Consideration or Promissory Estoppel

Legally speaking, a contract is a legally binding agreement in law between at least two parties which is enforced by law or by binding arbitration if it covers the elements of a valid legal agreement [1] , while consideration is one of the key requirements for the creation of a contract, it is known as ‘the price of a promise’ . The idea behind consideration is that both parties to a contract must bring something to the bargain. A party seeking to enforce a contract must show that it conferred some benefit or suffered some detriment that is recognized by law. For example, money is often recognized as consideration, but in some cases money will not suffice as consideration, for example, when one party agrees to make partial payment of a debt in exchange for being released from the full amount [2] .

In Australia and many, if not all, jurisdictions which have adopted the common law of England, for contracts subject to legislation equivalent to the Statute of frauds [3] , there is no requirement for the entire contract to be in writing. The purpose of this short document is to work out how consideration or promissory estoppel has been worked in the case of Roger and Magic Pty Ltd.

2. Consideration for the manager’s statement

It could be suggested that whether the manager’s statement of reducing the rent down to $2 000 per month is legally binding. Firstly, two parties of the contract have come to agreement upon a lease at a rental of $3 000 per month within 5 years. Since there was an economic downturn, and the financial difficulty of Roger, Magic Pty Ltd. has sent a letter promising a less sum of rental of $2 000 each month until the economic situation is reversed. In fact, Roger has paid $2 000 per month in accordance with what the manager of Magic Pty Ltd. had requested during the past eight months. As a result, there was a consideration since the statement of the manager of Magic Pty Ltd. [2] and the action of the two parties binding to the agreement was an exchange of a lower rent for the ascertain of the rent, which is the price of a promise, and that turns agreement into a contract.

3. Promissory estoppel

However, if there were no consideration, would Roger implement the principle of promissory estoppel in efforts to let Magic Pty Ltd. do what it has promised, or would Magic Pty Ltd. argue for the obligation of Roger to pay the full rent of $3,000 per month in accordance with the commitment agreed in the letter?

According to Justice Brennan, there are six pre-requisites for promissory estoppel [1] and it’s important to figure out whether those pre-requisites in the cases could be fulfilled or not.

When Roger is required to pay $ 8 000 over the past eight months, then, on the one hand, Roger could be promise and Magic Pty Ltd. Is the promisor, with the former assumed that the latter would accept the lower rent temporarily on the basis of the commitment of Magic Pty Ltd. Itself. On the other hand, not only Magic Pty Ltd. has accepted the lower rent, but also it has lent the printing machine to Roger, which bound the two partied within the legal position whereby Magic Pty Ltd. has been responsible for the promise it has committed. Moreover, on the basis of the reliance of the commitment of Magic Pty Ltd., Roger has acted in accordance with what Magic Pty Ltd. has promised via the lower payment, and Magic Pty Ltd. intended Roger to pay under the circumstance of the stressful economic situation of its own as the [2] guarantee of rental collection, then Roger would have to pay another $ 8 000 over the last eight months when the economic situation was tough if the situation were getting better. In fact, Magic Pty Ltd. has mentioned the commitment of the lower payment would be ended if the economic situation could be better in the industry, without informing him of whether the commitment is valid or not. As a result, it could be concluded that the detriment of Roger would occur if Magic Pty Ltd. required him for the balance, where promissory estoppel could work. However, the manager of Magic Pty Ltd. would argue for his company that the reclaiming is where their contradictory lies in according to the contract that has been signed on the lease of 5 years. Nevertheless, as in the case of Williams v Roffey Bros & Nicholls (Contractors) Ltd [1] that Magic Pty Ltd. has provided Roger with a practical benefit [2] of guaranteeing the rental collection that could release the financing difficulty within a short period of time.

There is another similar case to that of Brennan J, namely, Central London Property Trust Ltd v High Trees House Ltd [3] . Which could be used to analyse the case of Roger and Magic Pty Ltd. In the case of High Tress Case, Central London Property Trust Ltd. has agreed upon a reduction of ground rent with High Trees House Ltd. on the basis of conditions of a war, as Magic Pty Ltd. has asked for under the circumstance of economic stress, and High Trees House Ltd. has paid the reduced rental for more than 10 years from 1941-1954, which is the similar to what Roger has acted over the past eight years, and then, Central London Property Trust Ltd. sued High Trees House Ltd. for the arrear.

Likewise, it has been judged that there was a promise to accept a lower rent rather a higher one if it were acted upon, which is binding even if there is no consideration, and it refers to the fact that the offer by Magic Pty Ltd. of reception of a reductive rent rather than what has been concerted in the agreement of 5 year lease is binding with respect to the law. Consequently, it is evident that if the corporation would like to go back on the promise it would be disadvantageous for Magic Pty Ltd. to retrieve what it thought has been lost.

Magic Pty Ltd. would argue that Roger refused to pay the rent at $ 3 000 per month even if the business in the industry is getting to reverse. With the development of the printing industry, Magic Pty Ltd. intended to demand Roger for the complete rent as it has been concerted in the contract before, however, if Roger refused to pay what Magic Pty Ltd. had requested, and refused to admit the fact that they had reached upon an agreement on a complete rent, insisting on paying the lower of $ 2 000, where the promissory estoppel would be claimed by Magic Pty Ltd. in an effort to get the rent of $3,000 as it has been signed in the contract, then, whether promissory estoppel is available in the eyes of Brennan?

Firstly, Magic Pty Ltd. has assumed that Roger would have to admit the legally effectiveness of the commitment since it has paid the rent that could be lower than what has been agreed upon in the contract, as a result, the assumption that Roger has been in agreement on the lower rent in the letter that has been sent by the manager of Magic Pty Ltd. Secondly, Roger should be responsible for the payment of the utilization of the printing machine, and Magic Pty Ltd. has in fact acted on the assumption for what the corporation has collected over the past eight months. The lower rent offered by Magic Pty Ltd. could release the financial burden of Roger, who has known this benefit and accepted what the letter has been informed him. Thirdly, Magic Pty Ltd. would have financial loss if Roger had refused to pay a complete rent under the circumstance of a pleasant economic situation, which could lead to the detriment. However, there wasn’t any written nor oral denial that has been asserted by Roger so as to refuse to pay the complete rent of $3 000 if the economic situation could get better.

It could be asserted from what have been discussed above that the enforcement of Roger to be estopped from the promise of the payment of $ 3 000 per month over the last eight months under the circumstance of the economic situation is applicable.Nevertheless, Roger may argue that what has been stated in the letter sent by the manager of Magic Pty Ltd. was only what it has intended Roger to act without Roger’s content and confirmation to the payment of the complete rent. As a result, it is very significant to determine whether Roger has been made any promise. In fact, conventionally speaking, a promise must be unequivocal [1] , explicit and unambiguous [2] , while it is hard for the court to take silence as a promise [3] . In Australia and many, if not all, jurisdictions which have adopted the common law of England, for contracts subject to legislation equivalent to the Statute of frauds [4] , there is no requirement for the entire contract to be in writing, that is to say, a promise would be implied [5] . Thus, Roger could be regarded to make a promise of the commitment that has been stated in the letter sent by Magic Pty Ltd., meanwhile, Roger has acted on in accordance with the statement of paying a lower tent in the letter, and he has never proposed any suggestions and recommendations or disagreement of the claiming of $ 3 000 by Magic Pty Ltd. as economic situations getting better, all of which could be considered to constitute a promise [1] . Therefore, it could be concluded that both parties have been in contradiction in terms of a rental collection. However, there is not any criteria of what sort of economic situation, and to which extent, the printing industry could be seen as in a better economic situation.

Conclusion

To sum up, in could be tentatively concluded that it is indisfensible for Magic Pty Ltd. to ask Roger for $ 3 000 per month of rent over the past eight months. While,Magic Pty Ltd. could argue that Roger has to pay the rent of $ 3 000 per month in the future. In addition, a compromise could be reached by the two parties in accordance with their own conditions and situations.