Sample Law Paper on the Law of Contract

The law of contract involves various essential elements without which a contract is void, and any party to the said contract cannot enforce it in a court of law to recover damages or refund in case one of the parties fails to fulfill the contractual obligations. Besides offer and acceptance, consideration is essential in the making of a contract. It represents the detriment suffered by the promise of receiving the benefit from the promisor under the terms of the contract (Cardozo and Kaufman, 2010, p. 39). Both parties to the contract enjoy the benefit in exchange for the consideration that has to be made during the making of the promise covered under the contract. The Common law of contract discredits any consideration that is offered before the making of the promise, as it is not considered relevant to the contract. A present consideration is made at the time of the contract, and any party to the agreement has the right to enforce the contract or seek legal redress in case the other party does not meet the contractual obligations (Benson, 2011, p. 255).

In Roscorla v Thomas 1844, P bought a horse from D, who subsequently promised that it was in sound condition, while it was, in fact, unhealthy, P sued D. The Queen’s Bench ruled in favor of the defendant and argued that the consideration paid was in respect to the sale of the horse and the promise by the defendant that the horse was healthy was irrelevant (Clarke, 2010, p. 1). The claim of sound condition was made after the consideration and thus neither a good consideration nor part of the bargaining between the two parties. Hence, the plaintiff could not enforce the contract for breach of contract since the horse was unhealthy.

Jane was going overseas and offered to give her Lotus Super 7 sports car whose market value was $ 25,000 to Jack who accepted. There is no proper consideration, as the promise to give the car was an unenforceable donative promise; hence, Jack cannot enforce the contract (National Paralegal College, n.d., p. 1). The law of contract requires the both parties to give consideration otherwise the contract is unenforceable. The offer by Jane seems like a donative promise because she did not received a benefit from Jack nor did Jack pay any money in exchange for the car. The offer to give the car to Jack was a gift because no Jane received no money or a kind of payment from Jack. There was no consideration in this case, as Jack did not suffer a detriment in exchange for the benefit of receiving the car. Jack cannot enforce the contract because there was no consideration because the offer by Jane was a donative promise.

Although the Promissory estoppel allows one to enforce a contract based on a donative promise or gift, the aggrieved party must materially rely on the promise to make a judgment on whether to agree or disagree with the offeror (Ricks, 2014, p. 341). Jack did not use the promise to make any decision and thus has no right to enforce the agreement based on the promissory estoppel. In Walton Stores v Maher 1988, the courts applied the promissory estoppel to rule that Maher had a right to enforce the lease contract as he relied on the promise that the plaintiff would lease the new building (Clarke, n.d., p. 1). Based on this, Jack cannot depend on the promissory estoppel to enforce the promise by Jane because the car was a gift that was not part of the bargaining and is not considered good consideration by contract law.

Question 1 (b)

For consideration to be good, it must be offered during the time of exchanging contractual promises or after making the promise. Such a consideration is present and any aggrieved party can enforce the contract subject to the existence of the essentials of the contract such as offer and acceptance. In fact, the contractual agreement takes effect once the offer is accepted by the offeree. Similarly, the consideration must move from the promisee to the promisor and must be something of value but it is unnecessary for it to be of adequate value.

Jane offered the Lotus Super 7 Sports to Jack for $ 25,000, which was accepted bringing the two individuals into a contractual agreement. The consideration is present as it was made at the time of the promise to transfer the ownership of the car and hence Jack has a right to enforce the contract in the event of non-fulfilment by Jane. Additionally, the contract was valid as both parties suffered a detriment in exchange for a benefit; Jack was to pay $ 25,000 in exchange for the car while Jane was to lose her car and receive $ 25,000. Therefore, the consideration is present and Jack has an enforceable agreement with Jane.

Question 1 (c)

Although a contract is only enforceable when the consideration is present, it must have value that need not be of a monetary nor of an equivalent worth as the benefit received. So long as the parties to the contract suffers a detriment in exchange for a benefit, and the consideration is made with the promise or after the pledge, then the contract agreement is enforceable regardless of its value. In Chappel & Co Ltd V Nestle Co Ltd 1960, Nestle advertised that it would distribute a record for anyone that sent it three chocolate wrappers and money. There was confusion whether the wrappers formed part of the consideration for the sale record promised by Nestle. Nestle argued that the wrappers were worthless but Lord Somervell ruled that they were more than a condition and valid to qualify one for the records. The consideration can take any form stipulated by the promisor and the comparison of its value against the gift received is irrelevant.

Jane offered the car for $ 2,500 and Jack accepted the offer although the market value was $ 25,000. The consideration in this case was present because it was offered at the time of the promise and was not illusionary but had a monetary value. The fact that the consideration was less than the market value is irrelevant as the promisor stipulated it and hence Jack has an enforceable contract.

Question 2

A contract is terminated when all parties perform their obligations and consequently discharged, or in the event of a breach and frustration of the contract. The frustration of a contract occurs when an unforeseen event occurs that materially changes the nature and scope of a contract or the contractual obligations of the parties resulting in an inability to fulfil them without harming one or both parties (FindLaw, 2016, p. 1). The frustration of a contract provides a legal means for both parties to end the contract without any legal consequences since the event was unforeseen and thus any punitive measure against the non-performing party or claim for breach of contract is unjust. Besides, frustration is valid when an event that is beyond the control of either parties happens resulting to changes in the environment especially economic conditions that materially inhibit the performance of a contract (FindLaw, 2016, p. 1).

The intentions of a contract include the receipt of benefits from the promisor in exchange for the payment of consideration by the promise to the promisor. Any event that materially alters the intentions of a contract due to unforeseen circumstances amounts to frustration and either party has an option to terminate the contract or amend it to suit the prevailing circumstances and consequently perform their contractual duties (O’Gorman, 2010, p. 679). Notably, frustration of a contract occurs when neither parties has contributed to the occurrence of the frustrating event. If either party contemplates the event, then the doctrine of frustration is inapplicable (Schwartz, 2009, p. 789). Therefore, the conditions of the contract must not include the probability of the frustrating event for the contract to be terminated on grounds of frustration. Frustration is unavailable when one of the parties faces an economic problem that inhibits the ability to cover the consideration, as this will amount to a breach of contract (FindLaw, 2016, p. 1). Thus, frustration is only available when parties neither induce nor contemplate the event that frustrates the contract.

In Taylor v Caldwell, the defendant let a music hall to the plaintiff who was to hold a series of music events in exchange for a rent sum of 1001. Both parties recognized the possibility of an event such as fire and expressly stated that the owner of the music hall would prevent any act or event that would deny Taylor from holding the music concert at the agreed dates (Bailii, 2016, p. 1). Within the contractual period, an accidental fire burned the venue such that the plaintiff would no longer hold the music event. Consequently, the plaintiff denied to pay the outstanding rent and sued the defendant for a breach of contract. The defendant argued that the fire was accidental, unforeseen, and thus purported to blame it for frustrating the performance of their contractual obligation of providing the music venue. The judge ruled that frustration was an irrelevant defense since both parties as it was expressly stated in the contract (Bailii, 2016, p. 1). Additionally, the defendant accepted the responsibility to prevent events such as fire, which illustrated that the fire accident was a foreseen event.

North Ocean Tankers and the shipbuilder had not contemplated the probability of the US devaluing the US dollar, as they did not make a provision for it in the contract, which was to be paid in US dollars. The devaluation of the US dollar would amount to losses for the shipbuilder, which would be unjust. Both parties had not foreseen the devaluation of the US currency and they had neither contemplated nor induced the devaluation. The shipbuilder was entitled to additional payment as the devaluation materially changed the value of the consideration. North Ocean Tankers had the option of withdrawing from the contract or paying the shipbuilder to cover the potential losses that resulted from the devaluation.

There is an option to seek legal redress or ratify an act that would otherwise alter the terms of the contract as this would amount to a breach of contract. Ratification is the act of adopting the action of the other contractual party, which approves it and consequently denies the affected party from suing for breach of contract. Express ratification of a contract is when a party acts in such a way that expressly approves the action while an implied ratification applies under the doctrine of agency. Once an act is ratified subject to full acknowledgement of the material circumstances, such ratification cannot be recalled or revoked and both parties become bound by the act as if it was originally included in the contractual terms (The Lectric Law Library, 2016, p. 1).

The shipbuilder had a right to demand extra payment resulting from the devaluation of the US currency. North Ocean Tankers had the choice of ratifying or terminating the contract on grounds that the demands altered material terms of the contract. Similarly, the shipbuilder had the choice to stop building the tanker as the devaluation frustrated the performance of the contract and it would be unjust for the builder to accept losses from the revaluation voluntarily. North Ocean Tanker expressly ratified the demand from the shipbuilder by paying $3 million and any act to revoke such ratification would be futile. Although the shipbuilder threatened to stop the work, the buyer cannot use it to revoke the ratification since the builder was entitled to terminate the contract on the grounds of frustration. The buyer could not recover the excess amounts paid, as the payment of $ 3 million was retrospective and bound both parties as if it was originally included in the terms of the contract. Therefore, the buyer had no chance of recovering the excess payment, and the nine-month delay is irrelevant as ratification is retrospective and irrevocable.

 

Reference List

Bailii, (2016). Taylor & Anor v Caldwell & Anor [1863] EWHC QB J1 (6 May 1863). [Online] Bailii.org. Available at: http://www.bailii.org/ew/cases/EWHC/QB/1863/J1.html [Accessed 16 Aug. 2016].

Benson, P. (2011). The Idea of Consideration. University of Toronto Law Journal, 61(2), pp.241-278.

Cardozo, B. and Kaufman, A. (2010). The Nature of the Judicial Process. New Orleans: Quid Pro Books, pp.1-156.

Clarke, J. (2010). Australian Contract Law. [online] Australiancontractlaw.com. Available at: http://www.australiancontractlaw.com/cases/roscorla.html [Accessed 16 Aug. 2016].

Clarke, J. (n.d.). Australian Contract Law. [online] Australiancontractlaw.com. Available at: http://www.australiancontractlaw.com/cases/walton.html [Accessed 16 Aug. 2016].

FindLaw, (2016). How contracts can be terminated due to frustration. [online] Findlaw.com.au. Available at: http://www.findlaw.com.au/articles/4438/how-contracts-can-be-terminated-due-to-frustration.aspx [Accessed 15 Aug. 2016].

National Paralegal College, (n.d.). Donative Promises. [online] Nationalparalegal.edu. Available at: http://nationalparalegal.edu/public_documents/courseware_asp_files/contracts/Consideration/DonativePromises.asp [Accessed 16 Aug. 2016].

O’Gorman, D. (2010). Show me the money. Tulane Law Review, 84(3), pp.675-728.

Ricks, V. (2014). Consideration and the Formation Defenses. Kansas Law Review, 62(2), pp.315-356.

Schwartz, A. (2009). Standard Clause Analysis of the Frustration Doctrine and the Material Adverse Change Clause. A. UCLA L. Rev., 57, p.789.

The Lectric Law Library, (2016). Ratification. [online] Lectlaw.com. Available at: http://www.lectlaw.com/def2/q009.htm [Accessed 16 Aug. 2016].