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Business Law 1


A contract is a legal binding agreement between two people. For a contract to be legal an offer must be made and the other person must accept the offer made. A price must also be paid to show willingness of an individual to enter into the contract...Read More


~Posted on Mar 2018

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A contract is a legal binding agreement between t...

A contract is a legal binding agreement between two people. For a contract to be legal an offer must be made and the other person must accept the offer made. A price must also be paid to show willingness of an individual to enter into the contract. For a contract to be binding, both parties must enter the agreement without being forced into it.

Willingness to enter an agreement

Jim and Laura went to a car dealership since they were interested in buying a new car. Stan had a car that matched their needs, that is, a blue sedan which they could buy and pay monthly instalments of $400. This shows that both Jim and Laura were willing to join in a contract with Stan salesman (Hong & Brisbane, 2015). However, just having the willingness to buy the blue sedan doesn’t mean that they have already entered a contract.

Offer and acceptance

After Jim and Laura carry our test drive on several cars and settle on the blue sedan, Stan makes them an offer, which involves giving him a deposit of $100 and taking the car home for a day. Stan does not give them any receipt for the deposit made. However, he gives them assurance that the $100 deposit is refundable. Even though Jim and Laura are given no papers to sign, they agree to pay the deposit and take the car home for the day.

 A contract is deemed legal when it is done in good faith and both parties accept the contract. Some people think that a contract is not binding if it is done orally. However, as long as both parties agree to the agreement made orally, then the contract becomes legally binding (Hirby, n.d). Therefore since both Jim and Laura agreed to the oral agreement made to them by Stan salesman to them, the contract is legal and binding.

When Jim and Laura take the car home, they decide they will not accept Stan Salesman’s offer since they do not want to be spending $400 each month on a car. When one party makes an offer; the other party has a right to reject or accept the offer (Hong & Brisbane, 2015). The agreement becomes legal only after an offer made becomes accepted by the other party.

Jim and Laura agreed to pay a deposit of $100 and take the car home for a day after Stan assured them that the deposit was refundable. They made the contract in good faith, knowing their money would be returned if they decided not to buy the car. However, after telling Stan about their decision to reject his offer, Stan insists that they already made a contract and therefore they must buy the car and that the $100 will not be refunded as it is a part of the contract to buy the car.

 Jim and Laura agreed to pay $100 to hold the car for the day. They did not pay the money to show that they have agreed to buy the car, though it implies that their intention was to buy the car. Though the contract is legal since they first agreed to Stan’s offer and paid a deposit on the same, the contract can be terminated since they decided not to buy it and communicated their decision to Stan. After deciding not to buy the car, Jim and Laura communicate to Stan about their decision. Therefore, since they have communicated to him about not accepting the car, their decision to reject the offer is deemed legal by the law (Hong & Brisbane, 2015).

Mutual agreement

Jim and Stan agree with Stan to pay monthly installments of $400 for a blue sedan. Stan allows them to pay a deposit of $100 in order to hold the car for a day.  Though they do not sign any documents, they all agree in good faith and a contract is entered into. Stan does not force them to pay $100 deposit to hold the car. They also agree that Stan can refund their deposit, maybe in case they decide not to buy the car. Therefore, the contract is binding since both parties were aware of the agreement that they made (Hong & Brisbane, 2015)

Consideration

Jim and Laura agree to pay a deposit of $100 to hold the car for the day. They pay the deposit in a hope that they will buy the car. However after thinking about it, they decided to cancel their order to buy the car. Taking into consideration that Stan would probably have undertaken some losses, it is not illegal for Stan not to give them their deposit back (Masson, 2016). Giving Stan deposit was one way of saying that they are going to buy the car, despite them not signing any documents. This means that Stan would not have sold the car to anyone else while they had it.

 After cancelling their order to buy the car, it is only natural for Stan to remain with the deposit. However if Jim and Laura feel like $100 is too much to lose, they can go to court to seek redress. In most cases, the court will rule in favor of Stan, which means they will lose the deposit and the money for the lawyers. It is therefore advisable that they do not seek to get the deposit back.

Often, deposits paid on car deals are non-refundable, that is the reason Stan did not give them any receipt or made them sign are document to prove that they have given him a deposit (Masson, 2015). It is harder to get the deposit back especially since the agreement was orally made. If Stan was the one cancelling the order, then Jim and Laura would be entitled to get their deposit back. However, since it was the other way round, Stan has the legal right to insist they get the money and pay for the blue sedan.

Intention to create legal relations

Jim and Laura are interested to buy a car. They agree to pay deposit $100.00 to hold the car for a day. The deposit paid is a clear indication that Jim and Laura had intention to enter into a legal relation with Stan Salesman (Hong & Brisbane, 2015). Jim and Laura share a commercial relationship with Stan Salesman. Stan is not a relative or a friend of them. Therefore, their actions which include offer made by Stan and the deposit paid by Jim and Laura are done intentionally, in a bid to enter into a legal agreement. Therefore, it is possible for court to rule in favor of Stan, since paying the deposit is a commercial agreement which is taken to be a legal agreement.

Mistake

A contract made cannot be legally binding if Jim and Laura prove that some mistakes were done while making the contract. Such mistakes include, signing a contract to buy something that does not exist, signing a contract for a completely different thing than what they wanted, or signing a wrong document due to blindness or illiteracy. However, such conditions do not exist in our issue since both Jim and Laura knew what they were doing as they entered into a contract with Stan Salesman (Hong & Brisbane, 2015).

Following this elements of a contract, it is evident that Jim and Stan entered into an agreement with Stan, having paid deposit to hold a car, and their actions portraying their intention to enter into a legal contract. Though the agreement was made orally, the conditions were clear, making the contract to be legal and binding. Jim and Stan may decide to let go of the deposit or take the battle to court.

A commercial agreement is often a legal agreement. Jim and Laura made a commercial agreement with Stan to buy a car by agreeing to pay a deposit to hold the car for a while. The contract therefore is legal since Stan made an offer which Jim and Laura agreed to and later rejected it. They also paid a deposit of $100, with an intention to buy the car. However, since they rejected the offer made and communicated to Stan about it, the court is likely to rule in their favor. This means that they will not be forced to buy the blue sedan. However, chances are that they will not get their deposit back. This is because most of the deposits paid to the car dealers are non-refundable even though most car dealers will claim that they are refundable in a bid to get you committed to buying the car.

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