Evolving Legal Tests in Contract Law: Consideration and Promissory Estoppel

Introduction

Over the period of time, the judiciary has evolved tests in order to enforce mutual obligations and intention of parties to a contract. One such test is the doctrine of consideration, which has gone through significant challenges and has survived cycles of criticism because of its inconsistent and inflexible nature. The other test is that of the doctrine of promissory estoppels, which comes into effect where a contract does not allegedly have sufficient consideration and enforceability of the contract is in doubt. Sir Frederick Pollock defined consideration as “An act of forbearance of one party, or promise thereof, is the price for which the promise of other is bought, and the promise thus given for value is enforceable.” Consideration is considered to be one of the essential elements of the binding agreement. At the same time, the concept of consideration has also come to be criticised on the grounds that it is rigid and does not answer to situations where they may be legally enforceable obligations even in the absence of consideration. This is seen in the context of promissory estoppel, as explained by Lord Denning in Central London Property Trust Ltd v High Trees House Ltd, that “a promise intended to be binding, intended to be acted upon, and in fact acted upon, is binding in so far as its terms properly apply.”

This essay attempts to present the rigidity and inflexibility of the doctrine of consideration in the light of the development of equitable doctrine of promissory estoppel by the courts. It also lays down viewpoints that totally undermine the value of its existence. On a separate note, one can say that the development of common law has reduced the challenges of rigidity of the doctrine thereby enabling its movement towards the principle of a quid pro quo. The doctrine of consideration has attained more recognition and relevance to current laws and rules.

Consideration and Promissory Estoppel

A rather highly criticised requirement of a valid contract is the existence of consideration. The functionality and purpose of this requirement has caused many to ask of its importance, to

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1. Quoted in Dunlop Pneumatic Tyre Co Ltd v Selfridge & Co Ltd, [1915] AC 847, [855
2. Richard Stone, Q&A Contract Law 2013-2014 (Routledge 2013) 34.
3. [1947] KB 130, [136]
suggest its abolition and to search for alternatives in case of abolition. Due to the criticism that the doctrine of consideration is too narrow in scope to give legal effect to promises in a contract, some sections of the legal fraternity suggest the doctrine of promissory estoppel as the alternative remedy for enforcement of contract. The doctrine and practice of consideration was first brought within the ambit of law of contract in the case of Currie v Misaf. In Currie v Misa, Collins laid down two versions of the doctrine: (i) In the first version, the emphasis is on the request, in that anything requested by the promissor will be termed a benefit; and (ii) the second version emphasises that some substantive benefit should be conferred or a detriment suffered. Most courts seem to apply the first version to give legal remedies because the second version carries with it strict challenges to require sufficient or substantive benefit. Disregarding the essentiality of consideration on enforcing a contract, courts initiated invoking promissory estoppel in Hughes v Metropolitan Railway Company, later also recognised by Denning J in Central London Property Trust Ltd v High Trees Ltd. The House of Lords affirmed the existence of promissory estoppel in contract law in Tool Metal Manufacturing v Tungsten. Atiyah stated that lawyers should focus on just or desirable methods to enforce promises rather than the formal doctrine of consideration. Explaining further, he cited Chappel v Nestle to state that even if consideration in commercial contract appears gratuitous, there is an indirect expectation of a return, which is unseen in the doctrine of consideration. In the same light, in the area of agreements that are private and personal, say a gift agreement, where the promise is one sided and there is no consideration to it, one cannot say that since there is absence of concrete consideration, a promise to gift does not incur legal enforcement, as laid down in

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4. Richard Stone, The modern law of contract (Psychology Press 2005) 97.
5. Currie v Misa (1875) LR 10 Ex 153.
6. 8 (1875) LR 10 Ex 153
7. Hughes v MetropolitanRailway (1876-77) LR 2 App Cas 439.
8. [1947] KB 130
9. [1955] 1 WLR 761.
10. PS Atiyah, "Consideration: A Restatement”, In Essays on Contract (Oxford University Press 1986) 243.
11. [1960] AC 87
Eastwood v Kenyon. A rigid approach will bring ambiguity to the doctrine of consideration that is based on the culture of promise. Promissory estoppel has its historical origins in both the common law action of assumpsit and ancient equity that enabled enforcement of informal contract not backed up by consideration. Promissory estoppel is discretionary, which is quite in contrast to common law principle, in that it is evolved not only to enforce rights in a contract but also to avoid injustice. Some claimed that promissory estoppel is an ancient form of consideration and it points to the reliance element (detriment to the promisee) in the doctrine of consideration. As an attempt to concretise the doctrine of promissory estoppel as an alternative or more valuable remedy than consideration, in the twentieth-century, courts in the common law severed reliance consideration as promissory estoppel, which began functioning as an autonomous element in a contract.

Promissory estoppel can be said to fill in the gaps left by the limitations of consideration. The basis for such thought process could be twofold: From 1809 to 1991, common law provided that a promise by a party to perform an act that he or she is already legally bound to perform is not good consideration. Later, doubts were being raised that doctrine of consideration ceases to perform a useful role and does not meet the needs of commerce. Subsequently, suggestions were raised that promises with satisfactory evidence modifying an existing contract should be enforceable. Having observed this, one can conclude that consideration hinders legal effects rather than furthering protection of rights and liabilities. Being

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12. Eastwood v Kenyon (1840), 11 Ad&E 438.
13. P.S. Atiyah, The Rise and Fall of Freedom of Contract Vol. 1 (Oxford University Press 1979).
14. J.L. Barton, “Equity in the Medieval Common Law”, in Ralph A. Newman (ed.), Equity In The World's Legal Systems (Brussels: Establishments Emile Bruylant 1973)
15. Arthur Linton Corbin, JM Perillo, MN Kniffin, EM Holmes, HH Bender, McCauliffe,Corbin on contracts (West Publishing Co. 1993).
16. Robert Braucher, "Interpretation and Legal Effect in the Second" Restatement of Contracts" (1981) 81 (1) Columbia Law Review 13.
17. DB Dobbs, Dobbs Law of Remedies: Damages, Equity, Restitution(Vol. 2) (West Publishing Company 1993) 570.
18. John Wilson Twyford, "The doctrine of consideration:(the role of consideration in contract modifications)" PhD diss., 2002.
mandatory element to decide validity of a contract, it may lead to multifold claims of damages by parties in a dispute, leading to conflicting and inconsistent interpretation of the doctrine. Promissory Estoppel cannot be said to enable full enforcement of contract, but being discretionary in nature, no rules apply to it, and it can be flexibly utilised ad hoc by the courts. Courts may majorly favor using promissory estoppel as substitute to strict rules of consideration as laid down in D&C Builders Ltd v Rees.

One can strongly criticise the element of flexibility that promissory estoppel carry with it. As stated, promissory estoppel is discretionary nature, courts interpret and apply it ad hoc to cases depending on situation to situation. If one comes to think of it, chances of stretching the application and creating inconsistency is too high to handle. This may lead to levels of controversies where deviating principles are laid down in courts and in the guise of using this discretionary power, courts may end up granting remedies lesser than they would have if consideration was in place. This was laid down in Central London Property Trust Ltd v High Trees Ltd. Nonetheless, screening through the development from the past until the present, use of promissory estoppel to enforce contract creates a double impact. The first purpose is that it protects parties in lesser bargaining power from being exploited. This could not have happened in cases where there is a strict rule of consideration being mandatorily applied in a contract. The second purpose is deduced from the suspensive nature of the doctrine of promissory estoppel. As held by the Privy Council in Ajayi v R T Briscoe, a mere promise will

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19. Combe v Combe [1951] 2 KB 215.
20. DB Dobbs, Dobbs Law of Remedies, supra note 17, 556.
21. Adam Kramer, “The Many Doctrines of Promissory Estoppel” (2002) 37 Student Law Review17.
22. Mindy Chen-Wishart, Contract Law (Oxford University Press 2005) 187.
23. Emerson H. Tiller & Jason Snyder, “The Political Evolution of Contract Law: A Theoretical and Empirical Analysis of Promissory Estoppel”(2008), accessed
24. [1964] 1 WLR 1326.
not lead to termination of rights of parties. It may suspend the right due to existing detrimental situation but fully revives once the parties are out of such situation.

The series of events discussed above leads to conclusive thought process about consideration giving way to promissory estoppel in bringing justice to the parties of a contract and it takes a secondary role by supplementing the latter in enforcing rights and liabilities of the parties. However, one cannot ignore the fact that in modern times, a contract without a consideration may lead to failure of contractual claims arising out of a dispute between the parties. Consideration, if sufficient, can ease legal headaches in complex cases or contracts that are mostly electronically conducted. But, on the other hand, consideration proves to be difficult to enforce than the clearly defined requirement of promissory estoppel. Nevertheless, it is laid down in a famous contract law case, Combe v Combe, that promissory estoppel could be used only as a defence and not as a cause of action, and as laid down in Baird Textiles v Marks & Spencer plc, it is for the court to interpret and rule that promissory estoppel operates as a sword, and not just a shield.

Contract still needs consideration as one of its essential elements for its enforcement despite criticism related to it of being historically rigid and resistant to change. With the change in contractual obligations and the pace with which business dealings are electronically created and sealed in current time, alterations need to be made to this doctrine to arrive at a clearer and concrete understanding. This will enable the legal and judicial system to make its enforcement a possibility in the area of law of contract.

However rigid the courts have been in the process of developing rules of consideration, the degree of involvement and alteration made in order to scrub difficulties attached to promissory estoppel need also to be similarly applied in the modification of the doctrine of consideration. In the ever changing social, geographical, and economic conditions, it is already seen that judiciary and legislature adopt a flexible approach in time of need and have always deviated or

25. Ewan McKendrick, Contract Law: Text, Cases, and Materials (4th Edition , Oxford University Press 2010) 222.
26. Lord Steyn, “Contract Law: Fulfilling the Reasonable Expectations of Honest Men” (1997) 113 LQR 433.
27. [1951] 2 KB 215.
28. [2001] EWCA Civ 274.
altered its existing system to bring changes to cover current situations. Legal system needs to find a model that could blend the two doctrines in such a way that courts can choose the best available remedy offered by either or both of the doctrines.

Conclusion

The doctrine of consideration has been criticised as being too narrow in scope to be able to give legal effect to promises in a contract. Therefore, some sections of the legal fraternity have suggested the use of doctrine of promissory estoppel in cases where an alternative remedy is needed for the enforcement of contract. On the other hand, the doctrine of promissory estoppel is subject to the criticism that it is too flexible and discretionary in nature and therefore, it is unable to provide a stable remedy.

An examination of the different viewpoints shows that even though promissory estoppel does provide a good alternative, consideration remains one of its essential elements for the enforcement of contract. However, for consideration to remain relevant and concomitant with the changing needs of the society, there is a need for judiciary to adopt a more flexible approach towards consideration. With the change in contractual obligations and the pace with which business dealings are electronically created and sealed in current time, alterations need to be made to this doctrine to arrive at a clearer and concrete understanding. Courts have shown a lot of flexibility with regard to the doctrine of promissory estoppel. Now the same flexibility needs to be applied to consideration as well.

Bibliography

Atiyah PS, The Rise and Fall of Freedom of Contract Vol. 1 (Oxford University Press 1979)

Atiyah PS, "Consideration: A Restatement”, In Essays on Contract (Oxford University Press 1986).

Barton JL, “Equity in the Medieval Common Law”, in Ralph A. Newman (ed.), Equity In The World's Legal Systems (Brussels: Establishments Emile Bruylant 1973)

Braucher R, "Interpretation and Legal Effect in the Second" Restatement of Contracts" (1981) 81 (1) Columbia Law Review 13.

Chen-Wishart M, Contract Law (Oxford University Press 2005)

Corbin AL, JM Perillo, MN Kniffin, EM Holmes, HH Bender, McCauliffe,Corbin on contracts (West Publishing Co. 1993)

Dobbs DB, Dobbs Law of Remedies: Damages, Equity, Restitution(Vol. 2) (West Publishing Company 1993) 570.

Kramer A, “The Many Doctrines of Promissory Estoppel” (2002) 37 Student Law Review 17

McKendrick E, Contract Law: Text, Cases, and Materials (4th Edition , Oxford University Press 2010.

Steyn, “Contract Law: Fulfilling the Reasonable Expectations of Honest Men” (1997) 113 LQR 433.

Stone R, Q&A Contract Law 2013-2014 (Routledge 2013)

Stone R, The modern law of contract (Psychology Press 2005)

Tiller EH & Snyder J, “The Political Evolution of Contract Law: A Theoretical and Empirical Analysis of Promissory Estoppel” (2008), accessed

Twyford JW, "The doctrine of consideration: (the role of consideration in contract modifications)" PhD diss., 2002.

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