Business And Corporations Law: Contract Act Essay

Question:

Discuss about the Reort for Business and Corporations Law of Contract Act.

Answer:

1. Issue

To ascertain the existence of consideration and enforceable agreement for Jack based on the information provided

Law

In order for an enforceable agreement to be enacted, there must be the presence of an offer and an acceptance and both must be legally valid. An offer is communicated by the offeror to the offeree and the offeree may decide to accept it, reject it or provide conditional acceptance (Carter, 2012). It is imperative that the decision to accept on the part of the offeree must be communicated to the offeror as mental acceptance does not amount to acceptance (Felthouse v Bindley (1862)). Further, any acceptance that has significant conditions attached is referred to as counter offer and hence would require acceptance from the original offeror (Harvey, 2009).

Further, an imperative element that needs to be present in enforceable contracts is consideration. This concept helps in identifying gratuitous promises since these promises have no consideration present. As defined in Dunlop Pneumatic Tyre Co Ltd v Selfridge & Co Ltd (1915), consideration refers to a promise of action of restraining from a particular action and acts as the compensation foe buying the promise of the other party. The presence of consideration is an essential element for contract formation (Richard, 2003). However, it is imperative that consideration must satisfy certain norms that are detailed below (Taylor & Taylor, 2015).

  • The consideration must not be a favour or action done in the past but should be acts that would be performed either in the present or future (Lampleigh v Braithwait (1615)).
  • It is not imperative that consideration should be adequate. The only requisite condition is that it should have some value. The adequacy of value is the subjective judgement of the contracting parties as established in the verdict of the Chappell & Co Ltd v Nestl? Co Ltd (1960) case. In this case, it was opined that the consideration amount and nature is the will of the promisee and no third party should dwell into evaluation of the same. However, in case of certain contracts where unconscionable conduct is suspected, there the question with regards to adequacy of consideration may be raised (Paterson, Robertson & Duke, 2015).
  • The consideration may not be adequate but it should be sufficient as defined in legal terms. If the sufficiency clause with regards to consideration is not met, it essentially implies that no consideration is present and hence the underlying contract is rendered legally non-enforceable (Gibson & Fraser, 2014).
  • The consideration promised should be legal and definite in value. Any consideration which is indefinite in value would not be constituted as consideration.

Application

The given situations need to be analysed in the wake of the relevant provisions related to contract law and common law that have been discussed above pertaining to agreement and consideration.

Jane, the offeror makes an offer to Jack, the offeree with regards to offering her Lotus Super 7 Sports car for free since she is going overseas. Jack provides unconditional acceptance for this offer extended by Jane. Besides, it is given that the market value of the vehicle at the time of this offer was $ 25,000. Jack, in this case does not have an enforceable agreement in place since for the promisor i.e. Jane, there is no consideration that is present as is not extracting any money or in kind compensation for giving her car to the promise or Jack. In the absence of consideration, the given promise would be termed as a gratuitous promise and these promises lack legal enforceability. As a result, it may be concluded that in this case, there is no enforceable agreement for Jack.

Jane, the offeror makes an offer to Jack, the offeree with regards to offering her Lotus Super 7 Sports car for $ 25,000 since she is going overseas. Jack provides unconditional acceptance for this offer extended by Jane. Besides, it is given that the market value of the vehicle at the time of this offer was $ 25,000. In the given case, Jack has an enforceable agreement with regards to sale of car. This is because a valid offer was made by Jane to sell her car to which unconditional acceptance was tendered by Jack. Further, consideration for the promisor exists which is equal to the market value. As a result, it may be concluded that in this case, that Jack has an enforceable agreement.

Jane, the offeror makes an offer to Jack, the offeree with regards to offering her Lotus Super 7 Sports car for $ 2,500 since she is going overseas. Jack provides unconditional acceptance for this offer extended by Jane. Besides, it is given that the market value of the vehicle at the time of this offer was $ 25,000. In the given case, Jack has an enforceable agreement with regards to sale of car. This is in line with the arguments extended in the Chappell & Co Ltd v Nestl? Co Ltd (1960) case where it was clearly stated that the adequacy of consideration is to be decided solely by the parties enacting the contract. Extending the arguments, here the offer of $ 2,500 is made by Jane only and the same does not seem to arise from any unconscionable conduct on the part of Jack. Thus, there is no denying here that consideration is indeed present. Further, the essential elements of an agreement i.e. offer and acceptance, are also present. Thus, Jack has an enforceable agreement with Jane for purchase of the given car for $ 2,500.

Conclusion

The above discussion indicates that legally valid agreement requires that offer and acceptance must be present that should be provided with consent. Further, presence of consideration serves to segregate the enforceable promises from gratuitous promises. Only in one case i.e. when Jane offers car for free, Jack does not has an enforceable agreement. In both other cases, irrespective of the consideration adequacy, Jack has an enforceable agreement in place.

2. Issue

To opine with regards to the likely outcome of the buyer’s attempt of recovery of $ 3 million worth of excess payment after nine months of contract completion.

Law

One of the key conditions for enactment of a legally enforceable contract is the presence of free and mutual consent on part of both the parties. This is not only applicable for the execution of the initial contract but also holds true for subsequent modifications for the contract. Also, any modifications made in the contract needs to be consented by both contracting parties which typically require that significant consideration has to be present for both parties (Davenport & Parker, 2014).

However, if any contract or modifications to the same are enacted against the will of the other party, then this situation amounts to duress. It refers to the pressure that a person experiences on the behest of the other party with the intention of coercing the person into performance of any action which in the absence of pressure, the party would not have agreed (Taylor & Taylor, 2015). It is noteworthy that duress is different from the concept the undue influence deployed in civil law. Duress is a defence available under common law whereby the party in a superior position abuses the position for to pose threats for the other party and thereby violate the principle of voluntary agreement for legal contract formation (Carter, 2012).

With regards to contract law, there are two broad types of duress (Paterson, Robertson & Duke, 2015).

  • Physical Duress
  • Economic Duress

In cases of physical duress, threats of physical nature and violence are given with regards to the person or the goods which in turn forces the party to provide agreement with the demands. Initially, the court only took cognizance of physical duress (Harvey, 2009). However, in the Occidental Worldwide Investment Corporation v Skibs (The Sibeon & The Sibotre) [1976] 1 Lloyds Rep 293 case, the principle of economic duress was taken in consideration for the first time and thus this case acted as a landmark decision in this regard. It essentially refers to the presence of economic pressure for compelling the party into agreement with demands that it would not have otherwise agreed to (Lindgren, 2011). The various elements of economic duress are highlighted below (Gibson & Fraser, 2014).

  • There is presence of wrongful threat which includes the threat of breaching contract to be executed in bad faith.
  • There is no alternative available for the party but to agree with the demands of the other party.
  • The threat effectively amounts to enactment of the contract which takes into consideration the situational factors.
  • Financial distress is brought upon the other party.

A relevant case in this regard is North Ocean Shipping v Hyundai Construction (The Atlantic Baron) [1979] QB 705. As per this case, the claimant entered into a contract with the defendant for building a ship for a specified amount in USD. Post the contract enactment, there was a devaluation of the USD by 10% which enhanced the cost for the builder (i.e. defendant). The defendant asked for additional 10% payment from the claimant and threatened to breach the contract in case of non-compliance with the request. Meanwhile, the claimant had got an attractive charter for the ship and therefore needed that the ship be delivered on time. As a result, the claimant reluctantly agreed to the defendant’s request. However, after eight months had elapsed from the date of delivery of ship, the claimant initiated legal proceedings to recover the excess payment made earlier (Carter, 2012). The judge opined that indeed there were elements of economic duress and hence it was voidable but the fact that claimant had delayed their claim for so long implies that have effectively provided confirmation to the contract (Harvey, 2009). Hence, the claimant could not recover the excess payment made under duress.

Application

In the given case, North Ocean Tankers entered into a contract with a shipbuilder for the building of tanker. The contract price was negotiated in USD and the contract did not have any clauses dealing with currency fluctuation. After the execution of contract, the USD was devalued by 10% which caused the builder to demand $ 3 million as additional compensation. North Ocean Tankers (NOT) did not agree with this claim but due to unfair threat of contract breach, additional payment was agreed to. NOT had negotiated a lucrative charter for the proposed tanker and thus could not afford any delay in delivery. However, after nine months of delivery, NOT wishes to recover the excess payment made to the builder.

It is apparent from the discussion of the relevant law that economic duress is present here. This is because NOT protested against the excess payment and were not legally entitled to make the payment. However, owing to economic threat of breaching the contract in unfair manner became the enabling force of providing consent for the additional payment. In the absence of this threat, the company would surely not have made additional payment of $ 3 million as the same was not driven from the contractual obligations. Further, the forced agreement to make the excess payment by NOT effectively resulted in contractual relations. Thus, it may be concluded that revised contract was indeed voidable at the behest of the company i.e. NOT. However, in light of the verdict of the North Ocean Shipping v Hyundai Construction (The Atlantic Baron) [1979] QB 705, the company i.e. NOT would not be able to recover the excess payment of $ 3 million as the delay in demanding the same has effectively led to confirmation of contract.

Conclusion

It can be concluded from the above discussion, that the revised contract with the excess payment clause was voidable at the behest of the company but due to the delay in making the demand for recovery of this payment, the payment becomes irrecoverable. In case, the recovery process could have been initiated earlier, the company may have succeeded in recovering the excess payment of $ 3 million.

References

Carter, J 2012, Contract Act in Australia, 3rd eds., LexisNexis Publications, Sydney

Davenport, S & Parker, D 2014, Business and Law in Australia, 2nd eds., LexisNexis Publications, Sydney

Gibson, A & Fraser, D 2014. Business Law, 8th eds., Pearson Publications, Sydney

Harvey, C. 2009, Foundations of Australian law. 3rd eds., Tilde University Press, Prahran, Victoria

Lindgren, KE 2011, Vermeesch and Lindgren's Business Law of Australia, 12th eds., LexisNexis Publications, Sydney

Paterson, J, Robertson, A & Duke, A 2015, Principles of Contract Law, 5th eds., Thomson Reuters, Sydney

Richard S 2003, The Modern Law of Contract, 5th eds., Cavendish, London

Taylor, R & Taylor, D 2015, Contract Law, 5th eds., Oxford University Press, London

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