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Enforceable Business Agreement : Contract Law

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Enforceable Business Agreement : Contract Law

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Describe the Enforceable Business Agreement for Contract Law.

1 – Under all the three cases mentioned below, the analysis is to find out if there is an enforceable agreement from Jack and Jane and if there is consideration involved as per the rules of the Contract Law. The analysis is done based on the definition of the Contract act and its fundamental essence
a ) Jane is going overseas and she offers to give her Lotus Super 7 sports car to Jack. The market value for this type of vehicle in good condition is around $25 000. Jack accepts
The key elements of a legally enforceable contract is that
A )There must be an offer
B ) The other party has to accept the offer
C ) The acceptance has to be on the back of a consideration
D ) There must be an intention to fulfill a mutual obligation wherein the offerer offers and the offeree discharges a valid consideration
E ) Both the parties must be competent and capable of entering into a contract.               
F ) In some cases, there has to be written instrument.
In the instant case, Jane has made an offer to give the car when she is going overseas. Jack has accepted the obligation to keep the car. Since the car is not sold to Jack for a valid consideration, there is no mutuality of obligation as mentioned in point D above. Though the market value of the car is $ 25,000 there is no consideration exchanged. Hence this is not an enforceable contract and no consideration. It is only a request to keep the car which Jack has accepted to discharge.
b ) Jane offers to sell Jack her Lotus Super 7 sports car for $ 25 000. The market value for this type of vehicle in good condition is around $ 25 000. Jack accepts
In this case, unlike case b above, Jane is selling the car and Jack has accepted the offer of Jane by accepting to buy the car. Hence there is mutuality of obligation as per Point D above. The discharge of obligation is also on a valid consideration amount. Hence all the points mentioned above are satisfied in this case

There is an offer – Which Jane has made to Jack
There is an acceptance of the offer – Jack has accepted the offer
Consideration – There is a consideration to fulfill the contract
There is a mutual obligation – Jane is obliged to deliver the car and Jack is obliged to discharge the consideration.
Competency and capability – Both parties are competent and capable to enter into a contract
Written instrument – There is no strict stipulation that contracts have to be written. Even an oral contract like this one is enforceable

c ) Jane offers to sell Jack her Lotus Super 7 sports car for $2500. The market value for this type of vehicle in good condition is around $25 000. Jack accepts.
In this case, all the conditions mentioned in answer b above are fulfilled. Hence this is a valid enforceable contract. In the absence of other information, the magnitude of the amount compared to the market value of the car is not a valid criterion to assess to check the enforceability of the contract. Hence the amount of $ 2500 to sell the car when the market price is $ 25000 is not to be considered when assessing the validity of the contract and its enforceability. The value for a contract is be assessed objectively and in case the purchaser and the seller have agreed to the consideration, law has no locus standi to question the adequacy of the same
2. A shipbuilder had contracted to build a tanker for North Ocean Tankers. The contract was in US dollars and didn’t contain any provisions for currency fluctuations. Approximately halfway through construction of the ship, the United States devalued its currency by 10 per cent. As the shipbuilder stood to make a loss on the contract, it demanded that an extra US $ 3 million be paid or it would stop work. The buyer reluctantly agreed under protest to pay, as he already had a charter for the tanker and it was essential that it be delivered on time. The buyer didn’t commence action to recover the excess payment until some nine months after delivery. Will the buyer succeed in recovering the excess?
2 – Under the contract law, duress or coercion occurs whereby a person is forced to perform a certain act which he does not want to do but agrees to do it purely out of force, threat, violence or other forms of pressure not in the normal course of functioning. Thus duress is a pressure which is exerted upon a person to perform or not perform an act contra distinct from that of behavior of a normal person with all degrees of freedom to act. Thus duress curbs the degrees of freedom of a defendant in extraordinary circumstances
In terms of contract law, duress refers to a situation where one of the parties got elevated into an advantageous position due to any circumstance and abused the position by subjecting the other party to a threat. Black Law Dictionary defines duress that it is a threat of harm made to force the other party to do something against his or her will which results in ascendance of the threatening party in comparison to the threatened party and force action without real volition. Under contract law, there are two types of duress namely a) Physical Duress b) Economic Duress. In the instant case, where the ship builder has demanded extra compensation, it is a clear case of Economic Duress.
For Economic Duress to occur, there has to be illegal economic pressure on the other party to conduct his affairs in an extraordinary fashion. The pre requisites are

There is an improper threat
There is no alternative of the disadvantaged party but to accept the other party conditions
The threat changes the color of the contract which was originally made and defeats or alters the original intention of the contract
There is an objective financial distress being caused to the other party

If these above conditions are satisfied then the contract can be made voidable by the sufferer (HubPages, 2016)
In the instant case, there is a shipbuilder who has entered into a contract with North Ocean Tankers  to build a tanker at a certain price in US dollars. The contract has not envisaged any provision for financial loss due to currency fluctuations. However, after the first installment, US devalued their currency by 10 % and the ship builder demanded compensation of USD 3 million as compensation for the financial loss with the threat that delivery will not be adhered to if the owner does not make good the loss. Thus the shipbuilder put an improper threat ultra vires to the terms of the agreed contract and the contract could be made voidable by North Ocean Tankers. However, North Ocean tankers decided to pay the compensation under the fear that they may lose the charter for the tanker if the tanker was not delivered on time.  In the case of North Ocean Shipping versus Hyundai which is a similar case, North Ocean had agreed to pay the compensation since they wished to maintain amicable relationship and without prejudice to their rights. (E-lawresources.co.uk, 2016)
The judgment was that amicable relationship is not good consideration. One of the pre a condition of a contract is that there has to a consideration and has to be measurable. Amicable relationship is not an objective measurable consideration and hence it is not ” good consideration “.  But the act was performed under Economic Duress as defined above where there was an improper threat from the ship builder to cancel the delivery, North Ocean was disadvantaged and ship builder went into an ascendant position because of the economic duress caused, the color of the contract and the financial conditions were materially changed and the objective financial distress of USD 3 mn was measurable. Hence the contract was voidable at the option of North Ocean. But they chose to keep it alive without any alteration. They could have entered into a fresh contract with the ship builder by rescinding the original contract if they wanted to continue with the construction of the ship with the same ship builder. They chose to remain silent and pay the USD 3 mn as compensation to maintain amicable relation. Amicable relation is  not a valid obligation for a contract. (Netk.net.au, 2016)
At the same time, they delayed in bringing the case to the court by nine months after delivery of the vessel. The obligation of North Ocean in this case is two pronged which has not been discharged

Rescind the contract and demand compensation from the ship builder as per the terms of the original contract in addition to business loss OR
Ratify the original contract by entering into a new contract with revised financial terms OR
In case of dispute, register a case against the ship builder for creating Economic Duress in the instant moment (Academia.edu, 2016)

North Ocean on the other hand did not take any of the steps mentioned above and chose to remain silent until 9 months of delivery. Hence though the case is a fit case of Economic Duress and the contract is voidable, excess is not recoverable from the ship builder. North Ocean by their choice of inaction had affirmed the original contract and had lost all right of rescinding the same. The contract was voidable due to the duress, which in the absence of timely action under any of the three methods stated above, they had lapsed their right to rescind and claim compensation. (Australiancontractlaw.com, 2016)
In the North Ocean versus Hyundai case which is a similar case, there were some additional points which were facts of the case. The additional compensation of USD 3 mn was backed by a reverse letter of credit given by the builder to the owner. At the same time, North Ocean had agreed to the compensation without prejudice to their rights(Quizlet.com, 2016)
Considering this fact, the additional letter of credit for USD 3 mn given by the builder was considered to be adequate consideration for the agreement to pay 10 % more than the contract value as compensation for undertaking the additional obligation and had held themselves liable to the increased loss. Thus when a threat to a contract had led to an additional contract, such contract made on adequate consideration was under economic duress and hence was voidable. But given that no action was taken by North Ocean indirectly affirms the contract in the absence of the explicit statement that it is not their intention to affirm the contract to the builder. Thus the owner was not entitled to the claim of 10 % to be returned. In this judgment, the dictat of Smith versus Charlick Ltd ( 1924 ) 34 CLR and Skeate versus Beale ( 1840 ) 11 Ad & El 984 was considered.
Academia.edu. (2016). Duress : the doctrine of Economic Duress | Surya Kiran – Academia.edu. [online] Available at: https://www.academia.edu/8117588/Duress_the_doctrine_of_Economic_Duress [Accessed 20 Aug. 2016].
Australiancontractlaw.com. (2016). Australian Contract Law | Julie Clarke. [online] Available at: https://www.australiancontractlaw.com/ [Accessed 20 Aug. 2016].
Australiancontractlaw.com. (2016). Australian Contract Law | Julie Clarke. [online] Available at: https://www.australiancontractlaw.com/law.html [Accessed 20 Aug. 2016].
E-lawresources.co.uk. (2016). North Ocean Shipping v Hyundai Construction (The Atlantic Baron). [online] Available at: https://www.e-lawresources.co.uk/North-Ocean-Shipping-v-Hyundai-Construction-(The-Atlantic-Baron).php [Accessed 20 Aug. 2016].
HubPages. (2016). Duress and Undue Influence – Descriptions & Cases. [online] Available at: https://hubpages.com/education/Duress [Accessed 20 Aug. 2016].
Netk.net.au. (2016). Contract Law lecture: “Consideration” in Acceptance of Contract. [online] Available at: https://netk.net.au/Contract/04Consideration.asp [Accessed 20 Aug. 2016].
Quizlet.com. (2016). Cases Week 8 Flashcards | Quizlet. [online] Available at: https://quizlet.com/23236182/cases-week-8-flash-cards/ [Accessed 20 Aug. 2016].

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