Assignment 1

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Ashford University *

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311

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Law

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Apr 3, 2024

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1 Critical Analysis of a Contract BUS311: Business Law

2 Critical Analysis of a Contract Most people who live in the United States have entered into a contractual agreement at one point in their lives, whether for a car, cell phone, or home. These contracts are negotiated with the involved parties, agreed upon, and finalized with the contract in writing with signatures agreeing to the terms. This paper will give a detailed description of a contractual agreement between two parties, define the essential contact elements, and explain a contract breach's circumstances. In November of 2020, I searched for a new vehicle to replace my current one, as it was getting older and needed too much work. I previously owned a 2008 Audi A4 and loved everything about it, so naturally, my thoughts were to get a new one. After test driving and looking around for a few weeks, I decided what model was best and began negotiations with the dealership. First was the price, which the dealership started at the high end. I counter-offered with what I thought was reasonable, and they disagreed it was. After three numbers were thrown around, we agreed on a price and moved onto the next financing step. They gave me a very high Annual Percentage Rate to begin, but I informed them that that number would not work, and if they could not do better, I would have to find financing elsewhere. The financing was settled after a few conversations with the salesman and the manager. After four hours at the dealership, both parties could agree upon terms, and a contract was written up to be signed. Two parties were involved with contract signing: Volkswagen Financial Services and myself, Zacharie Levan. The retail purchase agreement stated that I would pay a total of $38,757.89 over 72 months, with an annual percentage rate of 0%. This meant that no interest would be paid to Volkswagen Financial Services and that the loan was virtually free. Also, part of the agreement that once I received the paperwork for an online account with Audi where I would make

3 payments, that if enrolled in Autopay, there would be a discount applied. The discount was not very significant, only five dollars every month, but a discount, nonetheless. This contract is very common across the United States, with over 27.54 million new loans started in 2016 (Challa, 2020). All these contracts must contain the five essential elements to be legally binding and considered enforceable contract. Contracts are either enforceable or non-enforceable. The difference is that an enforceable contract ensures that both parties can understand the terms of the contract and have legal actions acted upon if the contract is not fulfilled. In contrast, a contract may be unenforceable when statutory requirements are not met ("Contract Law," n.d.). There are five elements to a contract that make it legally enforceable: mutual assent, expressed by a valid offer and acceptance, adequate consideration, capacity, and legality (Gilkis, 2019). Mutual assent is the agreement by both parties to the contract and is typically proven with the second element – offer and acceptance. The contractual agreement between Volkswagen Financial Services and myself, offer, and acceptance began from the beginning. When I decided that the car was right for me, I placed and offered, and there started negotiations. At the end of the negotiations, there was an acceptance of an offer by the manager. When that acceptance took place, and paperwork was started, mutual assent was then complete. After mutual assent and acceptance are established, consideration is the next element. Rogers explains consideration as, "A contract is a bargained- for exchange between the parties, and consideration is whatever is being exchanged" (Rogers 2012, 4.4). The consideration between Volkswagen and myself was the $38,757.89 in exchange for the Audi A4, where I would benefit from owning the A4 after payments are complete. Volkswagen would be entitled to the benefit of the money. Capacity is an essential part of the contract process. It ensures that both parties that are to be legally bound to the contract are of

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4 mental and physical capacity to complete the contract. If a person over the age of 18 attempts to sell a vehicle to someone under the age of 18 without parental consent, that would mean the younger person did not have the physical capacity to sign the contract. This also includes mental capacity, where someone with a mental disability cannot be legally bound to a contract they cannot understand. The final element is legality, meaning the contract met all the state and federal laws. In the vehicle sale case, the most common law that would be broken would be the interest usury statute. This prohibits all lenders from charging borrowers excessively high rates of interest for loans. Very common around military bases, where teens are coming out of basic training and buying new vehicles at a high-interest rate due to no existing credit. The law will protect them from being legally bound to a contract where the rate is excessive. At times it does occur where a promisor fails to render their side of the contract, and the contract is breached, but there are remedies in situations. If a promisor under the duty to perform fails to render their promise, then a breach of contract will occur, and the promised has two remedies they can act upon, damages and specific performance. (Rogers, 2012). There is a possibility of a breach of contract in the contractual agreement between Volkswagen and I if the money owed was not paid to them in exchange for the vehicle. Volkswagen's remedy would most likely elect to proceed with would be a repo or a repurchase transaction. In this scenario, Volkswagen would involve a third party to take the vehicle out of my possession and into theirs since I did not fulfill the agreement to pay them in full. Under the contract, I am liable to pay them the vehicle's full purchase prices to own the title. If I chose to breach the contract, they have the right to take back the car since my end was not met. Repo is the most common remedy for breach of contract for car loans. Breaches of contract

5 are the worst part of a contractual agreement but are written in most legally bound to ensure that both parties' needs are met. In the United States, there are many different types of contracts the citizens enter every day, from cell phones to cars and even home buying. If legally bound for both parties, all contracts include the five elements of mutual assent, expressed by a valid offer and acceptance, adequate consideration, capacity, and legality, and in some cases even include a breach of contract that can be remedied many ways by the promised. As the United States continues to grow, contractual agreements will remain of importance for everyday items.

6 References Challa, S. (2020, September 22). 35 essential auto loan statistics (2020 update) . PolicyAdvice. https://policyadvice.net/insurance/insights/auto-loan-statistics/ Contract law . (n.d.). Law Library - American Law and Legal Information - JRank Articles. https://law.jrank.org/pages/22695/Contract-Law-Enforceable-Unenforceable- Contracts.html Gilkis, K. (2019, July 19). Contract . LII / Legal Information Institute. https://www.law.cornell.edu/wex/contract Rogers, S. (2012). Essentials of Business Law , Ch. 6.4 Retrieved from https://content.ashford.edu/

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