Contract Law: Text, Cases, And Materials

Discuss about the Contract Law for Text, Cases, and Materials.

 

 

Every valid contract should have the element of consideration, which is the benefit that the parties receive by entering into the agreement. Different situations have been provided and it is asked whether consideration is present and if the agreement is enforceable by law. Further a situation has been provided where one party uses pressure tactics to make the other party enter into a business transaction which requires it to make a payment in excess of what was agreed in an earlier contract between them. The party which makes the excess payment takes steps to recover it in the court. It is asked whether the party would be able to recover this amount in the court of law.

 

Consideration is the crucial element to the validity of every contract. It is a type of benefit that each party gets or expects from the deal. It increases the bargaining power of two parties in exchange for return promises and performance of other parties (Miller, 2016). It is very important for every valid contract which is enforceable by law. If there is the absence of any one condition that not satisfies the consideration terms the agreement becomes void. Every valid contract must have consideration. Consideration refers that the one party buys the other party promise with a specific In the given scenario Jane offers her sports car to Jack and the market value is around $25,000 and Jack accepts. As per the terms of the valid contract, the consideration is not taken because as per the Australian court laws consideration refers that the offeror pays money to offeree for goods or services and receives nothing in return. So in the above case, it can be seen that Jane offers her car to Jack but Jack would not give any price in return to her. So the consideration is not in the contract and it is void by nature. Consideration has some monetary and non-monetary value and it is enforceable by law (Vagts et. al 2015). In the given case it not fulfills the condition of consideration aspect in the agreement because it lacks the promises and benefits conditions in the agreement. Lack of consideration element exists in the agreement between the two parties in the above case. As per the study of this case, it is analyzed that the due to missing aspect of consideration in agreement it is void according to the Australian court and it is not enforceable by the court (Smith et. al 2012).

 

In this scenario, it can be seen that the Jane sells her car to Jake for $25,000.In this situation, consideration is exists in agreement (Latimer, 2012). Because it has a monetary value i.e. $25000.So it is considered as valid consideration between the two parties. Furthermore, the agreement between two parties indicates that there is a mutual benefit to the parties in exchange for promise and price. The mutual consent of two parties with exchange benefits leads to consideration is valid in agreement. In the given scenario contract between Jane and Jack buys and sells the promise and performance with specified price i.e. $25,000 that results in the agreement consideration in present (Kopel, 2012).

Similarly, the deal between the Jane and Jack reveals the offer and acceptance conditions with agreed price that makes an agreement enforceable by an Australian court of law. The agreement is valid because it has some monetary value and it is enforceable by the mutual understanding of two parties (Nolo, 2016). Hence this agreement is valid because both the parties perform their actions according to their commitments like selling and buying of activities and consideration exists in the contract and it is valid and enforceable by the law of court (USLegal, 2016).

In this scenario, consideration is existing with the mutual consent of two parties but it is an inadequate consideration but the agreement is not void because it has some value and it is bind by the rules and regulations of the contract. In this contract, Jane offers her car to Jack for $2500. But the market value of the car in good condition is $25000. So as per the common laws and regulations of the Australian court this consideration has some specific price or value (Lawstuff, 2016). So it is sufficient consideration due to its monetary value. Apart from the legal part, it is not an adequate consideration because it has very less value like the sale of a car in $2500 instead of $25000.In the given situation Jane and Jack not enters into the agreement with good consideration but according to Australian law, this is enforceable. Hereby, it can be seen that this agreement between two parties does not violate any common laws and policies. It reveals the existence of consideration in the contract and it is enforceable by federal and state laws of Australia. In addition, it can be seen that this agreement has legal and financial aspects that make the consideration and gives full rights to the party to deny the contract legally (Hart, 2012).

According to contract law, an agreement can be unenforceable due to lack of mutual consent of the parties (Weinrib, 2012). So it does not satisfy the conditions of the enforcement of an agreement. As per the analysis of above situation, it can be seen that the agreement between both the parties is not a good offer due to inadequate price. The market value of the car is $25000 but Jane sells the car at $2500 i.e., not an adequate offer that makes the agreement unenforceable. In this case, Jack can use the effective approach to defense to unenforce the agreement (Schwenzer et. al 2012). The effective approach helps in the situation when the consideration is not good. The effective approach helps to reduce the problems in adequate contract. Similarly, it can be analyzed from the above situation that the Australian court of law considers the main aspects in the agreement such as mutual consent of the parties, Offer and acceptance of the parties which is valid and consideration. In the deal of Jack and Jane which is legally right because it follows all the terms and conditions of the contract and follows the law procedures of Australia (McKendrick, 2014). But on the other side of the law, it can be seen that this contract is not enforceable by law due to invalid offer.

 

The given case deals with the situation of ‘duress’ as provided by the Australian law. More specifically it is about economic duress (Mckendrick and Liu, 2015). As given in the case, North Ocean Tankers had entered into a contract with a shipbuilder. According to this contract, the shipbuilder was to construct a ship for North Ocean Tankers. There was no provision in the contract regarding currency fluctuations. As it happened half way through the building of the ship the United States Of America devalued its currency by ten percent. This obviously meant that the real value of the payment that the ship builder would receive for making the ship for North Ocean Tankers would come down and the ship builder would make a loss in real terms due to devaluation of the United States Of America’s currency. The shipbuilder demanded an extra payment of three million US dollars, if not done so by the North Ocean Tankers, threatened to stop the construction work on the ship.

It becomes clear from above that there was a valid contract between the shipbuilder and North Ocean Tankers. A contract is an agreement which is enforceable by law (Paterson, Robertson and Duke, 2012). But the North Ocean Tankers decided to bend to the demands of the shipbuilder as it had a charter to deliver the ship on time to some another organization. So there were economic factors that North Ocean Tankers had to consider and it took the decision to make an additional payment of three million US dollars, although no such requirement was given in the original contract between the shipbuilder and North Ocean Tankers. It becomes clear that the shipbuilder was using pressure tactics against North Ocean Tankers to get the additional payment and the latter bowed to that pressure.

The central question in the case is whether North Ocean Tanker would be able to recover the excess payment it made to the shipbuilder in the court of law. According to the Australian law, duress involves use of violence or threat against a person, their goods or economic interest to force them to enter into a contract against their will. In the first type of duress, there is actual or threatened violence to person, family or near relatives. In the second kind of duress, there is wrongful threat to seize, damage or destroy the goods of one of the parties to the contract. The third kind of duress is economic duress where one of the parties applies economic pressure beyond normal acceptable commercial practice.

The given case between North Ocean Tanker and the shipbuilder is an instance of economic duress. In this case the shipbuilder has taken advantage of strength of its bargaining position when there was an existing contract, to force North Ocean Tanker to enter into a transaction to provide an excess payment not stipulated in the present contract. In the present case the court would see whether North Ocean Tanker had other options available like getting a ship made by some other shipbuilder. It becomes clear from the details of the given case that North Ocean Tanker had entered into an agreement with some other party to supply the ship. Therefore North Ocean Tanker could not get the ship made by some other party to deliver it on time. Moreover, the shipbuilder was not acting in good faith. The shipbuilder could have made the ship in time but was interested in excess payment. If the shipbuilder had been more careful, it would have provided for the currency fluctuations in the original contract. But the shipbuilder failed to do so. Now the shipbuilder was unfairly putting undue pressure and getting excess payments (Mckendrick and Liu, 2015). This is a clear case of economic duress and the court would make the contract between the shipbuilder and North Ocean Tanker voidable by North Ocean Tanker. In these circumstances North Ocean Tanker would be able to recover the excess payment of three million US dollars by the order of the court. There is a really good chance that the court of law would give a judgement in the favour of North Ocean tanker. But the court would also consider why North Ocean Tanker did not rescind the new agreement to provide excess payment to shipbuilder later on and took so long to apply to the court for recovering the additional payment.

 

There is another case Austin V Loral 29 N.Y 2 d 124 (1971) involving economic duress (Miller, 2006). In this case Austin, a small gear part manufacturer supplied parts to Loral, a defense industry supplier. Loral had a contract with the United States Of America Government to supply radar sets used in Vietnam. Austin demanded higher price from Loral under revised terms for gear parts. New York Court of Appeals held Loral agreed to Austin price demands under economic distress.

In relation to consumer contracts, section 50 of Australian Consumer law contained in Schedule 2 of the Competition and Consumer Act 2010 (previously section 60 of the Trade Practices Act) provides protection to the party in a contract which has been a subject of duress (Australiancontractlaw,  2016).

In another case Electricity Generation Corporation t/as Verve Energy V Woodside Energy Limited (2013) the Western Australian Supreme Court of Appeal held that the essential elements of duress were satisfied (Doylesarbitrationlawyers.com.au, 2016).  This case also throws light on the circumstances when the court would decide in a contract that there is case of economic duress (Andrews, 2015). In this case the parties entered into a Gas Sale Agreement under which Woodside was required to supply gas upto a maximum daily quantity to the other party to the contract. Further it was required that Woodside should make reasonable efforts to provide additional amount of gas upto a supplemental daily quantity. As it happened there was an explosion at a gas producing facility of Apache, one of the major suppliers of gas leading to rise in gas prices. Woodside refused to supply additional amount of gas to Verve Energy at the agreed prices and put pressure on the latter to enter into short term gas agreements for the supply of gas at a much higher rates. Verve agreed for the new higher rates. In this case the Australian Court decided that all conditions of economic duress were present.  

In the cases of pressure tactics used by one of the parties to enter into new agreements, the court would carefully look into the circumstances surrounding the case and then decide whether the pressure is illegitimate or not. The compulsions or economic needs of the party would be carefully analyzed before establishing that it was a case of economic duress (Geest, 2011).

Consideration is a very important aspect in an agreement. If there is no consideration in an agreement, it is not enforceable by law. An agreement is enforceable by law even if one of the parties feels that the consideration is inadequate. If one of the parties in a contract is in a weak position because of economic aspects of a business situation it is facing elsewhere then sometimes the stronger party in that contract would force the other party to enter into a new agreement to make excess payments which can be considered as an unfair act and a case of economic duress. It is upto the court of law to decide whether the pressure applied by the stronger party is legitimate or not. Sometimes a judgement given by a lower court is contradicted and overturned by the higher court. One court decides that it is a case of economic duress while the other court comes to the decision that it is more a case of non fulfillment of the promise made in the first agreement between the parties.

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Doylesarbitrationlawyers.com.au, (2016). Electricity Generation Corporation T As Verve Energy V Woodside Energy Ltd WASCA 36. Available at: https://doylesarbitrationlawyers.com.au/news-board/electricity-generation-corporation-t-as-verve-energy-v-woodside-energy-ltd-wasca-36/ (Accessed: 16 August 2016).

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Lawstuff (2016) What is the difference between criminal law and civil law?[Online].Available at: https://www.lawstuff.org.au/qld_law/topics/being-sued (Accessed by: 16 August 2016)

McKendrick, E. (2014) Contract law: text, cases, and materials.UK: Oxford University Press.

Mckendrick, E. and Liu, Q. (2015). Contract Law: Australian Edition. United Kingdom: Palgrave Macmillan Education.

Miller, M. (2006). Revisiting Austin V Loral- A Study In Economic Duress, Contract Modification And Framing, Hastings Business Law Journal, 2, pp. 357, [online]. Available at: https://papers.ssrn.com/sol3/papers.cfm?abstract_id=937372 (Accessed: 16 August 2016).

Miller, R.L., (2016) Business Law Today, Comprehensive.USA: Cengage learning.

Nolo (2016) Consideration: Every Contract Needs It. [Online].Available at: https://www.nolo.com/legal-encyclopedia/consideration-every-contract-needs-33361.html (Accessed: 16 August 2016)

Paterson, J. , Robertson, A. and Duke, A. (2012). Principles Of Contract Law. Australia: Thomson Reuters (Professional).

Schwenzer, I., Hachem, P. and Kee, C., 2012. Global sales and contract law.UK: Oxford University Press.

Smith, D., Lawson, R.D. and Painter, A.A. (2012) Business law.UK: Routledge.

USLegal (2016) Consideration.[Online].Available at: https://contracts.uslegal.com/consideration/ (Accessed: 16 August 2016)

Vagts, D.F., Koh, H., Dodge, W.S. and Buxbaum, H.L., (2015) Transnational business problems. USA: West Academic.

Weinrib, E.J. (2012) The idea of private law. UK: Oxford University Press.