This topic of research is on consideration. The discussion will focus on the importance of the consideration and come out with a result of whether it should be dispensed. This will be discussed by taking into account the relevant cases and statutes.
The doctrine of consideration is a fundamental principle of English contract law, which necessitates that an agreement between parties must be backed by something of legal significance. The main idea behind of the doctrine is that there must be a form of reciprocity whereby a promisee cannot enforce his promise unless he puts forward a promise or contributed to something in exchange for his promise. The authoritative definition of the doctrine was outlined in Currie v Misa, where it said that, ‘a valuable consideration in the sense of the law, may consist either in some right, interest, profit or benefit occurring to the one party, or some forbearance, detriment, loss or responsibility given, suffered or undertaken by the other.’
Consideration has four distinct rules. First, consideration may be executed, executory but not past. Executory consideration arises when consideration takes the form of promise to be performed in the future, while executed consideration occurs when the act constituting the consideration is completely perform. However, past consideration is seems as no consideration, which can defined as if the promise is made after the act in relation to which it was given, the act is past consideration and therefore does not amount to good consideration in law.
A case supported is Roscorla v Thomas, where a promise that a horse was of sound health was held unenforceable since it had been given after the sales which means the consideration for that promise was past. However, there is some exceptional circumstances. In Pao On v Lau Yiu Long, where stated that past consideration is good consideration if past services was rendered at promisor’s request, or when there was an implied understanding that such a service would be remunerated reasonably, also it would not be illegal to make such a payment at the time promise was made.
Second, consideration must be sufficient but need not be adequate. According to Professor Trietel, consideration must possess some “economic value”. If consideration has some value, the court will not inquire into the ‘adequacy of the consideration’ which is equal in value. In Chappell ; Co Ltd v Nestle Co Ltd, where three chocolate wrappers were considered good consideration, despite of their low economic value.
Third, sufficiency of consideration. If the promisee is under a legal duty to perform that act, it does not amount to consideration. In Collins v Godefroy, where plaintiff had been subpoenaed by the court to testify, so the defendant’s promise of a sum of money for him to attend the trial and testified was insufficient as the plaintiff was under duty to do the act. However, if the contractual of duty exceeds the legal duty, the performance of contractual duty may provide consideration. In Ward v Byham, where it was held that the mother who exceeded the statutory duty by promising to keep the child happy respectively were deemed sufficient consideration.
In addition, if the promisee’s consideration is what he bound to do under an existing contract, it does not amount to sufficient consideration unless promisee does more than his contractual duties, where the nature of duty has changed which become more risky or substantially different from what was originally agreed upon, then the performance of any work in relation to a subsequent promise will be sufficient consideration. In Stilk v Myrick, where it was held that the captain’s promise to divide the wages of two deserted seamen to the remainder crews is not binding as they were bound under the original contract to complete the voyage.
An exception of the rules that erodes the rule of an existing duty not being consideration is the judicial concept of a ‘practical benefit’ which arose in the landmark case of Williams v Roffey Bros & Nicholl (Contractors) Ltd, where it was held that the part-performance of an existing contractual obligation was sufficient consideration for the defendant’s promise to pay extra money, as the defendant had derived a benefit from the completion of refurnish, which they evaded the ‘penalty clause’. The judgement was seen as an anomaly in the law, as it distinguished the previous case of Stilk v Myrick. It changed the application of consideration as it allowed the enforcement of a promise for an existing duty. Glidewell L.J. believed that Williams’ case has caused many departures within the Law, by resulting in a more flexible application of the consideration doctrine. The dissatisfaction with the function and scope of consideration in light of the decision in Williams’ case, which has led many to consider whether this doctrine should be replaced, in particular with promissory estoppel.
Promissory estoppel is one of the defence to the rule in Pinnel’s case under part payment, which is the fourth district rules of consideration, where “payment of a lesser sum on the day in satisfaction of a greater sum cannot be any satisfaction of the whole.” This rule was resurrected in Foakes v Beer, where it was held that Mrs Beer was entitled to the £360 interest as Foakes has not brought her promise to take no further action on the judgement which had provided no consideration. There are some exception of the rule. First, it does not apply if there is a genuine dispute about whether the debt is actually owed, or about the amount owed. Second, unliquidated damages. Third, composition agreements are binding. Forth, when a creditor who accepts part payment from a third party, in full settlement of the debtor’s liability, cannot then sue for the outstanding amount, and lastly, promissory estoppel.
The doctrine of promissory estoppel is a promise intention to be binding, intended to be acted upon, and in fact acted on, is binding so far as its terms properly apply, which means a promise can be binding even where there is no consideration. It is derived from equity and is therefore sometimes known as equitable estoppel. It is developed by Lord Denning in Central London Property Trust v High Trees House Ltd, where the plaintiffs succeeded in their claim although Lord Cairns stated obiter dictum that a promise may be enforceable on the basic of promissory estoppel where consideration was lacking. Therefore, it t shows that it can be applied in the cases where consideration is absent.
However there are five prerequisites must be fulfilled in using promissory estoppel. First, there must be an obvious and ambiguous promise. In Woodhouse A.C Israel Cocoa Ltd SA v Nigerian Produce Marketing Co Ltd, where a contract for the sale was agreed to be paid in pound sterling. The sellers mistakenly sent an invoice stating price was payable in Kenyan shillings. At the time the value of pound sterling and Kenyan shillings was equal. Subsequently the value of the pound fell in relation to Kenyan shillings. The buyers then sought to revert to pound sterling as stated in contract. It was held that the buyer’s conduct in accepting the invoice unquestionably amounted to an implied clear and unambiguous promise to accept on those terms.
Second, the doctrine can only applies as to variation or discharge of an existing contract and does not affect on formation of a new contract. That is, it does not create a cause of action where none existed before. It is usually stated as ‘promissory estoppel operates as a shield and not a sword’, which means that it can only be used as shield to prevent a party from ignoring his promise but not be used to sword a party comply a promise. In Combe v Combe, where a couple seeking to divorce. The wife did not apply for maintenance. The husband promised to pay her and she sought to enforce the agreement. It was held that promissory estoppel cannot be used to create a cause of action where non-existed before. The wife sought to use promissory estoppel as sword but not shield.
Third, the promisee must have acted in reliance on the promise, in the sense that it must have influenced their conduct. Lord Denning, in WJ Alan & Co Ltd v El Nars Export and Import Co, has consistently denied that the promise must have suffered some detriment as a result of reliance on the promise, where he said that all require is that the promisee has been ‘led to act differently from what he otherwise would have done.’
Forth, promissory estoppel can usually only be used to prevent being exercised for a period of time, which is suspended but not extinguished. In Tool Metal Manufacturing Co Ltd v Tungsten Electric Co Ltd, where the appellants granted the respondents a licence to import certain metal alloys. The respondents agreed to pay royalty and additional payment of compensation if the import exceeded a certain amount. They payment was suspended after the outbreak of war. The appellants claimed the compensation under the original agreement. It was held that the appellants can revive the legal entitlement to receive the compensation payments on giving reasonable notice to the other party. In other words, rights can be revived for the future but not claimed back for the past.
Fifth, the promisee must have acted equitably. If the promise was extorted by threat, it would not be inequitable to allow the promisor to go back on his promise. In D&C Buiders Ltd v Rees, where the plaintiff had carried out building work of the defendant for the value of £482. The defendant’s wife knowing of their financial difficulties offered £300 in full settlement, saying that if they refuse to accept, nothing will be paid. The plaintiff accepted the cheque for £300 and gave a receipt ‘in completion of the account’. Later they brought an action to recover the remainder. It was held that promissory estoppel does not apply as the plaintiff’s promise was procured under pressure.
In conclusion, there have always been some critics of consideration in the last four decades that the doctrine has become out-dated, overly-complex and problematic because of the existence of promissory estoppel as a defence. However, the doctrine of consideration has been established in common law and it is a recognized chapter in all the law books. Despite there is a lack of suitable and perfect replacements, but should not simply be dispensed as it is still one of the significant pillars of showing the existence of a contract.