Explain how the doctrine of consideration relates to the doctrine of promissory estoppel.

by fakhra_jabeen (student)

SRN: 1047617

For one to understand the concept and depth of the doctrine of consideration we must first understand the complex nature of promissory estoppel and once we have grasped an understanding only then can we fully understand how the doctrine of consideration relates to the doctrine of promissory estoppel.

To define promissory estoppel “ where, by words or conduct, a person makes an unambiguous representation as to his future conduct, intending the representation to be relied on and to affect the legal relations between the parties, and the representee alters his position in reliance on it, the representor will be unable to act inconsistently with the representation if by doing so the representee would be prejudiced” (McKendrick, 2013, p. 94)

Another perspective on promissory estoppel as defined by Lord Birkenhead in Maclaine v Gatty [1921] 1 AC 376, 386, in the following terms: where A has by his words or conduct justified B in believing that a certain state of facts exists, and B has acted upon such belief to his prejudice, A is not permitted to affirm against B that a different state of facts existed at the same time” (McKendrick, 2013, p. 90). Essentially what Lord Birkenhead was implying was A could not enforce a term of a contract and then sue B for a breach if A had promised B they would not enforce the term. This is the basic foundation to promissory estoppel.

The development of Promissory Estoppel first arose by Denning J in Central London Property Trust Ltd v High Trees House Ltd [1947] KB 130 (‘High Trees’). (Poole, Textbook on Contract Law, 2012) “In High Trees, Denning J suggested in an obiter dictum that where the conditions of promissory estoppel were satisfied, a creditor could not go back on a promise to accept less (and not to sue for the balance) where it would be inequitable to do so despite the absence of consideration to support the promise. In other words, the creditor could not go back on a promise to not to enforce payment of the whole sum where the promise had been relied upon” (Poole, Textbook on Contract Law, 2012, p. 145).

There are 5 requirements for promissory estoppel to be adhered to in order for there to be a successful claim and these elements go hand in hand with consideration.

Firstly “ the doctrine operates only where there is a clear and unequivocal representation that strict rights will not be enforced “ (Poole, Textbook on Contract Law, 2012, p. 147). What the courts are saying here is that “ the promise or representation must be clear and unequivocal so that the promisor does not lose his rights simply because he has failed throughout to insist upon strict performance of the contract by the promisee “ (McKendrick, 2013, p. 95). This was established in the case of Woodhouse AC Israel Cocoa SA v Nigerian Produce Marketing Co Ltd [1972] AC 941, House Of Lords (Burrows, 2007, p. 140) whereby Viscount Dilhorne said in his speech with regards to this case “ to found an estoppel, the representation must be clear and unequivocal.” (Burrows, 2007, p. 141). One thing to note here is , Within his speech he used the term “waiver” alongside estoppel, which sparks a debate as judges must be careful because that language is broad enough to refer to consideration (Burrows, 2007, p. 141) and this happens often enough whereby a judge will refer back to the doctrine consideration when illustrating a point on promissory estoppel in order to demonstrate that either these two doctrines can or cannot coincide together.

This is a preview of the whole essay

The second element of promissory estoppel is “ that the promise or representation must have been relied upon by the promisee” (McKendrick, 2013, p. 95) this essentially means “ there is no need for detrimental reliance. Mere reliance (i.e. acting on) the promise is sufficient” (Burrows, 2007, p. 144) or an alternative school of though on that is that “it is sufficient to show that the promisee committed himself to a course of action which he would not otherwise have adopted “ (McKendrick, 2013, p. 95). This highly relates to the doctrine of consideration as a traditional definition of consideration as defined in Currie v Misa (1875) LR 10 Ex 153, 162 Lush J stated, ‘ A valuable consideration, in the sense of the law, or some forbearance, detriment, loss or responsibility, given, suffered, or undertaken by the other’ (Burrows, 2007, p. 87) essentially this is the forefront of the controversial debate on promissory estoppel and consideration, as the argument is, a promisee relying on a ‘gratuitous’ promise without no consideration in which promisors going back on these said promises or not honoring that said promise and using the basic contract law as their argument which is “ the requirement of consideration means that each party must receive or be promised something in return for giving or promising something.

Consideration is therefore the legal description of the element of exchange and its practical effect is to ensure that gratuitous promises are not binding” (Burrows, 2007, p. 87)

A third necessity of promissory estoppel is that “it must be inequitable to allow the promisor to go back on his promise “ (Poole, Casebook on Contract Law, 2012, p. 157). With regards to this constraint of promissory estoppel “this will usually be satisfied by demonstrating that the promisee has acted in reliance upon the promise” (McKendrick, 2013, p. 95). This strongly coincides with the doctrine of consideration as stated by Lord Denning in the case of WJ Alan and Co Ltd v El Nasr Export and Import Co [1972] 2 QB 189, Court Of Appeal (Burrows, 2007, p. 142) “there may be no consideration moving from him who benefits by the waiver. There may be no detriment to him by acting on it. There may be nothing in writing. Nevertheless, the one who waives his strict rights cannot afterwards insist on them.” (Burrows, 2007, p. 142) . What essentially Lord Denning is stating here is one cannot make a gratuitous promise within contract law albeit with or without consideration and then decide not to follow through with it.

The fourth ingredient is that the influence of promissory estoppel is usually suspensory, this basically means that it does not extinguish or reduce the promisors right (McKendrick, 2013) as shown in Hughes v Metropolitan Railway Co (1877) 2 App Cas 439 (HL) (Poole, Casebook on Contract Law, 2012). However a contrasting case for this is “ Tool Metal Manufacturing Co Ltd v Tungsten Electric Co Ltd [1955] 1 WLR 761, House of Lords” (Burrows, 2007, p. 148) whereby it did extinguish rights , as they only “promised” to suspend their right to compensation only pending a new agreement (Burrows, 2007, p. 150) which brings the debate right back to the defence of promissory estoppel as a use of an exception in consideration.

Promissory estoppel delivers a condition in which promises may be made legally binding even if there is no consideration which leads me onto my final component which is, promissory estoppel cannot act as a cause of action (McKendrick, 2013, p. 95). This was demonstrated in the case of Combe v Combe [1951] 2 KB (CA) (Poole, Casebook on Contract Law, 2012, p. 152) as famously said by Birkett LJ in the Combe v Combe case “ promissory estoppel can be ‘used as a shield not a sword’. It cannot be used to force a party to comply with a promise, and can only be used to prevent a party from ignoring his promise that he would not insist on his strict legal rights” (Poole, Casebook on Contract Law, 2012, p. 154)

This quote is taken from Professor Atiyah’s conventional view on the doctrine of consideration and promissory estoppel “ consideration means nothing more than a good reason for the enforcement of a promise and the reasons, relied on by the courts in the past, cannot be straight-jacketed into the conventional description. It is especially noteworthy that , on his view, it is nonsense to treat ‘promissory estoppel’ as an exception to consideration” (Burrows, 2007, p. 151). To summarize this essentially what professor Atiyah’s school of thought here is there needs to be reforms as we cannot progress if we still follow “conventional” views of the law.

With regards to whether the current legal position, in relation to the enforceability of a creditor’s promise to accept less than the full debt is justifiable there are numerous amounts of opinions on this topic and I am now going to explore and discuss these different views.

Firstly I will begin by explaining the hypothesis behind this debate of a promise to accept less which is as follows “ a creditor may be owed £1,000 but agree to accept £800 from the debtor in full and final settlement of the debt. However, the general rule is that, since such promises are unsupported by consideration, they are not binding” (Barrow, et al., 2012, p. 99). What this essentially means is that an individual may be prepared to accept less money for what is owed however as there is no consideration given for this it cannot be contractually binding.

” Promises to accept less than is owed under the existing contract have long troubled English courts. The problem is easily illustrated in Pinnel’s Case (1602) 5 Co Rep 117a (Poole, Textbook on Contract Law, 2012, p. 138) whereby “it was held that a promise to accept less and not to sue for the balance (such as that made by A) was unenforceable unless B (as promisee) gave some new consideration for it. If B only part performed the existing obligation to repay the debt, that was insufficient to support the promise to accept less since B was doing no more than B was already bound to do” (Poole, Textbook on Contract Law, 2012, p. 138).

This general rule that a promise to accept less is not good consideration was set out in Sir Edward Coke’s obiter comments. (Barrow, et al., 2012, p. 99). This was later confirmed in Foakes v Beer (1883-84) LR 9 App Cas 60 (Barrow, et al., 2012, p. 99). This center turning case sparked the debate on the divided opinion of whether promises to accept less is good consideration and whether or not it can be used in a court of law or whether or not to change the whole legislature on the law itself as said by Earl Of Selborne Lc in his judgment of Foakes v Beer “ the question, therefore, is nakedly raised by this appeal, whether your Lordships are now prepared, not only to overrule, as contrary to law, the doctrine stated by Sir Edward Coke to have been laid down by all the judges of the Common Pleas in Pinnel’s Case 5 Rep. 117a in 1602 … but to treat a prospective agreement , not under seal, for satisfaction of a debt , by a series of payments on account to a total amount less than the whole debt , as binding in law, provided these payments are regularly made” (Barrow, et al., 2012, p. 100). What Selborne is saying here to the other Judges and Lords is whether they would be willing to change the law and future cases that have promises to accept less as binding. He essentially did not want anymore-unjust verdicts to be given due to the law , as creditors have found a loophole in trapping vulnerable people if they cannot pay the debt off.

“ On the other hand, provided something was given, the court is not entitled to inquire whether what was given was equal in value to the promise made. For example , the courts accepted that payment in kind (‘a horse, a hawk or a robe’), if accepted by the creditor, could constitute the necessary consideration” (Poole, Textbook on Contract Law, 2012, p. 138). This is a way to get around the consideration element in a promise to pay less as if something was given and the creditor accepted it this would be the necessary consideration needed in order for it to be legally binding in court whether or no the thing given is equal in value to the promise made.

A leading case which is quite contrary to the promise to accept less is promising to pay more for an existing contractual duty which was shown in the case of “ Williams v Roffey Bros & Nicholls (Contractors) Ltd [1991] 1 QB 1, Court of Appeal “ (Burrows, 2007, p. 106) in which the question arose by “ Glidewell LJ: Was there consideration for the defendants’ promise made on 9 April 1986 to pay an additional price at the rate of £575 per completed flat?” (Burrows, 2007, p. 106). This case demonstrated the divided opinion on consideration as a whole. It was held in Williams v Roffey Bros 1991 as agreed by the judges in the court on Glidewell LJ’s judgment “ the defendants promise to pay the extra £10,300 was supported by valuable consideration, and thus constituted an enforceable agreement” (Burrows, 2007, p. 108)

“ The decision in Williams v Roffey Bros highlights the pragmatic approach to finding consideration which some courts are prepared to take in order to hold a particular promise to be binding in the light of the general context in which it was made. There was always likely to be a gradual progression away from the technical analysis if benefit and detriment towards the more impressionistic notion of inducement, thereby allowing the judges greater freedom to decide according to the flavor of the transaction whether agreements and promises should be treated as binding” (Poole, Textbook on Contract Law, 2012, p. 141)

There are a number of views on the topic of promises to accept less , whether or not it is justifiable is dependent on the nature of the case and how the outcome would affect future cases. In my opinion the law on promises to accept less needs to be reformed and revised as said by Earl of Selborne , however with that there is the clouding thought of what happens if the law is changed and how it would affect the doctrine of consideration.

Bibliography

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