Contract Law: Contract For The Tanker Construction Essay

Question:

Describe about the Contract Law for Contract for the Tanker Construction.

Answer:

1. Issue

The critical issue in this case is to remark on the presence of the valid consideration and involvement of the various factors required for Jack to have an enforceable agreement with Jane.

Rule

The main requisites for the enactment of an enforceable agreement are highlighted below (Andrews, 2011).

1) Lawful offer from the concerned offeror/promisor directed to the offeree

2) Lawful acceptance from the concerned offeree/promisee directed to the offeror

3) Valid consideration for both the offeror and offeree

Valid offer and valid acceptance

It is significant for the enactment of an enforceable agreement that the offer and acceptance must be extended with sound mind and consent of both the parties i.e. offeror and offeree. The important aspect for the lawful offer/promise depends on the nature of the offer i.e. the offer must be legal as per civil law, liable and must have some value and must be communicated to the offeree (Carter, 2012). For lawful acceptance, the offeree must not involve any condition or terms in return to the offer. If the respective offeree has sent acceptance, after including some conditions, then it would be designated as counteroffer. This acceptance cannot be labelled as valid, till the original offeror confirmed the counteroffer and sends acceptance for the counteroffer. (Davenport & Parker, 2014).

Valid consideration

Another key ingredient for the legal agreement is valid consideration. This is specific in nature since it describes the difference between the enforceable promise and gratuitous promise. The real definition of the consideration can be adopted from Dunlop Pneumatic Tyre Co Ltd v Selfridge & Co Ltd (1915) case. Consideration is the significant amount that the offeree needs to pay to the offeror in order to provide compensation for the respective offer or commitment (Pathinayake, 2014). As valid consideration is the main requisite for the legal agreement, hence it is necessary to discuss the various aspects related to this ingredient.

Valid consideration must be applied for the offer/promise, which will perform or enact in the present scenario or in future, since any past consideration would not liable to perform any present promise (Pendleton & Vickery, 2005).

Consideration can be any object, price, any promise in the return to the offer/promise. An enactment of the agreement, without specific valid consideration will be treated as null or void agreement (Harvey, 2009).

Another aspect of consideration is adequacy. It is not necessary that the consideration amount will be equal to the current market amount of the offer or promise. This aspect of the consideration can be explained by referring to the verdict of Chappell & Co Ltd v Nestl? Co Ltd (1960) case, in which three chocolate wrappers were considered as a valid consideration for the contract. When any reprehensible conduct has occurred between the parties, then the adequacy of the consideration amount is taken into account. Court will raise the point of adequacy of consideration amount to prevent any wrong decision in the presence of unethical or miserable conduct (Lindgen , 2011).

Application

Jane offers to provide her vehicle to Jack

Offeror Jane relocated in overseas location and thus made an offer to give her vehicle to Jack, without asking for any compensation in return to the vehicle. At the time of this transaction, the commercial value of the vehicle was nearly $25,000. Jack wilfully accepted the offer without asking for stipulations from Jane. The valid offer and acceptance is not sufficient to enact an enforceable agreement, as there was no consideration performed for Jane. Thus, this offer becomes gratuitous promise due to the absence of consideration. Therefore, in regards to the rules of the contract law, the presence of gratuitous promises cannot pave way for an enforceable agreement for Jack.

Jane offers to sell her vehicle to Jack for an compensation amount of $25,000

Offeror Jane extends an offer to sell her vehicle to Jack for a specific compensation amount of $25,000. The offeree Jack sent his acceptance for the respective offer. He was set to pay $25,000 to gain possession of the vehicle. In this scenario, the valid offer is created by Jane, valid acceptance is sent by Jack in a wilful manner and the most important aspect, presence of the compensation or consideration amount of $25,000 which was exactly the same as commercial value of the vehicle is also there. Hence, a lawful enforceable agreement is mandatory for Jack.

Jane offers to sell her vehicle to Jack in the compensation of $2,500

Offeror Jane created an offer to sell her vehicle to Jack. She also asked Jack to pay a compensation amount of $ 2,500. Jack confirmed to pay this compensation amount to Jane without any argument and conditions. The commercial value of the vehicle at the time enactment of the agreement was $25,000. However, the mentioned consideration amount is not anywhere close to the commercial value of the vehicle, which arise the question of adequacy. As per the above discussion, there was no any unconscionable activity or coercion performed by the offeror or offeree. Hence, as per the verdict of the contract law, adequacy is not imperative in the current scenario. Thus, the compensation amount of $2,500 will also be worked as valid consideration. Therefore the presence of legal consideration leads to the existence of an enforceable agreement for Jack.

Conclusion

Case1: Presence of gratuitous promise due to lack of valid consideration and no enforceable agreement for Jack.

Case 2: Presence of all essential ingredients i.e. offers, acceptance and consideration caused enactment of an enforceable agreement for Jack.

Case3: Presence of consideration, offer and acceptance lead to the existence of enforceable agreement for Jack, as no unsuspicious conduct was present.

2. Issue

Based on the contractual conduct of the two parties, determine as to whether the North Ocean Tankers would find success in their recovery claim.

Rule

A contract execution requires the precise and uncompromised presence of a host of factors. In this regards, one of the most critical ones is mutual consent on the part of parties to enter into contract. For this to happen, both parties should have enough consideration to bring upon themselves contractual obligations (Carter, 2012). When a particular contract term may be biased towards the interest of a particular party, it is likely to be rejected by the other party. However, at times, in these cases consent through force may be obtained with the intent of forming a contract. Such kind of circumstance is referred to as duress. Duress may be present for the original contract but may also be applied with regards to inserting terms that tend to protect the interests of the dominant party (Andrews, 2011).

In accordance with the relevant provisions of the common law, contracts enacted under the actions that fall within the ambit of duress would be voidable at the will of the party whose consent have been obtained through application of force. The endorsement of this understanding is extended from the decision of Generation Corporation t/as Verve Energy v. Woordside Energy Ltd. [2013] WA SCA 36 case. If the party could prove that indeed duress was present, then the party can potentially recover the losses caused due to discharge of contractual obligations which were forced (Paterson, Robertson & Duke, 2015).

Duress is a widely used defence where the parties are directly or indirectly forced to comply with unjustified demands. The concept of duress has also evolved in the last four to five decades to include and take cognizance of the economic duress which is increasingly becoming more prevalent with the increase in commercial transactions. Unlike physical threat which are more direct, economic threats are indirect in nature and hence certain pointers are useful in detecting the presence of economic duress (Pathinayake, 2014). Evidence needs to be presented with regards to the usage of dominant economic position in bad faith so as to obtain forced consent. Further, under the pressure exerted by the dominant party, the party subject to duress has no practical option except to agree with the demands. This agreement in turn leads to the establishment of a contractual relation between the parties (Taylor & Taylor, 2015).

Success in proving that the contract was indeed enacted under economic duress would provide the aggrieved party with the right to bring legal charges against the other party with the intention of claiming losses caused. But, to successfully claim the damages, the issue must be brought to the notice of the court as the earliest after the contractual obligations have been discharged (Davnport & Parker, 2014). In any case, it is imperative that the matter should be brought before the court in reasonable time. This reasonable time has not been objectively quantified and essentially would be derived by the respective circumstances of each case and it is the prerogative of the court to opine on this matter (Lindgren, 2011).

The importance of timing with regards to claim filing is apparent from the decision in the North Ocean Shipping v Hyundai Construction (The Atlantic Baron) [1979] QB 705 case. Even though the court was in sync with the plaintiff with regards to economic duress being used but still the claim was rejected as the claim was brought in the court only after a delay of eight month post delivery which the court ruled was not within reasonable time. Thus, the court ruled that this huge delay amounted to acceptance being given by the aggrieved party to the altered contract thereby making it valid (Pendleton & Vickery, 2005).

Application

In the given case, two parties enter into a legal contract for the tanker construction, The buyer subsequently enters into another contract with the customer assuming the tentative delivery date of the tanker. However, the shipbuilder then demands a payment of $ 3million from the buyer for making up the lesser realisation caused due to currency devaluation. However, no clause regarding currency linked payments was introduced in the contract and hence the buyer resented. However, in response the seller threatened with stopping the construction work and thereby delaying the delivery which the buyer could ill afford. In these circumstances, the incremental payment was made which the buyer now aims to recover after nine months post delivery.

In the given case, it is evident that the shipbuilder has abused the superior economic position by threatening the buyer that the work would be stopped if the payment was not released, The buyer on account of the charter needed a timely delivery and hence was left with no choice but to comply with the demand forwarded by the seller. The buyer did protest against the unjustified payment and would not have released any payment if economic threat was not present. Thus, the buyer was indeed subject to economic duress from the part of the seller which provides a right to claim damages in reasonable time to the aggrieved party or the buyer in this case,. However, the buyer did not initiate legal recourse for recovery of $ 3 million until about nine months after taking the tanker delivery. This long delay amounted to automatic consent being provided by the buyer to the demand for $ 3million and hence the claim would not be successful as the delay effectively made the contract valid.

Conclusion

The long delay of nine months in bringing the matter before the court is the main reason for the denial of the claim of the buyer even though economic duress could be established.

References

Andrews, N 2011, Contract Law, 3rd eds., Cambridge University Press, Cambridge

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

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

Pendleton, W & Vickery, N 2005. Australian business law: principles and applications, 5th eds., Pearson Publications, Sydney

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

Pathinayake, A 2014, Commercial and Corporations Law, 2nd eds., Thomson-Reuters, Sydney

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

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