Business Corporation and Law Essential Part of Contract

Question: Disucss about Business Corporation and Law for Essential Part of Contract. Answer: Meaning of consideration The price which is stipulated by the promisor in exchange of his promise is known as the consideration. Consideration is an essential part of a contract. It is the sine qua non of any contract. A contract is considered to be void if it lacks a valid consideration. A promise becomes binding only when there is a valid consideration. Thus, a promise cannot be enforced if it lacks proper consideration. However, a promise without a consideration may be considered to be valid under certain circumstances. This is not relevant though in the light of the required questions (Houh 2014). 1. a) In the instant case, an offer was made for the sale of Lotus Super 7 sports car by Jane. The offer was made to Jack who readily accepted the offer. But there is no consideration for the same. Case law: Milroy vs Lord In this case, Mr. Medley had executed a deed and by virtue of the deed, certain bank shares of Mr. Medley were required to be transferred to a trustee. The shares were however, not registered in the name of the trustee and Mr. Medley continued to be the registered holder of the shares as per the register of the Bank. Moreover, the transaction was purported to be made without any consideration. Mr. Medley died afterwards and the personal representative of Medley tried to put resistance on the transfer of the shares. The personal representative contended that the deed was devoid of any consideration and therefore, the transfer should not allowed to be complete. He argued that the deed contemplated an uncompleted gift, which was without any consideration and therefore it should not be enforced (Lightman 2013). It was held that a mere promise having an intention to perform a gratuitous act would not legally bind the parties (Coleman 2015). In the instant case, the car is intended to be transferred to Jack and Jane does not demand any consideration for the same. Now, a promise without a consideration cannot legally bind the parties. Therefore even if Jack accepts the offer made by Jane, still the promise will not be legally entitled to be enforced because it lacks consideration which is required for the validity or enforceability of a promise. Though there has been offer and acceptance in the instant case, but the same is not contemplated by consideration and consequently no legal relation can be established by virtue of the promise. b) In the instant case, an offer is made for the sale of a Lotus Super 7 sports car by Jane. The consideration stipulated by Jane is a sum of $25000. The offeree is Jack and he readily accepts the offer. For the determination of the question whether the consideration is a good consideration or not it is imperative to go into the nature and requirement of consideration. Now, a price which is stipulated by the promisor in exchange of the promise is said to be the consideration. This price may or may not be in monetary terms. The nature of consideration requires causing of some detriment to the promisee. It does not however convey that a tangible benefit should be accrued to the promisor. If a consideration requires the promisee to do an act or to abstain from an act, it will still be regarded as a good consideration. For example, a consideration which requires the promisee to quit hanging around in night clubs or a consideration which requires the promisee to study every Sunday morning will be considered to be a good consideration (Furmston et al. 2012). Consideration may be anything stipulated by the promisor Fixing of consideration is at the discretion of the promisor and he is free to stipulate any price as a consideration for his promise. The consideration can virtually take any form and it depends upon the promisor to give any shape or form to the consideration (Turner 2013). Case Law: Chappell vs Nestle In this case, the Nestle Company, for the promotion of its chocolate sales, advertised that it would supply with a record to anyone who gives money and three chocolate wrappers (Gallagher 2016). The main question to be determined in this case was whether the three wrappers formed part of the consideration for the supply of records or not. The decision taken in this case supported the view that the requirement of sending chocolate wrappers for the supply of records was something more than a condition and it would come under the purview of consideration. Therefore, in the light of the case, the three chocolate wrappers were included in the term consideration. (Caulfield et al. 2014) Lord Somervell gave a famous statement in this case: A contracting party can stipulate for what consideration he chooses. A peppercorn does not cease to be good consideration if it is established that the promisee does not like pepper and will throw away the corn. (Sacha, 2012). Thus, according to Lord Somervell, a promisor can stipulate anything for the purpose of forming a part of the consideration. (Kuhnel and Hough 2014). In the instant case, the price which has been offered by Jane for the sale of the car is a monetary amount of $25000. This price is equal to the market value of the car. This means if the car is sold to any X or Y or Z, then Jane would get the same amount. This consideration is a valid and good consideration and acceptance of the offer by Jack binds the parties in a legal agreement. Thus, Jack is legally entitled to get the car from Jane at an amount of $25000 as the agreement is binding on both the parties. c) In the instant case, an offer is made by Jane for the sale of her Lotus Super 7 Sports car to Jack. The consideration stipulated by Jane for sale of the car is $2500. Jack readily accepts the offer. The question which is to be determined is that whether this consideration is a good consideration or not. Now, a consideration in order to be a good consideration needs to be certain and not illusory. Case: Biotechnology Australia Pty Ltd v Pace In this case, Pace entered into an employment contract with Biotechnology. The contract provided that Pace would be allowed to take participation in the senior staff equity sharing scheme of the company. However, no such scheme was in existence at the time when the contract was entered into between Pace and Biotechnology (Loveranes 2012). It was held that the consideration stipulated by Biotechnology was illusory and uncertain and the same would not be considered as a good consideration (Goldberger 2012). Adequacy of consideration A consideration, even if it is of minimal value, will still be regarded as a valid consideration. A consideration may be of any price and so long it is voluntarily determined by the promisor and readily accepted by the promisee, it will be considered as a good consideration. (Hillman 2013). It is not necessary that consideration should be fixed according to the market value of the product or services. The economic value of the product or services is not the determining factor for stipulating a consideration under a promise. This principle gives economic freedom to the parties and gives them the discretion to fix consideration according to their choice. Thus, any consideration may be stipulated by the promisor and it will be a good consideration even if it is not adequate (Cartwright 2016). In cases where inadequate amount of consideration is fixed by the promisor, the important factor to be determined is whether the parties are at equal bargaining position or not or whether one of the parties have been influenced by the other or not. In such cases, a contract may be considered to be invalid and may be set aside on account of unconscionable bargain (Houh 2014). In the instant case, the agreement has been entered into voluntarily between the parties. There has been an offer and an acceptance and the consideration has also been determined by the parties freely and voluntarily. Moreover, none of the parties have been influenced by the other and the agreement does not contemplate an illusory or uncertain consideration. It shows that Jane has willingly agreed to sell her car and the same has been accepted by Jack as well. Therefore, the agreement cannot be set aside on the ground of inadequacy of consideration and it is legally binding on both the parties. 2. The given facts of the instant case are as follows: North Ocean Tankers entered into an agreement with a shipbuilder for the construction of a tanker. The consideration fixed by the parties was in US dollars. The contract did not mention for any currency fluctuation. As the shipbuilder completed almost half the work, there was a devaluation in the US dollars by 10%. The shipbuilder demanded for the payment of an additional amount of US $33 million and threatened to stop the work if the condition is not complied with. Under this circumstance, North Ocean Tankers reluctantly accepted the condition as they were required to deliver the tanker on time. An action was commenced by the buyer after 9 months of the delivery of the tanker. It is necessary to draw attention here that the facts of the instant case are somewhat similar to that of North Ocean Shipping Co Ltd. v. Hyundai Construction Co and another In this case a contract was entered into between North Ocean Shipping Co Ltd (plaintiffs) and Hyundai another (defendants) for the construction of a tanker. The defendants were required to build the tanker and the consideration was fixed in US dollars. The consideration was to be paid in five instalments. By the time the first instalment was paid, US dollars was devalued by 10%. The defendants made a demand for additional payment and threatened to stop the work in case of non-compliance with the demand. Meanwhile, the plaintiffs had entered into an agreement for chartering the tanker (Turner 2014). The agreement was advantageous to the plaintiffs and the plaintiffs thereby agreed to pay the extra amount and also requested the defendants for making an increment in the letter of credit. The plaintiffs brought an action after eight months of the delivery of the tanker (Whaley et al. 2015). In the action the plaintiffs contended that either the agreement should be set aside on the ground that it was void due to lack of consideration or the agreement was voidable on the ground that it was entered into during economic duress and through exertion of pressure (Burrows 2015) Justice Mocatta did not accept the plaintiffs contention on the ground that the relevant consideration for the agreement was in the form of defendants promise to increase the letter of credit. He however accepted the contention that the agreement has been entered into under economic duress but he denied any relief to the plaintiffs on the ground that the plaintiffs accepted the agreement (Chen 2012). The instant case is however dissimilar to the above mentioned case with respect to the fact that North Ocean Tankers has reluctantly accepted the agreement made under economic duress. The charter agreement had been entered into by the North Ocean Tankers much before the shipbuilder started to build the tanker. The shipbuilder in this case has taken undue advantage of the situation and has in a way forced the North Ocean Tankers to accept the agreement. Moreover, the facts of the instant case clearly fulfil all the requirements of economic duress. Firstly, there was already an existing agreement; secondly, the agreement was entered into by the North Ocean Tankers under threat and compulsion and thirdly, the terms of the agreement as proposed by the shipbuilder have been accepted by the North Ocean Tankers. Thus, the agreement is voidable on the ground that the agreement has been entered into under economic duress and consent of the North Ocean Tankers has not been given freely and vol untarily. Moreover, bringing an action within 9 months of the delivery of the tanker is well within the limitation period as prescribed under statutes enacted by different States of Australia. Thus, under the present circumstances, the North Ocean Tankers is entitled to recover the excess amount which it has paid to the ship builder under economic duress. Reference List: Burrows, A., 2015. Understanding the Law of Contract in Myanmar. Available at SSRN 2689548. Cartwright, J., 2016. Contract law: An introduction to the English law of contract for the civil lawyer. Bloomsbury Publishing. Caulfield, T., Nelson, E., Goldfeldt, B. and Klarenbach, S., 2014. Incentives and organ donation: whats (really) legal in Canada?. Canadian journal of kidney health and disease, 1(1), p.1. Chen-Wishart, M., 2012. Contract law. Oxford University Press. Coleman, I., 2015. Family law: No presumptions, no assumptions:'Just and equitable'principles in family property disputes. 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Whaley, A., McAdam, B. and Crowe, P., 2015. The acceleration dilemma: can English law accommodate constructive acceleration?. International Journal of Law in the Built Environment, 7(3), pp.248-267.