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Common Law Theory : Australian Business Law

Question:

Describe about the Common Law Theory for Australian Business Law.

Answer:

1(a)Issue

To comment on the presence of the consideration as per the given information and opine on the presence of an enforceable agreement which is binding on Jane

Relevant law

Three imperative conditional elements for the enactment of a lawful enforceable agreement are as follows (Richard, 2003).

  • Legal promise/offer - from offeror
  • Legal acceptance – from offeree
  • Legal consideration - demanded by the offeror and paid by the offeree

Consideration is an indication of the return price that the offeror demands from the offeree in regards to satisfy the offer. There are two types of offers/promises formed by the offeror.

  • Enforceable promise – when there is lawful consideration present in the process of enactment of the agreement. Enforceable promise from the parties leads to the enactment of enforceable agreement. Thus, breach of such agreement results in heavy penalty from court (Pendleton & Vickery, 2005).
  • Gratuitous promise - when there is absence in the consideration from the offeror. In other words the offeror did not obtain any consideration amount from offeree. In such cases the nature of the agreement is null or void (Lindgren, 2011).

Application

Facts

  • Jane offers her sports vehicle to Jack without demanding any return amount. Because she is planning to settle abroad and she cannot take her vehicle to overseas.
  • The saleable price of same kind of vehicle in similar condition is nearly $25,000.
  • Jane has not expected any return beneficial amount from Jack
  • Jack accepts the offer without any terms or conditions

Jane has not declared any return price for the vehicle from Jack.  Hence, this tends the presence of the gratuitous promise and indirectly shows the absence of the consideration. Such promises are not enforceable.

Conclusion

As per the above analysis of the case, it can be summarized that the absence of the consideration is the main reason for the void agreement between Jack and Jane. Hence, Jack has no enforceable agreement in this case.

(b) Issue

To opine on the existence of the various factors needed for the enactment of the enforceable agreement especially consideration and also opine whether Jack and Jane are bound into an enforceable agreement.

 Relevant law

Presence of the valid enforceable promise, acceptance and significant consideration are sufficient to enact any enforceable agreement (Edlin, 2007).

For valid offer – the offer/promise must be ethical and legally valid as per the relevant provisions of civil law

For valid acceptance - the offeree must accept the offer with sound mind and willingness without any outer pressure and must be unrestricted about the offer

There are some specific norms for the valid consideration which are stated below (McKendrick, 2003).

The consideration cannot be based on any illegal benefit or favour

The consideration amount can be stretched with the joint suggestions of the parties

As per the arguments of Re McArdle(1951) Ch 669, previously made consideration cannot be utilized by the parties in order to enact present enforceable agreements.

It is not essential that the consequent consideration value and the consideration value made by the offeror would be equal in terms of commercial value. It can be explained through the arguments of Lord Somervell that a small peppercorn can also be taken into account as valid consideration (Latimer, 2005).

Application

Facts

  • Jane offers to sell her sports vehicle to Jack
  • Jane specifically mentions the expected amount of $25,000 from Jack
  • The cost of same kind of vehicle is $25,000
  • The consideration amount and market amount is equal
  • Jack accepted the vehicle in $25,000

According to the above facts and relevant law, Jack and Jane both have effectively enacted the enforceable agreement. This can be supported by the presence of legal consideration, offer and acceptance.

Conclusion

Jane and Jack have successfully satisfied the norms of the contact law, which was needed for enforceable agreement. Hence Jane and Jack both are legally bound into enforceable agreement.

(C)

Issue

To examine the existence of valid consideration in this case and comment whether Jane and Jack are legally bound into the enforceable agreement

Relevant law

As per the contract law, presence of valid offer, acceptance and consideration is enough to enact an agreement between the parties. The questions arises, when the actual worth of the offer is different from the consideration worth made by the offeror. This situation demands a discussion in regards to the adequacy of consideration (Richard, 2003). As per this doctrine, if any unethical activity is not performed between the parties, then the adequacy of the consideration is not required. Even a small piece of peppercorn can also be a legal consideration amount against a large building with regards to the willingness, capacity and sound mind and these are only the prerequisite for the validation of the consideration amount (Gibson & Fraser, 2014).

Application

Facts

  • Jane wants to sell her sports vehicle to Jack
  • She made an offer for the same
  • Consideration amount demanded by Jane is $2,500
  • Jack agree to pay this amount to Jane in order to fulfil the consideration amount demand
  • Jack has not stated any specific demand against the offer
  • Cost of same kind of sports vehicle in the market is $25,000

The stated amount of consideration i.e. $2,500 is inferior to the saleable cost of the vehicle i.e. $25,000. If Jane sells this vehicle in the market, she will easily receive revenue of $25,000. Irrespective of this aspect, she made offer with the consideration amount of $2,500. Also Jack accepts the car and did not make any counteroffer for the offer, this indicates the unconditional acceptance to the offeree Jack. Additionally, there is no presence of any unsuspicious conduct that occurred between Jane and Jack. Hence the adequacy of the consideration amount is not necessary and should be subjectively acceptable to the parties entering into a contractual obligation.

Conclusion

Adequacy of the consideration amount is not needed in this case, and the presence of the consideration amount i.e. $2,500 would lead to enactment of enforceable agreement between Jack and Jane.

2. Issue

Taking into cognizance the facts relating to the contract between North Ocean Tankers and the shipbuilder, opine on the validity of the claim filed by the buyer in a bid to recover the $ 3 million payment made forcefully.

Law

As per the common law, one of the most fundamental aspects of any legal contract is the consent of the parties involved. The main reason for the parties to grant their consent for entering into contractual relations is the presence of consideration which acts as an incentive for the party to fulfil the promise. In case, the contract terms tend to be more considerate for any particular party, the other party may not be interested in enactment of contractual relations and may decide to walk away (Gibson & Fraser, 2014).. However, the dominant party in order to further its interest uses its power to threaten the other party thereby forcing consent for execution of contract. The term used to capture this situation is known as duress and may involve the usage of either physical power or economic power. The contracts which are based on duress are considered voidable and thus lack legal sanctity. Hence, such an aggrieved party in incidents involving duress could demand the recovery of unjustified payments and also losses incurred due to the fulfilment of the contractual relationship (Lindgren, 2011).

The concept of duress has not remained static over time and has infact expanded in recent times to entertain cases based on incidence of economic duress which is increasingly becoming common especially in the commercial world. The addition of economic duress to the concept of duress was a positive move as in the modern world, coercion is not explicit but rather done in a tacit or indirect manner. The court has highlighted certain key points which hint towards the duress being present due to economic force (Richard, 2003). The superior economic position must be misused by the other party in order to subject the other party to succumb to unjustified demands.  Under the influence of threat, the party concerned has only one practical choice remaining which is to agree with the demand which in turn leads to formation of contractual relationship. This results in prevention of any denial by the party at a later date with regards to non-fulfilment of the condition (Latimer, 2005).

Having established the incidence of economic duress render the contract as voidable and the party subjected to coercion has the right to recoup all the unreasonable payments asked and any losses which the party would have incurred in order to comply with contractual terms that were unfair and unjust. An important discussion needs to be done with regards to the timing of filing for losses. The court has opined that the aggrieved party should approach the court for relief immediately after the contractual obligations are discharged or within reasonable time (McKendrick, 2003).. The court has refused to objectively define this time as underlying cases are different and hence a uniform definition would not work. Thus, on a case to case basis, the court comes up with the definition of reasonable time for filing damages (Pendleton & Vickery, 2005).

A significant case which aims to highlight the critical importance of time as a key factor is the North Ocean Shipping v Hyundai Construction (The Atlantic Baron) [1979] QB 705 case. In this case, there were elements of economic duress that were found to be present after analysis of case facts (Richard, 2003). The court paid acknowledgment to the same and hailed the right of the appellant to have the contract cancelled and recover the payments forcefully made. However, the critical issue was the delay of eight months in filing for the recovery which resulted in tacit approval on behalf of the aggrieved party to the altered conditions. As a result, the claim was rejected as reasonable time had already passed (Lindgren, 2011).

Application

The key facts of the given situation are summarised below.

A contract is enacted for getting a tanker constructed with the underlying contract payment being settled in USD currency. However, the contract enacted had no clause to deal with currency fluctuations. USD devalued which adversely impacted the interest of the shipbuilder who put forward a demand for excess payment of $ 3 million which were not covered by the contract. The buyer disagreed to make the payment as the contract contained no provision for the given situation. However, the shipbuilder threatened the buyer with breach of contract which the buyer was not prepared as it has already entered into a charter for the under construction tanker. The payment was thus made by the buyer which now is making legal attempts to claim it back.

The use of economic duress needs to be recognised in line with the identified elements earlier. The threatening of shipbuilder with breach of contract is a clear indication of economic power being used for the fulfilment of demand that was outrightly unreasonable since the same was not sanctioned by the contract. However, due to enactment of charter for the proposed tanker, delayed delivery was not a choice due to which payment had to be made.  While it is apparent that the buyer did have the right to recover the $ 3 million payment from the shipbuilder but on account of the nine month long delay without adequate justification of the same has essentially ruined the prospects of the buyer reclaiming the $ 3 million from the shipbuilder.

Conclusion

The company owing to huge delay would not gain success in making claim for excess payment recovery.

References

Edlin, D 2007, Common law theory, 4th eds., Cambridge University Press,Cambridge

Gibson, A & Fraser, D 2014,  Business Law, 8th eds., Pearson Publications, Sydney

Latimer, P 2005,  Australian business law, 24th eds., CCH Australia Ltd. Sydney

Lindgren, KE 2011, Vermeesch and Lindgren's Business Law of Australia, 12th eds., LexisNexis Publications, Sydney

McKendrick, E  2003, Contract Law, 5th eds., Palgrave, Basingstoke

Paterson, J, Robertson, A & Duke, A 2015, Principles of Contract Law, 5th eds., Thomson Reuters, Sydney

Pendleton, W & Vickery, N 2005.  Australian business law:  principles and applications, 5th eds., Pearson Publications, Sydney

Richard S 2003, The Modern Law of Contract, 5th eds., Cavendish, London

 

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