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Published: Fri, 02 Feb 2018
Whether status of consideration has been undermined
The most important issue on this essay is based on consideration aspects of English contract law. It is important to emphasize that consideration is the cornerstone of legally binding contract. This essay is based on fundamental analysis of consideration role by developments in relation with duress and estoppel. Consideration status will be explored beyond legal definitions in the context of economic duress and estoppel from the different viewpoints. One of the main purposes of this essay is to answer the question whether the status of consideration has been undermined by developments in relation to duress and estoppels. This essay is divided into three fundamental elements which are closely related. The first part is concentrated on legal consideration analysis in relation with the second part which is based on economic duress. The last part of the essay is focussed on estoppel legal approach. This essay will analyse each of these elements and the arguments surrounding them in relation to leading recent cases.
Firstly, it is very important to identify the legal definition of consideration. Academic writers find it difficult to define the consideration. Professor Atiyah describes the consideration as a good reason for enforcement of promise
i. Professor Treitel criticizes this legal definition because this definition seems to be vague and this definition is more description of the function of consideration and do not reflect the essential features of the consideration [ii] . Traditionally, consideration is accurately described using traditional benefit and detriment analysis which is the best way to enforce the contract. Promise must be supported by consideration if it is legally binding agreement. To sum up, the most simplistic definition of consideration is defined in Currie v Misa [iii] case: “A valuable consideration, in the sense of the law, may consist either in some right, interest, pro”t or bene”t accruing to one party or some forbearance, detriment, loss or responsibility, given, suffered or undertaken by the other”. The main difference between this consideration definition and older is that this definition cover broader scope of aspects which are very important analyzing the consideration. This definition is not meant to be complete definition of consideration, but it is sufficient guidelines to court to decide whether there is consideration. One of the purposes of this essay is to analyse essential features of the consideration and arguments surrounding them.
Moreover, it is important to analyse consideration from two angles. It is important to illustrate the distinction between unilateral and bilateral contracts leads to answer the question whether one or both parties provided consideration and when they provided the consideration. Unilateral contract is when person X promises to pay person Y if Y fulfil X request. In Carlill v. Carbolic Smoke Ball Co [iv] court developed that unilateral contracts are legally binding only to the promisor X who makes promise and did not bind to promisee Y unless Y accepts by performing the obligation of X offer. Until the promise Y performed the obligation, X had provided no consideration under the contract law. The truth is that promise is only contractually binding if the promisee has provided consideration for it. In Tweddle v Atkinson [v] case court developed the principle that consideration must move from the promise and detriment incurred or benefit must be conferred only by the promisee but not by someone else. Professor Treitel explains that promise can be regarded as consideration only if the performance is also regarded as consideration [vi] . The main different in bilateral contract is that both sides X and Y are bind at the time when they exchanges promises and promises are deems to be sufficient consideration. In other words, X’s promise is consideration for Y and Y promise is consideration for X. Moreover, both sides X and Y have rights and duties and consideration on both sides.
It is crucial to analyze whether sufficient consideration means that consideration is adequate. Traditionally, court distinguished legally sufficient benefit or detriment as opposed to factual benefit or detriment. It is obvious, that consideration must be sufficient, meaning that it must be something of value in the eyes of the law, but do not need to be adequate which is received in return. In Chappell & Co Ltd v Nestlé Co Ltd [vii] Nestle factory promised to send record to people who sent in postal order for 1s. 6d. and three chocolate wrappers. This case illustrates that benefit or detriment must be legally sufficient and that the law is not concentrated on the economic value of the consideration. The next point to consider is what benefits and burdens are legally sufficient. In White v Bluett [viii] sued father’s executors because the father had promised to pay him in return for him stop complaining about property distribution. Court stated that the son did not have right to complain, because his father could decide how to distribute his property and giving up his habit of complaining was not provided any consideration. This case illustrates that promise to perform act cannot be vague or uncertain. To sum up, good consideration will be even if the values of the things exchanged are not equivalent but it still needs to have some economic value [ix] .
Next thing to consider whether the courts enforce only bargains. It is crucial to analyse the meaning of bargain in contract law. Bargain meaning can be illustrated as a deal or exchange where two parties involve the exchange of something they requested from each other. In Chappell & Co Ltd v Nestlé Co Ltd court emphasized, that Nestle promise was a bargain, because Nestle requested chocolate wrappers as the consideration and it makes benefit conferred on Nestle. Traditional bargain analyzes was done in Combe v Combe [x] case where a man promised his ex-wife to pay 100£ but she could not apply to the court for maintenance. Crucial factor in this case was that court did not find evidence that Mr Combe asked her not to apply to the court. This case illustrates that act which was done by the plaintiff to detriment or loss can only be consideration if it was requested by the defendant. In Pneumatic Tyre Co. Ltd v Selfridges & Co. Ltd [xi] case court developed that consideration is the price which promise of other is bought. In other words, this judgment illustrates that every promisor intends to get something in return for the promise and he intends to create a bargain and promise which is given for value is enforceable. Next point to consider is whether there is consideration in Shadwell v Shadwell [xii] case where uncle, who promised his nephew if he married his fiancée he we would get annual sum of money until his income reach a certain level. The guidelines for this situation are simple question whether uncle bargains for his nephew marriage to his fiancée. In this particular case court ruled performance of a contractual obligation owed to a third party is a good consideration. Court ruled that in this particular situation nephew had either incurred a detriment by marrying his fiancée or had conferred a benefit on his uncle. This benefit is related to the fact that uncle must have wanted that his nephew married his fiancée. To sum up, promise is legally binding when the promisor has received a bene”t from the promisee or the promise has been relied on the promisee, who would now lose something if the promise is broken. Contrary, Professor Atyiah denies that bene”t to the promisor or detriment to the promisee are either suf”cient or necessary and that the law of contract enforces only bargains.
Next point to consider is whether performance of existing duty can be counted as legal benefit or detriment in oder to form consideration of promise. There are 3 different situations: existing contractual obligation and non-existing contractual obligations owed to third parties and existing contractual obligations owed to promisor. All these three situations are very important, but existing contractual obligations owed to promisor is related to economic duress and estoppel. One of the reason why court developed duress and promissory estoppels doctrine (both doctrines will be analyzed later in this essay) was to protect promisor from contractual modifications. Performance of contractual obligation already owed to the promisor can be easily explained: X makes promise to Y in exchange for doing Y something that Y is already contractually obliged to do. It is important to determine whether there is consideration for X promise if Y does nothing more as Y is obliged to do. This is well illustrated by Stilk v Myrick [xiii] case where two sailors deserted the ship during the voyage to London and captain promised to share their wages between the remaining crew if they continue the voyage. Captain failed to enforce his promise, because crew did not provide consideration for captains promise to pay extra, they only fulfilled contractual obligation to sail ship to London. Stilk v Myrick case can be contrasted with Hartley v Ponsonby [xiv] where court illustrated that a promise to pay more can be only enforceable if a legal benefit can be found, because the crew did more than it was expected of them to do. This doctrine seemed to be dominant until the controversial judgment in Williams v Roffey Bros & Nicholls (Contractors) Ltd [xv] case. In this case court took different legal approach than in Stilk v Myrick case because Roffey had to pay extra payments to Wiliams in oder to finish the work on time. Court ruled that, Roffey obtains practical benefit because they avoid special penalty clause in their contract and more structured payment scheme was put. This judgement developed that if promisor X obtains practical benefit or obviates a disbenefit it is sufficient consideration for promisor X new promise. To sum up, Stilk v Myrick case be contrasted with Williams v Roffey Bros & Nicholls (Contractors) Ltd, because the court reformed Stilk v Myrick that promisor can receive practical benefit, despite the fact, that promise do not nothing more than he is contractually obliged to do. In this particular case Court decision is relevant because the Court emphasized the need to highlight more the practical benefit than legal benefit. Next point is whether practical benefit can be identified as consideration for a promise to pay less. Court confirmed principle in Penny v Cole [xvi] case that the promise to accept part payment of the debt is not provided by good consideration, because debtor is contractually bound to pay not part of debt but to return the full debt. The court in Foakes v Beer [xvii] case confirmed that parties cannot discharge obligation by part of performance in full settlement of the debt. Court stated that promise to pay debt was not sufficient consideration, because there was no additional benefit moving from creditor. This judgment seemed to be controversial, because Lord Blackburn identified that timely payment of debt could give practical benefit in the context of business. In Re Selectmove [xviii] case, where there was possibility to reform Foakes v Beer rule, Court of Appeal could not apply Wililiams v Roffey Bross practical benefit approach to a promise to receive less because it would overrule House of Lords decision in Foakes v Beer case.
Secondly, it is important to determine whether doctrine of consideration is gradually replaced by economic duress. All parties must act freely if they want to enter legally binding contract. If party X is forced to make a contract with party Y by threat of violence and renders the contract voidable. In Occidental Worldwide Investment Corp. v Skibs A/S Avanti [xix] case court developed that duress could take the form of economic duress. This decision was confirmed in Pao On v Lau Yiu Long [xx] case. Court after Pao On v Lau Yiu Long decision usually emphasized the need to identify that it was not voluntary act. Academic writers criticize this factor. Professor Atiyah argues that it is better to concentrate on the nature of choice which is related to reasonableness of the alternatives. Indeed, cases illustrate that consideration and economic duress are often related. In Williams v Roffey Bros & Nicholls (Contractors) Ltd case court find the consideration as factual benefit was the absence of duress, but the court took different legal approach and ruled that in Adam Opel Gmbgh v Mitras Automotive [xxi] case the court although identified the consideration but there were all necessary requirements for economic duress and the contract was voidable. There are two main fundamental factors which helps the court usually to identify whether the pressure to breach of contract can lead to duress. The first one is the legitimacy of the pressure and the second one is causative effect of the pressure. Court illustrated that Williams v Roffey Bros & Nicholls (Contractors) Ltd can be typical example when the pressure can be legitimate to pay more than the party was obliged to pay, because the promisor enjoyed practical benefit from the promise. Court pointed out that in Adam Opel Gmbgh v Mitras Automotive case there was no reasonable alternative and the Adam Opel Gmbgh entered into the contract for the threat. Court emphasized that in North Ocean Shipping Co. Ltd v Hyundai Construction Co. Ltd [xxii] commercial pressure was illegitimate and victim’s decision to enter the contract was not voluntary. Vantage Navigation Corporation v Suhail and Saud Bahwan Buildings Material LLC [xxiii] and all above mentioned cases constitute illegitimate pressure and illustrates that consideration is being supplemented by economic duress principle, but not replaced. These all cases mentioned above can be contrasted with CTN Cash and Carry Ltd v Gallaher [xxiv] where court illustrated that threat to do lawful act may amount to duress.
Next issue to consider is discussion about estoppel which is significantly important in this work, because doctrine of estoppel made clearly that is possible to enforce the promises where you cannot constitute all traditional requirements of consideration. Academic writers usually illustrates Estoppel as a fundamental principle which prevents party X from making an allegation that contradicts what has previously stated as the truth to party Y. The main purpose of estoppel is to enforce the promises which are not supported by consideration. Although, there are different types of estoppel: estoppel by representation, estoppel by convention, but only promissory estoppel is closely related to our topic discussion, because promissory estoppel is associated with the future conduct in the context of contract law. In Hughes v Metropolitan Railway Co and Birmingham & District Land Co v London and Northwestern Railway Co [xxv] case court firstly recognised the promissory estoppel doctrine, moreover, this case became more famous for being used to support the decision in Central London Property Trust Ltd v High Trees House Ltd [xxvi] case where landlord promised to reduce half of the price during the war, because of lack of tenants. After the war, landlord forgot his promise and claimed the full contract price for the war years. The key question was whether the promise to reduce price was legally enforceable. Court estopped landlord from claiming extra rent and formulated High Trees principle which illustrates creative use of estoppel. Judgment of Combe v Combe case was based on the legal basis of High Trees principle, which emphasized that promissory estoppel can be used as a shield, but not sword – the main purposes of promissory estoppel is to block pre-existing obligations, where a new promise is not supported by consideration. Nevertheless, promissory estoppel is just a substitute which enforces promises when there is lack of consideration. High Trees principle can be adopted into Foakes v Beer and Re Selectmove cases where the court identified no consideration for part payment of the debt. Court should not allow for the promisor to insist upon his strict legal rights because it would inequitably on new promise on the legal basis of High Tress principle. Moreover, Denning J developed the requirements which are closely related to the promise: the first one is that promisor must intend it to be binding the second and the third is that promisor and promise must be acted upon and the forth one promisor behaviour of inconsistently with his promise. Later cases developed that there are other factors which must analyzed. Court in D&C Builders Ltd v Rees [xxvii] case illustrated that it was inequitable to insist full payments of debt because of bankrupt factor. It must be highlighted that detrimental reliance plays an important role in proving inequity. Moreover, Court ruled in Collier v P&M Wright (Holdings) Ltd [xxviii] promise to accept less money to discharge the debt give rise to promissory estoppel [xxix] . The last two points are that promise must be clear and unequal which was illustrated in Woodhouse AC Israel Cocoa Ltd. Sa v Nigerian Produce Marketing Co. Ltd [xxx] . The last point is that court emphasized in Tool Metal Manufacturing Co. Ltd v Tungsten Electric Co. Ltd [xxxi] that purposes of promissory estoppel in this particular case was not to extinguish rights but to suspend the rights. This case can be contrasted with Central London Property Trust Ltd v High Trees House Ltd case where court identified that to pay the rent during the was extinguished, but usually it depends on nature of the contract.
Taking everything into account, consideration is essential element of legally binding contract which role is very important enforcing the contract. The legal history of consideration illustrated that non bargain promises can be legally binding using the promissory estoppel doctrine. Recent case illustrates that consideration economic duress are related and they co-exist together. Consideration role is very important in legally binding contract despite the fact that economic duress and promissory estoppel influence on consideration is legally recognised.
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