration, and competent parties. Agreement refers to the mutual understanding and consent between the parties involved in the contract, often demonstrated through an offer and acceptance. Consideration involves something of value being exchanged between the parties, which can be money, services, or other benefits. Competent parties ensures that those entering the contract have the legal capacity to do so, meaning they are of legal age and sound mind. The component related to witnesses is not universally required for a contract to be considered valid, which makes it the correct answer in this context. While certain types of contracts, such as wills or real estate transactions, may require witnesses to enhance enforceability or comply with specific state laws, the presence of witnesses is not a core component necessary for the validity of most contracts. Thus, while having two witnesses may be beneficial or required in special circumstances, it is not an essential element that must be present for a contract to be valid.