English Contract Law - Formation - Consideration and Estoppel

Consideration and Estoppel

Consideration cases
Dyer's case (1414) 2 Hen V 5, 26
Bret v JS (1600) Cro Eliz 756
Lamplugh v Brathwaite EWHC KB J 17
Pillans v Van Mierop (1765) 97 ER 1035
Stilk v Myrick EWHC KB J58
Shadwell v Shadwell EWHC CP J88
Callisher v Bischoffsheim (1870) LR 5 QB 449
Foakes v Beer UKHL 1
Carlill v Carbolic Smoke Ball Co EWCA Civ 1
Combe v Combe EWCA Civ 7
Pao On v Lau Yiu Long UKPC 2
Atlas Express Ltd v Kafco QB 833
Williams v Roffey Bros Ltd EWCA Civ 5
Re Selectmove Ltd EWCA Civ 8
see Consideration in English law

Consideration is an additional requirement in English law before a contract is enforceable. A person wishing to enforce an agreement must show that they have brought something to the bargain which has "something of value in the eyes of the law", either by conferring a benefit on another person or incurring a detriment at their request. In practice this means not simple gratitude or love, not things already done in the past, and not promising to perform a pre-existing duty unless performance takes place for a third party. Metaphorically speaking consideration is "the price for which the promise is bought". It is contentious in the sense that it gives rise to a level of complexity that legal systems which do not take their heritage from English law simply do not have. In reality the doctrine of consideration operates in a very small scope, and creates few difficulties in commercial practice. After reform in the United States, especially the Restatement of Contracts §90 which allows all promises to bind if it would otherwise lead to "injustice", a report in 1937 by the Law Revision Committee, Statute of Frauds and the Doctrine of Consideration, proposed that promises in writing, for past consideration, for part payments of debt, promising to perform pre-existing obligations, promising to keep an offer open, and promises that another relies on to their detriment should all be binding. The report was never enacted in legislation, but almost all of its recommendations have been put into practice through case law since, albeit with difficulty.

When a contract is formed, good consideration is needed, and so a gratuitous promise is not binding. That said, while consideration must be of sufficient value in the law's eyes, it need not reflect an adequate price. Proverbially, one may sell a house for as little as a peppercorn, even if the seller "does not like pepper and will throw away the corn." This means the courts do not generally enquire into the fairness of the exchange. Another difficulty is that consideration for a deal was said not to exist if the thing given was an act done before the promise, such as promising to pay off a loan for money already used to educate a girl. In this situation the courts have long shown themselves willing to hold that the thing done was implicitly relying on the expectation of a reward. More significant problems arise where parties to a contract wish to vary its terms. The old rule, predating the development of the protections in the law of economic duress, was that if one side merely promises to perform a duty which she had already undertaken in return for a higher price, there is no contract. However in the leading case of Williams v Roffey Bros & Nicholls (Contractors) Ltd, the Court of Appeal held that it would be more ready to construe someone performing essentially what they were bound to do before as giving consideration for the new deal if they conferred a "practical benefit" on the other side. So, when Williams, a carpenter, was promised by Roffey Bros, the builders, more money to complete work on time, it was held that because Roffey Bros would avoid having to pay a penalty clause for late completion of its own contract, would potentially avoid the expense of litigation and had a slightly more sensible mechanism for payments, these were enough. Speaking of consideration, Russell LJ stated that, "courts nowadays should be more ready to find its existence... where the bargaining powers are not unequal and where the finding of consideration reflects the true intention of the parties." In other words, in the context of contractual variations, the definition of consideration has been watered down. However, in one situation the "practical benefit" analysis cannot be invoked, namely where the agreed variation is to reduce debt repayments. In Foakes v Beer, the House of Lords held that even though Mrs Beer promised Mr Foakes he could pay back £2090 19s by instalment and without interest, she could subsequently change her mind and demand the whole sum. Despite Lord Blackburn registering a note of dissent in that case and other doubts, the Court of Appeal held in Re Selectmove Ltd, that it was bound by the precedent of the Lords and could not deploy the "practical benefit" reasoning of Williams for any debt repayment cases.

Estoppel cases
Dillwyn v Llwellyn (1862) 4 De GF&J 517
Hughes v Metropolitan Railway Co UKHL 1
High Trees case KB 130
Combe v Combe EWCA Civ 7
D & C Builders v Rees EWCA Civ 3
Ogilvy v Hope Davies 1 All ER 683
Crabb v Arun DC EWCA Civ 7
Waltons Stores Ltd v Maher (1988) 164 CLR 387
Jennings v Rice EWCA Civ 159
Collier v P&MJ Wright (Holdings) Ltd EWCA Civ 1329
Yeomans Row Management Ltd v Cobbe UKHL 55
see Estoppel in English law

However, consideration is a doctrine deriving from the common law, and can be suspended under the principles of equity. Historically, England had two separate court systems, and the Courts of Chancery which derived their ultimate authority from the King via the Lord Chancellor, took precedence over the common law courts. So does its body of equitable principles since the systems were merged in 1875. The doctrine of promissory estoppel holds that when one person gives an assurance to another, the other relies on it and it would be inequitable to go back on the assurance, that person will be estopped from doing so. So in Hughes v Metropolitan Railway Co the House of Lords held that a tenant could not be ejected by the landlord for failing to keep up with his contractual repair duties because starting negotiations to sell the property gave the tacit assurance that the repair duties were suspended. And in Central London Properties Ltd v High Trees House Ltd Denning J held that a landlord would be estopped from claiming normal rent during the years of World War II because he had given an assurance that half rent could be paid till the war was done. The Court of Appeal went even further in a recent debt repayment case, Collier v P&M J Wright (Holdings) Ltd. Arden LJ argued that a partner who had been assured he was only liable to repay one third of the partnership's debts, rather than be jointly and severally liable for the whole, had relied on the assurance by making repayments, and it was inequitable for the finance company to later demand full repayment of the debt. Hence, promissory estoppel could circumvent the common law rule of Foakes. Promissory estoppel, however, has been thought to be incapable of raising an independent cause of action, so that one may only plead another party is estopped from enforcing their strict legal rights as a "shield", but cannot bring a cause of action out of estoppel as a "sword". In Australia, this rule was relaxed in Walton Stores (Interstate) Ltd v Maher, where Mr Maher was encouraged to believe he would have a contract to sell his land, and began knocking down his existing building before Walton Stores finally told him they did not wish to complete. Mr Maher got generous damages covering his loss (i.e. reliance damages, but seemingly damages for loss of expectations as if there were a contract). Yet, where an assurance concerns rights over property, a variant "proprietary estoppel" does allow a claimant to plead estoppel as a cause of action. So in Crabb v Arun District Council, Mr Crabbe was assured he would have the right to an access point to his land by Arun District Council, and relying on that he sold off half the property where the only existing access point was. The council was estopped from not doing what they said they would. Given the complex route of legal reasoning to reach simple solutions, it is unsurprising that a number of commentators, as well as the Principles of European Contract Law have called for simple abandonment of the doctrine of consideration, leaving the basic requirements of agreement and an intention to create legal relations. Such a move would also dispense with the need for the common law doctrine of privity.

Read more about this topic:  English Contract Law, Formation