Key Elements of a Valid Contract in the Case of an Automobile Purchase with a Deposit

Introduction

A contract is the basis of performing every legal business in the world. Unlike an agreement, a contract is a voluntary agreement that creates mutual obligations for two or more parties. A contract can also be used by a court to make a judgment. On the other hand, an agreement does not have legal consequences because it lacks the essential elements of a legal contract. Most agreements are not considered contracts unless both parties agree on the legal consequences in the event of any violation.

Case Scenario

Jim and Laura visit a dealership to look for a new car because their current one is failing, and they set a limit of $400 per month. After test-driving several cars, they liked a blue sedan and left a refundable $100 deposit with Stan, the salesman, without signing any paperwork. The next day, they change their minds and ask for their deposit back, but Stan claims the money is part of a binding purchase agreement and refuses to return it. Feeling misled, Jim and Laura seek your advice before meeting with a lawyer.

Elements of a Valid Contract

Based on Jim and Laura’s scenario, the following sections outline the key elements of a legal contract and provide a detailed analysis of whether a contract for the purchase of the automobile was formed.

Offer

According to contract law, several key elements define a legally binding contract. The first element of a valid contract is the existence of an offer from either party involved (Yonjan, 2019). An offer is made when one party extends a proposal to another party, which sets the stage for the formation of a contract.

In Jim and Laura’s case, a binding contract existed between the parties because the couple agreed to give Stan a deposit of $100 as security for holding the blue 4-door sedan for a day, with the hope of purchasing the car. Therefore, a valid verbal contract existed between Jim, Laura, and Stan Salesman because the offeror promised to buy the car from the salesman, and they released the $100 deposit.

Consideration

The second element of a legal contract is a consideration. Consideration is the value that catalyzes the parties to initiate an agreement (Judicial Education Center, n.d). It also means “to get something in exchange or something in return” (Yonjan, 2019, p. 7). The consideration in Laura and Jim’s case is that they were to come for the car the next day; hence, they gave Stan a deposit to reserve the 4-door sedan for a day. Therefore, this consideration renders the agreement between Laura, Jim, and Stan legally binding because it induced both parties to enter into a contract.

Acceptance

The third element of a legal contract is acceptance, which can be expressed through deeds or words. Acceptance occurs when one party makes an offer, and the other party accepts the terms and conditions of that offer. Laura and Jim voluntarily agreed to give Stan the deposit to hold the car for a day in hopes that they would purchase it. The parties also agreed orally that the amount was refundable upon request, and each party parted ways without further negotiations. Stan accepted the offer of $100 as a deposit for the car, thereby creating a legal contract.

Consent

The fourth element of a legal contract is free consent between the involved parties. The consent of the involved parties must be genuine for a contract to be considered legal (Yonjan, 2019). The parties involved in a contract must similarly view things to make it legally binding. In this case, Jim and Laura agreed to give Stan $100 to keep the car for them for a day. It means the parties gave their free consent, making the contract legally binding.

Certainty

The fifth element of a legal contract is certainty, which requires the involved members to state clear terms and regulations. The lack of certain agreements between parties makes a contract invalid. Jim and Laura agreed with Stan, the salesman, to leave a $100 deposit for a day in hopes of purchasing the car. In addition, they agreed that the amount was refundable. These terms were clear, and both parties agreed before parting ways, making the contract valid.

Contractual Capacity

The last element of a legal contract is contractual capacity. Contractual capacity refers to the qualification, legal ability, and competence of the involved parties. Minors are not required to enter into contracts because they need the intellectual capacity to enter into legal contracts (Yonjan, 2019). Jim and Laura are working adults who have gone to Stan Salesman’s hub to purchase a new car. Therefore, the parties formed a legal agreement since they are all adults.

Final Decision on the Case

Based on my judgment, a contract for the purchase of the automobile existed between Jim, Laura, and Stan, the salesman. Jim and Laura decided to pay $100 to Stan, the salesman, for a day in hopes that they would buy the blue 4-door sedan. At the time of the agreement, Jim and Laura made the offer orally without signing documents, making it a valid contract. Both parties also agreed mutually with free consent.

Hence, there was a contract. Even though Jim and Laura decided to terminate the purchase on their way home, they were entitled to a refund because the terms were clear from the beginning that the amount was refundable. Jim and Laura deserve to be refunded because they initially agreed with Stan Salesman that the amount was refundable regardless of the couple’s purchase decision.

Conclusion

Overall, contracts are essential when parties intend to perform anything that is enforceable by law. Contracts can be presented in written form, by conduct, or through words. The main elements of a contract include the existence of an offer, consideration, acceptance, free consent, certainty, and contractual capacity. Jim and Laura’s scenario is a perfect example of a contract because it meets all the elements of a valid contract. Therefore, Jim and Laura should receive their deposit, as their terms with Stan Salesman were clear when they initiated their contract.

References

Judicial Education Center. (n.d.). Elements of a contract. The University of New Mexico. Web.

Yonjan, Y. K. (2019). An Analysis on Major Elements of a Valid Contract under Muluki Civil Code, 2074. Web.