Business Corporation and Law for Instant Case

Meaning of consideration

Consideration is the price which is stipulated by the promisor in exchange of his promise. In a contract, consideration is considered as an essential part. A valid consideration makes a promise valid and binding. Thus, consideration is the sine qua non of the contract. An agreement without a consideration is void. However, there are certain exceptions to this rule. However, for the purpose of this assignment, it is not feasible to go into such details (Poole 2016).  

1. a) An offer has been made by Jane for the sale of her Lotus Super 7 sports car to jack in the instant case. The offer has been readily accepted by Jack. However, a proper consideration is lacking in this agreement.

Case law:

Milroy vs Lord

The facts of the case are as follows:

A deed was executed by Mr. Medley for the purpose of transferring his bank shares to a trustee. The subsequent requirement of registering the trustee’s name as a shareholder in the bank’s register was not fulfilled with. Moreover, there was also no consideration for the transaction. Afterwards, Mr Medley died. The personal representative of Mr. Medley argued against the enforcement of the deed and contended that since there was no consideration in the deed, the deed should not be enforced. He tried to establish that the deed was an uncompleted gift (Garza 2016).

It was held by the Court that a promise made with an intention to do a gratuitous act would not be legally binding on the parties (Lightman 2013).

In the instant case, all the essential elements of a contract are not present. Though there has been offer and acceptance, but consideration, which is the sine qua non of a contract is lacking in this contract. Under this circumstance, the contract cannot be enforced. Therefore, Jack, who has accepted the offer in its entirety, does not have any legal right to enforce the agreement.

b) An offer has been made by Jane for the sale of her Lotus Super 7 sports car to Jack. The price stipulated by Jane for the sale of her car is $25000. The offer is readily accepted by Jack. Thus, there was an agreement between Jane and Jack for the sale of a car at a consideration of $25000. The primary question to be determined here is whether the consideration amounting to $25000 is a good consideration or not.

Nature and requirement of consideration

Consideration may be anything stipulated by the promisor. It may or may not be in monetary terms. It may also consist of an act or abstinence on the part of the promisee. The nature of consideration requires that some detriment should be caused to the promisee. A consideration shall be considered as good consideration even if no tangible benefit is accrued to the promisee. As for example, an agreement which requires the promisee to study every Saturday evening or an agreement which requires a promisee to quit smoking shall be considered as a good consideration (Furmston et al. 2012)

Case law: Dunton vs Dunton

In this case, an agreement was entered into between Mr Dunton and his former wife, whereby Mr. Dunton promised to pay an allowance to his former wife provided she behave “with sobriety, and in a respectable, orderly, and virtuous manner”. The question arose whether this consideration was a good consideration or not (McKendrick 2014).

It was held by the Court that a promise to abstain from doing something which can be done lawfully is considered to be a good consideration and thus the agreement between the parties is a valid agreement (Butler et al. 2013).

Thus, consideration may be anything stipulated by a promisor. It can virtually take any form. It depends upon the promisor to choose a consideration for the promise.

Case Law: Chappell vs Nestle

In this case, an advertisement was put up by the Nestle Company for the supply of its records.  The consideration stipulated by the company was some money and three chocolate wrappers. The main question which came for determination in this case was whether the chocolate wrappers formed part of the consideration or not (Gallagher 2016).

It was decided by the Court that the requirement of chocolate wrappers was something more than a condition and it was reasonable to be included as a consideration for the agreement (Sacha 2012).

A famous statement was given by Lord Somerwell in this case:

“A contracting party can stipulate for what consideration he chooses.  A peppercorn does not cease to be good consideration if it is established that the promisee does not like pepper and will throw away the corn.” (Morgan 2013).

In the instant case, the consideration has been fixed as $25000, which is equivalent to the market value of the car. It means that Jane would have got the same price had she sold the car to anyone else. Therefore, this consideration is a good consideration and it will make the agreement between the parties a valid agreement. Thus, Jack has a legal right to enforce the agreement as a valid and binding agreement has been created between the parties.

c) An offer has been made by Jane for the sale of her Lotus Super 7 Sports car to Jack for an amount of $2500. The offer has been readily accepted by Jack. The question to be determined in this case is whether the consideration stipulated by Jane is a good consideration and whether it legally binds the parties.

Adequacy of consideration

It is not necessary for a consideration to be sufficient or adequate so long it not uncertain or not illusory (Geis 2014)

Case: Biotechnology Australia Pty Ltd v Pace

In this case, an agreement was entered into between Pace and Biotechnology. It was an employment agreement under which it was agreed that Pace would be allowed to participate in the senior staff equity scheme of the organization. However, there was no such scheme when the agreement was entered into between the parties (Singh 2016).

The decision given in this case was that the agreement was not a valid agreement as the consideration under the agreement was not certain and nit was illusory (Gray 2012).

Thus, a consideration will be considered to be a good consideration if it is certain. A consideration of a minimal value will also constitute a good consideration. In cases, where the consideration is not adequate, then the important factor which is to be considered is whether the parties are at the same bargaining position nor not. If it is inferred from the facts of the case that there has been unconscionable bargaining, then it is most likely that the court would not enforce such agreement (Chen 2012).

In the instant case, the agreement has been entered into voluntarily between then parties. None of the parties has been in an influential bargaining position at the time of entering into the agreement and the consideration fixed by Jane is also certain and not illusory.

Thus, under the present circumstances, the agreement shall be considered to be a good consideration and it will legally bind the parties. Jack will have a legal right to enforce the contract if Jane afterwards denies to deliver the car to him.

2.

The facts of the given case are as follows:

An agreement has been entered into between North Ocean Tankers and a shipbuilder. Under the terms of the agreement, the shipbuilder was required to construct a tanker for the North Ocean Tankers. The consideration fixed under the agreement was in US$ and there was no term under the agreement which provided for fluctuation in currency. As the ship was being constructed, a devaluation of US $ by 10% took place. The shipbuilder demanded an extra 3 million US$ for the completion of the construction work. The North Ocean Tankers had a prior charter agreement and it had to accept the deal as it had no other choice. Thus, North Ocean Tankers reluctantly accepted the terms under protest prosed by the shipbuilder. Now, the North Ocean Tankers seek to bring an action against the shipbuilder for recovery of the excess amount nine months after the delivery of the tanker.

It is relevant to cite the case of North Ocean Shipping Co Ltd. v. Hyundai Construction Co and another, as the facts of that case are somewhat similar to the instant case. In that case, an agreement was entered into between North Ocean Shipping Co Ltd (plaintiffs) and Hyundai & another (defendants). The defendants were required to construct a ship for the plaintiffs. The consideration amount was fixed in US $. The consideration amount was to be paid in five instalments. The defendants prepared a letter of credit to secure the repayment of installments. The number of installments in which the amount was to be paid was five. After the first installment was paid, a devaluation of US $ took place. The defendants demanded extra amount for the completion of the work; otherwise it threatened to stop the construction work. They promised to increase the letter of credit if their terms are accepted. Meanwhile, the plaintiffs had entered into an advantageous charter agreement and therefore accepted the defendants’ terms as the tanker needed to be delivered on time. The plaintiffs brought an action after eight months of the delivery of tanker to recover the excess amount (Whaley et al. 2015).

In the suit, the plaintiffs contended that either the agreement should be declared as a void agreement as there was no consideration under the agreement or the agreement should be declared as voidable as the agreement had been entered into under economic duress (O’Sullivan and Hilliard 2016).

The first contention of the plaintiff had been rejected by Justice Mocatta on the ground that there was a valid consideration under the agreement; the consideration being the defendants’ promise to increase the letter of credit. With respect to the second contention of the plaintiff, Justice Mocatta agreed that the agreement had been entered under economic duress but denied providing any relief to the plaintiffs as the plaintiffs agreed the term proposed by the defendants (Ceil 2015).

The instant case is however a bit different from the above mentioned case because there was a charter agreement entered into by the North Ocean Tankers, prior to the agreement it entered into with the shipbuilder. The shipbuilder in the present case has taken advantage of the situation and has exerted undue pressure on the opposite party to accept the agreement. The shipbuilder knew it very well that the tanker has to be delivered on time and has therefore compelled the opposite party to pay the excess amount by threatening to stop the work in case of non-compliance of the demand.

Thus, the North Ocean Tankers should be allowed to recover the excess amount for the following reasons. Firstly, no consideration was fixed for the agreement. Secondly, the present case fulfils all the requirements of economic duress because of the presence of the following elements:

1. a prior agreement was existing between the parties
2. the North Ocean Tankers was compelled to entered into the agreement

iii. the exact terms of the agreement as proposed by the shipbuilder has been accepted by the North Ocean Tankers (Feldman 2015).

Therefore, under the present circumstances, the agreement should either be declared as void as there has been no consideration under the agreement or the agreement should be decaled as voidable on the ground that the agreement has been entered into at a time when an economic duress was prevailing. It would be detriment to the interest of justice if the shipbuilder is allowed to escape from the wrong it has committed.

Moreover, the period of nine months is well included within the limitation period under various statutes enacted by different States of Australia. Therefore, any action initiated by the North Ocean Tankers to recover the excess amount should not be barred by law.

The North Ocean has a legal right to recover US $ 3 million from the shipbuilder as the agreement was entered into at the time of economic duress and the agreement lacked a proper co consideration which is essential for validating the terms of the agreement.

Reference List:

Butler, D.A., Christensen, S., Dixon, B. and Willmott, L., 2013. Contract Law Case Book. Oxford University Press.

Ceil, C., 2015. Contractual Free Will: doctrines of economic duress & undue influence. Available at SSRN 2596998.

Chen-Wishart, M., 2012. Contract law. Oxford University Press.

Feldman, S.W., 2015. Pre-Dispute Arbitration Agreements, Freedom Of Contract, And The Economic Duress Defense: A Critique Of Three Commentaries. Clev. St. L. Rev., 64, p.37.

Furmston, M.P., Cheshire, G.C. and Fifoot, C.H.S., 2012. Cheshire, Fifoot and Furmston’s law of contract. Oxford University Press.

Garza, R.I., 2016. (Un) enforceability of trust arbitration clauses in civil and common law. Trusts & Trustees, p.ttw092.

Geis, G.S., 2014. Gift Promises and the Edge of Contract Law. U. Ill. L. Rev., p.663.

Gray, A., 2012. Termination of Convenience Clauses and Good Faith. J. Int’l Com. L. & Tech., 7, p.260.

Lightman, J., 2013. CASE EXAMPLE. Unlocking Trusts.

McKendrick, E., 2014. Contract law: text, cases, and materials. Oxford University Press (UK).

Morgan, J., 2013. Contract Law Minimalism: A Formalist Restatement of Commercial Contract Law. Cambridge University Press.

O’Sullivan, J. and Hilliard, J., 2016. The law of contract. Oxford University Press.

Poole, J., 2016. Textbook on contract law. Oxford University Press.

Sacha, J., 2012. Virtual Advantages for Charities. Intellectual Property Journal, 25(1), p.75.

Singh, A.B., 2016. Psychotropic pharmacogenetics. Australian and New Zealand Journal of Psychiatry, 50(6), pp.596-598.

Whaley, A., McAdam, B. and Crowe, P., 2015. The acceleration dilemma: can English law accommodate constructive acceleration?. International Journal of Law in the Built Environment, 7(3), pp.248-267.

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