A Contract
In the words of Judge Learned Hand, a contract “is an obligation attached by the mere force of law to certain acts of the parties, usually words, which ordinarily accompany and represent a known intent” (Solan, 2007, p. 353). Because the formation of a contract carries with it certain legal obligations and rights of the respective parties, it is important to know when a valid and binding contract has been formed. In order for a valid contract to exist, certain elements must be met. There are generally four essential elements that must be satisfied for a contract to exist. First, there must be an offer or a promise (Dvorske, et al., 2015). Second, there must be an acceptance of the offer (Dvorske, et al., 2015). Third, there must be consideration. And fourth, there is a legality requirement.
Next is the question of whether Jim and Laura accepted Stan Salesman’s offer to purchase the car. This is a more difficult inquiry and lies at the heart of whether a contract was formed between these two parties. Jim and Laura can argue that they never accepted Stan Salesman’s offer to purchase the sedan, and therefore there was no binding contract. There are a number of arguments that Jim and Laura can raise in support of this position.
Jim and Laura’s strongest argument against the existence of a binding contract is that there was simply no acceptance of the offer. While they gave Stan Salesman a $100 deposit, there was no contract for the sale of the sedan. Jim and Laura did not sign any documents at the dealership. The lack of any signed documents whatsoever is indicative that Jim and Laura did not accept Stan Salesman’s offer to purchase the sedan. Because Jim and Laura did not sign any agreement that accepted the offer to purchase the sedan, nor did they orally agree to the offer to purchase, there was no acceptance. Absent a written agreement specifying such important contractual terms as price and time for payment, there is a noticeable lack of the “meeting of the minds.” The price of a good is perhaps one of the most important features of the contract. As there was no agreed upon price reached by the parties, there was no acceptance.
While some contracts can still be formed without certain terms included, in this situation, the party’s intent to enter a contract cannot be inferred. Parties that have a steady and consistent business relationship with one and other can oftentimes infer certain terms of a contract. This enables a valid contract to be formed that does not necessarily spell out all the terms. But important terms of the contract cannot be inferred here because there parties had no prior business relationship or dealings with each other.
The third element of contract formation is present in this situation. Consideration is a relatively low legal threshold to meet. In this fact pattern, consideration is met with the exchange of money. The $100 deposit that Jim and Laura gave to Stan satisfies the consideration requirement. The fourth element of contract formation is also met. The sale of a car is a legal transaction.
Stan Salesman will argue that there was a valid contract. Stan will point to the fact that contracts for the sale of goods can leave terms open and still form valid and binding contracts. The Uniform Commercial Code (UCC) provides that a contract “does not fail for indefiniteness if the parties have intended to make a contract” (UCC §2-204). Thus, Stan can argue that even though terms were left open, such as the specific price of the sedan, there was still a contract because the parties intended to enter into a contract.
There are a number of possible defenses that Jim and Laura can raise. The first is that even if there was a contract for the sale of the car, it violated the statute of frauds. Speaking broadly, the statute of frauds requirements originated from English common law. The aim behind the statute of frauds was to require the parties to put their agreement in writing for certain kinds of contracts. The writing requirement was thought to better memorialize the agreement of the parties than relying on the party’s oral accounts of what they assumed the terms of the contract were. The overall purpose behind the statute of frauds was to prevent fabrication and fraud by requiring that a contract be in writing.
The UCC applies to the sale of goods. Within the UCC is a specific provision addressing the statute of frauds requirement. Under UCC § 2-201, a contract for the sale of goods costing more than $500 must be in writing (UCC § 2-201). The 4-door sedan that Jim and Laura were looking at cost more than $500. While no specific price is mentioned, Jim and Laura expressed that they could only afford payments of $400 each month, which implies that any car they purchased would be well over $400 in total price. Because the sedan exceeded $500 in price, in order for there to be a valid contract, the agreement must have been in writing. While the statute of frauds does not mandate any particular kind of writing or a formal written agreement, there was absolutely no written documents in the course of this transaction. Jim and Laura can argue that even if there was a contract, it is unenforceable because it violates the statute of frauds writing requirement.
In conclusion, I would advise Jim and Laura that they are entitled to the full $100 deposit back because there was no contract agreement in the first place. The parties did not mutually agree on matter when Jim and Laura were at the dealership. No documents were signed and no promises were made. Absent a contract, Stan Salesman is not entitled to keep the $100 and must give it back to Jima and Laura.
References
Dvorske, et al. (2015). Contracts. Ohio Jurisprudence, Third Edition. § 7.
Solan, L. M. (2007). Contract as agreement. Notre Dame Law Review, 353-408.
Uniform Commercial Code, §§ 2-201 & 2-204.
