Enforceability of agreement without consideration

Discuss about the Theory of Contract Law for Legal Position.

The issue is related with the formation of a valid contract without the presence of consideration. Jane had made a promise according to which she agreed to give her sports car to Jack. But in return, Jack has not promised to provide any consideration. Therefore, the question arises if this promise can be imposed by Jack against Jane. For this purpose, the legal position related with the requirement of supplying consideration for the purpose of supporting the promise made under the agreement needs to be considered. In context of contract law, consideration is the exchange of a particular thing that has certain value, between the parties (Thomas v Thomas, 1842). In case of a valid contract, there are elements that are considered as being necessary for the formation of a contract that is enforceable by the law. These elements include consideration. Therefore if consideration is not present in an agreement, the agreement is not enforceable under the law. In this regard, it is required that the consideration should be legally sufficient (Carter and Harland, 2002). Such consideration can be supplied in the form of money or it can also be present as a promise to do or not to do a particular thing. At the same time, it has also been provided by the law contract that past consideration is not treated as a valid consideration (Re McArdle, 1951). Therefore in this case, although Jane had made a promise to give her sports car to Jack but in return, Jack had not provided any consideration to support this promise. Therefore, an enforceable contract is not created between Jack and Jane.

In this case also, it has to be considered if Jack and Jane had created a valid agreement that can be enforced under the law. Jane had made an offer to sell her sports car to Jack for a price of $25,000. This offer has been accepted by Jack and he agreed to purchase the car at this price. Therefore the issue is if an enforceable contract has been created or not. In order to decide this issue, it has to be seen if the elements that are required for the formation of a valid contract are present in this case. A contract is not only an agreement between the parties but for the purpose of becoming legally enforceable it is required that the necessary elements should be present in the agreement (Atiyah, 1990). Therefore, there should be an offer, it should be accepted by the other party and lawful consideration should also be present (White v Bluett, 1853). Apart from it, intention should be present among the parties to enter into a legal relationship and similarly, the party should also have the capacity to do so. In the present case, an offer has been made by Jane and the same has been accepted by Jack. As in this case, the necessary elements essential for creating a valid contract are present, a legally enforceable agreement has been created.

Enforceability of agreement with inadequate consideration

In this question, Jane had made an offer to Jack according to which she is ready to sell her sports car for $2500. The market value of such a car is nearly $25,000. Consequently, it has to be decided if Jack can accept this offer, resulting in the formation of a legally enforceable agreement between them. This issue arises due to the fact that the parties have decided very low consideration for the car in comparison with the market value of the car.

According to the general rule of the contract law related with these facts, the law provides freedom of contract with the parties. The result is that generally the courts are not concerned with the issue if adequate consideration has been provided under the agreement (Chen-Wishart, 2008). It is up to the parties to decide what ever consideration they feel appropriate in return of the promis that they have received. The law only requires that the translation should be real and illusionary consideration is not sufficient. For this purpose, consideration needs to have some value under the law. In this way, it is not necessary that adequate consideration should be provided although, sometimes the courts may use the inadequacy of the consideration for deciding if the contract has been formed on the basis of force, fraud or duress (Benson, (ed) 2001). Therefore, it is up to the parties to decide any consideration in return of the promise received by them unless they consideration is real and valid. An example can be given of the case titled Chappell v Nestle (1960) where the court stated that the empty wrappers of chocolate bar can also act as good consideration.

In this case, the House of Lords confirmed the traditional doctrine of the law of contract which provided that it is not necessary that the consideration should be adequate and it only needs to be sufficient (Re Wragg Ltd., 1897). The brief facts of this case are that Chappell & Co had the copyright over the song ‘Rockin shoes’. Nestle company had offered its customers, the records of this song if the people sent three wrappers of the milk chocolates of the company along with 1s and 6d. In this context, Copyright Act, 1956 provides that a royalty of 6.25% needs to be paid on the basis of the ordinary selling price of the product. In this context, Nestlé claimed that the ordinary price of a record amounted to 1s 6d. But Chappell & Co argued that the price of the record should be more. Under these circumstances, it has to be decided if the empty wrappers can also be treated as the partial consideration. The decision of the House of Lords was that even if the chocolate wrappers did not have an economic value, and the company was ultimately going to throw them away, however they have to be considered as a part of consideration.

Comparison with case law

In this case, the consideration decided by the parties was $2500 even if the value of the car was around $25,000. However, it has been clearly mentioned in the contract law that even if inadequate consideration has been supplied, he does not have any effect on the validity of the contract. Therefore in this case also, the contract created between Jane and Jack is legally enforceable.

The facts that have been provided in this question deal with the enforceability of the promise that was made by North Ocean Tankers to give extra US $3 million to the shipbuilder for the completion of the work on time. As the US government had devalued the US currency by 10 percent, the shipbuilder is going to suffer a loss under the original contract created with the buyer, North Ocean Tankers. Therefore, the shipbuilder had told the buyer that they will stop the construction of the ship or the buyer should give them additional $3 million. As the buyer, North Ocean Tankers already had a charter for the ship, they wanted that the tanker should be delivered on time otherwise they may have to face a loss. These were the circumstances under which the buyer agreed to pay the additional amount to the shipbuilder. Now the issue that has to be decided is if this additional amount can be recovered by the buyer from the shipbuilder. The facts of this case can be compared with the facts of Williams v Roffey Bros and Nicholls Contractors) Ltd (1990). In this case, the defendant had entered into a contract with Williams for performing the carpentry work in some flats. The defendant had entered into a contract with a third-party for the renovation of these flats. According to the contract with a third-party, it has been mentioned that if the work was not completed on time, the defendant will have to pay a penalty. On the other hand, Williams started to face financial problems after doing some work. Both the parties agreed that the price was too low for completing the carpentry work. Under these circumstances, the defendant agreed that extra money will be paid to Williams for each flat that was completed on time. But later on, the defendant refused to make this additional payment.

The decision of the court was that the promise that has been made by the defendants to pay extra amount for the completion of the carpentry work on time can be enforced under the law. As a result, the plaintiff was allowed to recover the additional amount promised by the defendant. The court stated that the consideration for this promise has been supplied by the fact that as a result of the completion of the work on time, the defendant is going to avoid a penalty under the contract that it has with the third-party. In view of this decision, the legal position related with this issue is that when a party has made a promise to provide additional benefit under the contract, and the other party had made a promise that they will complete the work on time and as a result of the completion of the work on time, the party is going to achieve an advantage, and the promise made by the party of paying the extra amount was not the result of fraud or economic duress, the benefit that the party is going to achieve as a result of the completion of the work on time can be described as a good consideration to support the promise of paying additional amount (Burrows, Jeremy and Stephen, 2002).

The promise made by North Ocean Tankers to pay the shipbuilder, extra $3 million if the work was completed on time, was legally enforceable. The consideration for this promise has been provided by the fact that the buyer is going to avoid a loss under the contract it has created with a third-party. Consequently, the buyer cannot recover this amount from the shipbuilder.

References

Atiyah, P.S. 1990, Essays on Contract (Oxford University Press, New York

 Benson, Peter (ed) 2001, The Theory of Contract Law: New Essays (Cambridge University Press, Cambridge

Burrows, J.F., Jeremy F and Stephen T., 2002, The Law of Contract in New Zealand (2nd ed, LexisNexis NZ, Wellington

Carter, JW and DJ Harland, 2002, Contract Law in Australia, 4th Edition, (Butterworths, Australia

Chen-Wishart, M., 2008, Contract Law, 2nd Edition, Oxford University Press 

Chappell v Nestle [1960] AC 87

Re McArdle (1951) Ch 669

Re Wragg Ltd [1897] 1 Ch 796

Thomas v Thomas) (1842) 2 QB 85

White v Bluett (1853) 2 WR 75

Williams v Roffey Bros and Nicholls Contractors) Ltd (1990) 1 All ER 512.