Rule of Contract Law

Discuss about the Rule of Contract Law.

In the agreements where there are no considerations, that type of agreement is termed to be a gratuitous agreement. A without condition promise or nudum pactum or a gratuitous promise cannot are not enforceable generally. Under common law an agreement that does not have a consideration attached to it which is recognized in the eyes of law to have value and where such condition is flowing from the promisor to the promisee in return of such promise then this agreement is unenforceable. One of the reasons for which promises in court are not recognized is due to there being no consideration which is attached to the promise. In the case of Stilk v. Maverick  (Stilk v Myrick [1809]) it was opined that an agreement in which there was no mutual consideration is a void agreement. In another case of Roscorla v. Thomas (Roscorla v. Thomas [1842]) Roscorla has sold to Thomas a horse, after the consideration had been made by Thomas, Roscorla promised to Thomas the horse was a calm horse. However, Thomas later found out that the horse was not at all well-behaved and he sued Roscorla for breach of contract. The court opined in this case that there had not been any valid contract between Roscorla and Thomas regarding the behavior of the horse since the same had been made after the contract had been finalized between the two parties regarding the sale of the horse. This promise regarding the behavior of the horse was separate from that of the sale of horse and there was no consideration attached to, hence it would be unenforceable.

Application

In the given case the promise by Jane to give Jack the Lotus Super would not be enforceable. There is no consideration which has been attached to this promise and a promise which is without any consideration is a gratuitous promise and generally unenforceable in court as opined in the Stilk case and the Roscorla case.

Issue

  • Is there a valid consideration attached to the promise?
  • Whether Jack can enforce the promise that Jane has made?

 Rule of Law

A contract to be a valid contract requires that there should be an offer which has been made by an offeree. This offer should have been made with the intention of creating between the offeror and the offeree a legal relationship in terms of the offer which has been made. Further, there should be a consideration attached to such a promise for it to be enforceable in the court of law (Treasury.gov.au, 2016). An offer and acceptance only leads to an agreement but an agreement that has no consideration will not be enforceable. There needs to be an exchange between the parties for consideration quid pro quo, there has to be something which has to be given to each party by the other party. It was opined in the case of R v. Clark (R v. Clark [1927]) that due to the lack of quid pro quo between the parties the promise would not be enforceable (Fitzptrick and Symes, 2014).

Application

In the given situation, a consideration that is valid has been paid by Jack for the purchase of Lotus Super 7. Thus there is an offer, acceptance which amounts to an agreement and this agreement is enforceable since there is a consideration attached to it. As opined in the case of R v. Clarke (R v. Clark [1927]) the relationship between the parties is that of quid pro quo and hence enforceable.

Issue

  • Is the consideration which is less than the market sufficient consideration?
  • Whether Jack can enforce the promise that Jane has made?

Rule of Law

It is required by the consideration to be real; adequacy is not the prerequisite of consideration. So unless the contract is illusory or illegal in nature, there courts are reluctant to opine that a contract is invalid due to insufficient consideration (Ware, 1989).  The courts will not review the adequacy of the consideration till the contract does not seem to be a foul contract. The amount of consideration is to be stipulated by the promisor, the promisee is not the one who will state the offer to the promisor something and that would be stipulated to be the consideration (Lindsay, 2004). Therefore, even if there is no sufficient consideration, however, since it is the promisor who has stipulated the consideration the reviewing of this consideration would not be required. The consideration is only required to have in the eyes of law value and it should not be in nature illegal. There is no need for the consideration to be compared with the value of the promise (Ryan, 1964).

In the case of CBA v. Amadio (Commercial Bank of Australia Ltd v Amadio [1983]) it was opined that the consideration given should be sufficient it is not required to be adequate. As long as the consideration is sufficient legally then it is not required to be anything but a consideration which is nominal. It does not matter if the consideration given is nominal or trivial. Further in another case of Chappell v Nestle (Chappell & Co Ltd v Nestle Co Ltd [1959]) Lord Somervell stated that even if it was a peppercorn that had been given as a consideration it would be held that the same is a consideration that is valid. If the this consideration was the one which had been stipulated by the promisor. It is not required for the promisor to be fond of pepper in particular and he may even have the corn thrown away. It is however, necessary that this consideration should have before law some kind of value. If only, the promises are illusory promises will, the consideration not be considered to be consideration which is a good consideration for the requirement of the promise to be enforceable. Placer Development v Commonwealth (Placer Development Ltd v Commonwealth [1969]) and Biotechnology Australia Pty Ltd v Pace (Biotechnology Australia Pty Ltd v Pace [1988]) are the two landmark cases wherein the court had opined that illusory consideration is not good consideration (Corbin, 1918).

Application 

The consideration of the 2500 has been stipulated by the promisor which is Jane herself and even though it is not comparable to the market value of the Lotus Super 7 it is a consideration which is valid since it in the eyes of law has value. The consideration made, if stipulated by the promisor as stated above is not required to be comparable with the value of the promise. The adequacy is not important the very fact that there is a consideration is enough. In the given situation where there is an offer which has been made by the Jane for selling the Lotus Super  7 for the amount of consideration of $2500 which she herself has stipulated it would not be required to prove the adequacy of such consideration the promise shall be enforceable in the court of  law.

Whether a claim shall be there by the buyer against North Ocean Tanker would be successful?

Rule of Law

If the situation where there is duress which has been used, such as illegitimate threatening of limb, wellbeing or life or any other type of pressure which is unconscionable such as duress that is economic in nature, for coercing the other party a variation in the agreement (Monahan and Carr-Gregg, 2007). Then in that case such variation may be rescinded on the account of having been obtained by way of duress at the opinion of the party from which such variation had been obtained. Meaning thereby that, the courts will not enforce the variations which have been obtained by way of coercion even if there has been fresh consideration which had been obtained for the same. In the case of  TA Sundell & Sons Pty Ltd. v. Emm Yannoulatis (Overseas) Pty Ltd. (TA Sundell & Sons Pty Ltd. v. Emm Yannoulatis (Overseas) Pty Ltd. [1956]) a contract for sale and purchase existed between the parties for the sale and purchase of iron. This iron was being imported by the seller from France. It was by way of a letter of credit that the payment was requirement to be made. Letter of credit is a special method of payment used by those sellers who are in the business of importing goods. There was a considerable increase however, in the costs of the vendor due to their having been change in the rate of exchange, hence there was a threat by him of not supplying the iron unless there was an agreement on the part of the purchaser for making a payment of a higher amount for the same. The fact that the purchaser had entered into various other contracts relying on this delivery, there was no other option that was available to him but to accept the variation. Later, an action was brought by the purchaser for the return of the additional money which had been taken by the seller. This action of the purchaser of obtained the money that was paid additionally to the seller was successful. There was no good consideration that had been given by the vendor for the credit note’s extension by the purchaser because under the original contract there already was a requirement of supplying the iron to the purchaser, hence it was a condition that was already in existence and there could not be additional amount which is charged for the same. Further, in any case, there had been a vitiating of the consent of the purchaser for the variation due to the compulsion that was put forth by the seller of the extra payment and if such payment was not received then not importing the material for the purchase. This resulted in the use of duress for obtaining consent for the variation thus resulting in the action for the money being returned being successful since such a condition can be made void by the party from whom it has been obtained under duress.

Further in the case of Universe Tankships Inc. of Monrovia v International Transport Workers Federation (Universe Tankships Inc. of Monrovia v International Transport Workers Federation [1983]) in court’s opinion the amount which had been paid by the plaintiff in addition to which was already mentioned in the original contract the demand that had been made in addition to what was asked in the contract originally and the demand that had been placed was one that was extremely unreasonable. The defendant had stated to the plaintiff that the ship would only be released by them if the plaintiffs would provide for the welfare of the plaintiffs. Hence since it was under duress that such a condition had been accepted by the plaintiff the court opined that it could be made void by them and additional cost paid other than that which was already being paid to the defendant would be returned.

Application

In the given situation as well there was duress which was placed by the North Ocean Tankers on the shipbuilder for accepting the variation in the contract. Similar to the TA Sundell case the North Ocean Tankers were not supplying anything additional for there to be an increase in the consideration since they were already required to provide for the work of the tanker under the original contract. Further the consent of the additional payment was vitiated from the shipbuilders as in the case of TA Sunell and Universe Tankship from threatening to withhold from work. Thus such a consent for variation in the contract can be made void by the other party and the additional cost which has been paid by the shipbuilder would be returned back to him.

References

Biotechnology Australia Pty Ltd v Pace [1988]15 NSWLR 130.

Chappell & Co Ltd v Nestle Co Ltd [1959]UKHL 1.

Commercial Bank of Australia Ltd v Amadio [1983]151 CLR 447.

Corbin, A. (1918). Does a Pre-Existing Duty Defeat Consideration?. Recent Noteworthy Decisions. The Yale Law Journal, 27(3), p.362.

Fitzptrick, J. and Symes, C. (2014). Business and corporations law. 2nd ed. Lexis Nexis.

Giancaspro, M. (2014). The Rules for Contractual Re-Negotiation A Call for Change. [online] Astlii.Edu. Available at: http://www.austlii.edu.au/au/journals/UWALawRw/2014/1.pdf [Accessed 15 Aug. 2016].

Lindsay, G. (2004). Contract. Pyrmont, N.S.W.: Lawbook Co.

Monahan, G. and Carr-Gregg, S. (2007). Essential contract law. New York, NY: Routledge-Cavendish.

Placer Development Ltd v Commonwealth [1969]121 CLR 353.

R v. Clark [1927]40 CLR 227.

Roscorla v. Thomas [1842]3 QB 234; 11 ER 496.

Ryan, K. (1964). Equity and Doctrine of Consideration. [online] Austlii.Edu. Available at: http://www.austlii.edu.au/au/journals/AdelLawRw/1964/3.pdf [Accessed 15 Aug. 2016].

Stilk v Myrick [1809]EWHC KB J58.

TA Sundell & Sons Pty Ltd. v. Emm Yannoulatis (Overseas) Pty Ltd. [1956]S.R. (NSW) 323.

Treasury.gov.au. (2016). What is valid consideration? | The Treasury. [online] Available at: http://www.treasury.gov.au/Policy-Topics/Business/Small-Business/Legal-Topics/Contracts/Agreement-making/Valid-consideration [Accessed 15 Aug. 2016].

Universe Tankships Inc. of Monrovia v International Transport Workers Federation [1983]1 WLR 87, 94,.

Ware, S. (1989). A Critique of the Reasonable Expectations Doctrine. The University of Chicago Law Review, 56(4), p.1461.

Willmott, L., Christensen, S. and Butler, D. (2005). Contract law. South Melbourne, Victoria, Australia: Oxford University Press.

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