Discuss about the Business and Corporations Law.
The issue in this case is related with the presence of consideration. The law of contract requires that certain elements should be present in an agreement due to which the promise becomes legally enforceable and a valid contract is created. These elements are offer, acceptance, consideration, intention and capacity of the parties. In the present case, Jane had decided to give his car to Jack without any consideration while in reality; the cost of the car was $25,000. According to the law contract, an agreement can be considered as legally enforceable only if consideration is present on the part of each person entering into the contract. In this context, consideration can be described as the benefit that the parties to the contract get or spread to get under the contract. According to the law contract, past consideration cannot be treated as good consideration (Re McArdle, 1951). In the eyes of law, consideration should be something of value (Thomas v Thomas, 1842).
Therefore, every valid contract is required to have consideration. However, in the present case, while Jane had promised to give his car to Jack but no consideration has been supplied by Jack in return of this promise. The effect of this situation is that in this case consideration is not present and therefore, the promise made by Jane cannot be legally enforced by Jack.
As mentioned above, a legally valid contract requires the elements of offer, acceptance and consideration apart from the intention and the capacity of the parties. In the present case, Jane had made an offer to sell her car Jack for $25,000. The market value of this car is also $25,000. Therefore, Jack accepts the offer. Under these circumstances, it can be said that the elements of offer and acceptance are present in this case. Moreover, consideration is also present in this case in the form of $25,000 that Jack had accepted to pay to Jane as the price of the car. Under the law of contract, the notion of consideration is related with the bargain of the contract. It is presumed that in case of a contract, there is an exchange of promises (White v Bluett, 1853). Therefore in case of contract, each party should be a promisor as well as a promisee. Or in other words, each party should receive a benefit under the contract and at the same time it should also suffer a detriment. Consideration is the name given to this benefit or detriment (Atiyah, 1986). In this case, a valid consideration is present to support the promise made by Jane and a legally enforceable contract has been created between the parties.
In this question, Jane had made an offer to Jack to sell our Lotus Super 7 sports car at a price of $2500 while in reality, the market value of the car was around $25,000. As Jack had accepted the offer, the question arises if a legally enforceable contract has been created between the parties. The basic principle provided by the law contract in this regard is that generally the courts do not going to the question of the adequacy of consideration. As a result of the freedom of contract provided to the parties, it is up to the parties to decide the consideration for the promise given by them. Therefore the only requirement is that the consideration should be something of value in the eyes of law and it is not necessary that the consideration should also be adequate (Re Wragg Ltd., 1897). The consideration can be anything that has been stipulated by the promisor, unless it is not illegal. The consideration should not be illusionary, it should have some value in the eyes of law or in other words, it must exist. The leading case in this regard is that of Chappell v Nestle (1960) where the court stated that even empty wrappers of chocolate can be considered as valid consideration.
In Chappel v Nestle (1960), the House of Lords confirmed the traditional doctrine of the law of contract. According to this doctrine, it is not essential that the consideration to be adequate and the only requirement is that they should be sufficient consideration present to support the problems. For example in this case, Chappell & Co. held the copyright for Rockin Shoes and the records of this song were being offered by Nestlé to the persons who sent three wrappers of the milk chocolate bars of the company along with 1s 6d. In this regard, the Copyright Act, 1956 provides that the company will have to pay a royalty of 6.25%. This loyalty is to be paid on ordinary retail selling price of the product. In this context, Nestlé claimed that the ordinary retail price of the record amounted to 1s 6d. But Chappell & Co. claim that the price of the record was more. Under these circumstances, the question that has to be decided was if the empty wrappers of chocolate bar can also be created as part of the consideration for the records. While deciding decision, it was the opinion of the majority of the House of Lords that although the wrappers did not have any significant economic value and ultimately, Nestlé was going to throw away these wrappers, still they amounted to a part of the consideration for the records.
Under the common law, it is clearly provided that consideration provided for supporting a promise under the contract needs to be sufficient but it is no necessary that the consideration should also be adequate. As a result, the only requirement is that the consideration should have some value regardless of the fact that it is appropriate or not for the purpose of meeting the return of the agreement. A valid contract is created between the parties. Therefore even if the considerations supplied for the purpose of supporting the promise is not of the same value or equal value under the exchange in the agreement, however the law will consider that the consideration is sufficient if the parties to the agreement have agreed to the exchange. According to the condition of providing legal consideration, it is only required that the parties to the agreement should agree for an exchange of some consideration under the contract. An example in this regard can be given of the case titled White v Bluett (1853) where the plaintiff, Bluett sued his father’s will for an outstanding debt to his father. It was claimed by the 20 that his father had promised him to give an amount and in return, the plaintiff was asked to stop complaining in the future. However the court stated that such a promise to stop complaining in future cannot be considered as a real consideration. The reason behind this decision of the court was that to stop complaining did not have any economic value. Therefore, tangible consideration should be present to support the promise made in an agreement.
Moreover, in view of the freedom of contract that has been provided to the parties by the law, it is up to the parties to decide whether consideration is considered to be adequate by them. It has been left to the parties to decide the adequate consideration for the promise that has been given by them under the agreement. Consequently, generally the courts do not going to the question of the adequacy of consideration. However, the issue of the adequacy of consideration can be relevant where the court is required to decide if the contract is the result of many force fraud or duress.
2. In the present case, the buyer had reluctantly agreed to pay extra US$3 million because otherwise the shipbuilder had threatened to stop the work and on the other hand, the buyer already had a charter for the tanker. Under these circumstances, the issue arises if the extra amount promised by the buyer can be recovered or not. The leading case in this regard is that of Williams v Roffey Bros and Nicholls Contractors) Ltd (1990) in which P had entered into a contract with D to perform some carpentry work for D. However when it was clear that P will not be able to complete the work on time, a promise was made by D to pay extra money to P in order to make sure that the work was completed on time. The reason behind this promise was that D would incur liability to a third party in case the war was not completed on time. Therefore the issue that needs to be decided in this case was if D legally bound to pay the extra amount by applying the principles of consideration under the contract law. It was stated by the court that in this case D was liable to pay the extra amount promised by him. It was stated by the court that the extra amount can be recovered if A had entered into a contract with B regarding the supply of goods or services and before the completion of the work, B has doubts that A will be able to complete the work on time or not and under the circumstances, B makes a promise to pay additional amount in return of a promise by B that the work will be completed on time and at the same time, due to this promise, B had obtained an advantage or had obviated a disadvantage, including the liability to third-party and the promise made by B was not the result of economic duress or fraud on the part of A, it can be said that the benefit to B can be treated as a good consideration for the promise made by B.
This position of law was against the decision given in Stilk v Myrick (1809) where the court stated that the promise made by the master to pay extra money to the rest of the sailors when two sailors have deserted the ship, was not legally enforceable due to the reason that there was no consideration present to support the promise made by the other party. However in Williams v Roffey Bros (1990) the Court has stated that the consideration has been provided due to the benefit that was conferred by the claimant on the defendant by helping them in avoiding the penalty clause that could have been imposed by the third-party (Trebilcock, 1993).
In this case, the defendants were building contractors and they had created a contract with a housing association for refurbishing 27 flats. In this contract, there was a penalty clause according to which, the defendants will have to pay damages if the work was not completed on time. On the other hand, the defendants entered into a contract with Williams for doing the carpentry work in these flats at a price of £20,000. However after six months, Williams realized that this price was too low. The defendant also recognize that the price was low and moreover the defendant was also concerned that the work may not be completed on time. Under these circumstances, the defendant made a promise to pay an additional amount of £575 for each flat that was completed on time. But later on, the defendant refused to make these additional payment. In its defense, it was argued by the defendant that no consideration has been provided by the claimant as the claimant was already under a contractual duty to complete the carpentry work in these flats. However, the decision of the court was that the defendant is legally bound to make the additional payment. The court noted that consideration has been provided in this case in the form of the benefit that was achieved by the defendant as the completion of work on time helped the defendant in avoiding the penalty clause that was present in its contract with the Housing Society. As a result, the defendant was held liable to make the extra payments as promised by it.
Thus, it was held that the defendant was legally bound to make the extra payment promised by him. In the present case also, the bar was going to suffer the loss as he already had the charter for the tanker. Under these circumstances, it can be said that the plaintiff can recover the extra amount promised by the other party to complete the ship on time.
References
Atiyah, P.S. (1986)’Consideration: A Restatement’ in Essays on Contract, Oxford University Press
Trebilcock, M. J. (1993) The Limits of Freedom of Contract (Harvard University Press,
Cambridge
Re McArdle (1951) Ch 669
Thomas v Thomas) (1842) 2 QB 85
White v Bluett (1853) 2 WR 75
Re Wragg Ltd [1897] 1 Ch 796
Stilk v Myrick [1809] EWHC KB J58
Williams v Roffey Bros and Nicholls Contractors) Ltd (1990) 1 All ER 512
Chappell v Nestle [1960] AC 87
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