Craig ordered a new car and was required to pay a $500 deposit.Which of the following is correct with respect to that deposit?
A) If no deposit had been paid, there could be no contract.
B) The deposit must be an honest attempt by the parties to pre-estimate damages in the event of a breach.
C) If the court feels that the damages exceed the deposit, they will order the breaching party to pay any difference.
D) The deposit must be a fair reflection of the loss actually suffered.
E) A down-payment is an amount of money to be forfeited if either party is in breach of contract.

Question

Quizplus · Accepted Answer

The deposit must be an honest attempt by the parties to pre-estimate damages in the event of a breach. Option A is not correct as contracts can exist without a deposit paid. Option C is not fully correct as the court may order the breaching party to pay more than the difference between the damages and the deposit. Option D is also not fully correct as the deposit does not need to be a fair reflection of the actual loss suffered, but rather an attempt to pre-estimate damages. Option E is not correct as a down-payment is not necessarily the same as a deposit in the context of contracts.

Craig Ordered a New Car and Was Required to Pay