Business Law Assignment Instructions
Jim and Laura Buyer visit the local car dealership because they are interested in buying a new car. The car they currently have is aging and is starting to have mechanical problems. Jim and Laura would share the new car, and use it to go back and forth to work and school. Before going to the dealership, Jim and Laura decide that they can only afford $400.00 a month in car payments.
Once at the car dealership, Jim and Laura meet Stan Salesman. Stan shows them several vehicles and Jim and Laura test-drive several of the cars. Jim and Laura particularly like the blue 4-door sedan. Therefore, they agree to give Stan Salesman a $100.00 deposit to hold the car for a day. Stan Salesman does not give them the receipt but guarantees that the $100.00 is refundable. No documents were signed.
The next day, Stan Salesman calls Jim and Laura to ask them when they would like to take delivery of the car. Jim and Laura, on the way home from the dealership, decided that they were not going to buy the car because they did not want to spend that money each month. Therefore, Jim and Laura tell Stan salesman that they have decided not to buy the car and request their $100.00 deposit back.
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Stan insists that the $100.00 was a deposit on the car and was meant to be part of the contract to buy the car. Stan is very persistent and insistent that Jim and Laura have contracted to buy the car; therefore, the $100.00 will be applied to the purchase price of the car. Jim and Laura are shocked and angry as not only do they not want to spend the money, but now feel as though they are being duped by Stan Salesman.
Jim and Laura have an appointment to see a lawyer in a few days, but know you are a student taking a business law class and come to you for advice. They are very frazzled, and understandably upset that they may have just purchased a car. Since you have been taking business law, you have read and understand the elements of a contract and the defenses to a contract. Therefore, although you are not a lawyer, you provide some basic advice from what you’ve learned in your business law class.
In three to five (3-5) pages, advise Jim and Laura based on the above facts as presented, the material provided in the text, and material covered in the lecture. In your paper, be sure to address the following:
- Define the elements of a legal contract using examples from the scenario where applicable.
- Decide whether or not there was a contract for the purchase of the automobile.
- Identify the facts from the scenario which support your decision on whether or not a contract exists for the purchase of the automobile.
- Use at least two (2) quality academic resources in this assignment. Note: Wikipedia and other Websites do not qualify as quality academic resources.
Advise to Jim and Laura – Sample Answer
A contract is a voluntary agreement between two or more parties and is legally binding hence is enforceable by the law (Miceli, 1997). The contract can be verbal or in written form. A verbal contract, like the one allegedly entered into between Stan Salesman on the one hand and Jim and Laura Buyer on the other, is hard to prove and has a lesser timeline to sue. Indeed, it is advisable that a contract that involves sale of property be in written form as this clarifies the terms of the contract, unlike in a verbal contract where the terms are usually not clear. Further, a contract must be entered into between parties that have the capacity to enter into an agreement. Salesman and the Buyers in the case scenario both have the capacity to enter into contracts because they are not minors, intoxicated or mentally afflicted; the groups of people considered to lack sufficient capacity to enter into contracts (Fried, undated).
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A contract also has specific elements that include an offer, acceptance, consideration and meeting of minds. Offer and acceptance usually go together while consideration is not considered in some countries that prefer estoppel.
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That Stan Salesman offered cars for sale is not a basis for a binding contract but an offer of sale, an invitation to treat. However, Jim and Laura take on the invitation and end up liking a blue, 4-door sedan after test-driving several cars. The test-driving obviously gives the Buyers a detailed description of some of the cars (including the blue, 4-door sedan), which is a requirement for a legal offer. The other requirements for a legal offer are price, terms and delivery date (Chen-Wishart, 2015). From the case scenario, these latter requirements are not discussed nor agreed between the two parties. Hence, the offer does not qualify as a legal offer but rather an offer of sale; and is therefore not contractually binding.
Salesman offer of sale or invitation to treat was accepted by the Buyers, the offerees. This is evident in their conduct and consequent communication to Salesman to hold the car for a day, paying a deposit for this. The conduct of the Buyers leads Salesman to infer their acceptance, and concomitantly that there is an implied contract. However, this acceptance is for an offer of sale rather than a legal offer since it does not meet the requirements of a legal offer as discussed above. If this was a unilateral contract, it would not need the Buyers’ acceptance. But like most commercial transactions, this would only be considered as a bilateral contract that would require acceptance of the offer: yet it fails to meet the threshold of a bilateral contract based on the fact that the offer is not legally binding and hence the issue of acceptance does not suffice (Miceli, 1997). This hence renders the supposed mutual assent (of the offer and acceptance) invalid and not legally binding.
The other important element of a contract is consideration which refers to the perceived and or actual value offered and accepted when entering into contracts. Both the offeror and offeree acquire value from a contract through exchanging, with the concept of the value being the consideration (Fried, undated). For example, if I buy a business book for $30, the bookshop’s consideration is the book while my consideration is the $30. In a court of law in the United States, the bargaining process to determine sufficiency and or adequacy of the consideration is important. Sufficiency refers to meeting the test of the law whereas adequacy refers to subjective fairness (Fried, undated). So whilst paying a dollar for a car would abet tax avoidance, the dollar paid is neither sufficient nor adequate consideration and would easily be challenged in a court of law.
In the cited situation, Stan Salesman’s consideration is the car; the blue, 4-door sedan. For the Buyers, their consideration is the price of the car. But while the two parties looking to enter into the contract discuss the car, they do not apparently discuss its price. So there is consideration for the offeror but no consideration for the offeree. Whilst the offeree (the Buyers) pay $100 for holding of the car to the following day and indeed contemplate $400 monthly instalments for the car, this is not consideration as an element of a contract for buying the car since it is not the actual price of the car. If there was any contract, it was to hold the car to the following day with a consideration of a refundable $100 from the Buyers and the consideration of time by Salesman. But there was no consideration from the Buyers for Salesman’s consideration of a car. This fact means there was no contract to buy the car since this crucial element of the Buyers’ consideration is missing (Chen-Wishart, 2015). The only evidence is for a contract to hold the car to the following day.
The other important element of a contract is meeting of minds also referred to as consensus ad idem (Fried, undated). Consensus ad idem is a Latin phrase that means “agreement to the same thing”. This phrase is used in a legal setting to describe the intent of the parties that are forming a contract. The meeting of minds must include evidence from the parties’ conduct that shows assent from an unbiased perspective.
While Salesman had an offer of sale of the car, the acceptance of the Buyers “remained in their breast” (Fried, undated). The payment of the $100 deposit to hold the car to the following day could be misconstrued as conduct that implies mutual assent, but the Buyers explicitly stated the purpose of the payment with Salesman agreeing to a refund. This could indeed be viewed as postponing the mutual assent regarding purchasing of the car to the following day because there was no meeting of minds at that particular moment. Salesman wanted to sell the car at that moment but the Buyers just liked the car for which they put up a refundable holding deposit.
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Salesman could argue that the $100 payment was deposit for the car, which would then mean a contract to buy the car was silently entered into. But evidence is stacked against this argument. For one, there was verbal agreement that the deposit was to hold the car for a day and it was refundable. Moreover, payment of a purchase deposit includes statement of subsequent obligations for both parties (Miceli, 1997). This would include a statement of the remaining payment, when it is to be paid and the amounts of the payment instalments by the Buyers as well as the date of delivery of the car by Salesman. Indeed Salesman calls the Buyers the following day to ask when they will take delivery of the car; a fact that proves that all the sub-elements of a contract had not been met. The lack of these sub-elements disqualifies the payment from being a deposit for the car and invalidates any argument of an implied contract.
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From the foregoing, it is evident that the verbal agreement between Salesman and the Buyers was incomplete. The various elements of a contract were not fully established since the offer was incomplete with no price, terms and conditions or delivery date. The acceptors did not wholly agree to buy the car, with their acceptance remaining in the breast. Further, they did not have any consideration against Salesman’s car and hence there was no mutual assent. Yet for a verbal agreement to be legally binding, it must have reached completeness. In conclusion, Stan Salesman should at least return the refundable $100 to Jim and Laura Buyer and stop duping them into buying a car. The Buyers can enforce this through the court of laws by suing for unilateral mistake on the part of Stan Salesman.
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