Business Law: Commercial And Corporations

Discuss about the case study Business Law for Commercial and Corporations.

 

 

Issue arises since Jane had made a promise to endow her vehicle to Jack free of cost. The market price of this vehicle here in this case, Lotus Super 7 Sports car was $25,000. However, to form an agreement, two basic elements are required i.e. a valid offer/promise made by offeror/ promisor and a valid acceptance/ confirmation made by offeree/promisee. These two basic elements are sufficient to enact a valid agreement. However, as per the provision of contract law, any agreement can be termed as enforceable agreement, when there is a presence of valid consideration. This element is essential because this can influence the party to complete the promise as per the consideration amount (Latimer, 2005).

Consideration can also be expressed in termed of an exchange of something. It can be any product, money or another promise. This element is very specific in terms of legal authority. If consideration is not present in any particular case, then the parties cannot claim in court because no legal enforceable agreement can be enacted without valid consideration between the parties. This type of promise is termed as gratuitous promise. Gratuitous promises cannot be held legally valid because it is having lack of consideration (Harvey, 2009). In this case these are some facts which can decide whether the agreement is enforceable for promisee Jack.

• Jane, the promisor was going abroad hence, offered her Lotus car to Jack.
• She did not receive any consideration from Jack with respect to car.
• Jack, the promisee confirmed to take the car from Jane without any other terms and conditions.

Therefore, Jane and Jack both the parties had not discussed nay consideration amount, while both the parties realised that the Lotus car was having a sizable value in the market, still they did not mention any particular value for the vehicle. Hence, no consideration is present in this situation and the nature of the promise become gratuitous promise and consequently, no enforceable agreement for Jack.

• The critical issue arises in this case, when the offeror Jane had promised to sell her Lotus car to Jack in the price of $ 25,000. The market cost of same type of vehicle like Lotus car was $25,000. When as the law any agreement is enforceable, then it called valid agreement (enforceable). There are certain requirements that must be met in order to form a legal contract (Gibson & Fraser, 2014).
• Presence of valid agreement, which includes a lawful offer and lawful acceptance
• Intent of both the parties to bind into the contractual relation
• Consideration, also termed as benefits that must be provided from both the party in swap of each other’s promise
• Consideration amount must be legal as per the contract law, any unlawful object or amount which can be used for unethical or criminal activity, cannot be considered as legal consideration
• According to the verdict of Re McArdle(1951) Ch 669, past consideration cannot be liable to enact any present contract 
• Contract law, has provided the freedom to the parties to extend the consideration with the sound mind and willingness
• Legal capacity of the parties to enact into the agreement
• Concurrences to the agreement must be specified and genuine
• The object or promise must be under contrary to law

 

Jane had already mentioned the consideration amount of $25,000 to Jack in the exchange of her Lotus car. Jack accepted the offer and agreed to pay $ 25,000 in the exchange of Lotus car. This shows that both the parties were involved in the agreement willingly. Hence, the present of valid offer, acceptance and valid consideration value made the agreement enforceable. This case satisfied the requisite requirements as per the common law. Therefore, Jack has an enforceable agreement.

Jane had made a promise to give her Lotus car to Jack in the price of $ 2,500. Jack had accepted this offer from Jane and ready to purchase the Lotus car in $ 2,500. However, the car cost was around $ 25,000 in the market. In such situations, when the parties have decided a different consideration value from the ongoing market value then the adequacy of consideration rule needs to be kept in mind. This states that the presence of consideration amount is imperative, irrespective of its adequacy or equality with the actual amount (Taylor & Taylor, 2015).

In the present case, when Jane had offered much lower consideration amount than the real amount of the car, then the principle of adequacy of consideration is applicable as per the contract law. This principle tells that the presence of the valid consideration is enough to enact an enforceable agreement for offer, besides the adequacy of the consideration. This law also provides the statement that the consideration must have a real value or a word in exchange of the promise (Lindgren, 2011). It can be seen that even a single dollar can be worked as a valid consideration for a large house which has a market worth of millions. Majority of the cases the adequacy of the consideration is not required. However, the adequacy of the consideration value is become essential element, when there is a presence of the unconscionable conduct between the parties, because both offeror and offeree treated to be equal (Pathinayake, 2014).

Therefore, according to the principle of adequacy of the consideration, an enforceable agreement is binding on Jane as the consideration amount of $ 2,500 was decided by her only for the vehicle.

Issue

The primary aim in the given case is to opine on the chances of success of the buyer with regards to recovering the $ 3million payment made to the shipbuilder which was obtained under the influence of threat.

 

Law

Contract execution requires a plethora of conditions to be fulfilled. The most elementary condition in this regard is the presence of acceptance which is voluntary in nature. A voluntary acceptance is one where all the parties that are part of the contract give their consent with free will to be bound in a contractual relation. Any contract or agreement in which consent is forced would not stand the test of law and may be declared void due to one or more parties acting in bad faith (Harvey, 2009). At times, post execution of contract, certain changes may be required to be brought but it should be done with the consent of all the parties that enacted the actual contract in place. Typically, for a party to agree for a change there must be some incentive in the form of incremental consideration. In case, the contract amendments are detrimental to the interest of a particular party then consent would not be given unless some compensation is provided. In such cases, amendments cannot be driven through unilateral moves or consent of one of the parties (Pendleton & Vickery, 2005).

A situation where threat is used for ensuring consent to a particular condition is referred to as duress. Contract executed through duress are involuntary agreements and thus the aggrieved party can declare such contractual relationships as void (Taylor & Taylor, 2015). This also extends after the discharging of contractual obligations and such cases are common where in wake of loss caused to the aggrieved party by complying with the wrong demands, damages may be claimed through legal means. In such cases, the critical aspect that the plaintiff needs to establish is that the demand by defendant was unreasonable and only agreed to due to threat perpetuated by the defendant (Paterson, Robertson & Duke, 2015).

In the court of law, initially only physical duress was taken into account which typically involves the use of violence or physical force as a mechanism of perpetuating threat. However, in the recent times, the scope has been expanded and also includes cases where the superior economic position is abuse to perpetuate threat for making contractual relationships. In order to prove that the plaintiff has indeed been subject to economic duress, the following points need to be established (Lindgren, 2011).

• Behaviour by the defendant prompted by bad faith so as to leverage the superior position and thereby posing threat for plaintiff.
• Due to threat, the choices available with the plaintiff become narrow and there is one rational choice which is to comply with the condition levied by the defendant.
• This forced agreement to comply effectively binds both parties into contractual relationship.

From the above, the mechanisms to detect the presence of economic duress and the rights available to the plaintiff are established. However, another crucial aspect in this regard is timing when the plaintiff actually approaches the court for relief. In this regard, it is pivotal that the plaintiff should avail legal help for recovering damages within the reasonable time. The term “reasonable time” does not have an objective definition and essentially stems from the underlying circumstances and is to be decided by the court of law (Gibson & Fraser, 2014).

The decision of the North Ocean Shipping v Hyundai Construction (The Atlantic Baron) [1979] QB 705 case stands testimony to the above aspect. In the given case, there was ample evidence with regards to the existence of economic duress and the consent of the plaintiff being taken through the usage of threat. However, despite that, the plaintiff was not successful in recovering the excess payments made under threat from the defendant. This is because the plaintiff approached the court only after eight months had elapsed since the discharge of contractual obligations and this the court ruled does not fall within the ambit of reasonable time. The excess delay amounted to contract acceptance being provided by the plaintiff thus giving right to hold the contract void (Harvey, 2009).

North Ocean Tankers executes a contract with a shipbuilder for tanker construction. However, during the construction period, due to USD devaluation the proceeds realised by the builder were adversely impacted. In order to make up for this adversity, $ 3 million was demanded from North Ocean against which the company protested as such payments were not as per the contract terms. However, later payment was made due to the shipbuilder threatening to stop the work so as to ensure delivery on time. However, after nine months, North Ocean Tankers approach the court to recover $ 3 million payment made under threat from shipbuilder.

It cannot be denied that all the elements to indicate that company was threatened though usage of economic pressure by the shipbuilder are present  North Ocean Tankers protested against the payment at the initial stage but after being threatened only made the payment. Also, when threatened, the company had no choice as non-compliance would have led to delay and heavy losses. Thus, due to economic duress, North Ocean Tankers did have the right to recover the excess payment made then. However, the wait of nine months after the delivery of tanker is more than the reasonable time available as indicated in the North Ocean Shipping v Hyundai Construction (The Atlantic Baron) [1979] case. The court would view this delay as a tacit approval from the company to the contract and thus no recovery can be made now.

From the discussion above, it is evident that delay beyond reasonable time has jeopardised the claim chances of North Ocean Tankers and hence their claim would not be successful.

Gibson, A & Fraser, D 2014, Business Law, 8^th eds., Pearson Publications, Sydney

Harvey, C. 2009, Foundations of Australian law. 3^rd eds., Tilde University Press, Prahran, Victoria

Latimer, P 2005, Australian business law, 24^th eds., CCH Australia Ltd. Sydney

Lindgren, KE 2011, Vermeesch and Lindgren’s Business Law of Australia, 12^th eds., LexisNexis Publications, Sydney

Paterson, J, Robertson, A & Duke, A 2015, Principles of Contract Law, 5^th eds., Thomson Reuters, Sydney

Pathinayake, A 2014, Commercial and Corporations Law, 2nd eds., Thomson-Reuters, Sydney

Pendleton, W & Vickery, N 2005.  Australian business law:  principles and applications, 5^th eds., Pearson Publications, Sydney

Taylor, R & Taylor, D 2015, Contract Law, 5^th eds., Oxford University Press, London