HI6027: Business & Corporations Law - The Law of Contracts - Assessment Answers

The Law of Contracts

Question 1

Consideration and Enforcement of an Agreement

According to Schaffer et al. (2011), consideration and enforcement of a contract fall under the law of contracts. In this category, it is essential that every contract must contain a consideration for it to be enforceable. According to Beatson & Friedmann (2015), consideration can be explained as a legal statement verbally spoken or written stating what each party of the contract is receiving as being part of the contract. Every party in the contract must therefore effectively represent through a fair agreement for consideration to be legally binding. Collins (2003) say that it is very important for each party to know why he/she is entering into the contract and what entails for the enforcement of the agreement made. Each party in the contract must be willing to make a certain change in the position he/she is standing. Two results comes out from the changes the parties make; either a party promises to do something he/she is not required legally by the law to do, or he/she promises not to do something that he/she may have a legal right over it.

In this case, there are several situations between Jane and Jack. Jane will be travelling overseas soon and has a Lotus Super 7 sports car. She would either leave it to Jack then go, or she could sell it to Jack. In either circumstance, Jack agrees. The vehicle’s current market value is around $25,000. Consideration remains the centre of everything in understanding the contract and determining whether enforcement has to be made on Jack or not. Change in position by Jack could be termed as the bargain-for detriment. McKendrick (2014) say that the contract must be enforceable, or consideration will only be there when both parties come to an agreement and feel satisfied in the position they are standing in. This part is going to determine where there is enforcement of the agreement to Jack and where there is no enforcement.

Question 1 (a)

Jane is going abroad, and she offers to give her Lotus Super 7 sports car to Jack. The market value for this kind of car in good condition is around $25 000. Jack accepts the offer. In this situation, the agreement made between Jack and Jane does not provide adequate consideration. In the law of contracts, Cartwright (2016) observes that each party must give up something substantial in exchange for the offer made by the other party. Jane has offered on her side to leave the car to Jack while going to overseas. Jack, on the other hand, has not offered anything of material substance in exchange for the offer given to him by Jane. He only accepts to take the car while Jane leaves. Under this circumstance, it is only Jane that has offered to give Jack her car valued at $25,000 market value. Jack on his side has only accepted the offer but has not provided anything in exchange for Jane’s offer as stated.

In this situation, only one party has offered to perform an obligation of giving the item to the other. This cannot be called an enforceable contract. According to Stone & Arthurs (2013), offering to give someone something is like making a promise to him/her. In such cases where one party promises or offers to give the other one something with a value; Schaffer et al. (2011) adds that then it can no longer become a contract. It becomes a gift then. The other party being offered does not have much choice to make in future. The party who made the offer can decide not to give her the car, and there will be no any suing case. Jane has therefore offered a gift to Jack worth $25,000, and Jack has accepted the gift. There is no consideration here since Jack cannot force Jane to give him the car should she change the mind thereafter by giving it to someone else. In this case therefore, there is no consideration and Jack has no enforceable agreement.

Question 1 (b)

Jane offers to sell Jack her Lotus Super 7 sports car for $25 000. The market value for this kind of car in good condition is around $25 000; Jack accepts. Under this agreement, both Jane and Jack are willing to enter into the legal binding contract. The fact that Jack accepts to buy the car at its current market value means he is satisfied with the terms and conditions of the contract. Under the low of contracts, Turner (2013) say that consideration has to be made through an agreement of exchange between or among both parties. Jane will be receiving $25,000 for the sale of her car to Jack. On the other hand, Jack will be receiving the super 7 sports car in the exchange of the money to Jane. Here, both parties have entered into an agreement where one party is sacrificing one thing in the exchange of the other from another party.

According to Marshall (2014), consideration can be further explained as a benefit that someone receives or is expected to receive from an agreement. In business law, the law of contract demands that every agreement must contain a strong element of consideration. Schaffer et al. (2011) say that the element must be substantial in terms of quantity or in amount. This is what shows a valid contract that is accepted legally. From this case, it can be concluded that the agreement has a consideration because both parties (Jane and Jack) have the offer to make. The offer is beneficial to both parties financially and service wise. Thus, this amounts to a total enforceable contract. Should one party fail to do as promised or expected of by the contract, the other party has the right to enforce the agreement. Therefore, there is the presence of a consideration in this contract, and Jack has the right to enforce the agreement legally should Jane fail to do as the contract expects her to do.

Question 2

Schaffer et al. (2011) say that there are some situations where the expiration of the performance date by the contractor does not mean that the contract is hard or cannot be enforced. For instance, in this case between the ship builder and North Ocean Tankers, the situation is complicated and needs to be keenly reviewed to see whether the contract is enforceable or not. They both entered into an agreement where the contractor (ship builder) and the North Ocean Tankers had initially accepted the terms and conditions of the contract. However, they never considered the time value of money while making the terms and conditions of the contract. The contractor never knew or did not have expectation of either devaluing or appreciation of the US currency. The contract stated that the payment would be in US dollars. It therefore means that future fluctuations in the US currency could trigger some reactions or actions on both parties.

On the other hand, North Ocean Tankers were on to deliver the cargo on time and since the contractor wanted to stop as he would make a loss due to a devaluation of the US currency by 10%, he had to pay the extra $3million to complete the ship. Under this circumstance, Bray & Macneil, (2011) commends that it is important for both parties to note that the period it takes to complete the construction of the ship was only part of the contract’s terms and conditions. Should there be a breach of the contract in any kind, then two things can hold; one of them is that the other party can decide to terminate the contract immediately. Secondly, Bertelli & Smith (2010) say that the other party can decide to withhold the contract as the contractor finishes his obligations. North Ocean Tankers picked the second option since it was running out of time and that was the only best option there. Picking the second option means that further negotiations could be made to determine if the contractor deserved the added $3million or if North Oceans Tankers requires to be refunded back the money.

According to Gilson, Sabel, & Scott (2010), it is very important to note that contracts do not have the expiration dates but three kinds of dates. One of them is that there is a period of performance of the contract. The second is that there is a date of delivery, and the last one is that there is a period of completion of the task under the contract. From these dates, it can be commended that it is only the dates which expire and not the contract. Therefore, Leuz (2010) observes that all the obligations of each party have to be well addressed and the terms well fulfilled before they are all done with the contract. Therefore, North Ocean Tankers might have been on their right to pay the extra $3million depending on the situation he was in, and what he needed to be done. It therefore follows that North Ocean tankers still have some rights to claim that amount that was not stated in the contract even after the breach of the contract.

The claim of $3million by the contractor is the major reason why he would have breached the contract since he would make a loss if he could continue with the contraction without being given that amount. In this case, even after taking 9 months after completion of the contract, the North Ocean Tankers still have the chance to enforce the contract since that money was not in the agreed amount on the contract. Fine & Gordon, (2010) say that every contract needs to have a consideration as the centre of everything. The contract needs to state everything clearly especially when it comes to terms and conditions under which the money will be paid or not (De Brux, 2010). The fact that none of them remembered to include the flexibility in the contract, when it comes to the time value of money means that the contract is still enforceable till everyone’s right is effectively addressed.

No party was ignorant in this situation, and it is an economic condition that has come up in the middle of the contract. The contractor was on his right when he said he could not continue with the contraction until $3million was paid since he would have undergone a loss that he never anticipated or expected under the normal circumstances. They all agreed on using the dollar as a currency of payment which meant that they all believed in its stability initially. Therefore, despite the fact that the $3million was not included in the contract and that North Ocean Tankers still have the right to enforce the contract, it will be very hard for them to get back the $3million.