Encyclopedia of Law and Economics

Question: Discuss about the Encyclopedia of Law and Economics. Answer: Meaning of consideration The price which is asked by a promisor in exchange of his promise is called the consideration. A consideration of some kind is necessary for the promise to be binding. Thus a promise without a consideration is not considered to be valid promise and hence it is not enforceable. However there are certain exceptions to thus rule and under certain circumstances, a promise without a consideration would be considered to be valid (McKendrick, 2014). In the instant case, the offer was made to Jack by Jane for sale of her Lotus Super 7 sports car. Jack has accepted the offer. But the agreement is devoid of any consideration. Milroy vs Lord In this case, a deed was executed by Medley who seeded to transfer certain bank shares to a trustee. But the shares were not registered in the name of the trust in the banks register. Subsequently, Mr. Medley died (Lightman, 2013).The transfer of shares was resisted by the personal representative of Mr. Medley. It was argued by the personal representative of Mr Medley that the transfer was seeded to be made without any valuable consideration and therefore same should not be enforced. According to him, it was an uncompleted gift and the same should not be enforced as the agreement could not fulfil the requirement of consideration which is essential for enforceability of an agreement (Smith, 2014). It was decided that a mere promise with a gratuitous intention does not bind the parties legally or equitably (Garza, 2016). In the instant case, Jane wanted to transfer the car to Jack. But the offer and acceptance of the same would not bind the parties because there is lack of consideration in this case. A consideration is an essential part of a contact and the general principle is that a contract without a consideration is null and void. Thus, for an agreement to be enforceable it is necessary and essential that a consideration must be present. Therefore, in the instant case, the mere offer and acceptance by the parties would not bind them legally. In other words, Jack cannot move the court to enforce the promise. In the instant case, the offer was made to Jack by Jane for sale of her Lotus Super 7 sports car for an amount of $25,000. The nature and requirement of consideration needs to be looked into in order to determine whether the above mentioned amounted to a valid consideration or not. Now, consideration is nothing but a price which is stipulated for the promise by the promisor. Consideration may neither need be monetary nor need to be of monetary value. Consideration should bring some detriment to the promise. This is the primary requirement of a consideration. Moreover, consideration does not mean that the promisor needs to get any tangible benefit. A consideration which requires the promise to quit smoking or requires him to study every Saturday night would also amount to a valid consideration under the eyes of law. Consideration may be anything stipulated by the promisor The consideration has to be fixed by the promisor and not the promisee. The promisor has the choice to stipulate anything as a consideration and it can virtually take any form. Case: Chappell vs Nestle In this case, Nestle, in order to promote its chocolate sales, put up an advertisement that anyone who sends money and three chocolate wrappers would be supplied with a record by Nestle (Gallagher, 2016). The main argument involved in this case was whether the chocolate wrappers formed part of the consideration or not for the sale of the record. It was held that the requirement of three chocolate wrappers was something more than a condition and it did form part of a valid consideration (Turner, 2014). A famous statement was given by Lord Somervell 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 the court, anything stipulated by the promisor can form part of the consideration. In the instant case, the consideration stipulated by the promisor is monetary compensation amounting to $25000 which is equal to the market value of the car. It means if Jane choses to sell the car to any person other than Jack, he would get the same amount as he has stipulated. This amounts to a valid consideration and it would undoubtedly bind the parties legally. Thus, the parties are bound by the terms of the agreement and Jack can sue Jane if Jane refuses to sell the car. In the instant case, the offer was made to Jack by Jane for sale of her Lotus Super 7 sports car for an amount of $2500, whereas the market value of the car is $25000. Jack accepts the same. It has been established that a consideration in order to be valid needs to be certain and not illusory. Case: Biotechnology Australia Pty Ltd v Pace In this case, an employment contract was entered into between Pace and Biotechnology. There was a provision in the contract that Pace would be entitled to participate in the company's senior staff equity sharing scheme. At the time when the contract was entered into, there was no such scheme in existence (Torre, 2014). Therefore, the consideration under the contract was held to be uncertain and illusory as Biotech did not specifically mention about the amount of consideration to be paid to Pace (Gray, 2012). Adequacy of consideration A consideration will be considered to be a good consideration even if it has a minimal value (Chitty, 2012). Consideration need not be fixed according to the market value of a product and a consideration will be considered to be good so long as the promisor fixes it voluntarily and it is readily accepted by the promisee. There is no requirement that a consideration needs to be stipulated according to the economic terms of the product. If the parties voluntary agree to a consideration, even if it is not adequate, still the consideration would be considered to be a good consideration. This principle follows the economic freedom of the parties and give discretion to the parties for determine the subjective worth of the promise. Thus, a promisor may choose to stipulate any consideration it pleases. If the consideration is too much inadequate, then it has to be seen whether one of the parties is in an influential bargaining position or not. A contract, thus may be set aside on the ground of unconscionable bargain. In the instant case, both the parties have freely entered into the agreement. None of the parties seem to be in an influential bargaining position. The consideration has been stipulated by Jane and it has been readily accepted by Jack. Moreover, the consideration is specific and it does not contain any illusory terms. This shows the willingness of Jane to sell her car at a value which is far less than the market value of the car. The agreement has been entered into voluntarily between the parties and the consideration is a good consideration. Thus, the agreement would legally bind the parties and they will have to perform the obligations undertaken under the contract. The facts of the instant case are as follows: A contract was entered into between a shipbuilder and North Ocean Tankers. Under the contract, the shipbuilder was required to build a tanker flor North Ocean Tankers. The consideration stipulated under the contract was in US dollars and there was no term in the contract which provided for currency fluctuation. The shipbuilder fulfilled approximately 50% of his obligation under the contract and the United States devalued its currency by 10%. Due to the fluctuation in US dollars, the shipbuilder foresaw that he was going to suffer a loss under the contract, he demanded for the payment of an extra US $33 million, which if not paid, he would stop the work. The buyer agreed to pay the above mentioned amount as the tanker was required to be delivered on time. The buyer commenced an action after 9 months after delivery of the tanker. It is important to mention here that the facts of the instant case are similar to that of North Ocean Shipping Co Ltd. v. Hyundai Construction Co and another. In this case, there was an agreement between Hyundai another (defendants) and North Ocean Shipping Co Ltd (plaintiffs) that a tanker would be constructed by the defendants for the plaintiffs. The consideration was fixed in US dollars and was agreed to be paid in five instalments. A letter of credit was required to be opened by the defendants under the terms of the contract for securing the repayment of instalments in case of any default. There happened to be a devaluation of 10% of the US dollar after the payment of the first instalment. The defendants demanded that the last four instalments be increased in accordance with the currency fluctuation. The plaintiff although rejected the demand initially but had to accept it subsequently as the defendants threatened to stop the work. Meanwhile, the plaintiffs entered into an advan tageous agreement to charter the tanker and readily agreed to pay extra amount on the instalments and thereby requested the defendants for increasing the letter of credit. The tanker was delivered to the plaintiffs and they sought to bring an action after eight months such delivery (Kang et al., 2016). The contention which the plaintiffs raised in this case was that either the agreement to pay the excess amount was void on the ground that there was no consideration or it was voidable on the ground that the agreement was entered into under economic duress and had been made involuntarily. Justice Mocatta rejected the contention of the plaintiffs and held that the agreement for paying the excess of amount did not lack a consideration. The consideration was in the form of the promise made by the defendant to increase the letter of credit. However, he accepted that the plaintiffs have been pressurised to pay extra instalments for the tanker. He agreed that the agreement was voidable on the ground of economic duress and he also accepted the fact that the defendants had given a threat to terminate the contract in order to receive the extra amount from the plaintiffs. But he denied giving any relief to the plaintiffs on the ground that the plaintiffs had accepted the contract through their conduct (Whaley et al., 2015). The instant case is however different for the above mentioned case. In the instant case, the charter agreement was already entered by the North Ocean Tankers before the emergence of any economic duress. It was under a compulsion in the sense that it required the delivery of tanker on time. The shipbuilder had taken advantage of the situation and had exerted pressure on North Ocean Tankers and had even threatened to stop the work if the extra amount as demanded was not paid on time. Under the present circumstances, the shipbuilder has put undue pressure on the North Ocean Tankers. The North Ocean Tankers has reluctantly accepted the contract under protest. The elements of economic duress have also been fulfilled in the present case. Firstly, a contract already existed between the North Ocean Tankers and the shipbuilder. Secondly, a threat was given by the shipbuilder that he would terminate the existing contract and thirdly, the terms and conditions as offered by the shipbuilder under the duress had been accepted by North Ocean Tankers. Thus, the instant case fulfils all the requirements of economic duress. The agreement, thus entered into between the parties, under such duress is therefore voidable. Moreover, the period of nine months is well under the limitation period to sue for damages under the relevant statutes of different States of Australia. The action initiated by North Ocean Tankers is not barred by limitation period and they have full right to approach the Court and recover the excess amount which they have paid under economic duress. Thus, under the present circumstances, North Ocean Tankers are entitled to recover the excess amount which they have paid. References: Chitty, J. (2012). Chitty on contracts: General principles (Vol. 1). Sweet Maxwell. Gallagher, C. (2016). Should the" Doctrine of Consideration" be abolished?. Garza, R. I. (2016). (Un) enforceability of trust arbitration clauses in civil and common l Gray, A. (2012). Termination of Convenience Clauses and Good Faith. J. Int'l Com. L. Tech., 7, 260. Kang, J. Y., Kim, S., Murphy, H., Tenold, S. (2016). British financial, managerial and technical assistance in establishing the global shipbuilding giant, Hyundai Heavy Industries. International Journal of Maritime History, 28(1), 81-101. Lightman, J. (2013). CASE EXAMPLE. Unlocking Trusts. McKendrick, E. (2014). Contract law: text, cases, and materials. Oxford University Press (UK). Sacha, J. (2012). Virtual Advantages for Charities. Intellectual Property Journal, 25(1), 75. Smith, O. (2014). Incompletely Constituted Gifts: A Historical Assessment of Case Law. NEL Rev., 2, 33. Torre, A. (2014). Risk Management, Optimal. Encyclopedia of law and economics, 1-10. Turner, C. (2014). Key Cases: Contract Law. Routledge. Whaley, A., McAdam, B., Crowe, P. (2015). The acceleration dilemma: can English law accommodate constructive acceleration?. International Journal of Law in the Built Environment, 7(3), 248-267.