Business and Corporations Law Shipbuilder

Question: 1 Consider the following situations and indicate whether consideration is present and whether Jack has an enforceable agreement: (these all are different not same) a) Jane is going overseas and she offers to give her Lotus Super 7 sports car to Jack. The market value for this type of vehicle in good condition is around $25 000. Jack accepts. b) Jane offers to sell Jack her Lotus Super 7 sports car for $25 000. The market value for this type of vehicle in good condition is around $25 000. Jack accepts. c) Jane offers to sell Jack her Lotus Super 7 sports car for $2500. The market value for this type of vehicle in good condition is around $25 000. Jack accepts. 2 A shipbuilder had contracted to build a tanker for North Ocean Tankers. The contract was in US dollars and didnt contain any provisions for currency fluctuations. Approximately halfway through construction of the ship, the United States devalued its currency by 10 per cent. As the shipbuilder stood to make a loss on the contract, it demanded that an extra US$3 million be paid or it would stop work. The buyer reluctantly agreed under protest to pay, as he already had a charter for the tanker and it was essential that it be delivered on time. The buyer didnt commence action to recover the excess payment until some nine months after delivery. Will the buyer succeed in recovering the excess? Answer: 1 (a) Issue: In this case, a promise was made by Jane according to which, she was going to give her sports car to Jack. But in return, no consideration was going to be provided by Jack. Under these circumstances, the issue that needs to be decided is if the promise made by Jane can be enforced by Jack. Rule: The rules of common law related with the contract law provides for the need of certain elements that must be present if an agreement can be treated as legally enforceable (Beale, (ed) 2002). The result is that an author should be made by one party, it should be accepted by the other and in the same way consideration should also be present (Atiyah, 1990). If any of these elements is not present, the law does not consider the agreement as a valid contract and therefore, enforceable by the law. The result is that as is the case with other essential elements, if consideration is not present, the contract is not treated as valid. The general rule is that consideration should to support the promise made under the contract. It is also provided by the law that consideration should be something real. For this purpose, consideration should have some value under the law. Similarly, a past consideration is also not treated as valid (Re McArdle, 1951). In the same way, the effect of this re quirement is that an illusionary consideration is not treated as valid. Application: the facts of this case suggests that while Jane had made a promise to give her car to Jack but no promise has been made by Jack in return. Therefore, it is clear that no consideration has been provided by Jack in return of the promise made by Jane. Hence it can be said that consideration, which is an essential element for a valid contract, is not present. The law of contract clearly provides that all the essential elements in an agreement and only then agreement can be treated as legally enforceable. The conclusion is that this case, Jack does not have an enforceable agreement. (b) Issue: The facts that have been provided in this question suggests the need for deciding if an enforceable agreement has been created. For this purpose, it has to be seen if the elements that are necessary for creating a valid contract exist in this case or not. Rule: According to the contract law, certain elements are treated as being necessary for creating valid agreement. If these elements are present in an agreement, it becomes a valid contract. A valid contract is the term used for the agreement that can be enforced by the courts. Therefore, it has to be seen if the elements of offer and acceptance are present in the case or not (Beatson, Burrows and Cartwright, 2010). Among these elements, it is also required that consideration should be supplied by the parties in return of the promise received by them under the agreement (White v Bluett, 1853). The law provides that in a case where all these elements are present, a legally enforceable agreement is considered to have been created. Application: when the above-mentioned rules are applied to this case, it is clear that Jane had made an offer to give her sports car to Jack at the price of $25,000. Similarly, Jack had accepted the offer and he is ready to purchase the car at the above-mentioned price. Hence, it can be concluded that the necessary elements are present and a valid contract has been created. Conclusion: it can be concluded that in this question, Jack has an enforceable promise against Jane. (c) Issue: in view of the facts that have been mentioned in this question, the need arises to deal with the issue of adequacy of consideration and its impact on the validity of the contract. Therefore, it has to be considered in this case if the promise made by Jane is legally enforceable. According to this promise, Jane is going to give her sports car to Jack for $2500 while the market value of the car is nearly $25,000. The issue therefore arises if the inadequacy of consideration when in fact the legality of the contract. Rule: in this case, the common law rules dealing with the adequacy of consideration can provide an answer in this situation. Under the common law, the general rule provides that the inadequacy of the consideration does not have any impact on the validity of the contract. The law requires that there should be consideration present to support the promise made under the contract. It is also required that such consideration should be real. For this purpose, the consideration should have certain economic value. The result of this requirement is that things like natural love and affection are not treated by the law as valid considerations. However, it is not the intention of the law to going to the question that the consideration supplied by a party in return of the promise made by the other party is of the equal value. The only requirement is that sufficient consideration should be present even if they consideration is not adequate. Under the law, a real consideration is sufficient. For instance, in a famous case, Chappell Co Ltd v Nestle Co Ltd (1959), the court had stated that the empty wrappers of the milk chocolate of Nestl can be treated as a valid consideration even if these wrappers were to be thrown away the company later on. Hence in this case, the court had reaffirmed the rule that consideration should be sufficient and it is not necessary that it should also be adequate. Application: When the common law rules related with the adequacy of consideration, mentioned above are applied to the facts in this question, it becomes clear that even if the consideration supplied by Jack is not adequate as the market value of the car is nearly $25,000 but still it is a sufficient consideration as it has certain economic value. The courts do not go into the issue of adequacy of consideration. Conclusion: In this case, a legally enforceable contract has been formed. 2. Issue: The issue that is present in this question is related with the enforceability of the promise of paying additional money even when the other party is only performing his duty under pre-existing contract. The facts of this case are that a contract has been created between the shipbuilder and a buyer for building a tanker for the buyer. But the work was halfway through, the US government decided to devalue its currency by 10%. Moreover, there was no clause present in the contract which would deal with the fluctuations in the rate of currency. The result was that the shipbuilder started to face difficulties in completing the work. As the shipbuilder was set to suffer a loss due to the evaluation of the currency, the shipbuilder told the buyer that they will not continue with the work of making the tanker. On the other hand, the buyer had a charter for the tanker. These were the circumstances under which a promise was made by the buyer that an additional amount of $3 million will be paid to the ship builder if the shipbuilder continued the work and the tanker was delivered on time to the buyer. Therefore, it needs to be seen if the promise made by the buyer is legally enforceable under the rules of contract law. The reason is that in this case the shipbuilder is only performing his duty under the contract that it had already created with the buyer which required the completion of the tanker on time. Rule: The general rule of the contract law is that a promise can be enforced by the courts if such a promise is supported by the presence of a valid consideration (Atiyah, 2000). This rule has been provided by the court in Stilk v Myrick (1809). Therefore it will be desirable to briefly mention the facts of this case. This case was related with the need for consideration in order to create an agreement that can be enforced by the law. In this case, the master of the ship had promised to the other crew members of the ship that he will give the wages of the two of the crew members who had deserted the ship, to them. As these two members had deserted the ship and no replacement could be found, the master of the ship promised that the wages of these two members will be given to the other crew members if, apart from performing their own duties, they also perform the duties of these two members and to the ship to its home port. However when the ship reached its home port, London, the maste r of the ship refused to make the payment. Therefore, Stilk initiated proceedings for the recovery of this amount. In the decision given by the court, it was stated that the promise was not legally enforceable. The reason given by the court was that the crew members have not supply any consideration in return of the promise according to which, they were to be given the wages of the two deserters. The court stated that crew members had already entered into a contract which provided that they had to complete the voyage. Another significant case in which this rule was reiterated was that of the Pinnel's case, (1602). In its decision in this case, the court stated that consideration has not been supplied in return of the promise according to which the plaintiff had agreed to accept our payment as the full satisfaction of the debt and not to sue for the rest of the amount. But an exception was created by the court to the application of the general rule mentioned above. Therefore in Williams v Roffey (1990), Roffey had contracted with Williams for some carpentry work that was to be done in some flats. Roffey had entered into a contract with the housing Society for the renovation of these flats. In this way, Roffey had subcontracted with Williams regarding the carpentry work. The parties have decided a price of 20,000 for the carpentry work. But after doing some work, Williams started to face financial problems as the price decided by them was too low. Under these circumstances, Williams approached the defendant and the defendant also acknowledged that the price was too low. At the same time, the defendant was also interested in the completion of these flats on time. According to the contract that it had created with the housing society, the defendant would have to pay a penalty if the work of the renovation of these flats was not completed on time. These were the circumstances under which Roffey agreed to pay additional amount for the completion of work in each flat. However, they refuse to make this payment and claimed that consideration was not present in this case. Williams had only performed its duty under the pre-existing contract. But the opinion of the Court was different as it stated that Roffey Bros had achieved a practical benefit from the completion of the work and as a result, consideration is present and therefore the promise made by them of making additional payment is legally enforceable. This rule can also be applied to the facts of the present case. Application: In this case, as the shipbuilder was going to suffer a loss due to the devaluation of the US currency by the government, the buyer agreed to pay additional $3 million to the shipbuilder. Now the question arises if this promise is legal or if the amount can be recovered by the buyer from the shipbuilder. As in this case, the buyer had a charter for the tanker, it was very important that the tanker was delivered on time. In this way, a practical benefit has been achieved by the buyer into the timely delivery of the tanker. As a result, the promised to pay extra $3 million is legal. Hence the buyer cannot be allowed to recover this amount from the shipbuilder. Conclusion: The buyer will not be successful in recovering the additional $3 million from the shipbuilder. References Atiyah, P.S. 1990, Essays on Contract, Oxford University Press, New York Atiyah, P.S. 2000 An Introduction to the Law of Contract, Clarendon Beale, H., (ed) 2002 Cases, Materials and Text on Contract Law (Hart Beatson, J. Burrows A. and Cartwright, J. 2010 Anson's Law of Contract, 29th edn OUP Publishing, Oxford Case Law Chappell v Nestle [1960] AC 87 Pinnel's Case [1602] 5 Co. Rep. 117 Re McArdle (1951) Ch 669 Stilk v Myrick [1809] EWHC KB J58 White v Bluett (1853) 2 WR 75 Williams v Roffey Bros and Nicholls Contractors) Ltd (1990) 1 All ER 512