HI6027 Business and Corporations Law

HI6027 Business and Corporations Law

HI6027 Business and Corporations Law

Questions 1: Consider the following situations and indicate whether consideration is present and whether Jack has an enforceable agreement:

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.

In the present situation it may be determined that Jack had accepted the Lotus Super 7, sports car, as a gift and not under a contract. As Jane decides to give it to Jack it will not a contract or a transaction but a gift. A gift by its definition is called offering something of value without asking for anything in return. As per the property law, gifts may be either lifetime gifts, deathbed gifts, outright, onerous or remunerative. The donor of the gift should possess the intention to do the same towards the donee. A mere promise to do so is not enforceable. For the gifting process to take place it is necessary that the gift is delivered to the donee which maybe constructive or symbolic. The gift then shall be accepted by the donee in order to perform the completion of the gifting process. In most cases the donee usually accepts the gift, thereby, the gift is considered to be accepted if the same is not rejected expressly. Thereby, in the present case the offer made and so accepted will be that of the gift. Accordingly Jane may be able to not gift for more than $ 5000 in the next four years according to the gifting limitations under the Australian Law. However, the consideration is not present in the present situation, the gift is enforceable under the law as it has been accepted by Jack. (Eidenmüller, 2015)

HI6027 Business and Corporations Law

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.

According to the rules of the contract, a standard contract requires the presence of essential elements such as an offer, acceptance, intention, consideration and the capacity to do the same. Under the present situation, offer is made by Jane for the sale of the Lotus Super 7, a sports car worth for $25,000 that matches the market price. The offer of sale so made to Jack has been accepted by him. An offer is namely the statement presenting the mechanism of the contract to be entered into by the parties to the contract. (Furmston and Tolhurst, 2016)The offer lays down the terms and conditions the seller is offering to the offeree. Thereby, if the offeree accepts the same then it is said to be a contract for the consideration so agreed under the contract. In the present situation, the offer was made by Jane that was accepted as it is by Jack. A contract may be said to be present and enforceable under the law by Jane in order to receive the payment for the car. It is assumed that since no mention is made regarding the intention of the contract the same was done for commercial purposes and is enforceable under the law. It is observed that the parties had an intention to the immediate binding of the contract according to the case Masters v Cameron. The contract would be regarded as valid for the presence of the consideration and entered into by parties of capacity. Accordingly, the consideration is present in the given case scenario and the same is enforceable by Jack under the Australian Contract Law. (Khoury and Yamouni, 2009)

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 the present scenario it is referred that Jane had offered to sell Jack the Lotus Super 7, a sports car for only $2500 wherein the market value for the same is ten times the selling price so quoted by Jane. It is essential to understand the meaning and difference of the terms such as selling price and market price. A selling price is the price the seller wants to charge for the property in question and the market value is the current price at which the similar products are available in the market. The buyer may sometimes buy a commodity at a price under market value. It does not mean that the same is being bought at a discount. In such a case the purchase is being made for less than the perceived market value. The seller is likewise cases are referred to as the distressed seller. The cause of distress may be many such as the financial unsoundness, or urgency of cash for any such reason. (Monahan and Carr-Gregg,2007)

The case of Brisbane Water County Council v Commissioner of Stamp Duties it was discussed that the market price is the best price as obtained for the property to be sold in the general market. It may be noted according to the case of Marion Elizabeth Collis v Federal Commissioner of Taxation that the buyer in this case was not anxious to buy the car in turn inflating the consideration price. The same was quoted by Jane herself. It may be stated that the market value is not always the clear indicator of the actual value of the commodity in a given market. This is dependent on the taxation policies and the current demand and supply. Such distressed properties are generally possessed through banks for repossession at a nominal discount. However, in the present case the repossession of the distressed property that of a sports car is a personal transaction at a much lesser price than that of the market value. The consideration in the present case is reduced to tenth of the market value. The same is offered voluntarily by Jane that is then accepted by Jack. The contract contains the important element of the valid contract thereby, making it a valid contract and making it enforceable under the law.

It may be stated that the present contract formed by Jane and Jack is for a price that is much lower than the market value. However, the same is entered into for a consideration amount and thereby, will be enforceable under the law. The difference in the amount may be unfair and a higher tax rate may be charged for the buying at an undervalued price. The tax implications and the property laws suggest that such contracts are valid and acceptable under the law since there may be no restriction for the private sellers with respect to selling at a price lower than the market value as studied under the Competition and Consumer Act, 2010. (Oliveira, 2013)   

Question 2: Will the buyer succeed in recovering the excess?

It is determined that in the present case the contract was formed in order to build the tanker for the North Ocean Tankers. The contract was for the consideration to be paid in US dollars. It contained no such provision dealing with the price fluctuation. However during the performance of the contract it was determined that the currency has been devalued by 10%. This resulted in a loss under the contract for the shipbuilder. Thereby, the shipbuilder now demands for the increase in the price till the extent of US$3 million or else he will discontinue the contract. The purchaser of the ship agreed though reluctantly to pay the additional amount. The buyer agreed as the ship was to be received on time. Although, the payment as agreed to, the same wasn’t claimed by the buyer till after 9 months. It is to be derived that whether the same may be recovered if at all. (Eidenmüller, 2015)

The query of the given problem may be solved through studying the effect of the existing duty rule. Consideration is considered to be an important part of the contract whereby without which the contract may not be enforceable under the law. According to this rule it may be stated that even if the party performing the contract is offered new money to do so or not the party is already under the consideration and has to comply with the conditions provided under the contract. In the case of Stilk v Myrick it was held that the original binding contract will not give any requirement to pay the additional money. The promisor of such additional consideration is not legally bound to pay the amount and thereby the promise is not enforceable. Thereby, in such situations the promise of the additional consideration gives no right to sue for the non-payment of the promise so made regarding the ne consideration. The existing duty rule invalidates the non-extortive or extortive re-negotiations in a certain contract. As described under the case of Stilk v Myrick it may be determined that under a contract to serve the ship back to the port was an existing duty under the contract and the promise made by captain to the seamen was not binding as it was the change developed during the performance of the existing duties. (Furmston and Tolhurst, 2016)

The traditional approach for this rule has been that the new promises in relevance with previous promises are invalid. The exemptions to such rule were developed a decade later whereby the Judges came to realize that under certain circumstance the change in the rule is valid. In the case of William v Roffey Bros & Nicholls, the additions to the consideration were considered fair as the same were done to meet he deadline despite of the financial difficulties. The completion of the work on time and saving the difficulty of change of labor staff at the last moment were an additional benefit for which the additional consideration so charged will be valid. This would mean that if the exiting duty rule will be exempted if the transaction actually provided a practical benefit. In the case of Musumici v Winadell Pty Ltd., the lease of the fruit shop was required to be analyzed. The shop was initially leased to Musumici but later a part was leased to a fruit seller. As both the parties on lease were into same business the competition was tough to which Musumici pleaded for a profitable or reasonable action. Thereby, Winadell allowed to reduce the rent by one-third. The court decided that in the given circumstance the reduction in the rent may be claimed validating the practical benefit as previously defined. (Khoury and Yamouni, 2009)

Such a rule is formulated by the courts in order to curb the difference of existing promises and the new promises under the valid circumstances. This rule facilitates putting the legal rights in line of the performance of the contract under the law. After the establishment of the rule the promise to increase the consideration may not be given easily or claimed under the law without any repercussions. However, such rule has affected the performance of the doctrine of consideration and the enforceability of a contract under the law. The traditional approach to the rule and the modern approach towards the same rule is distinguished in its element that one makes it unenforceable whereas the other makes is enforceable in specific circumstances most commonly for deriving the practical benefit. Although the realization of such circumstances in the precedent cases has established a room to reduce the absurdities or unjust verdicts for the decisions so made in the interest of either parties to the contract. (Monahan and Carr-Gregg,2007)

In the given situations the shipbuilder was building a ship on demand of the North Ocean Tankers that included a certain amount of the consideration. According to the traditional approach it may be concluded that even if the shipbuilder suffered a loss he would have to comply with the contract nonetheless. During the performance of the contract the shipbuilder suffers a loss for the devaluation of the currency by 10% and the difference of loss so suffered amounted to US$3 million that was asked for in order to finish building the ship. As the ship was required on time having a charter it was promised to pay the same amount as demanded. The same was paid by the buyer. According to the modern approach on the rule it may be determined that the difference of the amount so asked as consideration was fair as otherwise it would have caused the shipbuilder heavy loss and the revoking the contract, would have caused a detriment to the North Ocean Tankers for not chartering the ship on time. As it was mutually beneficial the same may not be claimed for by the buyer, that is, the North Ocean Tankers. (Oliveira, 2013)

References:

Eidenmüller, H. (2015). Justifying Fair Price Rules in Contract Law. European Review of Contract Law, 11(3).

Furmston, M. and Tolhurst, G. (2016). Contract formation. Law and practice. 2nd rev.ed. Corby: Oxford University Press.

Khoury, D. and Yamouni, Y. (2009). Understanding contract law. Chatswood, N.S.W.: LexisNexis Butterworths.

Monahan, G. and Carr-Gregg, S. (2007). Essential contract law. New York, NY: Routledge-Cavendish.

Oliveira, N. (2013). Contract Law, Liability Rules, and Property Rules. European Property Law Journal, 2(3).