What is a contract?
Lord Wilberforce in The Eurymedon (1975) mentioned the basic purpose of contract law is to provide a framework within which individuals can freely contract. The four must have elements to form a legally binding contract are offer, acceptance, consideration, and intention to create legal relation. If there’s only offer and acceptance, then it would be a mere agreement. General rule of law says a legally binding contract cannot be formed without consideration.
What is consideration in Contract Law
The author of Brill (2020) Caroline mentioned the doctrine of consideration has jiggled judges, lawyers, and legal scholars throughout centuries as it is very hard to enforce the doctrine of causa. In accordance with the case of Currie v Misa, Lush J defined consideration in this case. As Lush J has stated the detriment principle, consideration must be beneficial to one party or some forbearance, detriment, loss, or responsibility that has given, suffered, or undertaken by the other. Consideration must move from a promisee and not the promisor. As such, in the case of Wade v Simeon (1846), the plaintiff did not provide consideration for defendant’s promise. Therefore, a legally binding contract cannot be formed without consideration because consideration serves the function as a “badge of enforceability”. Moreover, in the case of Dunlop v Selfridge (1915) provided a more sophisticated definition of consideration, Lord Dunedin mentioned “an act of one party is the price for which the promise of the other party is purchased, and the promise thus given for value is enforceable.”In the case of Chappell v Nestle, Lord Somervell stated anything can amount to consideration. In the case of White v Bluett, the son promised the father not to complain of how the father distributed his property in his will. The court held consideration must provide some economic value, so the son did not furnish consideration to enforce the father’s promise. Therefore, it is just a mere agreement and there is no legally binding contract between them. As such, in the case of Thomas v Thomas, by agreeing to pay rent in return for being allowed to stay in the property, Mrs. Thomas had provided consideration. The judge Patterson J held that 1 pound per year of rental was recognized as good consideration as consideration means something containing value in the eye of the law, moving from the promisee. Hence, a consideration does not need to be adequate to be enforced by law. As such, the article of Singapore Journal of Legal Studies (2009) by Mindy Chen stated, “no doctrine of the common law of contract has been more developed than consideration”. This essay aims to examine the element of past consideration and whether it can amount to a good consideration.
Can past consideration satisfy the role of consideration in a contract?
The general rule of past consideration states, consideration must be given after the promise for payment is made to enforce a legally binding contract. Hence, the law says past consideration will not amount to good consideration. This was illustrated in the case of Eastwood v Kenyon (1840), guardian of a young girl raised on loan to educate her regarding marriage prospects. After marriage, the husband promised to pay off the loan, but the guardian could not enforce the promise because consideration was in the past. Hence, there is no legally binding contract between them. As such, in the case of Re McArdle, the plaintiffs stated that the promise requires to be supported by consideration for it to be a valid contract. The Court of Appeal held the defendant must assume his work would be paid in some way. Hence, the act was a good consideration and thus there is a contract between them. The case of Roscorla v Thomas has further proven that guarantee is not enforceable as it is past consideration because in this case the promise was made after sale of the house. These cases have further proven the general rule of past consideration is not good consideration in the eyes of law.
Controversies behind past consideration.
However, there are exceptions for past considerations to operate. With that said, many academics have regarded past consideration as a grey area in the topic of consideration. Williston in his book of “Williston on Contracts, Third Edition” (1957) has quoted ‘something which has been given before the promise was made cannot be legal consideration.’ There are circumstances in which there can exist an exception to the general rule dated in case law so far. This was considered in the case of Pao On v Lau Yiu Long, in which the consideration was the plaintiff’s promise not to sell 60% of their Fu Chip shares for one year. Although this promise had been made before the indemnity was given, it had been made at the request of the defendant. This case was brought before the Privy Council, Lord Scarman laid down exceptions for past consideration to operate. The first principle arises when the act constituting consideration is done at the promisor’s request. This can be seen in the case of Lampleigh v Braithwaite, the defendant wanted the Claimant to travel to Nowark to get a pardon for him. He can then promise to pay him 100 pounds and later refuse to pay. The court held the claimant can claim the amount promised as the defendant had requested him to do the act. The legal principle is given in the court’s judgement in which it is considered that the original request by the defendant contained an implied promise that he would reward and reimburse the claimant for his efforts. Thus, the previous request and the subsequent promise were part of the same transaction and were enforceable. The second principle noted by Lord Scarman in the Pao On case denotes that it must be reasonably contempt or understood by both parties that payment was expected. The parties, at the time the service was rendered, must have understood by both parties that payment was expected. The parties, at the time the service was rendered, must have understood that the work was to be paid for in some way, either by money or some other benefit. The principle was reaffirmed in Re Casey’s Patents where it was also noted that it is more likely that the implication for remuneration will arise in commercial or professional services than between friends and family.
Common Law on past consideration.
According to Halsbury Laws of England, there were two common law exceptions to the rule that past consideration is not good consideration. Firstly, if a person is legally protected from being held liable for a promise he or she has made, they can choose to give up that protection and make themselves responsible by making a new promise, even if they don’t get a new consideration. This was illustrated in Lee v Muggeridge (1813), a married woman, who couldn’t be held accountable for a promise due to legal reasons while she was married, became responsible for the promise after her husband passed away when she made the same promise again. To further illustrate this common law exception, in the case of Williams v Noor (1843), this also applies in scenarios of someone who was underage makes a contract that is legally voidable, when they become an adult and confirm or approve the contract, it will become legally binding. Hence, these exceptions are incorporated in statutes by the Limitation Act 1980 under Section 29.The second common law exception; is that an existing debt is sufficient consideration for a negotiable security that the debtor gives to the creditor for the debt. This exception has been further supported by law. This was illustrated in the case of Scott v Fairlamb (1883), in which a promissory note payable on demand was given for the debt by the defendant to the claimant. The debt owned is a past consideration that is a good consideration for the promise of a security in the form of a promissory note. This exception has been incorporated in statute by the Bills of Exchange Act 1882 under Section 27.
Is there any way to improve the law of past consideration?
Alas, the author of The University of Toronto Law Journal (2011) Peter suggests that the problem is not with consideration rather than current theories that defend or challenge it. In accordance with the author of Singapore Academic of Law Journal (2012) , Yihan and Man have stated, the Court of Appeal in the case of Rainforest Trading Ltd v State Bank of India Singapore (2012) clearly applied the exceptions from the case of Pao On. The past consideration of the general rule laid down by Lord Scarman in the Pao On case was clearly the focus of the case of Rainforest Trading. The court in Rainforest Trading case pointed out that "while the doctrine of past consideration remains part of our law, it would generally be difficult for a party to successfully argue that a transaction is unenforceable simply because the consideration provided for the promise was past”. This suggests even though past consideration is not a good consideration in general rule laid down in Pao On case by Lord Scarman, is it impossible to define every case with this general rule as it is far from being a perfect law and argument to apply in every scenario.
Written by: Benjamin Chung Min Hun, Chew Qian Ya
Edited by: Nicole Gan
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