Construction Industry Council for Business Consideration

1. An agreement entered into between two parties by way of an offer and acceptance, which can be enforced in the court of law in case of any beach or such other discrepancy, is termed as a legally enforceable contract. Contracts are of varying nature such as employment contract, construction contract, leasing contract etc. Contracts may either be in the written form or in verbal form. As long as there is a clear cut offer and acceptance for a sufficient consideration the said is construed as a contract. Therefore the main elements that form a contract are a minimum of two parties, an offer made by one party to the other, acceptance of the said offer and finally an adequate consideration. It is a myth that people have that consideration has to be in terms of money. As long as both the parties benefit out of a contract and a consideration in any form is present, the said is defined as an agreement. Lastly it is a common belief that the contract should be performed immediately, but even if a promise exists for the performance of a contract it is construed as a legally enforceable agreement (Singh, 2012).

In the first scenario Jane offered his car to Jack before leaving for overseas and the same was duly accepted by Jack. But there was no discussion with regards the purchase consideration, method of payment, delivery date and such other important details needed for any enforceable contract. But the said situation clearly mentions the market value of the car i.e. $25000. In such a situation it is implied that the consideration is the market value of the car and the same is to be paid by Jack at the time of delivery of the same.

Offer made by Jane is accepted by Jack without further negotiations. The contract is bound by law of the state and the consideration is hidden in the said situation in the form of market value. Therefore all the essentials of a valid contract is duly present in the said case study. Consideration is not very clear at the outset but on careful deliberations it is understood that the same is present (Olamide, 2015).

The second case study is a very clear one wherein the amount of consideration that Jack has to pay to Jane is mentioned clearly and explicitly i.e. $25000. Further since all the four elements of a contract is clearly comprehendible hence it can be construed as a legally enforceable agreement.

The offer made by Jane for selling his car to Jack is clear with no uncertainty.

The offer made by Jane is verbally accepted by Jack. Acceptance to be in written form is not necessary. Even verbal communication of acceptance of an offer construes it to be legally enforceable.

There exists a legal binding between the two contracting parties. As long as it is not mentioned clearly that the contract will not be bounded by law, it automatically becomes accepted by both the contracting parties.

Lastly is consideration. Jane mentions Jack the amount of consideration for which he wants to sell his car. The consideration is clearly mentioned and duly accepted without any further negotiations. Also the said consideration is very fair and sufficient (Stone, 2015).

A consideration is defined as exchange of value between the contracting parties. For understanding the concept and requirements for defining a consideration, two basic assumptions are to be understood. They are as under:

Adequacy of consideration is of utmost importance. Consideration should be fair one i.e. it should neither be overtly priced nor insufficient. It should be fair as per the legal idiom.

Bargaining should be a part of consideration before the same is finalized. It ensures that bargaining while deciding upon a consideration allows both the parties to gain while entering into a contract (Martin, 2002).

However there are times when it is understood that the consideration offered is not adequate enough. The reason for the same could be unawareness of any of the two parties to the contract. In such a scenario the party who is aware of the same should make all possible efforts to disclose the same to the other party. In such cases the court of law may intervene but only if it is intentional and bad faith percolates (Lawteacher.net., 2015).

A valid consideration is one which is accepted by the promisor without any kind of oppression. The said case makes it very clear that the contract was entered between Jack and Jane in full sanity and awareness. Thus there was no force applied. As far as consideration is sufficient and not inadequate it is acceptable by the court of law as well.  Thirdly, the seller , Jane is well verse with the actual fair market value of the car and in spite of the same she offers the car at a lower value. Thus the court of law cannot intervene as their does not exists any bad or malafide intentions of any party to the contract. Thus since all the constituents of a valid contract exists thus the said is rightly defined as a valid legally enforceable contract (Valente, 2010).

2. The most important part while entering into an agreement is its draft i.e the terms and conditions mentioned especially drafting of a construction contract. The draft of a construction contract should be done very carefully as it is very ambiguous and typical in nature. Specific emphasis should be given to the legality of the contract, its performance; if the parties to the contract reside in different geographies then an exchange fluctuation clause is a mandate, escalation clause and rights protection of the contracting parties. However it is also to be understood that their exists some laws which are applicable automatically and specific mention is not required as these are acceptable by virtue of it being of an unavoidable nature (Forrester, 2015).

A contract to be termed as an ideal one should ensure clarity in thoughts. The rights, duties and obligations of the contracting parties should be mentioned in clear unambiguous terms so as to avoid any kind of disagreements and quarrels. If the contracting parties belong to varying geographies then mentioning of an exchange fluctuation clause is a mandate else the contractor is bound to suffer due to highly volatile nature of the currencies. Also if specific mention is not there of the exchange fluctuation clause then the contract is deemed to be a fixed price contract (Curtis, 2012).

Mentioning of a fluctuation clause enables to deal with inflation across boundaries. Long gestation period contracts should ensure mentioning of such a clause to safeguard from incurring any losses due to currency fluctuation. If such a clause is missing from the agreement then the builder does not have any right to stop the work demanding for an increase in the project clause due to inflation. However the same can be done if the contracting parties have mutually agreed for the same (Choi et.al. 2006).

In the present scenario, the shipbuilder and the North Ocean Tankers had entered into a construction contract. The currency involved was US dollars and the contract terms and conditions did not have any specific exchange fluctuation clause mentioned. The builder suffered loss due to devaluation of the currency by 10% due to which it informed the buyer that if the loss due to fluctuation was not made good to him then he would stop the work (Petter, & Leyland, 2012). Unfortunately the buyer was in a fix and had no other option but to agree to the ship builder’s demand.  He paid for the same and took the delivery of the tanker well on time. The buyer now after nine months of the delivery took an action against the same (McDougall, 2014).

At the very outset it seems to be a breach on the part of the ship builder. Since the contract terms did not mention any separate clause for currency fluctuation, it construed to be a fixed price contract due to which his liability was limited to the price mentioned in the contract terms and nothing beyond that. But the said breach was resolved by mutual consent between the two parties. The buyer had paid for the difference without taking the matter to the court for negotiations or relief. Because of the said action on the part of the North Ocean Tankers, the said breach becomes null and void and the ship builder is at a safer level. Had such an issue been raked up at the time of breach then the buyer would have been liable to receive compensation fro the ship builder for the amount given till date with interest along with the loss he would have suffered due to stopping of the construction. The builder was aware of the charter that the buyer had taken and he took the advantage of the situation which forced the buyer to abide by the conditions laid down by the ship builder (Construction Industry Council. 2011).

The law also connotes that a breach of contract is assessed at the time of occurrence. Thus happening of the event is of priority. It is not a universal law and can be modified depending upon the circumstance. If this clause is viewed in detail then the buyer can sort remedy for the same after nine months. But for the same he has to still prove to the legal authorities the loss that he has suffered. But in this case this seems to be a little difficult. The builder’s demand for extra price due to currency devaluation was made good by the buyer even though under pressure. Ideally the buyer should have taken adequate steps to bring the matter to the court of law which would have helped him save some money if not the full amount (Knight, and Fayek, 2000).

The other point in favour of the builder was that he had not delayed the contract and fulfilled the same on time s that the buyer doesn’t incur losses. Thus as per the present scenario the ship builder has abide by all the terms and conditions of the contract as perceived by law. Price revision due to currency fluctuation is not an illegal act committed by the ship builder since the same was done by mutual consent of the buyer also. If the buyer had an issue for the same then he should have approached then and there and not after subsequent time lapses. If the same would have been done then a mutual negotiation would have been done ensuring protecting both the parties (Davison, 2003). 

Thus the present scenario makes it clear that it is difficult for North Ocean tankers to now sought for any remedy specially when the tanker was already on board and the buyer’s purpose was served well.  The only resort which he can probably receive is the difference in the profit that he lost due to payment of the price escalation but this also seems to be difficult after nine months of delivery. From all practical point of view it would simply be a wastage of money and time as the present state is inclined towards favouring the ship builder more than the buyer.

References:

Construction Industry Council.( 2011), Guidelines on Contract Price Fluctuation System, Available at : http://www.cic.hk/cic_data/pdf/about_cic/publications/eng/V10_6_e_V00_20111219.pdf (Accessed 23rd  August 2016)

Choi, M., Kim, J., & Kim. M., (2006), A Study on the Price escalation system in a construction contract, Available at http://link.springer.com/article/10.1007/BF02830776 (Accessed 23rd August 2016)

Curtis, S. (2012).The Law of Shipbuilding Contracts. Fourth Edition, Oxon: Informa Law from Routledge

Davison, R. P. (2003).Evaluating Contract Claims, Blackwell Publishing Ltd: USA

Forrester, J.(2015). Shipbuilding Contracts- How much “Wiggle Room” Do Buyers and Their Banks Have, Available At : https://www.marinemoneyoffshore.com/node/4652 (Accessed  23^rd  August 2016)

Knight, K. and Fayek, A. R. (2000). Preliminary study of the factors affecting the cost escalation of construction projects. Canadian journal of civil engineering, Vol. 27., No. 1, pp. 73–83.

Lawteacher.net., (2015), Consideration Need Not be Adequate, Available at http://www.lawteacher.net/free-law-essays/contract-law/consideration-need-not-be-adequate-contract-law-essay.php (Accessed 23rd August 2016)

Martin, E.A., (2002), A Dictionary of Law Selected Contract Law Terms, Oxford University Press, Oxford reference Online, Available at : http://global.oup.com/uk/orc/law/contract/contract_qanda/resources/terms/ (Accessed 23^rd August 2016)

McDougall, R., (2014), Remedies in Commercial Litigation, Paper delivered at the College of Law Commercial Litigation Intensive Workshop, Available at http://www.austlii.edu.au/au/journals/NSWJSchol/2014/4.pdf (Accessed 23rd August 2016)

Olamide, O., (2015), The Concept of Consideration, Available at http://www.djetlawyer.com/the-concept-of-consideration/ (Accessed 23^rd August 2016)

Petter, T., & Leyland, T.(2012). Exchange rate risk- lessons when drafting and interpreting Contracts, Available At: http://www.lexology.com/library/detail.aspx?g=89e032ed-9c7b-42ea-b8bc-633a4753884b. (Accessed 23^rd  August 2016)

Singh, S., (2012), What are the Legal rules regarding consideration?, Available at http://www.preservearticles.com/2012012621489/what-are-the-legal-rules-regarding-consideration.html (Accessed 23rd August 2016)

Stone, R., (2015), The Modern Law of Contract 11^th Ed, Routledge: London

Valente, D.(2010). Enforcing Promises: Consideration and Intention in a Law of Contract, Available At: http://www.otago.ac.nz/law/research/journals/otago036314.pdf (Accessed 23rd August 2016)

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