Business and Corporations Law Common Law Rules

Question: 1 Consider the following situations and indicate whether consideration is present and whether Jack has an enforceable agreement: a) Jane is going overseas and she offers to give her Lotus Super 7 sports car to Jack. The market value for this type of vehicle in good condition is around $25 000. Jack accepts. (2.5 MARKS) b) Jane offers to sell Jack her Lotus Super 7 sports car for $25 000. The market value for this type of vehicle in good condition is around $25 000. Jack accepts. (2.5 MARKS) c) Jane offers to sell Jack her Lotus Super 7 sports car for $2500. The market value for this type of vehicle in good condition is around $25 000. Jack accepts. (5 MARKS) 2 A shipbuilder had contracted to build a tanker for North Ocean Tankers. The contract was in US dollars and didnt contain any provisions for currency fluctuations. Approximately halfway through construction of the ship, the United States devalued its currency by 10 per cent. As the shipbuilder stood to make a loss on the contract, it demanded that an extra US$3 million be paid or it would stop work. The buyer reluctantly agreed under protest to pay, as he already had a charter for the tanker and it was essential that it be delivered on time. The buyer didnt commence action to recover the excess payment until some nine months after delivery. Will the buyer succeed in recovering the excess? Answer: 1 a: On the basis of the facts given in this question, the issue arises if the promise made by Jane to give her car to Jack can be enforced by Jack, particularly in view of the fact that no consideration has been provided by Jack in return of this promise. According to the common law rules of consideration, there are certain elements that should be present in the contract. These elements include offer, acceptance, consideration, intention and capacity of the parties. If these elements are not present, the contract is not enforceable under the law. In this way, consideration is one of the essential elements of a valid contract. The contract law requires that consideration should be provided by the parties in return of the promise received by them. Similarly, the law also provides that past consideration does not act as a valid consideration (Re McArdle, 1951). The law requires that consideration should be something real and has some value under the law. As a result of this requirement, illusionary consideration cannot act as a valid consideration. In the present case, a promise was made by Jane to give her car to Jack but in return, Jack had not promised to provide any consideration to support this promise. As a result, in this agreement, one of the essential elements, namely consideration is not present. As mentioned above, according to the law of contract, an agreement becomes the enforceable contract if the necessary elements are present (Atiyah, 1990). But in this case, one of the essential elements, consideration is not present. The result is that the agreement is not enforceable by Jack. b: The facts of this part of the assignment suggest the need for deciding the issue if the essential elements necessary for the formation of a valid contract are present in this case or not. The law contract provides that there are certain elements that should be present in an agreement. Due to these elements, an agreement becomes a legally enforceable contract. In this context, a valid contract can be described as the contract that is enforceable by the law. Consideration is one of these essential elements necessary for the formation of a valid contract. For this purpose, an offer should be made by one party (Beale, (ed) 2002). The other party should accept the offer and at the same time, valid consideration should also be present to support the promise made by a party under the agreement (White v Bluett, 1853). If all these elements are present, in the eyes of law, the parties have formed a legally enforceable agreement. In this case, an offer has been made by Jane. According to this offer, she was going to sell her car for $25,000. This offer was made to Jack and Jack accepted this offer. In this way, all the elements that are necessary for a valid contract are present. In view of the above mentioned rules, it is clear that a valid and legally enforceable agreement is present between the parties. c: The facts that have been provided in this question suggest that the issue is related with the adequacy of consideration. In this case, according to the offer made by Jane, she is ready to sell her sports car to Jack for $2500. On the other hand, such a car is available in the market for around $25,000. As a result the issue that needs to be decided in this case is if adequate consideration is present and therefore, will it have any impact on the validity of the contract. In order to decide this issue, the rules of common law related with the adequacy of consideration needs to be applied. The general rule in this regard is that the validity of a contract is not affected by the fact that adequate consideration is not present in a contract. In order to create a valid contract, a consideration is required (Beatson, Burrows and Cartwright, 2010). Such consideration should be real or in other words it should have some value under the law. But in this regard, the law does not require that the benefit conferred by one party to the contract or the detriment suffered by it should be equal to the value of the promise received by it. Therefore, it can be said that although consideration needs to be sufficient but it is not necessary that it should also be adequate. As a result, a real consideration is sufficient to support a promise under the contract even if it is not adequate. An example in this regard can be given of Chappell Co Ltd v Nestle Co Ltd (1959). I n this case, the reiterated the rule of law according to which the consideration should be sufficient even if it is not adequate. In this case, it was held by the court that even the empty wrappers of chocolate can act as a valid consideration although the company was going to throw away the wrappers ultimately. On the basis of the tools mentioned above, it can be decided in this case also that even if Jane had offered to sell her sports car to Jack at a very low price of $2500 and the price of such a car in the market is nearly $25,000, still the elements that should be present in a valid contract are also present in this case. As a result, in this case also, an enforceable contract has been created between Jack and Jane. 2. The facts that have been provided in this question suggest the need of deciding the issue that is related with the enforceability of the promise to pay additional benefit is the other party performs a pre-existing duty (Atiyah, 2000). Therefore in this case, a shipbuilder had entered into a contract with the buyer. However as a result of financial difficulties, the shipbuilder found it difficult to complete the work. As a result, the buyer made a promise to pay additional amount of $3 million if the shipbuilder continued the work and completed it on time. It was important for the buyer that the tanker was completed on time as the company has a charter for the tanker. As a result, the issue is if this promise is legally enforceable under the law of contract. It is a basic rule of the law of contract that a promise is considered as legally enforceable if there is valid consideration to support such a promise. The facts of Stilk v Myrick (1809) need to be mentioned briefly as it is an early case related with the requirement of consideration for creating a valid contract. In this case, a promise was made by the master of the ship to the remaining crew members that they will give them the wages of the two crew members who had deserted the ship. Therefore the cost of the ship promised that the wages of these two members will be distributed among the rest of the crew members if they remained on ship and perform the duties of these two crewmembers, along with their own duties under the contract. The crew members agreed and the ship was taken to its home port, London. But the defendant refused to make this payment to the rest of the crew members. Therefore, proceedings were initiated in the court for the recovery of this amount. However, accordi ng to the decision of the court, the remaining crew members have not provided any consideration for the promise made by the defendant the greater the wages of the two deserting crewmembers. The court also pointed out towards the fact that crewmembers were already bound under their contract with the master of the ship according to which they had to complete the voyage. There was another case in which the decision given in this case regarding consideration was reaffirmed by the court. Consequently in Pinnel's case, (1602), it was decided by the court that consideration has not been provided by the defendant for the promise made to refrain from suing for the recovery of the rest of the amount as partial payment has been accepted in full satisfaction of the debt. But the decision given by the court in Williams v Roffey (1990) change this situation. Therefore it is important to briefly discuss the facts of this case. In this case, Roffey had entered into a contract with Williams for doing some carpentry work in the flats. According to this contract, the price for doing the carpentry work was decided at 20,000. But after doing some work, Williams realized that the price decided for the work was too low. As a result, they started to face financial problems. When they approached the defendant, Roffey bros also agreed that the price decided by the parties was too low. At the same time, it has been provided in the contract between the defendant and the housing society that the work of the renovation of the flats should be completed on time otherwise the defendant will have to pay a penalty. Under these circumstances, the defendant agrees to pay an additional amount to Williams for the completion of each flat on time. But later on, the defendant ref used to make this payment. In their defense, they argued that consideration has not been provided by Williams to support this promise. Moreover, Williams was only doing something that it was bound under the contract to do. However, this argument was not accepted by the court. It stated that consideration is present in this case in the form of the practical benefit achieved by the defendant from the completion of the work on time. As a result, the defendant was bound by the promise to make additional payments to Williams. In order to decide the issue in the present case, the above-mentioned positions needs to be applied to the facts of this case. In this case also, as the US government had devalued its currency by 10 percent, the shipbuilder is going to suffer the loss. At the same time, there is no clause present in the contract between the parties to deal with the fluctuation in the rate of currency. The result is that halfway through, the shipbuilder refuses to proceed with the work. On the other hand, the buyer has a charter for the tanker. Under these circumstances, it was very important that the tanker was delivered on time. The shipbuilder wants the payment of additional $3 million in order to deal with its loss. These are the circumstances under which the buyer and let them they agreed to pay extra $3 million to the shipbuilder. But now the buyer wants to recover this amount from the shipbuilder. In view of the legal position mentioned above, it can be said that the promise made by the buyer t o pay additional $3 million to the shipbuilder was valid and legally enforceable. The reason is that in this case, a practical benefit will be achieved by the buyer if the tanker is made on time. Therefore in view of the fact that the buyer is going to achieve an advantage as a result of the performance of its duty under the existing contract by the shipbuilder, it can be said that consideration is present to support the promise made by the buyer to pay additional money to the shipbuilder. Therefore, if this amount has been paid by the buyer to the shipbuilder, even reluctantly, the buyer cannot be allowed to recover this amount from the shipbuilder later on. References Atiyah, P.S. 1990, Essays on Contract, Oxford University Press, New York Atiyah, P.S. 2000 An Introduction to the Law of Contract, Clarendon Beale, H., (ed) 2002 Cases, Materials and Text on Contract Law (Hart Beatson, J. Burrows A. and Cartwright, J. 2010 Anson's Law of Contract, 29th edn OUP Publishing, Oxford Case Law Chappell v Nestle [1960] AC 87 Pinnel's Case [1602] 5 Co. Rep. 117 Re McArdle (1951) Ch 669 Stilk v Myrick [1809] EWHC KB J58 White v Bluett (1853) 2 WR 75 Williams v Roffey Bros and Nicholls Contractors) Ltd (1990) 1 All ER 512