Law of Contract Obligations

Question: Discuss about the Law of Contract Obligations. Answer: Introduction: According to a promise made by Jane, she's going to give her sports car to Jack. But in return, no consideration is being provided by Jack to support this promise. In this way, the issue is with the effect of lack of consideration on the validity of a contract. According to the contract law, there are certain elements that should be present in the agreement which make the agreement enforceable by the law and results in the creation of a valid contract (Atiyah, 1995). Therefore, offer, acceptance, consideration along with intention and capacity is the element that makes an agreement legally enforceable. But in this case, Jane had made a promise to give her sports car to Jack. The car's market value is $25,000 but Jack is not going to give any price for the car in return. On the other hand, contract law provides that an agreement is enforceable if among other elements, consideration is also present to support the promise made by the other party. For this purpose, consideration is the b enefit that is received by the parties to the contract in exchange of the promise made by them. Similarly, the law also provides that past consideration is not valid (Re McArdle, 1951). It is also required that consideration should have some value under the law (Thomas v Thomas, 1842). As mentioned above, the element of consideration is required for the formation of a valid contract. But in this case, consideration is not present as Jack is not going to pay any price for the car. Therefore, it can be concluded that Jack does not have a legally enforceable promise due to the lack of consideration. In this question, an offer has been made by Jane to give Jack her sports car at a price of $25,000. This offer has been accepted by Jack and he is ready to pay $25,000 for the car. Therefore the issue is if Jack can legally enforceable promise made by Jane. In this case, the elements of offer, acceptance and consideration are present. An offer has been made by Jean and the same was accepted by Jack. Moreover, a consideration of $25,000 is also being paid by Jack. The doctrine of consideration deals with the bargain under the contract. Therefore, under the contract law, it is presumed that when the parties have created a contract, an exchange of promises takes place (White v Bluett, 1853). In view of this position, under the contract, each party needs to be promisor and also a promisee. Therefore it can be said that in case of a valid contract, both the parties to the contract should receive a benefit and similarly, they should also suffer a detriment under the contract. This benefit or detriment is known as consideration under the contract law (Atiyah, 1986). On these grounds, it can be concluded that in this case a valid contract has been created between Jack and Jane has all the elements required for the formation of a valid contract are present. Therefore Jack has an enforceable contract. The issue that is present in this question is related with the adequacy of consideration and its effect on the validity of the contract. Jane offered to sell her sports car for $2500 only while the market value of such a car is nearly $25,000. When the offer has been accepted by Jack, it has to be seen if Jack has an enforceable promise and if a legally enforceable contract is created between the parties. Generally, the courts are not concerned with the issue of the adequacy of consideration in the contract (Furmston, 2007). As the parties have the freedom of contract, the issue has been left to the parties to decide the consideration that is received by them in return of the promise made by them under the contract (Burrows, and Peel, eds., 2003). The law of contract provides that consideration should be sufficient and it is not required that adequate consideration should also be present. In order to be sufficient, a consideration should have some value under the law (Re Wragg Ltd., 1897). Therefore, an illusionary consideration is not valid under the law. Due to this reason, things like that you love and affection and morality are not created by the law as valid considerations. The issue of the adequacy of consideration has been discussed in detail by the House of Lords in Chappell v Nestle (1960) when it was decided that even empty chocolate bar wrappers can also have value as consideration. Therefore the position under the common law is that division consideration is required but it is not necessary that adequate consideration to be provided by the parties. Consequently, it is required that the consideration that has been supplied by the parties to support the promise made under the contract should have some value but it does not matter if the value is adequate or not to fulfill the purpose of meeting the return of the agreement (Carter and Harland, 2002). Hence even if the consideration that has been provided in the contract is not of equal value, still it will be considered as sufficient by the law or the formation of a valid contract. The only requirement is that a legal consideration should be provided and for this purpose, there should be an exchange of consideration among the parties to the contract. For example in White v Bluett (1853), the plaintiff had sued the estate of his father for the enforcement of a promise made by the deceased father to pay something if the plaintiff stopped complaining in future. In this regard, the decision of the court was that a promise to stop complaining in future is not a real consideration. The reasoning of the court was that such a promise does not have any economic value. As a result, the formation of a the contract requires that tangible consideration should be provided by the parties. In this case, a consideration of $2500 may not be adequate consideration but it is sufficient to support the promise and as a result, Jack has an enforceable promise in this case. Ans: The brief facts of this question are that a shipbuilder had entered into a contract with North Ocean Tankers for building a tanker for them. But after some time, there was a devaluation of the US currency by the government by 10 percent. The result was that the shipbuilder was going to suffer a loss under the contract. Due to this reason, the shipbuilder demanded that it should be paid extra $3 million otherwise it will not complete the work. On the other hand, the buyer, North Ocean Tankers already had a charter for the tanker and therefore it was very important that the tanker was delivered on time. Under these circumstances, the buyer reluctantly agreed to the demand of paying additional $3 million to the shipbuilder. However, now the buyer wants to recover this excess payment from the shipbuilder. Therefore the issue in this question is if they promise to pay additional money for the performance of an existing contractual duty can be treated as legally enforceable or not. Consideration is one of the elements that are necessary for the formation of a legally enforceable contract. In view of this requirement, gratuitous promises cannot be enforced by the law. In the past, the rule of the contract law dealing with the above-mentioned situation was that the performance of existing duty does not provide a good consideration in return of the promise made by the other party to pay additional benefit under the contract (Burrows, 1998). This rule was provided by the court in Stilk v Myrick (1809). But since then, the general rule has undergone sudden changes. According to the existing duty rule, the performance of an existing duty was not a good consideration in return of the variation made in the terms of the contract under which an additional benefit has been provided to the party. Therefore when a party has only performed its contractual duty imposed by a pre-existing contract, it is not considered as a good consideration. But the general rule underwent a significant change after the decision was delivered in Williams v Roffey Bros (1990). In order to decide this case, the court used the practical benefit rule for the purpose of deciding the issue present in this case. At the same time, the court adopted a new approach regarding the existing duty rule. The brief facts are that there was an agreement between the building contractors and housing Society. Under this agreement, the building contractors were required to renovate 37 flats. For this purpose, the building contractor made a sub-contract with Williams to do the carpentry work in these flats. According to the contract between the defendants and Williams, a price of 20,000 has been fixed for completing the carpentry work in these flats and this prize was to be paid by the defendants in installments. But after sometimes, the plaintiff, Williams started facing financial problems as the price decided by the parties for this work was too low. Under th ese circumstances, the plaintiff approach the defendant and told them that they will not be able to complete the work as the price was too low. The defendant also agreed that a low price had been decided under the contract. Moreover, the defendants were also interested that the work should be completed on time due to the reason that according to the contract they have created with the housing Society, there was a penalty clause according to which the defendants will have to pay a penalty if the work of renovating the flats was not completed on time. Under these circumstances, the defendant made a promise to the plaintiff that they will pay an additional amount of 575 for each flat that was completed on time. But later on, this promise was not fulfilled by the defendants. As a result, the plaintiff, Williams approached the court for the enforcement of this promise. The question before the court was if a valid consideration has been provided in this case by performing an existing duty to support the promise of paying additional money for completing the carpentry work on time. It was the decision of the court that a legal obligation was present on part of the defendants to pay the additional amount promised by them. The court stated that consideration has been provided in this case by the practical benefit that would have been achieved by the defendants from the completion of the work of renovating these flats on time as they will be able to avoid the penalty clause present in their contract with the house in society and at the same time, they will also display from the need of finding another carpenter to complete the work. By applying the above mentioned position of law, related with the performance of pre-existing duty as a consideration for a promise to pay additional money, it can be said that in this case, the buyer, Norrth Ocean Tankers had made a promise to the shipbuilder that if the tanker was completed on time, they will pay additional $3 million to the shipbuilder. In this way, although the shipbuilder is only performing its contractual duty under the pre-existing contract however, the buyer is going to achieve advantage by the completion of the tanker on time as it had a charter for the tanker. Therefore, it can be said that consideration is present in this case to support the promise made by the buyer to pay additional $3 million to the shipbuilder. Due to this fact, they promised to pay the additional money becomes legally enforceable. As a result, the buyer cannot recover the additional money paid by it to the shipbuilder. References Atiyah, P.S., 1995, Introduction to the Law of Contract, 5th Edition, OUP Australia Burrows, A. and Peel, E. eds., 2003, Commercial Remedies: Current Issues Problems, OUP Burrows, A., 1998 Understanding the Law of Obligations: Essays on Contract, Tort Restitution, Hart Publishing, Oxford Carter, J.W. and Harland, D.J. 2002 Contract Law in Australia, 4th Edition, (Butterworths, Furmston, M., 2007, Cheshire, Fifoot Furmstons Law of Contract, 15th Edition, OUP 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