Promissory estoppel and consideration Essay Example
Promissory estoppel is of a different nature from the doctrine of consideration. Some may contend that it is unnecessary to have promissory estoppel since consideration will suffice for justice; there are also economic arguments that extra costs may be involved to disclaim promissory intentions in a gratuitous promisei. I however, disagree and the reasons are as follow.
Doctrine of consideration
In order for a contract to be valid, consideration has to be present. It is one of the tests of legal enforceability. The basic idea is that of 'reciprocity'ii, in order to acquire the right to enforce an undertaking, a party must undertake or actually give something stipulated by the other as the price.
The requirement of nexus must be met. Firstly, consideration must move from the promisee, but it need not move to the promisor....
A third party can enforce a contract made for his benefit. iv Secondly, consideration has to be requested by the promisor. In Combe v. Combev, the court held that the husband had not requested the wife not to apply for maintenance and thus the promise to pay wasn't enforceable. Thirdly, past consideration is not good consideration.
The consideration was already completed before the promise is made, nothing new is given in return. This is illustrated in the case Eastwood v. Kenyonvi where the guardian was unable to enforce the promise given by the girl's husband since he borrowed the loan before the girl married her husband. vii viii Flexibility is reinforced by the rule that consideration must be sufficient but need not be adequate. That is to say the courts will not enforce a promise unless something 'of value' is given in return
but the 'value' is not questioned on its adequacy.
Pre-existing duties are differentiated into three categories. The first is imposed by the general law, and the rule is these usually don't constitute as consideration except when they don't undermine public policies. Ward v. Byham shows this where the father of an illegitimate child had to pay the mother in keeping the child 'happy' as the court felt this was beyond her legal duty.
The second type is through a contract with a third party. This is generally regarded as valid consideration. Authority is from Shadwell v. Shadwellx. The court held that the nephew provided consideration by marrying the woman even though he was already contractually bound to do so.
The third type is by contractual duty to the promisor. Two different strains are considered. The first is 'same for more'. According to Stilk v. Myrickxi , there is no consideration in performing an existing contractual duty owed to the promisor as there is no legal benefit. In Williams v. Roffey Brothersxii, the defendant(R) agreed to pay extra to ensure that work was completed on time. The court identified several practical benefits, such as Roffey avoiding the expense of obtaining a substitute and the penalty payment for late performance.
Therefore the Court of Appeal awarded to Williams. This case is authority for the proposition that consideration need not be any legal benefits or detriments. Practical benefit moving from the promisee is enough. Moreover, any concerns that improper pressure is applied to promisor to induce him paying more should be dealt under the doctrine of economic duress.
The second strain is 'less for the same', which is part-performance. Usually a promise to
accept part payment of a debt in discharge of the whole debt is unenforceable because there is no consideration. This is illustrated in Foakes v. Beerxiv. Beer promised to abandon her claim to interest on the debt but it was held that her promise to forbear was unsupported by consideration as there was no legal benefit, even though it was obvious that there would be practical benefit for getting part payment, and the court allowed her to claim the interest back. This apparent incompatibility was considered in Re Selectmovexv. Peter Gibson LJ refused to recognise practical benefit in such cases as valid consideration since the extension would leave Foakes v. Beer without any application.
Law on promissory estoppel
In the absence of consideration, where there is no formal exchange, parties may seek to enforce promises on promissory estoppel. It enforces promises where reliance is induced, of which 'less for the same' could be part of.
Promissory estoppel is part of a broader equitable principle which Lord Denning describes as 'a principle of justice and equity'xvi. The foundation for promissory estoppel is Hughes v. Metropolitan Railway Coxvii. The landlord(H) gave a six-month notice to the tenant(M) requiring him to carry out repairs. The landlord entered into negotiations for the purchase of the lease but when these negotiations broke down, he sought to forfeit the lease as the tenant's failed to repair in the original timeframe. The House of Lords held that the tenant was entitled to equitable relief against forfeiture on the ground that the running of the six-month period was suspended during the negotiations to purchase the lease and did not recommence until the negotiations broke down.
resurrected by Denning J in the prominent case of Central London Property Ltd v. High Trees House Ltdxviii. In 1937 the claimants(C) let a block of flats in London to the defendants(H) at an annual rent of ½2500. In 1940, the war caused evacuation of people and the defendant could not sublet enough flats to generate the rent so the claimant agreed to halve the rent. When the property market returned to normal and the flats were fully let, the claimant requested and the defendant refused to resume payment of the entire rent. Denning J held that the claimants were entitled to demand the entire rent from the date of their notice in 1945. This means that the claimant would be estopped from back payment of the rent forgone between 1940 and 1945 had they sought it.
Both cases above shows the equitable principle and illustrates the protection of promisees who have relied on promises given by promisors. The five elements of promissory estoppel that construct a threshold so that not all promises could be enforced will be discussed here.
The first is that there must be a clear and unequivocal promise or representation. The promise need not be express but can be implied as in Hughes v. Metropolitan. Secondly, the promisee must have relied on the promise or representation. This is conventionally known to require detrimental reliance so that the promisee would be worse off if the promise is revoked. Thirdly, it must be 'inequitable' for the promisor to go back on his promise. This is shown in Re Selectmove as mentioned where the court held it was not inequitable for the Revenue to demand immediate
payment since they were given extra time, a practical benefit. Fourthly, the effect is generally suspensory as seen in Hughes and not extinctive, seen in High Trees. The promisor may, on giving due notice, assert his original rights.
The potential for the promisor to reassert his original rights under promissory estoppel shows that it is not primarily an instrument for the enforcement of a promise, but one for preventing injustice to the promisee by protecting reasonable reliance. Therefore, in situations where there is no consideration yet there is a clear promise, the promisor would not be able to exploit the promisee even though the promise was not part of an exchange. The final point is that promissory estoppel cannot act as a cause of action and only operates defensively against a claim made by the promisor.
Relationship between these doctrines
The last characteristic could be used to form the basis of the relationship. Promissory estoppel traditionally acts as a shield where it prevents the promisor from enforcing his given up original rights.. It cannot act as a sword to allow the promisee to sue for more than his original rights or a new cause of action where the parties had no pre-existing legal relationship. The reason for this restriction is to avoid undermining consideration as the primary test of contractual liability. Although consideration covers considerable ground for enforcement of contractual liability, promissory estoppel is necessary so as to bridge the gap where practical benefits are not considered in a 'less for the same' situation, it can be used as a defence and protect the promisee from injustice.
Promissory estoppel and consideration can be seen as resting on different grounds.
Consideration gives an action in contractual terms for the enforcement of the promisee's full expectation whereas promissory estoppel responds to the unconscionable inducement of the promisee's reliance and seeks to avoid the detriment which the promisee would suffer if the promisor withdraws his promise. This relationship has also been analysed by the High Court of Australia in Waltons Stores (interstate) Ltd v. Maherxxi.
The judges rejected the defendant's claim that since the parties had no pre-existing legal relationship there was nothing for promissory estoppel to relieve from. Thus in Australia, promissory estoppel can create a cause of action. Promissory estoppel is not founded on the payment of a price, but rather on the fact that promisor induced the promisee into an assumption that a contract will come into existence, and he thus relied on this assumption to his detriment which came to the promisor's knowledge. It is a tool for justice to be enforced.
In conclusion, a gratuitous promise where a promisor should reasonably expect to induce reliance on the promisee and thus action or forbearance to the detriment of him should be enforced to avoid injustice. It is necessary to have promissory estoppel since as shown above, consideration does not cover such grounds. Equity and justice should be the priority of the court and the doctrine of promissory estoppel can uphold this.
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