Business And Corporate Law: Contractual Obligation

Question:
Discuss about the Business and Corporate Law for Contractual Obligation.
 
 
Answer:
Introduction:

In order to validate the contract, the consideration is one of the aspects. Consideration develops the bargaining power for each party of the contract in exchange of the return promised or performance of the other party (Gibson and Fraser, 2013). In the contract, the consideration is a price that one party pays to purchase or buy the other party’s promise (Stone and Devenney, 2015). In the given case of Jane and Jack in which Jane offers to give her sports car to Jack, the consideration is presented. It is because, in the situation, Jack accepted the offer presented by Jane, which is the present type of consideration. In the agreement, the consideration is also presented because the agreement is moving from the promise as Jane offers Jack to give her sports car and Jack accept it (Macdonald and Atkins, 2014).

Along with this, in the agreement, Jack performs the action in terms of accepting the agreement, which is one of the essential rules for consideration in a contract. At the same time, the agreement also has some value, which helps in making this agreement considerable (Waddams, 2011). But, on the other hand, this agreement between Jane and Jack is unenforceable because in this situation, there is no act or promise in return from the side of Jack. Along with this, from the side of Jack, there is no consideration in return in terms of goods or price, which also makes this agreement unenforceable for both the parties such as Jane and Jack (Dannemann and Vogenauer, 2013).

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In the second situation, Jane offers to sell her sports car for $25000 to Jake. In this, the consideration is presented because in this agreement, there is some value such as $25000, which is adequate to sell the sports car and purchase of a sport car. Along with this, it is a legal value, which also makes this agreement as considerable. Along with this, the agreement between Jane and Jake is also performed in the present in return for the promise, which also ensures that in the agreement consideration is present (Stone and Devenney, 2015).

On the other hand, in offering sports car for $25000 by Jane and accept by Jack for the same price makes this agreement enforceable. It also makes this agreement or contract valid that can be enforced because there are no legal defences against it. As the agreement has some value of $25000, the contract between these two parties can be enforceable. At the same time, both the parties are agreed to perform certain actions or activities during the purchasing and selling the sports car, which also makes this agreement as consideration and enforceable to Jack (Macdonald and Atkins, 2014).

 

In this situation, in the agreement, the mutual consideration is present but not in an adequate manner. It is found that one of the legal rules of consideration is that consideration must be sufficient (Gibson and Fraser, 2013). It is because in this agreement, one party, Jane, is agreed to sell sports car to another party, Jack. In this, it is essential for a consideration that it has some value that is sufficient. Without the legal values, the consideration may be considered as insufficient. It is also identified that court typically will not consider the adequacy of consideration. It is because federal and state laws do not protect the person from entering into an unwise contract (Fried, 2015). In the given situation, Jack entered in the unwise situation by accepting the agreement with Jane of purchasing a car for $2500, which has the market value of $25000.

But, at the same time, the agreement between Jane and Jake does not breach any public policy or civil law. It ensures that consideration is present in the agreement and must be enforceable by law. In addition, it is also analysed that in this situation, the agreement between both the parties is adequate. It is because the agreement has not adequate value in terms of money or in the form of anything that has legal value (Gibson and Fraser, 2013). It makes the consideration adequate and provides the rights to Jack to unenforce the agreement by law.

On the other hand, under the contract law, an agreement can be unenforceable if the promise is illusory. It is because illusory promises cannot be enforced in the court or by law (Tepper, 2014). In the case of Jane and Jack, Jane offers to sell Jake the sports car in $2500, which is not possible due to an inadequate value of the car. In this way, the agreement is unenforceable for Jack because the price of the car is not up to the market price. On the other hand, it is identified that in order to make the contract enforceable, the court considers the three elements in the contract or agreement such as mutual assent, a valid offer and acceptance and consideration (Feinman, 2014).

 

In the case of Jane and Jack, the agreement is unenforceable because the agreement does not fulfil the conditions of the enforcement of an agreement. It is found that the agreement between Jane and Jake does not have the valid offer. It is because the market price of sports car is $25000 but, Jane offers to sell the car for $2500, which is not valid offer and makes the contract unenforceable. In this, the application of promissory estoppels allows Jack to be enforced the contract or agreement (Gibson and Fraser, 2013). It is because the concept of promissory estoppels works in the situation when the consideration is inequitable and unconscionable. In this, Jack can use the concept of promissory estoppels as a defence to unenforce the agreement (Anson, Beatson and Burrows, 2010). It will be effective in mitigating the negative effects of an adequate contract.

In the common law, duress is one of the situations, where one party uses the violence or threat against a person or company in order to force the party to involve in the contract against their will. In this contract, there is a lack of voluntary agreement between the parties (Stone, 2013). But, at the same time, it is found that the duress is not only a reason for the parties to enter into the contract but, it is a reason of voidable of a contract in relation to the forced party (Morgan, 2012). So, the forced party, which provided the threat to another party, can lose its rights to counter the contract in the court.

In the concern to the given case study, it is found that the shipbuilder forced the North Ocean Tankers to involve in the contract for paying extra US$3 million due to lose from the currency devaluation by the government. It is identified that this situation is related to the duress as the shipbuilder illegally threaten the buyer to get engage in the contract. Along with this, it is also found that if one party makes protest, then it is easy for the court to identify that there was a pressure on the other party to get engage in the contract (O’Sullivan and Hilliard, 2014). Similarly, in the case of North Ocean Tankers, it can be said that there was a pressure on the buyers to pay the extra money due to protest by the shipbuilder and engage in the contract.

From the analysis, it is found that there are three types of duress such as to the person, to the goods and economic duress (Gibson and Fraser, 2013). In this, to the person duress is related to the person or a company in which one contracting party provides a threat to another party, or their near relatives, or on the behalf of the other contracting party. On the other hand, to the goods duress related to threat by the one party to another to take the custody or capture the property or goods to include them in the contract. But, to achieve the claim in the court, it is essential for the one party, who engaged in the contract, to demonstrate that the other party made extreme pressure and leave no alternatives to avoid this threat (Zamir and Teichman, 2014). At the same time, in the economic duress, one party makes the illegal use of economic pressure in order to force another party to enter into the contract.

 

In concern to the given case study, it is analysed that the shipbuilder made the economic duress on the North Ocean Tankers to enter in the contract and to pay extra US$3 million in consideration to the currency devaluation by the government. In this, it has the right to the North Ocean Tankers, the buyer, to recover the excess money from the shipbuilder. It is also found that in the case of economic duress, it is not essential for the North Ocean Tankers to prove the pressure as a sole reason for entering into the contract. It is because the illegitimate use of economic pressure is one of the main and big reasons that force the one party to enter into the contract (Morgan, 2012).

It is found that the finding of duress in the contract always makes a contract voidable and provides the rights to the infected parties to recover their losses in terms of money or goods (Turner, 2013). In concern to the given case of North Ocean Tankers and shipbuilder, it can be said that the North Ocean Tankers has the rights to recover the excess payment from shipbuilder. It is because the act of protest by shipbuilder to pay extra US$3 million will be considered as the illegitimate use of economic pressure, which will also make the contract voidable in the court. Along with this, the protest by shipbuilder also not provided any alternative to the North Ocean Tankers in order to resist the pressure to remain the contract. In this, the shipbuilder was also threatening to break the contract, which also made the contract voidable and provided the rights to the North Ocean Tankers to recover its excess payment after the delivery (Gibson and Fraser, 2013).

 

But, at the same time, it is also found that sometimes, the threat to breach a contract is not considered as illegitimate by the court. It is because the illegitimacy of the contract depends upon the changed circumstances and the reasonability of demand by the one party (Turner, 2014). For example, in the case of Kolmar Group AG vs Traxpo Enterprises PVT Ltd 2010, the court found that in the contract between both the parties, the economic duress has occurred at the time of Traxpo declined to supply methanol at the pre-determined price to Kolmar Group and demanded extra pay. In this, Traxpo also stated that if the purchaser would not want to pay the extra price, it would leave the contract. At that time, the purchaser had no choice or alternative to maintain the contract for long-run (Tolson, 2010). This situation provided the remedies to the party to refuse the contract due to changes in the circumstances and to unreasonable demand by Traxpo Enterprises PVT Ltd.

But, in the case of North Ocean Tankers, the purchase has paid the extra payment of US$3 million to the shipbuilder under the protest, which will raise the economic duress in the contract and provide the rights to North Ocean Tankers to recover its excess payment from the shipbuilder.

 
References

Anson, W. R., Beatson, J. and Burrows, A. S. (2010) Anson’s Law of Contract. USA: OUP Oxford.

Dannemann, G. and Vogenauer, S. (2013) The Common European Sales Law in Context: Interactions with English and German Law. USA: OUP Oxford.

Feinman, J. (2014) Law 101: Everything You Need to Know About American Law. USA: Oxford University Press.

Fried, C. (2015) Contract as Promise: A Theory of Contractual Obligation. USA: Oxford University Press.

Gibson, A. and Fraser, D. (2013) Business Law 2014. Australia: Pearson Higher Education AU.

Macdonald, E. and Atkins, R. (2014) Koffman & Macdonald’s Law of Contract. USA: Oxford University Press.

Morgan, J. (2012) Great Debates in Contract Law. UK: Palgrave Macmillan.

O’Sullivan, J. A. and Hilliard, J. (2014) The Law of Contract. USA: Oxford University Press.

Stone, R. (2013) The Modern Law of Contract. UK: Routledge.

Stone, R. and Devenney, J. (2015) The Modern Law of Contract. UK: Routledge.

Tepper, P. (2014) The Law of Contracts and the Uniform Commercial Code. USA: Cengage Learning.

Tolson, S. (2010) Proving Economic Duress. [Online]. Available at https://www.building.co.uk/proving-economic-duress/5008739.article [Accessed: 10 August 2016].

Turner, C. (2013) Unlocking Contract Law. UK: Routledge.

Turner, C. (2014) Key Cases: Contract Law. UK: Routledge.

Waddams, S. (2011) Principle and Policy in Contract Law: Competing or Complementary Concepts?. USA: Cambridge University Press.

Zamir, E. and Teichman, D. (2014) The Oxford Handbook of Behavioral Economics and the Law. USA: Oxford University Press.

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