Elements of a Contract: Automotive Purchase

Elements of a Contract: Automotive Purchase

BUS 311: Business Law I

Elements of a Contract: Automotive Purchase

Contracts are seemingly a part of our everyday life and can involve entering into an agreement for the purchase of a home, automobile, furniture, appliances, cell phone, clothing, and food to name a few. “Good contracts make good business associates and prevent potential disagreement or confusion” (Longobardi, 2011). They are vital to our society because they help facilitate trust and cooperation, but can be burdensome at times and extremely intimidating due to their length or the specific and sometimes confusing language written within. Contracts can be hundreds of pages long and filled with legal requirements or specifics that may have little meaning to the average person. Contracts can be either verbal or written. Written contracts are easier to enforce in the eyes of the law. Some people might even agree that they can become quite cumbersome if there is a breach and the parties involved must go to trial. In this paper, I will describe an example of an automobile contract that I entered and provide specific contractual details, subject matter, and demonstrate how each element relates to my example, explain the circumstances of a breach of contract, and discuss possible remedies.

A contract is much more than an agreement between two people. “There must be an offer to enter into a contract, acceptance of the offer by the other party, an exchange of consideration between the parties, a legal purpose for the contract, and both parties must have the capacity to enter into the contract” (Rogers, S., 2012, Chapter 4, p. 2). Any duress, false statements, undue influence or unconscionable dealings could make a contract illegal and void.

“An offer must contain a clear and unambiguous promise to enter into a contract, must have reasonably certain terms, and must be communicated by the person making the promise and the person to whom the promise is made” (Rogers, S., 2012, Chapter 4, p. 8). The offer is a definite promise to be bound, provided the terms are accepted precisely as offered. I was a proud owner of a 1991 Honda Accord for over 20 years. Because of losing a cylinder, the car became unsafe and with the changing dynamic of our family, we had to purchase another vehicle, either an SUV or Van. As a result of a bankruptcy proceeding in 2010, the available options to purchase another automobile were limited. I visited the Toyota of Union City dealership in Union City, Georgia due to their favorable dealings with customers with bad credit and limited financial resources to begin negotiations on a replacement. An offer was made by the dealership to purchase a 2008 Honda Odyssey EX-L for $25,668.41 which included all services, fees, and taxes.

Acceptance occurs when the party answering the offer agrees to the offer by way of a statement or an act. Acceptance must be clear and concise and communicated to the offeror or the law will not deem a person to have accepted an offer merely because they have not expressly rejected it. “For acceptance to be valid, it must be made by the person to whom the offer was made, unequivocal, and communicated to the offeror” (Rogers, S., 2012, Chapter 4, p. 13). After further negotiations and counter offers, I accepted the dealerships offer to purchase the 2008 Honda Odyssey EX-L for the drive out price of $23,668.41 at an interest rate of 14.61% for 72 months.

Consideration is the price paid for the promise of the other party. The price must be something of value, although it need not be money. Consideration may be some right, interest or benefit going to one party or some forbearance, detriment, loss or responsibility given, suffered or undertaken by the other party. The considerations in this transaction were the Honda Odyssey to the offeree, myself, and the financial restitution or money to the offeror, the dealership. During the initial loan agreement period, with a continued improvement in my financial situation, I was able to refinance the existing length of the contract and reduce the term to 48 months with an interest rate of 5.00% in 2011 with Kinecta Federal Credit Union. This contract restructuring saved me over $9,000 in interest over the loan period.

“To have a valid contract, both parties, at the time the contract is made, must have sufficient mental competency to understand the nature and circumstances of the transaction” (Rogers, S., 2012, Chapter 5, p. 6). Capacity to give consent involves a general understanding of the nature of the contract but not necessarily its fine details. However, not all people are completely free to enter a valid contract. Age and mental competency are circumstances where a contract would be invalid or voidable. In this case, I was of sound mind and good judgment to enter this contract. Documentation that needed to be reviewed and understood included the odometer disclosure statement, the agreement to furnish insurance policy, tax, tag, and title documents, warranty information, vehicle inspection, payment schedule, and financial terms.

Legality is the fifth and final consideration for a legitimate and enforceable contract. “An agreement may be considered illegal if it would violate a statute, result in the commission of a tort, or violate public policy” (Rogers, S., 2012, Chapter 5, p. 15). In addition, “most people have a sense that the law of contracts is one of formality and their own behavior appears quite sensitive to social and moral dimensions of promise and disappointment” (Wilkinson-Ryan, 2015). To make this purchase agreement legal and valid, the following information should be included in the contract – the buyer and seller’s names and addresses, the year, make, model, and Vehicle Identification Number (VIN) of the car, the purchase price, all legal documents to successfully transfer the title, the signatures of both the seller and buyer, the date of the purchase, warranty disclosures, service records, and the cancellation period.

Taking the time to review and check your automobile contract is vitally important. Mistakes, either intentional or unintentional, can be made. Breach of contract circumstances can include selling a vehicle for more than the advertised price, selling cars with frame damage, not disclosing prior accidents, selling rental cars without disclosure to potential buyers, breaking up the down payment to pay later, setting up automatic check payments, rolling back the odometer, and not honoring the warranty. How can the average consumer resolve this potentially time-consuming and costly situation? Before determining if you should sue the dealership for breach of contract, there are some important things to consider. Are you happy with the vehicle you are driving? Is your goal to return the vehicle and undo the deal, or are you looking for compensation for repair fees? Depending on how much the contract breach cost you, as the consumer, you may want to first approach the dealer, and see if they are willing to compensate you directly for their errors because many are willing to fix them. If not, additional remedies could include car replacement, an extended service, and repair agreement, reimbursement of attorney’s fees, and damages.

“Freedom to contract is one of the important theoretical underpinnings of a free market that government law can either support or undermine. However, the ability to contract, perhaps even when government attempts to prevent it, also can be an important source of robust economic activity” (Benson 2006). Automobile contracts require attention to detail and focus on both the offeror and offeree’s part to ensure the five essential elements of contracts; offer, acceptance, consideration, capacity, and legality, are adhered to throughout the negotiation process.


Benson, Bruce L. 2006. “Contractual Nullification of Economically-Detrimental State-Made

Laws. Review of Austrian Economics, 19(2-3), 149-187. doi:http://dx.doi.org.proxy-


Longobardi, S. (2011). Good Contracts Make Good Business Associates. Podiatry Management,

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Rogers, S (2012). Essentials of Business Law (Electronic version) Retrieved from


Wilkinson-Ryan, T., & Hoffman, D.A. (2015). The common sense of contract formation.

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