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Question:

Discuss about the Concept of Past Consideration.
 
 

Answer:

Introduction:

Consideration is the price paid in exchange of the promise as asked by the promisor. In many states price paid for the promise was not a essential constituent of a agreement and it would be more than sufficient if the parties have reached a binding agreement. It has been regarded that the past consideration paid would not be a good consideration. It must come into subsistence with or after the undertaking. Where the predetermined price predates the assurance made, then it would not be measured as a good consideration (Australian Contract Law, 2015).

In the matter of Roscola v. Thomas the promise was not a obligatory on the parties because the only price which was offered for a guarantee was about the dependability of a horse. The same was inflowing into the unique agreement which has taken place before the guarantee was assured (Law Teacher, 2016).

There have been certain exceptions which make a past consideration a good consideration if:

The price was offered at the demand of the person who makes a promise;

The parties appreciate that the action would be compensated; and

The promise has happened in progress of the act it would have been enforceable.

In the case of Pao On v Lau Yiu Long all the above mentioned three requirements were present. In particular, the defendant has made a request that the plaintiff would preserve 60 percent of the shares and the parties believed at that time that the action would be rewarded by the stipulation of a promise (McKendrick,E., and  Liu, Q., 2015).

Although, where the promise was already bound by the agreement to the promisor, the general ruling was that the presentation of an existing contractual duty would not be a good consideration unless some extra advantage was awarded. But the situation would be different where the promise with regard to the agreement bound to a 3rd party to carry out the duty. In a matter where the contractual obligation of the promise was owed to a third party, performing that obligation was considered as a good consideration for the promise of the promisor.

Similarly in the matter of Glasbrook v Glamorgan County Council it was held that where an obligation was forced by law to carry out a certain assignment mere act of that task was not a good consideration. This helps in preventing bribery such as public officer’s extortion money from the public for performing tasks they were already requisite to do. Though, if the promisor does more than merely executing an accessible obligation would be considered as a good consideration (E-lawresources.co.uk, 2016).

But there are presently two different exceptions to the obligation of price paid such as:

 

Assurances made under seal deeds

Where the principle of promissory estoppel functions. As this doctrine was intended to implement undertakings in certain situations where it would be unfair not to do so but it was not a true alternate for the price paid.

The principle was reasonable in nature and functions when it would be unjust for the promisor not to be held to the promise. It was first developed in the case of Hughes v. Metropolitan Railway Co [1877] but was vanished for some time until it was revived by the judge in the matter of Central London Property v High Trees. The judge in this matter affirmed that the code which has been explained as quasi estoppels and perhaps more clearly as promissory estoppels was that when one party to an agreement in the absence of a fresh price paid for the promise agrees not to put into effect his liberties. Then, fairness would be lifted in favor of the other party. This fairness was, however, subject to the prerequisite:

 That the other party has misrepresented his situation;

That the promisor could withdraw from his undertaking on granting rational notice, which need not be a official notice, giving the promise a practical chance of restarting his work;

The assurance only becomes final and irreversible if the promisee would not resume his position (Supreme Court of New South Wales, 2016).

 In this case another kind of promise was represented that the courts would enforce without consideration and also it was stated that a promise must be honored if:

It was made with the purpose of producing a lawful relation;

The promisor knew that it would be imposed upon by the pomisee; and

It was imposed upon by the promise to the promisee’s damage.

The court held that in this circumstance, the plaintiff would be stopped from implementing its strict lawful liberties as it would be inequitable to enforce such privileges. It also defined the equitable estoppels as a condition in which a promisor would be stopped from implementing his full lawful privileges if he had made a previous promise limiting this liberty (Olamide, 2016).

Therefore, in such type of cases estoppels would act as a defense to protect the promisor who acted variably with the promise but would not originate as a cause of action. So, it would be taken as a shield rather than a sword.

The significance of the case lies in the obiter declaration of ruling made by the judge which states that a guarantee which proposed to be obligatory, planned to be acted on, or in fact acted on, is obligatory so far as its conditions correctly apply. In applying this ruling, it was also affirmed that an assurance to accept a lower rent during the war years was obligatory on the landlord, in spite of the fact that the tenant has supplied no price for it. For this doctrine there were certain restrictions which must be satisfied which were derived in this case. The restrictions include certain points such as:

There must be a promise

There must be a clear promise which intends to alter the contracted duty.

However, there were some limitations also related to the doctrine of estoppels such as:

It applied only where the parties were already in an accessible contractual association; and

It offered only a guard to a assertion made by the promisor in contravention of the promise so it would not establish a allegation.

It was also stated by a judge in the matter of Collier v P & MJ Wright (Holdings) Ltd that it accepted the ruling that High Trees would be used to destroy a liberty of a creditor to pay full amount of a debt in some situations (McKendendrick, 2013).

Contract law of Australia has now gone beyond the point noticeable in the High Trees case to the cases where there was no pre-existing lawful association among the parties, and the doctrine could be regarded as a weapon not just as a guard.

The verdict given in the case of Waltan Stores have extended the doctrine of Promissory estoppel which was established in the high trees case giving way for an equitable estoppel to be acknowledged and applied in the subsequent case laws (Clark, E., 2016). As Equitable estoppels was regarded as the rule that recognizes that it would be unconscionable of one party from gaining any type of benefit over the second party due to falsification resulting in actions taken by the second party that led to a harmful result to themselves. Also this doctrine was not reliant on a pre-existing contractual association.

So, it is concluded that the idea of past price payment being not good consideration is no longer suitable since the High Trees case because of the evolution of the exception of Promissory estoppels to the this rule of past consideration. Also, the High Trees case has not been overruled by any case rather only the doctrine of estoppels have been more briefly defined in the case of Waltan Stores. Therefore, this principle still applies in present time.

 

References:

Australian Contract Law. (2015) Consideration.[Online] Australian Contract Law. Available from: https://www.australiancontractlaw.com/law/formation-consideration.html#considpast [Accessed on 21/09/16]

Law Teacher. (2016) Promise in Breach of Contract. [Online] Law Teacher. Available from: https://www.lawteacher.net/free-law-essays/contract-law/promise-in-breach-of-contract-law-essay.php [Accessed on 21/09/16]

McKendrick,E., and  Liu, Q. (2015) Contract Law: Australian Edition. Palgrave Macmillan.

E-lawresources.co.uk. (2016) Glasbrook Bros v Glamorgan County Council [1925] AC 270 House of Lords.[Online] E-lawresources.co.uk. Available from:  https://e-lawresources.co.uk/Glasbrook-Bros-v-Glamorgan-County-Council.php  [Accessed on 21/09/16]

Olamide, O. (2016) The Concept Of Consideration. [Online] Djetlawyer. Available from:  https://www.djetlawyer.com/the-concept-of-consideration/ [Accessed on 21/09/16]

Supreme Court of New South Wales. ( 2016) Equitable Estoppel In Australia: The Court Of Conscience In The Antipodes. [Online] Supreme Court of New South Wales. Available from:  https://www.supremecourt.justice.nsw.gov.au/Documents/Speeches/Pre-2015%20Speeches/Brereton/brereton_2007.03.16.pdf [Accessed on 21/09/16]

Clark, E.( 2016) The Swordbearer Has Arrived: Promissory Estoppel And Walton Stores (Interstate) Ltd V Maher. [Online] Australasian Legal Information Institute. Available from:  https://www.austlii.edu.au/au/journals/UTasLawRw/1987/5.pdf  [Accessed on 21/09/16]

McKendendrick, E. (2013) Contract Law. Palgrave Macmillan.

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