Outmoded or Even Redundant

(a) Is the doctrine of consideration “outmoded or even redundant” now and why?

To determine the relevance of consideration, we first need to understand the definition of consideration.

Consideration is “an act, forbearance, or promise [given] by one party to a contract that constitutes the price for which he buys the promise of the other”.

The doctrine of consideration consists of three general rules for consideration to be valid. Firstly, consideration must be of either executed or executory nature. “Past consideration is not sufficient to make a promise enforceable”. Secondly, consideration must move from the promisee. Finally, the consideration must be sufficient but need not be adequate.

I believe that these requirements of the doctrine of consideration may be outmoded and even redundant. There is, however, room for improvement.

Both the first and second rules have not generated much dispute as they are rather straightforward and self-explanatory. It is, however, the third rule that has generated much controversy and difficulties for the courts.

The third rule states that consideration must be sufficient but need not be adequate. The law also states that “where the promisee is already under a contract to perform an act and the same act is the purported consideration, this amount to insufficient consideration”. This area has been the most problematic as can be seen through the inconsistency of judgements.

The case of Stilk v Myrick (1809) reinforces the rule above where the performance of an existing contractual duty to the promisor is insufficient consideration. However, the more recent case of Williams v Roffey (1991) indicates that the “discharging [of] an existing duty owed to the promisor may constitute good consideration”.

More uncertainty was created in a subsequent Court of Appeal decision, Re Selectmove Ltd (1994) whereby the court held that paying for a tax liability, an existing duty, which had been owed to the Inland Revenue does not constitute good consideration, hence disregarding the “broad principle in Williams v Roffey”.

The case of Foakes v Beer (1884) led to arguments about the disregard for the adequacy of consideration whereby “the common law will not inquire…the fairness of the consideration, as long as the parties agree to it willingly”. It also allows the creditor to go back on his promise by citing insufficient consideration from the debtor for the new promise. All these cases of inconsistent rulings indicate the need for improvements as the doctrine is rather outmoded.

Furthermore, Rajah JC pointed out in Chwee Kin Keong v Digilandmall.com Pte Ltd (2004) that “contract law requires very little to find the existence of consideration…courts…have gone to extraordinary lengths to conjure up consideration (as in Williams v Roffey)”, and that “factual [not legal]…benefit…is sufficient consideration”. The ease and obsession of finding consideration devalues the doctrine, making it redundant.

(b) Do you agree with the observations on the Williams v Roffey case contained in the extract?

Yes, I agree.

It was observed that “Williams has, by introducing the concept of a factual benefit or detriment, led…to a practical redundancy [of the doctrine of consideration]”.

In this case, the court held the view that even though there was no legal benefit to Roffey, the contractual modification had in fact benefited Roffey practically. Looking at the practical benefits, it was clear that Roffey would have received all these benefits anyway under the original contract. There were no extra benefits being created by the modified contract. In fact, it was because of these benefits which resulted in the formation of the original contract. The fact that Roffey managed to avoid the penalty of late completion because Williams continued the work was the very reason Williams was employed initially. However, the court held that this amounted to fresh consideration. It seems that this is yet another consideration being conjured up by the courts. It is still anybody’s guess as to whether the practical benefits were so great such as to ignore the need for a legal benefit.

The case of Williams v Roffey has thrown the doors of the doctrine of consideration wide open. As long as there is practical benefit to a party, such promises to perform existing duties can now be regarded as sufficient consideration. It is also increasingly difficult for the other party to defend against such modified contracts because it would be easy to find some kind of benefit received which amounts to consideration.

It appears that “the tendency of the courts in recent years has been to favour the approach [whereby the promisor received a practical benefit] for reasons both of commercial reality and of developments in the area of economic duress”. This change in mindset seems to imply that the importance of consideration has been greatly reduced now. Consideration has become more of a troublesome requirement where the courts forcefully conjure up than an element necessary in contract formation.

It is clear that Williams v Roffey seems to affirm the idea about the redundancy of the doctrine of consideration due to the change in mindset of the courts and hence I agree to the observation above.

(c) Do you find the alternatives outlined in the extract to be feasible options to the doctrine of consideration?

One alternative stated was the doctrine of unconscionability. Unconscionability refers to “a defense against the enforcement of a contract based on the presence of terms unfair to one party. Typically, such a contract is…unenforceable because the consideration is lacking or…inadequate”. It appears that the doctrine of unconscionability is a rather strong alternative since it applies when consideration is absent, which will be the case if the doctrine of consideration is abolished. However, one drawback is that it is a new doctrine. Thus it does not have many cases to establish its strength and prove its reliability.

Another alternative would be undue influence. “Undue influence is an equitable doctrine that involves one person taking advantage of a position of power over another person. It is where free will to bargain is not possible”. Together with unconscionability, the doctrine of undue influence would provide a strong alternative as it “has been relatively well established in the landscape of the common law of contract”.

One other alternative would be economic duress. If a party “enters into a contract on unfair terms or transfers property for consideration which is grossly inadequate, where his bargaining power is grievously impaired by reason of his own needs or desires, or by his own ignorance or infirmity coupled with undue influence or pressures brought to bear on him by or for the benefit of the other party”, the contract is considered void. This doctrine seeks to provide a level playing field for both parties such that no unfair benefit or loss will be conferred to any party. The only drawback, once again, is its relatively “recent origin by common law standards”, hence not having many cases to establish its foothold and leaving the doctrine exposed to potential pitfalls.

Another alternative stated would be estoppel. Estoppel “provides for the creation of legal obligations if the promisor has given another assurance and the promisee has relied on the assurance to his detriment”. There have been suggestions to replace consideration with promissory estoppel. However, the restrictions on the rule whereby it “can only be used as a shield and not a sword”, and the question on the effect of estoppel being suspensory or extinctive, makes the doctrine of estoppel a less feasible choice as a replacement for consideration.

Ultimately, all doctrines have their difficulties, and all are capable of functioning as alternatives to consideration. It is up to the court to decide which doctrine to use so as to minimise the difficulties faced.

(d) What practical difficulties to the enforcement of promises might arise if the element of consideration is diluted or abolished altogether?

The function of the doctrine of consideration is to decide what promises should be enforced and what legal obligations should be imposed. There is a need for such functions. Hence, the abolition of the doctrine would leave the performance of such functions to other legal rules. As mentioned earlier, the alternatives stated in the previous question might fill up the void and provide fair, acceptable and perhaps consistent results that consideration may lack.

However, the abolition of consideration might give rise to certain issues. With regards to social and domestic agreements, the courts would still be reluctant to enforce promises in such cases even as consideration is abolished. The courts used to refuse enforcement because there is no good consideration for them. However, with the abolishment of consideration, the court now has to come up with a separate legal doctrine to remove any legal element to these agreements.

It is clear that by abolishing consideration, the courts would once again consider what types of promises should be enforceable. The court would have to create new legal doctrines to these promises to replace the consideration rule. Ultimately, there would be no change to the legal result. Contracts that used to be non legally-binding will still not bind while those that used to be legally-binding will continue to be so even if consideration is abolished.

As for cases involving one party trying to force a contract discharge by unfair pressure, with the abolishment of consideration, there is a need for a new doctrine to replace it. It appears that the intended function that we are looking for in such a doctrine is one that provides a fair result for judgements. A discharge may be regarded as unfair if one party gets an unreasonably good bargain, perhaps due to superiority in bargaining power over the other. However, by striving to look for a new doctrine so as to prevent such an event from occurring would eventually bring us back to the doctrine of consideration again as we are once again judging decisions of cases based on benefits and losses.

Such difficulties in replacing consideration arise because consideration has been firmly entrenched into our everyday lives such that abolishing it would be extremely difficult.

It seems that dilution of consideration is perhaps the recommended approach now. Since the application of consideration resulted in somewhat inconsistent results, while the abolishment of consideration is unthinkable as stated above, it appears that dilution would be the best policy. The courts will be open to a range of legal doctrines to choose from so as to produce fair results. However, as the extract suggested “problems of theoretical coherence may remain and are certainly intellectually challenging”, dilution may once again lead to inconsistent results as different doctrines may lead to slightly different outcomes.

Bibliography

• Martin, E.A., A Concise Dictionary of Law
• Tabalujan, B.S., Valerie Du Toit-Low (2009). Singapore Business Law (5th Ed.). BusinessLaw
• “A Coda on the Doctrine of Consideration” from Gay Choon Ing v Loh Sze Ti Terence Peter [2009] SGCA 3
• Geoffrey Samuel (2001). Law of Obligations and Legal Remedies (2nd Ed.)
• Stilk v Myrick (1809) 2 Camp 317 and 6 Esp 129
• Williams v Roffey Bros. & Nicholls (Contractors) Ltd [1991] 1 QB 1
• Foakes v Beer (1884) 9 App Cas 605
• Chwee Kin Keong and Others v Digilandmall.com Pte Ltd [2004] SGHC 71
• http://en.wikipedia.org/wiki/Unconscionability
• http://en.wikipedia.org/wiki/Undue_influence
• http://en.wikipedia.org/wik