Professional Documents
Culture Documents
Department of Law
NAME OF STUDENT
: Adrienne Sena
STUDENT ID NUMBER
: B 1302604
SUBJECT NAME
: Law of Contract
SUBJECT CODE
: DL 1
NAME OF EXAMINER
: Vilmah Balakrishnan
WORD COUNT
: 3307 words
Index
No.
Content
Page No
1.
Table of Authorities
3-4
2.
Question
3.
Answer
6-17
4.
Bibliography
18-21
5.
List of References
22-24
6.
Turn-It-In Report
25-41
Table of Authorities
No.
Case Names
Citation
Page Number
1. Currie v Misa
[1875] LR 10 Ex 153
2. Antons Trawling Co v
Smith
[2003] 2 NZLR 23
[1975] AC 154
[1877] 2 AC 439
[1947] 1 KB 130
[1966] 2 QB 617
7. Woodhouse AC Israel
Cocoa SA v Nigerian
Produce Marketing Co Ltd
8. Combe v Combe
[1972] AC 941
[1951] 2 KB 215
9. Tweddle v Atkinson
[1960] AC 87
10
10
[1991] 1 QB 1
12
12
13
13
[1884] UKHL 1
13
14
14
14
15
[2008] 1 WLR 43
15
15
15
16
16
[1989] 1 NZLR 356
[1973] 36 DLR (3d) 496
16
[1990] HCA 39
17
Question
Estoppel is a mechanism for enforcing consistency; when I have said or done
something that leads you to believe in a particular state of affairs, I may be obliged to
stand by what I have said or done, even though I am not contractually bound to do
so.
E Cooke, The Modern Law of Estoppel (OUP, 2000) 1-2
While the doctrine of promissory estoppel was developed to negate the harm caused
by the promisors unconscionable inducement of the promisees reliance, the
doctrine now appears well placed as an alternative to consideration.
Is this true? Critically assess the accuracy of the statement above. Examine this
issue in the light of developments in the area of promissory estoppel in the United
Kingdom and Australia.
Answer
A contract is an agreement enforced by law and includes elements like offer,
acceptance and consideration.1 This essay aims to evaluate the doctrine of
consideration and promissory estoppel as well as discuss whether UK courts should
follow the Australian footsteps in replacing consideration with promissory estoppel.
The doctrine of consideration as explained in Currie v Misa2 is either some right,
interest, profit, or benefit accruing to one party, or some forbearance, detriment, loss
or responsibility, given, suffered, or undertaken by the other. It is also described as a
price which parties of a contract give to each other for respective promises.
Consideration prioritises bargains and is important as it reflects the serious
undertakings of both parties entering the agreement 3 as explained in Antons
Trawling Co v Smith4 whereby the judge explained that consideration is a
valuable signal that the parties intend to be bound by their agreement, rather than an
end itself. It is also an enforcement of bargains which upholds welfare maximisation
and shows the idea of reciprocity.5 Parties in the contract will have to give a benefit
and suffer a detriment which will be found or invented by courts in order for
consideration to be sufficient and only then will a contract be valid and binding.
1 As held by Lord Wilberforce in New Zealand Shipping Co Ltd v A M Satterthwaite & Co Ltd (The Eurymedon)
[1975] AC 154
2 [1875] LR 10 Ex 153
3 Mindy Chen-Wishart, Contract Law ( 3rd edition, Oxford University Press, 2010) 121
4 [2003] 2 NZLR 23 by Baragwanath J of the New Zealand Court of Appeal
5 G H Treitel, An Outline of The Law of Contract (5th edition, Butterworths, 1995) 29 explains that reciprocity is
that a promisee should not be able to enforce the promise, unless he has given (or promised to give), or unless
the promisor has obtained (or been promised), something in exchange for it
9 Woodhouse AC Israel Cocoa SA v Nigerian Produce Marketing Co Ltd [1972] AC 941, House of Lords
10 [1966] 2 QB 617
11 Combe v Combe [1951] 2 KB 215 In this case, it shows that promissory estoppel can only be used as a
defence for legal claims and not as a legal claim itself
with no detriment to the promisee will be good consideration or not. 14 There may
also be cases where consideration comprises of detriments to the promisee with no
corresponding benefit to the promisor 15 and as such, the definition itself is unclear.
Moreover, there lies a problem in the value of the consideration requested by the
parties. As Smith says, [It is only necessary for the defendant to expressly or
implicitly ask for something in return for his to make his promise sufficient for
consideration]. When a party requests for something in exchange for his promise,
there has to be some value which the party attaches to it. Nevertheless, the concept
of value is subjective and although the contracting parties see a benefit or detriment
to it, the courts may not. Courts may also invent consideration like in Chappell v
Nestle16 thus creating uncertainty which may be unfair in promises such as bargains
or gifts where the parties attach some consideration in it but may not fall within the
doctrine as courts may not find the consideration valuable hence making the promise
unenforceable. The vague definition of value here makes consideration inaccurate
and unfair thus promissory estoppel was created to overcome this.
Promissory estoppel as mentioned above is the enforcement of promises
without consideration.17 Cooke18 says that: Estoppel is a mechanism for enforcing
consistency; when I have said or done something that leads you to believe in a
14 Pao On v Lau Yiu Long [1979] 3 All ER 65 Privy Council
15 Jones v Padavatton [1979] 1 WLR 328
16 Chappell & Co v Nestle Co Ltd [1960] AC 87 In this case, Treitel argues that UK courts can invent
consideration by treating an act or forbearance as consideration although it was not the promisors purpose to
obtain it
17 Denning J held in Central London Property Trust Ltd v High Trees House Ltd [1947] that A promise intended
to be binding, intended to be acted upon, and in fact acted on, is binding so far as its terms properly apply
particular state of affairs, I may be obliged to stand by what I have said or done,
even though I am not contractually bound to do so, thus, it allows promises with
serious intention but lacking consideration to be enforced. This remedies the issue
where in some cases; the courts deem consideration as absent or insufficient
although the parties intend to be bound like in bargains, conditional gifts and
gratuitous promises. Moreover, it prevents the courts from inventing consideration
when it was not the intended purpose of the promisor to obtain it 19 and thus protects
both contracting parties. Although based on the protection of reliance, promissory
estoppel often holds the promisor to his promise and thus protects the promisees
expectation instead. As seen, there is a clash between consideration and promissory
estoppel. Reliance loss theory puts a claimant in his original position as if the
contract had not been made while expectation loss seeks to put the innocent party in
the position as if the contract was performed. UK courts thus face more confusion as
the two different doctrines yield overlapping effects. However, Australian courts has
been said to remedied this issue in Waltons Stores (Interstate) Ltd v Maher 20 by
stating that they both produce different liabilities. Consideration gives a contractual
cause of action for the full expectation of the promisee while promissory estoppel
responds to the promisors unconscionable refusal to carry out his promise after the
promisee had relied on it. As such, there is no clash within the two doctrines if courts
were to distinguish them clearly and promissory estoppel could replace consideration
in order to overcome the vagueness.
19 (n 16)
20 [1998] 164 C.L.R. 387 (H.C.A.) Brennan J justifies the clash by stating that the two doctrines yield two
separate results and thus both can be used as a cause of action
10
21 Fried, For an Argument for the Enforcement of Gratuitous Promises Based on an Economic Analysis, 1981
22 Mindy Chen-Wishart, Contract Law, (3rd edition, Oxford University Press) 132
23 Fried (n 21) 35 The bargain theory of contract as explained by Fried is that something has to be given in
exchange for a promise to make the promise be enforceable. He also explains it as the free arrangements of
rational persons
24 ( n 16) In this case, three stipulated chocolate wrappers were held as sufficient consideration for a
gramophone record and thus show that even the most trifling benefit or detriment qualities can be valid
consideration
25 Gay Choon Ing v Loh Sze Ti Terence Peter [2009] 2 S.L.R. 332 (CA)
26 The UK Committee proposed that the effect of consideration is merely evidence of serious intention to
contract and that consideration should be dispensed with where evidence of the promise is otherwise available,
such as where the promise is in writing
11
choices made by individuals28 and that the decisions of contracting parties should be
neutral and subjective as it lies within their intentions, not the courts. Nevertheless,
Atiyah argues that it is rare to find instances where a promise is enforced with no
benefit or detriment given and that courts would be able to invent these benefits or
detriments29, even if they arise from motives. Thus, UK courts should consider the
developments in other jurisdictions like Australias whereby they have moved away
from consideration and have moved towards promissory estoppel as a test of
enforceability.
Another problem with consideration is that the rule practical benefit can
amount to sufficient consideration is limited in different ways. The general rule is that
the performance of an existing contractual duty or a promise to perform an existing
duty does not amount to consideration. 30 However, later in Williams v Roffey
Bros31, the courts held that the promise to pay more to perform an existing duty can
be enforced if a practical benefit is given and that this additional benefit would be
counted as good consideration. In Williams v Roffey Bros, the defendants had to
pay the extra sum promised as the promise given had helped Williams (carpenters)
to finish up their work thus giving them a practical benefit avoidance of the penalty
clause, avoidance of trouble in finding new carpenters and preventing a breach of
contract. Thus, this case demonstrates that consideration is needed to enforce
28 Mindy Chen- Wishart, Consideration and Serious Intention, [2009] Sing J.L.S. 434,442
29 In Chappel & Co Ltd v Nestle Co.Ltd the courts held that there was an indirect benefit which was derived
from the motive of the promise
30 Stilk v Myrick [1809] 170 ER 1168 The courts held in this case that there was no consideration for the
promise to pay the sailors more money as they were doing what they were originally obliged to do under the
existing contract
promises of more for the same but it need not be just legal benefits; it can consist of
practical benefits too. Besides that, the promise must be given voluntarily without
improper pressure.32 Firstly, it is limited because the definition of practical benefit is
unclear. The Court of Appeal failed to define what amounted to a practical benefit.
For an example, Lord Justice LJ held that consideration existed from the
advantages accruing to them as a consequence of the plaintiffs guaranteed
performance. He did not define what practical benefit meant but merely concluded
that a secondary promise under an existing contract is enforceable as long as the
promisor obtained an advantage arising out of the continuing relationship with the
promisee.33 Lord Justice Purchass concluded similarly whereby a consideration
would be found in secondary promises as long as there was a commercial
advantage received. In Glidewell LJs leading judgement, His Honour had only
shown the circumstances where a practical benefit may arise by citing previous
judgements34 but also failed to define practical benefit. Above all these, other
judges had different views of what practical benefit meant and this makes the term
too ambiguous35,widening the scope of consideration and as such [emaciates] the
doctrine to the point of abolition. 36
32Mindy Chen- Wishart, (n 3) 143-144 Glidewell LJs judgement in Williams v Roffey Bros
33 Williams v Roffey Bros (n 31) Lord Justice LJ
34 Glidewell LJ cited Ward v Byham [1956] 1 WLR 496,498 and Williams v Williams [1957]1 WLR 148,151
where both cases had not defined what practical benefit meant
35 Mark A. Giancaspro, For Your Consideration: Old Rules, Practical Benefit and a New Approach to
Contractual Variation,
(2014),<https://digital.library.adelaide.edu.au/dspace/bitstream/2440/84690/8/02whole.pdf> accessed 24
December 2015
41
There
are also other problems with practical benefit such as the moral hazards as
explained by Giancaspro.42 Thus, the concept of practical benefit is very versatile
and if courts do not limit it, the lines between gratuitous and enforceable promises
would be eroded.
Promissory estoppel could be used in replacement of consideration to avoid
the problems arising from the concept of practical benefit. The purpose of
promissory estoppel is to prevent an unjust departure by one person from an
assumption adopted by another on the basis of some act or omission which, unless
the assumption be adhered to, would operate to that others detriment 43 and thus in
a variation of a unilateral contract where performance of an existing legal duty is
unenforceable, promissory estoppel may be able to supply an alternative method to
enforce the promise.44 This being said, by using promissory estoppel instead, a
promise to accept less can also be enforced and as such overcomes the problem
with the limitations of practical benefits. For an example in Collier v P & MJ Wright
(Holdings) Ltd45 , though the courts acknowledged that the agreement to accept part
payment of a debt was not enforceable 46, they considered the appellants submission
regarding using promissory estoppel to enforce the promise. Although there was a
pre-existing duty, the fact that the defendants had agreed to accept part payment of
the debt, which then led to reliance upon that promise makes the promise
42 Mark A. Giancaspro, For Your Consideration: Old Rules, Practical Benefit and a New Approach to
Contractual Variation, (2014), 162
<https://digital.library.adelaide.edu.au/dspace/bitstream/2440/84690/8/02whole.pdf> accessed 24 December
2015
enforceable.47 Similarly in Williams v Roffey Bros, the courts could have used
promissory estoppel but did not for two main reasons, one of them being that it was
not raised during trial.48 Secondly, the doctrine was rejected because of the
underdevelopment of the doctrine to contract modification scenarios. 49 Following the
precedent
promissory estoppel cannot be used as a cause of action and as such, it may not be
a solve the problem in consideration; unless the UK courts were to follow Australian
courts in allowing promissory estoppel to be used as a cause of action too.
In Waltons v Maher, Waltons were estopped from going back on their
promise to the Maher. The judges of this case had unanimously allowed promissory
estoppel to be used as a cause of action as there was a detrimental reliance
suffered. Maher had adopted an assumption that the contract was sure to be made
based on Waltons failure to reply promptly and that they had remained silent when
they were aware that Maher had started performing the contract terms. As such, the
performance of work by Maher would cause them to suffer detriments if Waltons
were to go back on the promise, which they did later on. Hence, it is seen that the
decision to allow Maher to rely on promissory estoppel was fair to them although it
47 This was decided and explained by Lady Justice Arden that The facts of this case demonstrate that, if (1) a
debtor offers to pay part only of the amount he owes; (2) the creditor voluntarily accepts that offer, and (3) in
reliance on the creditors acceptance the debtor pays that part of the amount he owes in full, the creditor will, by
virtue of the doctrine of promissory estoppel, be bound to accept that sum in full and final satisfaction of the
whole debt. For him to resile will of itself be inequitable. In addition, in these circumstances, the promissory
estoppel has the effect of extinguishing the creditors right to the balance of the debt
48 This was mentioned by Lord Justice Russel in his judgement whereby he mentioned that He would have
welcomed the development of [this line of] argument, if it could have been properly raised during the trial
49 Syros Shipping Co SA v Elaghill Trading Co [1980] 2 Lloyds Rep 390 Glidewell LJ cited this case in his
judgement as in this case, it was held that the owners were suing based on a naked promise and were using
estoppel as a cause of action and not as a shield
50 n 7
17
was used as a sword, not a shield. This was also accepted in other jurisdictions like
New Zealand and Canada.
51
51 Burbery Mortgage Finance and Savings Ltd v Hindsbank Holdings Ltd [1989] 1 NZLR 356 ; Gilbert Steel Ltd
v University Construction Ltd [1973] 36 DLR (3d) 496
18
cover reliance which has not been bargained for 55 and that an expectation remedy
should be used to remedy breach of promises that are relied upon. However,
Robertson stated that equity is wider than contract and that expectation damages
may not apply in relied- upon promises as courts intervene in such promises to
prevent harm resulting from a reliance on others conducts and thus, reliance based
approach should be adopted.56 There is also fear of inconsistency with previous
decisions where claimants had difficulty in proving value of reliance but Australian
courts have proven contrary to this issue.57 As such, using promissory estoppel could
be better than consideration in enforcing promises.
Conclusively, UK courts should limit the scope of consideration and widen that
of promissory estoppel to balance out the pros and cons in both doctrines
respectively. Whether or not they should follow Australia and replace consideration
completely is a largely debatable matter whereby the decision must me slowly
brought about and not rushed through. Hence, gradual steps to remedy the issues of
consideration should be taken while the doctrine of promissory estoppel should be
increasingly adopted at a reasonable pace in order to see the full effects on whether
the promissory estoppel is a better alternative to consideration.
55 Ibid 52,
56 P Parkinson, Equitable Estoppel: Developments after Walton Stores (Interstate) Ltd v Maher [1990] 3 J
Contract Law, 50,59; P D Finn Equity and Contract in P D Finn (ed) Essays on Contract (Sydney, Law Book
Co, 1987) as cited by Robertson p.365
57 Commonwealth v Verwayen [1990] HCA 39 In this case, Australian courts used the approach that they are
not only required protecting reliance loss, but also needing to provide a remedy which is minimally needed to
prevent detrimental reliance. This will not affect the result in most cases, only in those where the value of
claimants expectations is disproportionate to their reliance loss
19
Bibliography
Textbooks
1. Burrows A, A Casebook on Contract (4th edn, Hart Publishing 2013)
2. McKendrick E, Contract Law-Text, Cases, and Materials (4th edn, Oxford
University Press 2010)
3. N.Adams J and Brownsword R, Understanding Contract Law (5th edn, Sweet and
Maxwell 2007)
4. Smith JC, Smith & Thomas: A Casebook on Contract (11th edn, Sweet & Maxwell
2000)
5. Stone R, The Modern Law of Contract (11th edn, Routledge 2015)
6. Treitel GH, An Outline of the Law of Contract (5th edn, Butterworths 1995)
7. Wishart M-C, Contract Law (3rd edn, Oxford University Press 2010)
Cases
1. Antons Trawling Co v Smith [2003] 2 NZLR 23
2. Baird Textile Holdings Ltd v Marks and Spencer plc [2001] EWCA 274
3. Burbery Mortgage Finance and Savings Ltd v Hindsbank Holdings Ltd [1989] 1
NZLR 356
4. Central London Property Trust v High Trees House [1947] 1 KB 130
5. Chappell & Co v Nestle Co Ltd [1960] AC 87
6. Collier v P & MJ Wright (Holdings) Ltd [2008] 1 WLR 43
7. Combe v Combe [1951] 2 KB 215
8. Commonwealth v Verwayen [1990] HCA 39
9. Currie v Misa [1875] LR 10 Ex 153
10. D & C Builders v Rees [1966] 2 QB 617
11. Foakes v Beer [1884] UKHL 1
12. Gay Choon Ing v Loh Sze Ti Terence Peter [2009] 2 S.L.R 332 (CA)
13. Gilbert Steel Ltd v University Construction Ltd [1973] 36 DLR (3d) 496
14. Hughes v Metropolitan Railway [1877] 2 AC 439
15. Je Maintiendrai Pty Ltd v Quaglia [1980] 26 SASR 101
16. Jones v Padavatton [1979] 1 WLR 328
17. Musumeci v Winadell Pty Ltd [1998] 34 NSWLR 723
18. New Zealand Shipping Co Ltd v AM Satterhwaite & Co Ltd [1975] AC 154
19. Pao on v Lau Yiu Long [1979] 3 All ER 65 Privy Council
20. Pinnels Case [1602] 5 Rep 117
21. Re Selectmove Ltd [1993] EWCA Civ 8
22. Stilk v Myrick [1809] 170 ER 1168
23. Syros Shipping Co SA v Elaghill Trading Co [1980] 2 Lloyds Rep 390
24. Thompson v Palmer [1993] 49 CLR 507,547
25. Tweddle v Atkinson [1861] EWHC QB J57
20
26. Waltons Stores (Interstate) Ltd v Maher [1998] 164 C.L.R 387 (H.C.A)
27. Ward v Byham [1956] 1 WLR 496
28. Williams v Roffey Bros & Nicholls (Contractors) Ltd [1991] 1 QB 1
29. Williams v Williams [1957] 1 WLR 148
30. Woodhouse AC Israel Cocoa SA v Nigerian Produce Marketing Co Ltd [1972] AC
941
<https://www.academia.edu/949060/A_Bird_in_the_Hand_Consideration_and_O
ne-Sided_Contract_Modifications> accessed 24 December 2015
11. Yan NC and Dennis, Does the Doctrine of Promissory Estoppel Alleviate the
Unfair Effect of Consideration?
<https://www.academia.edu/2301115/Does_the_Doctrine_of_Promissory_Estopp
el_Alleviate_the_Unfair_Effect_of_Consideration> accessed 24 December 2015
12. EQUITABLE ESTOPPEL (2009)
<http://sydney.edu.au/lec/subjects/equity/materials%20SUMMER%20200910/Radan%20&%20Stewart%20Ch%2012.pdf> accessed 24 December 2015
22
List of References
Textbooks
1. McKendrick E, Contract Law-Text, Cases, and Materials (4th edn, Oxford
University Press 2010)
2. N. Adams J and Brownsword R, Understanding Contract Law (5th edn, Sweet
and Maxwell 2007)
3. Treitel GH, An Outline of the Law of Contract (5th edn, Butterworths 1995)
4. Wishart M-C, Contract Law (3rd edn, Oxford University Press 2010)
Cases
1. Antons Trawling Co v Smith [2003] 2 NZLR 23
2. Baird Textile Holdings Ltd v Marks and Spencer plc [2001] EWCA 274
3. Burbery Mortgage Finance and Savings Ltd v Hindsbank Holdings Ltd [1989] 1
NZLR 356
4. Central London Property Trust v High Trees House [1947] 1 KB 130
5. Chappell & Co v Nestle Co Ltd [1960] AC 87
6. Collier v P & MJ Wright (Holdings) Ltd [2008] 1 WLR 43
7. Combe v Combe [1951] 2 KB 215
8. Commonwealth v Verwayen [1990] HCA 39
9. Currie v Misa [1875] LR 10 Ex 153
10. D & C Builders v Rees [1966] 2 QB 617
11. Foakes v Beer [1884] UKHL 1
12. Gay Choon Ing v Loh Sze Ti Terence Peter [2009] 2 S.L.R 332 (CA)
13. Gilbert Steel Ltd v University Construction Ltd [1973] 36 DLR (3d) 496
14. Hughes v Metropolitan Railway [1877] 2 AC 439
15. Je Maintiendrai Pty Ltd v Quaglia [1980] 26 SASR 101
16. Jones v Padavatton [1979] 1 WLR 328
17. Musumeci v Winadell Pty Ltd [1998] 34 NSWLR 723
18. New Zealand Shipping Co Ltd v AM Satterhwaite & Co Ltd [1975] AC 154
19. Pao on v Lau Yiu Long [1979] 3 All ER 65 Privy Council
20. Pinnels Case [1602] 5 Rep 117
21. Re Selectmove Ltd [1993] EWCA Civ 8
22. Stilk v Myrick [1809] 170 ER 1168
23. Syros Shipping Co SA v Elaghill Trading Co [1980] 2 Lloyds Rep 390
24. Thompson v Palmer [1993] 49 CLR 507,547
25. Tweddle v Atkinson [1861] EWHC QB J57
26. Waltons Stores (Interstate) Ltd v Maher [1998] 164 C.L.R 387 (H.C.A)
23
24