Professor Notes - Court Of Law for Legally Enforceable Contract

Question: Discus about the Court of Law for Legally Enforceable Contract. Answer: 1. It is very important to understand the meaning of a legally enforceable contract and the various elements of a contract before answering the said questions. When an agreement is entered into between two or more parties by an offer and acceptance and which can be enforced in the court of law for any kind of breach is termed as a legally enforceable contract in the eyes of the statute. There are various kinds of contracts that exist such as a construction contract, lease agreement, employment contract etc. An agreement is said to be entered into once an offer is made by the offeror and the same is duly accepted in exchange of a consideration by the offeree. Further to this, an agreement to be in written form is not necessary, thus verbal agreements also construe as a legally enforceable contract except in some situations where a written agreement is a must (Arthur, 2015). The most essential part of a contract is existence of a valid and sufficient consideration. Consideration is basically exchange of something that is valuable for both the contracting parties, thus it has to be in monetary terms is not necessary. As long as there exist a mutual benefit, consideration is said to be present. Lastly the fact that the agreement is to be performed immediately as soon as it is entered is a myth. The mere act of performance or promise to act in future also construes as a valid contract. In the first instance Jane offers his car to Jack before departing overseas. The said offer is duly accepted by Jack without any further negotiations. The market value of the car is known to both the contracting parties to be $25000. But however, the said phrase of consideration is not mentioned in clear terms by Jane while offering her car, neither the mode of receiving payment nor any such other details which would enable one to construe the same as a legally enforceable contract. In such situations also, even if there is no explicit mentioning of the consideration amount yet it is viewed as a valid agreement due to its nature of an implied contract wherein even if the amount is not mentioned specifically yet the same is expected that Jack is to pay Jane $25000 at the time of delivery of the car. On a careful analysis of the said situation it is understood that four major elements of a valid contract is duly present. An offer- made by Jane to Jack, an acceptance- by Jack (Denicola, 2002) , Contract is duly bound by the statute, consideration in the form of a market value. Therefore the fact that the said situation is very condemnatory in nature yet after reviewing the entire situation in detail it can be concluded that a consideration is present. The second scenario is a very crystal clear case. Here Jack while offering her car to Jane clearly mentions th amount of consideration i.e. $25000 and due to the presence of all the four elements of a contract it can be concluded that the said contract is a legally enforceable one. First and foremost Jane makes a clear cut offer to Jack for selling her car without any uncertainty. The said offer is accepted in its true sense by Jack, though verbally but not forcefully. Thirdly the said contract is legally binding upon both Jack and Jane of the state in which the contract has been entered into and lastly there exists a sufficient consideration of $25000. Thus presence of all the four elements of a contract is easily identifiable in the said situation (Rembert, 1997). Legally a consideration is defined as a benefit which should be negotiated between the contracting parties before deciding at the same. It is an essential part of any valid contract and is exchanged either on the performance of an act or a promise to perform an act in future. Consideration should be adequate in nature. Sufficiency is the key for a valid consideration. Thus if the amount of consideration is viewed as unfair i.e. it is either insufficient or overtly priced, in both the stances consideration is not acceptable (Giancaspro, 2014). Furtherance to the this, the amount of consideration should be finalized upon after due deliberations and negotiations so that both the parties tend to gain, thus not causing detriment to any of the two contracting parties. There may arrive some circumstances wherein it would seem that the amount of consideration offered is unfair. There may be various causes such as lack of awareness of the fair price for the contract or any kind of force or coercion to name a few. In such situations the other party should try to disclose the same so that the agreement is not unfair and is entered in good faith, else the court of law would intervene to resolve the said issue (Valente, 2010). In the present scenario there does not exist any element of oppression or force on behalf of any party. Further the consideration may not be adequate but it is sufficient thus acceptable in legal parlance. Thirdly Jane is very well versed with the fair value of the car but still makes an offer for just $2500. This is her decision and right and thus nobody can intervene or question upon the same. However Jack should make an effort from his side to ensure that Jane is aware of the difference in consideration of the actual market value of the car and the value offered by her (Gordon, 1990). Thus the court of law cannot intervene in the said case as there does not exist any malafide intention on the part of both the parties to the contract. There the consideration is a valid one. 2. Agreement drafting is a very critical part while entering into a construction contract. The nature of a construction contract is ambiguous and thus the concept of implied doesnt apply here. Therefore in simple terms, a construction contracts agreement should be drafted in a manner which states all the clauses in details with regards the legal implications of the non-performance of the contract, the exchange fluctuation clause, escalation clause, and how are the contracting parties rights protected in case of breach of contract (Construction Industry Council. 2011). However although the concept of implied does not hold good in case of construction contract yet there are some clauses which automatically become applicable due to its unavoidable nature. Thus an perfect contract is one which clearly defines the rights, duties and the obligation of the contracting parties. This enables to protect them from any kind of breaches and provides solutions in case of possible conflicts. Where the contracting parties reside in two different countries with different currencies, inclusion of an exchange fluctuation clause is a must otherwise the contract would be construed as a fixed price contract. Projects with a long gestation period is the most affected due to fluctuation in currencies thus this clause aims to protect the seller or the builder in case of major fluctuations. Therefore for the seller to claim for fluctuation, the same should be mentioned in the contract agreement else the builder has not rights to halt the construction and claim for the increase. However the same can be done in case there is a mutual consent of the two parties to the contract (Arthur, 2015). The present scenario states about a contract that was entered into between a ship builder and North Ocean Tankers and that the contract consideration was to be given in dollars. The contract failed to mention any clause with regards fluctuation in the currency. But due to devaluation of the currency by 10 percent the builder seemed to suffer a loss. Hence to recover the same he asked the buyer to either pay him the exchange difference else he would stop the construction of the tanker. The buyer who had already taken a charter for the said tanker could not afford to let the same happen so agreed to pay the same and got the delivery of the tanker well on time. Now after nine months of delivery the buyer seeks remedy for the breach of contract by the seller. The said contract was a fixed price contract due to unavailability of the fluctuation clause in the contract agreement (Wilson, 2007). The price to be paid to the seller was clearly mentioned and therefore the contract was not liable to pay any exchange difference which would arise due to fluctuation. Unfortunately the buyer was in a dilemma in the said scenario because he had already taken a charter and he would have to suffer monetary as well as reputational loss if the tanker was not delivered on time by the contractor. Thus under undue pressure he agreed to the terms statd by the contractor and paid the difference and the contract was fulfilled on time and the buyer took the delivery of the tanker. Thus this is a case of mutual resolution even though a breach was conducted by the builder. The very concept of breach of contract got defeated as soon as North Ocean tankers paid to the demand made by the ship builder. But the situation would have been different if the buyer had not resorted to the demand of the ship builder and taken an action against his undue and illegal demand at the that particular point of time. He would have succeeded i a case was filed against the ship builder. He would have had dual benefit if a legal case would have been initiated (Caldwell, 2012). The seller would have had no option but to compensate the buyer for any loss that he would have had suffered due to such a demand and breach. But in this case the builder took advantage of the situation knowing very well that the buyer had already taken the charter and hence was in need of the tanker. The next important point to understand is that the damage could be claimed if the breach of contract was bought to the notice of the legal authorities at the time of occurrence of the same. However, it is to be understood that the said stance is flexible and not universal. The plaintiff may be protected in some exceptional situations. But for the same, the plaintiff has to prove that he has performed his part of the contract and there is no breach from his side. The present scenario seems to be difficult to be in favour of the buyer since considerable time has lapsed and he had resorted to his demand. An ideal situation would have been one where the buyer would not have paid to the seller and filed a suit against the seller for breach of contract to seek remedy(Kinlan, Roukema, 2011). This would have helped him to enter into a mutual consent with him wherein the loss would have been borne mutually by them. The shipbuilder performed his part of the contract on time without any delay so that the buyer doesnt suffer losses. Thus in the eyes of the law the builder has not breached the contract and demanding for a price revision due to currency fluctuations on good faith is not an illegal act. Had the buyer approached the court at the time of occurrence of the breach then the same would have been resolved through arbitration. On analysing the situation in depth it seems to be a difficult affair for the buyer to seek for a remedy specially when the tanker has already been on board for nine months now. Maximum that the buyer can ask for by filing a suit is the loss he had suffered due to fulfilling of the demand of price revision (Curtis, 2012). Therefore I would suggest that filing of a law suit would be wastage of time as well as money as the final verdict would be in favour of the ship builder. References: Arthur, J. (2015). Damages and Equitable Compensation in a Commercial Setting, [Online] Available at: https://www.gordonandjackson.com.au/uploads/documents/seminar-papers/Damages_and_Equitable_Compensation_-_John_Arthur.pdf [ accessed 26th August 2016] Arthur, L., (2015), 5 Requirements for a Contract, Available at https://smallbusiness.chron.com/5-requirements-contract-15616.html [Accessed 26th August 2016] Caldwell, B., (2012), Shipbuilding Contracts: The Allocation of Risk between Purchaser and Builder, Western Mariner: Canada Construction Industry Council.( 2011), Guidelines on Contract Price Fluctuation System, Available at : https://www.cic.hk/cic_data/pdf/about_cic/publications/eng/V10_6_e_V00_20111219.pdf [ Accessed 26th August 2016] Curtis, S. (2012).The Law of Shipbuilding Contracts. Fourth Edition, Oxon: Informa Law from Routledge Denicola, R. (2002), The Law of Contracts, Jones and Bartlett Learning: USA Giancaspro, M.A., (2014), For Your Consideration : Old Rules , Practical Benefit and a New Approach to Contractual Variation, A Thesis submitted for the degree of Doctor of Philosophy, School of Law, The University of Adelaide. Gordon, J.D., (1990). A Dialogue About the Doctrine of Consideration, Cornell Law Review, vol. 75 Kinlan, D., Roukema, D., (2011), When is an Escalation Clause Necessary? Dealing with Price Fluctuations in Dredging Contracts, Terra et Aqua, vol. 125, pp. 3-9 Rembert, M.R., (1997), The Requirement of Consideration, Australian Law Journal, vol 71 Valente, D., (2010), Enforcing Promises: Consideration and Intention in the Law of Contract, (LLB (Hon) Thesis ), The University of Otago Wilson, T.J., (2007), Additional Payments under Construction Contracts, Construction Management and Economics, vol. 25