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Essential Elements of a Valid Contract

Describe about the Business Law for Gratuitous Consideration.

Jane had gone abroad and he gave his care to Jack as a gift. Jack immediately agreed to the offer made to him. Jane was the offeror and Jack was the offeree. The car that was offered by Jane to Jack was of 25000 dollars. The problem that shall be discussed in answer 1 (a) relates to an enforceable contract between them.

To bring into life a contract, necessary elements have to be fulfilled. A contract remains unenforceable unless the requisite elements of a legitimate agreement are fulfilled. Consideration is one of the most important elements of a valid contract (McKendrick, 2014). Consideration means exchange of something either in cash or in kind in return of execution of contract. A contract that has no provision of consideration is “no contract”, meaning an agreement without consideration is void, unenforceable and no one can be sued in the Court for this (Hillman, 2012). Thus, it may be said that when a contract has gratuitous consideration it is not enforceable in the opinion of law. A gratuitous consideration is merely a gift and it becomes not enforceable in the Court (Knapp, 2013). Hence, in the given case study as well, Jane and Jack have a non-binding contract between them, as consideration between them is absent. The exchange of car that has taken place between them shall not be considered as a contract rather it will only be considered as exchange of gift, which is gratuitous, by nature. Therefore, Jack and Jane were involved in a contract that could not be enforced in the Court.

Jane presented her car to Jack on the price of 25000 dollars. The cost of the car otherwise is also 25000 dollars. Jack admitted to the offer. The subject that shall be discussed here relates to the enforceability of the contract between Jane and Jack.

The given are the essential requirements, to make a contract enforceable in the Court of Australia:

  • Offer
  • Acceptance
  • Legal competency
  • Consideration (Pui & Weele, 2014)

Offer is the promise that is made by one party to the contract to the other party of the contract in return of consideration. The consideration is the price that the promisee pays to the promisor at the time of execution of the contract (Landa, 2014).   Consideration causes detriment to the promisee and gives advantage to the promisor. Legal competency signifies that the parties to the contract should be of more than 18 years age and sound mind. If a person enters into a contract with an unsound mind or a minor a contract is void.

Gratuitous Consideration and Enforceability

If the above-mentioned essentials are fulfilled the contract may become legally binding and enforceable. In the provided case study, Jack and Jane were part of an agreement in which all the legal formalities were fulfilled. Jane offered, while Jack accepted the offer and the amount of consideration were also fixed up for the amount of 25000 dollars. This means that the authorized ceremony to form a contract was rightfully completed by them that are, offer, acceptance and consideration. Moreover, the contract does not seem to be induced by fraud, coercion or misrepresentation. Existence of elements such as fraud or coercion makes a contract voidable at the option of the party to the contract (Hillman, 2012). Therefore, Jack and Jack were part of an enforceable and valid contract being that all the legal formalities were fulfilled.

Jane being the offeror sells his car to Jack for the amount of 2500 dollars. The cost of the car otherwise was 25000 dollars. Jack readily accepted the offer of Jane. The topic that shall be discussed in answer 1 (c) is sufficiency of consideration.

According to the standard rule of contract law, there is lack of boundaries with regard to consideration if all the requirements of the contract are duly followed. We all know that an agreement in which there is no consideration is not enforceable. Nevertheless, the question that is discussed in relation to consideration is about its sufficiency. It is the promisor, who calculates the sum of consideration and wants the sum of consideration from the promisee. The promisor calculates keeping in mind the current value of his service or product (Hillman, 2012).  The reason why the offeror does most of the calculation is that, it is the offeror who shall receive the amount of consideration in return or exchange of the service or the product that he has offered (Niu, 2015). The offeree has the liberty of bargaining the amount of consideration if he feels that the amount is not sufficient or feasible. As per law, sufficient consideration means a consideration that is of some value in the opinion of law and is normal for both the parties to the contract (Andrews, 2016).

In the milestone issue of Chappel v. Nestle, the Judge held that a peppercorn is regarded as valuable and sufficient as long as the promisor is fine with it. A consideration that is valid and valuable and is sufficient if the promisor has done the necessary calculations then the consideration may be deemed as sufficient. Therefore, consideration is an imposition of a proviso to the promisor and a consideration is deemed as valid if it is not against law.

Sufficiency of Consideration

 Additionally, it also important to be noted, that the consideration should be of some value in the opinion of law and should not be a mere illusion (Chen-Wishart, 2012).

In the given case study, the price of consideration was 2500 dollars and the price of consideration may be regarded as sufficient as Jane being the offeror is fine with the price of consideration. Jane calculated the amount of consideration. Hence, the agreement of which the parties to the contract were Jane and Jack was enforceable.

The buyer and the builder were parties to a contract in behalf of North Ocean Tankers. As per the agreement, the consideration was in dollars containing no provision of currency fluctuation. While the builder was halfway on its manufacture of the ship, the price of the dollars was diminished by ten percent.  The builder realized that he was making loss in the contract and because of the loss in the amount he stopped working. The builder demanded for the amount that it lagged and it further stated that he would not complete the work unless he is paid the extra amount as consideration. The buyer was ready to pay in excess of the initial price decided. However, on a later date the buyer bought an action against the builder for recovery of the amount he paid in excess.

The issue that shall be discussed in answer 2 relating to the contract is whether the purchaser will be able to recover the amount he paid in excess to the builder.

The meaning of consideration is benefit, the benefit that the promisor obtains by the promisee at his detriment. The best manner to make a agreement enforceable is by way of having  clause containing  consideration.  A mere promise is not enforceable in the opinion of law and it becomes invalid (Hunter, 2015). This was elucidated in the example of Currie v. Misa and it was held that a consideration could become enforceable only if it is valuable and has some right that benefits the other party to the contract (Eisenberg, 2014).  In Stilk v. Myrick, the ship was on voyage to London wherein two sailors decided to abandon the ship. The captain of the ship told to his remaining sailors that he would share the salaries if they continued with the voyage. It was seen on a later date, that the Captain did not keep his guarantee (Bix & Bix, 2012). The Court in the case of Hartley v. Ponsoby opined that a promise to pay extra money becomes enforceable only if it has involvement of some kind of lawful advantage (Poole, 2012).

Recovery of Excess Payment in a Contract

In the milestone decision of Universe Tankships Inc of Monrovia v. International Transport Workers Federation,  the claimant paid extra amount to the defendant when he wanted his money at the time of constructing the tankships. Sometime later in the future the claimant sued the defendant for recovering the extra amount he gave to the defendant.  In this case, the court held that the defendant used duress and warned the plaintiff that if he failed to pay the money to the plaintiff he would stop working on the tankships (Hillman, 2012). Thus, the defendant paid the amount to the plaintiff. Since there was use of economic duress to receive the amount of consideration from the plaintiff, the Court ordered that the plaintiff should receive the amount he paid in excess to the defendant. The defendant lost in his claim (Murray, 2014).

In the case of Williams v. Roffey Bros and Nicholas (Contractors) Ltd, an agreement survived between the contractor and the sub contractor. The amount of consideration that was formed between them 20,000 pounds. The service on which the contract was based was carpentry. The subcontractor was in the middle of his construction when he realized that the consideration amount is not enough for him and he asked the additional amount from the main contractor. The main contractor agreed to pay the extra amount of consideration to the sub contractor when he asked for it, as he was afraid that he might be penalised for the same. Soon after, the primary contractor filed a case against the sub contractor for receiving the amount in surplus of the original consideration amount. The principal contractor succeeded as the Court decided that the contract between them was an outcome of economic duress making the contract void (DiMatteo & Hogg, 2016).

Similarly, in the given case study of the shipbuilder and the buyer, there were many chances that the buyer may be penalised if he delayed in the delivery of the tanker. The construction of the tanker was midway. This case involved the application of doctrine of consideration and economic duress. Two agreements were established between the builder and the buyer. One contract depended on the initial amount of consideration while the second contract depended on the extra amount that the buyer paid to the builder. The initial contract that was formed had no proviso for currency fluctuations (Hillman, 2012). The Court in the case of Universe  Tankships and Williams held that a contract which is induced by economic duress shall not be enforceable in the opinion of law and the plaintiff will have to pay extra amount amount that he made the defendant pay him by using economic duress. In the same way, the plaintiff may also file a suit for recovery of the amount that he paid in excess of the decided agreement (Hillman, 2012).

Presence of economic duress makes an agreement void if the plaintiff is able to prove successfully that the contract was induced by the use of economic duress and that he lacked in availing other options as his recourse. The term duress means threat or application of threat to force the other party to form a contract. A contract is deemed voidable if any one of the parties has used economic duress for formation of contract. The word economic duress means use of threat involving some kind of monetary transaction. In the famous case of Siboen, it was decided by the Privy Council that if a contract involves usage of duress for monetary transaction it shall be taken as void making the consideration doctrine not applicable (Landa, 2014.

Thus, it may be held in the case of North Ocean Tankers as well that the use of economic duress makes the contract void as it leads to existence of two contracts. The initial contract contains the initial amount of consideration while the second contract involves the use of economic duress making the contract void. Thus, it may be held that the buyer has the right to file a suit for recovery for the amount that he paid in excess to the shipbuilder.

References:

Andrews, N. (2016). Sources and General Principles of English Contract Law. In Arbitration and Contract Law (pp. 165-175). Springer International Publishing.

Ayres, I. (2012). Studies in Contract Law. Foundation Press.

Bix, B., & Bix, B. H. (2012). Contract law: rules, theory, and context. Cambridge University Press.

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

DiMatteo, L. A., & Hogg, M. (Eds.). (2016). Comparative Contract Law: British and American Perspectives. Oxford University Press.

Eisenberg, M. (2014). Behavioral Economics and Contract Law. E. Zamir, & D. Teichman, The Oxford Handbook of Behavioral Economics and the Law and Economics, 438-464.

Hillman, R. A. (2012). The richness of contract law: An analysis and critique of contemporary theories of contract law (Vol. 28). Springer Science & Business Media.

Hunter, H. (2015). Modern Law of Contracts.

Knapp, C. L. (2013). Unconscionability in American Contract Law: A Twenty-First Century Survey. UC Hastings Research Paper, (71).

Landa, J. T. (2014). A theory of the ethnically homogeneous middleman group: an institutional alternative to contract law (with an Afterword).Handbook of East Asian Entrepreneurship, 82.

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

Murray Jr, J. E. (2014). Judicial Vision of Contract: The Constructed Circle of Assent and Unconscionability, The. Duq. L. Rev., 52, 263.

Niu, Z. (2015). The law of damages in Chinese contract law: A comparative study of damages calculation in Chinese law, English law and the CISG, with empirical results from Chinese practice.

Poole, J. (2012). Casebook on contract law. Oxford University Press.

Puil, J. V. D., & Weele, A. V. (2014). Contract Law and Tort Law. InInternational Contracting: Contract Management in Complex Construction Projects (pp. 285-292).

Reid, D. (2015). Wim Decock, THEOLOGIANS AND CONTRACT LAW: THE MORAL TRANSFORMATION OF THE IUS COMMUNE (CA. 1500-1650) Leiden: Brill (www. brill. com/lhl), 2013. xvi+ 724 pp. ISBN 9789004232846.€ 179.00. Edinburgh Law Review, 19(1), 155-157.

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