It is apt to commence with the prominent position that for a contract to be valid there are essential elements that include offer, acceptance, consideration and an intention to be legally bound, that must be present. The doctrine of consideration has existed since antiquity. It is a phenomenon largely attributable to the premise that for an offer to be legally binding in contact law there must be something (action) in return, quid pro quo. The underlying basic rule is that a promise will not be enforceable unless a consideration is provided. Consideration has since transcended the traditional approach of the motive vie to the reliance on bargain where consideration is in the eyes of the law regarded as a profit, Interest of benefit accruing to one party or some detriment or loss suffered by the other. (Australian Woollen Mills v The Commonwealth, 1954)
It should be borne in mind that a statement of an offer must be clear and unequivocal and should not be a mere statement of invitation to negotiation. It is an expression of willingness together with the expectation that it will be binding upon acceptance. (Tretel 1999, p.8) Jane, because of her journey overseas has offered to give Jack her car. The offer in this instance is ambiguous as it does not express an intention to be legally bound. In Bell v Lever Bros [1932] held that there must be an intention to contract for a contract to be enforceable.
Consideration is a fundamental prerequisite for a contract to be legally binding. In Rann v Hughes (1778) the court held that consideration is an essential element in a contact and it must be present. It then proceeded to declare the contract in the case void for lack of consideration. It is therefor submitted that there can be no enforceable contract between Jane and Jack because there is no consideration. It is worth noting also that there has been no communication of the consideration which in law should be communicated by the promisor to the promise. It is therefore safe to conclude that there is no consideration between Jane and Jack and that a legally enforceable contract cannot see the light of day.
Jane has made an offer which is clear and certain to jack concerning the sale of her car at $25000 and Jack has consequently accepted. This is a classical example of the essential elements of a contract being fulfilled. In truth, the offer was properly communicated to the promisee and in effect a response in form of acceptance to the offer was made by the promise thereby satisfying the rule established in In R v Clarke (1927) .
Consideration has been communicated in this instance and Jack has not made any counter offer. It has been settled in Evans Deakin Industries v Queensland Electricity Generating Board (1984) , that if during the acceptance the promisee varies the offer then it shall be construed to be a counter offer. Following the decision in White v Bluett (1853) that consideration must be determinate, consideration between Jack and Jane is wholly determinate. The consideration is of economic and material value and sufficient as it is in pare material with the actual and true market value. ( Hamer v. Sidway, 1891). The contract here is thus legally enforceable.
It is imperative to note that the essential ingredients of a contract in this case have been satisfied. A proper offer with a request for a consideration was made that was followed by an acceptance by the promisee. What is intriguing though is the value of the consideration which significantly does not match the market value of the car.
It is off course not enmesh in controversy that consideration does not need to be of proportionate value to the nature of the promise. (Paterson, Robertson & Duke, 2009) This position presents a questionable proposition in regards to the case at hand. Objectively, consideration must be sufficient and not necessarily adequate and a nominal consideration may be supplied for a valuable consideration. (Chappell v. Nestlé, 1960). If I may invite your attention to Thomas v Thomas (1842) , the court interestingly noted that the promise to pay 1 euro as annual rent was sufficient consideration to transfer a life estate to the claimant. The rationale for a sufficient but not necessarily adequate consideration is explicated by the fact that courts want parties to exercise economic freedom. This wisdom supplied here is entirely true but it does not serve justice to the promisor since the consideration is fundamentally lower.
It is hence submitted that with regards to the facts of the case consideration was not sufficient and therefore the promisor could sue for the true value of the car on the grounds of mistake.
It is important to underscore the fact that the statute of limitation gives a contract law suit a time limitation of six years to bring a case before court.( Limitation Act 2005 ) it therefore submitted that the buyer is not time barred hence the equity maxim, ‘delay defeats equity‘ will not apply.
There was a valid contract between the ship builders and North ocean tankers and the shipbuilders were therefore obligated to complete the construction of the ship by the terms of the existing contact. The fundamental question embedded here is the effect of the supervening circumstances of the price fluctuations that have since made it impossible for the builders to complete the construction.
The litmus test at common law is whether the circumstance was unforeseen and the practicability of performance of the contract. ( Himpurna California Energy Lt v PT Perusahaan Listruik Negara 1999) It is posited that currency fluctuations even though severe are foreseen circumstances. (Frederick 2006) A thing regarded as impossible in legal contemplation when it is not practicable implying that it can only be undertaken under excessive and unreasonable cost. (Mineral Park Land Company v PA Howard, 1916)
The case of North ocean tankers is one that the builders claimed a commercial impracticability and if this is a circumstance that ought to be foreseen it has been held that the party that is most affected impliedly accepts the risk. (Eastern Air Lines v McDonnell Douglas Corp, 1976) It therefore follows from this position that Ship builder were entitled to accept the risk due to the currency fluctuations. If however, the foreseen event was included in the contract then the clause would be binding and the court will base its holding on the allocation of risk. (Publiker Industries Inc v Union Carbide Corp, 1975)
It has been observed that to invoke commercial impracticability the supervening event must have an extreme and unreasonable effect and must fundamentally change the circumstance in which the contract would have been performed. Accordingly, it can be argued that the currency fluctuation had a significant effect on the performance of the contract since it would be more expensive for the builders to complete the performance. This position is in consonance with the Italian position (Articles 1366 Italian Civil code 1942) that a situation of excessive onerosity may force the parties to adapt to the changes and proceed with performance. Such cases may include cases where there has already been a substantial performance of the contract as in this case and it would be unjust to terminate the contract at this level since it may be injurious to both parties.
A more considerable approach could also be borrowed from the German approach which applies the theory of ‘disappearance of the basis of transaction’. The theory asserts that under the changes it would amount to bad faith if the original terms are applied to enforce the contract with prevailing supervening events. This is because when there is a fundamental change to the circumstances then it affects the root of the contract.
Essentially if performance of a contract has been significantly undertaken in such a manner that if the contract is terminated at that level, there will be an adverse effect on both parties and therefore equity and fairness demands that the terms of the contract should be moulded to adapt to the new change of circumstance.
It is therefore a plausible conclusion that the law is the art of goodness and fairness and hence North ocean tankers cannot bring a successful claim to recover excess payments made.
Australian Woollen Mills v The Commonwealth (1954) 92 CLR 424 High Court of Australia
Bell v Lever Bros Ltd [1932] AC 161
Chappell v. Nestlé [1960] AC 87
Eastern Air Lines v McDonnell Douglas Corp, (5th Cir.1976) 532 F.2d 957
Evans Deakin Industries v Queensland Electricity Generating Board (1984) FC 056 (83/2876)
Frederick R. ( 2006). Hardship and Changed Circumstances as Grounds for Adjustment or Non-Performance of Contracts; Practical Considerations in International Infrastructure Investment and Finance
Hamer v. Sidway 124 N.Y. 538, 27 N.E. 256 (N.Y. 1891)
Himpurna California Energy Lt v PT Perusahaan Listruik Negara UNCITRAL Ad Hoc-Award of 4 May 1999. Excerpt. 6
Italian Civil code 1942
Limitation Act 2005
Mineral Park Land Company v PA Howard, 1916 156 P.458
Paterson J. , Robertson .A & Duke A. , (2009). Principles of Contract 3rd ed
Publiker Industries Inc v Union Carbide Corp, (Dist Ct ED Pa 1975) 17 UCC Rep 989
Rann v Hughes (1778), 7 T.R. 350 n
R v Clarke (1927) 40 CLR 227
Thomas v Thomas(1842) 2 Q.B. 851, 114 E.R. 330
Tretel G.( 1999) .The Law of Contract, 10th edn, p.8].
White v Bluett (1853) 23 LJ Ex 36; 24
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