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Elements of a Contract
A contract is an agreement or a promise that two parties make to perform a given task, provide a product, or commit to act that becomes enforced by law. In fact, a contract is very complex as compared to the agreement between two individuals. According to Burton and Eisenberg (2015), most people think that the former is a legally binding written document, while the latter does not presuppose any legal guarantees. The contract can be oral and casual as well. However, the documented evidence should accompany the conclusion of any contract be it formal or informal in order to reduce the chances of its breaching. For a contract to be legally bound, it requires six elements as discussed later in this paper. In the modern consumer society, the contract is a must in every sphere of human activities, including sales, business, partnerships etc.. For example, when a sales assistant asks a shopper to sign a receipt, they reach an agreement according to which both parties are satisfied with an ultimate result of a purchase.
Elements of the Contract
The legal contract has to have six essential elements.
1. An Offer
An offer specifically includes the information about the services or opportunities that both parties receive in case of signing the agreement. Any contract presupposes the acceptance of the offer of one party by the other one. Moreover, it is different from mere willingness to conduct a negotiation or clinch a deal. Considering the example of Jim and Laura, Stan the Salesman offers them a sale for the blue 4-door sedan. The definite promise here was that the salesman offered the car, which facilitated the conclusion of the contract and made both parties bound by it.
Acceptance refers to an agreement from the other party that receives the offer. According to Ayres and Schwartz (2014), acceptance occurs when the party responding to the offer approves of its terms and demonstrates an interest in it (p. 545). Furthermore, when the party has not expressed any form of rejection, one should not regard it as the acceptance of the offer. In this case, the agreement has to be unequivocal, addressing to the offer. As to Jim and Laura, they eagerly agree to accept the deal that the salesman provided for them. They decide to take the car and even make a down payment to ensure Stan that they are willing to purchase the car. Despite the lack of receipt and legally approved documents, the two parties were going to sign a contract which terms were unknown to Laura and Jim.
Every contract has its value. The price that two parties usually pay for the promise is known as consideration. Undoubtedly, it must have some value, but not necessarily money. According to Burton and Eisenberg (2015), consideration can be an interest, benefit, a right, or some advantage. In the given case study, the consideration is the price the two participants (Jim and Laura) will have to pay for the car. Therefore, the consideration of their contract is based on money here. For this reason, they pay the dealer a down payment of $100 to hold the vehicle for a day as they wait to purchase the carcompletely.
4. Legal capacity
There is a limit of people eligible to enter a legal contract. Moreover, there are a few procedures that the parteners should consider before making or accepting any offers. One of them is the mental ability. People with mental impairment are not eligible to conclude a contract. Age is another aspect of consideration. According to Yihan, LEE and THAM (2015), minors, people under the age of 18, are not allowed to participate in reaching any agreements that would have legal value. Additionally, they have a limited understanding of the functioning of the business world, which makes them unfit for signing the contract (p.217). Other categories includebankrupts, prisoners, and people working for corporations. Even though there is no any indication of the age of Jim and Laura in the case study, there is an assumption that they are eligible to conclude the contract. Furthermore, they seem to have sufficient amount of funds to afford $400 to purchase the car and allocate a certain sum of money for its services on a monthly basis. Therefore, Jim and Laura appear to be eligible for a binding contract. One the other hand, the salesman is a dealer who has a running business.Therefore, he can enter a binding contract as well.
5. Intent of creating legal relations
A contract is not a standalone statement or promise just because there is an agreement between two parties. The parties involved must have an intention of entering a binding contract. Sometimes it happens without the knowledge. McKendrick (2014) states that signing a receipt after buying some goods seems to be a daily routine to some people, while, in reality, people enter a binding contract. The intentions will be rarely stated clearly but always depend on the circumstances in the two parties make the agreement. Regarding the given case, Laura and Jim had the intention of reaching an agreement with Stan concerning the sedan car. As a result, such willingness to buy the vehicle from the dealer created the legal relations between the two parties. It is an example of a universal agreement on how to pay for the car.
6. Object of the Contract
These are the legally enforceable terms and conditions. Alternatively called consent, these are elements of free will and proper understanding of what the involved parties are entering into. According to McMillan and Stone (2012), once there exists a valid consent from each of the two sides for the smooth conclusion of the contract, the contract requires additional elements (p. 20). However, consent is dependent on the interpretation of the given conditions, and, thus, the following matters may lead to mistakes, undue influence, duress, and false statements.
When the terms and conditions are not clearly stated, the party that accepted the offer may change their mind and ask to exit the contract. According to McKendrick, (2014) when one party accepts the offer and signs it without reading its terms and conditions, the contract is still binding and enforceable. A party may enter a contract on the basis of the false statements of other sources of information and influence. In this case, lacking the skills to objectively assess the content of the agreement, people usually decide to rely on the person that formulated the contract. Laura and Jim became interested in the dealer’s offer, especially after he said the deposit was refundable. This is an example of the case when people are focused on the benefits of the deal without considering its other essential aspects. However, they are eligible to ask for a rescission. They can appeal to the court of law for the cancellation of the contract, because they misinterpreted its terms .
In conclusion, Jim and Laura entered into an agreement with Stan the Salesman to purchase the automobile. The contract was binding. Although the contract was not written, it had legal value due to the presence of six elements outlined in the discussion above. Considering the elements of the contract, Jim and Laura accepted the offer to buy the car by paying a deposit of $100 and the rest by monthly installments. The offer included a calculated value and the consideration of the amount that Jim and Laura had to pay. On the basis of these aspects, one can infer that the oral agreement between the salesman and buyers has all the features of the binding contract. However, due to Jim and Laura’s incompetence, they entered the falsely formulated contract. Stan, on the other hand, made a statement that the deposit would be refundable. For this reason, the man and woman decided to reach the agreement without questioning its suspiciously unclear grounds and terms. Luckily, Jim and Laura have an opportunity to assert their rights. In particular, they can appeal to the court of law for a rescission, because they misinterpreted the content of the agreement, according to which the salesman was supposed to refund the deposit. With reference to business law, Jim and Laura should follow the terms of the contracts failure on the basis of which they will face the consequences.
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