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Consideration: Analysis of UK Jurisprudence

Any act of the plaintiff from which the defendant derives a benefit or advantage, or any labour, detriment or inconvenience sustained by the plaintiff, provided such act is performed or such inconvenience suffered by the plaintiff, with the consent, either express or implied, of the defendant[1].- Justice Brown

The doctrine of consideration, which has been explained by Justice Brown in the Carlill v. Carbolic Smoke Ball case, is a mandatory requirement in English Law before a contract can be enforceable, is generally perceived by lawyers as limiting or inhibiting individuals’ freedom to make binding legal contracts[2] . The main exception to the requirement of consideration is a contract made by deed (referred to in the past as contract by seal, since the deed required a seal until 1989)[3].

The doctrine of consideration is specifically known to limit the freedom of individuals to mainly two categories of arrangements, which are also known as ‘executory’ and ‘executed’ consideration.

But, now, the question being raised is of the relevance of the doctrine of consideration due to the fact that the entire doctrine could be practically evaded by the use of a deed[4].

Therefore, with the introduction of this above mentioned question (and others), I shall begin my paper on the relevance of the Doctrine of Consideration in the Law of Contract.

Upon the creation and the subsequent implementation of the Doctrine of Consideration in England, it has received flak every now and then for the past 200 years, regarding many issues, beginning with the view that agreements were binding in England, without consideration, merely because they were in writing to the Law Revision Committee reforms of 1937[5], which included the recommendation of the abolishment of Past Consideration[6].

But, in this paper, I shall go into details in the Doctrine that are disputed, first of which is Past Consideration.

According to Past Consideration, the consideration, being the price for the promise, should be given in response to and as inducement for the promise[7]. In this case, the past act may warrant why the promise was given, but it does not account for the consideration.

An example for this argument against Past Consideration is the case of McArdle, Re:[8], where in A had effected certain improvements to property, and the ultimate beneficiaries signed a document which promised to pay 488 pounds sterling in consideration of the alterations and improvements to property. An action to enforce this promise was denied since it was a nudum pactum, due to the presence of a promise without any consideration to support it.

Now, on to major arguments posed against the Doctrine of Consideration:
The Adequacy Argument:
It is a well-known rule that consideration must be sufficient, but need not be adequate. This is particularly apparent if one contrasts the decisions in Chappel v. Nestle and Ward v Byham, where the court held that three chocolate wrappers[9] and a promise to keep a child happy[10] respectively were deemed sufficient consideration, while the decision in White v Bluett, where a promise to refrain from complaining[11] was not deemed sufficient consideration. The problem is that if 'practical benefit' is now recognised then this was ignored in White v Bluett. Even if this case is viewed from a benefit/detriment analysis, then arguably the son did incur a detriment in not complaining.

Consideration Under Pressure?
The dissatisfaction with the function of consideration in light of the Williams v Roffey Bros decision has led many to consider whether this doctrine should be replaced, in particular with either intention to create legal relations or promissory estoppel.

a) Intention to Create Legal Relations
For an agreement to be legally binding, there must be an intention of both the parties to create legal relations. This is used to differentiate between social agreements (where there is a presumption that there is no intention to create legal relations) and business agreements (where the presumption is the opposite)[12]. The approach of Russel LJ in Williams v Roffey Bros seems to support the idea that consideration could become a part of an intention to create legal relations.

Yet if consideration were retained Williams v Roffey Bros could still be considered either a duress case or an example of where promissory estoppel can be used as a cause of action. The main advantage of adopting intention to create legal relations to enforce contracts would be legal certainty (evidenced by the social/business distinction), however Mindy Chen-Wishart has noted that there are several difficulties with using this doctrine in the same manner as consideration, namely the problem concerning the enforcement of gratuitous promises and her belief that replacing consideration with intention to create legal relations would 'simply to require the courts to begin all over again the task of deciding what promises are to be enforceable'[13] .

b) Promissory Estoppel
In English Contract law, promissory estoppel enforces a promise even if there is no formal agreement or consideration for the agreement. First used in Hughes v Metropolitan Railway, it was later defined by Justice Denning as, a promise was made which was intended to create legal relations and which, to the knowledge of the person making the promise, was going to be acted on by the person to whom it was made and which was in fact so acted on[14].

A considerable problem with estoppel replacing consideration is the rule that it can only be used 'as a shield and not a sword[15]'. A solution to this difficulty could be if the UK were to take the approach used in Australia, where in the seminal case of Waltons Stores (Interstate) Ltd v Maher, the High Court of Australia affirmed that estoppel could be used as a cause of action. In doing so the court has implied that estoppel has a role to play with the formation of contracts, not just their modification, and could thus be a replacement for consideration[16].

However Brennan J stated that despite allowing promissory estoppel as a cause of action it still performed a different function to consideration, since consideration protected the expectation interest of the contract while promissory estoppel was concerned with the reliance interest. Furthermore, in the absence of a unified doctrine of estoppel in the English jurisdiction it is unlikely it can be a viable alternative to consideration in its own right.

Vitiating Factors:
Vitiating factors within contract law aim to limit contracting parties exercising economic power. In terms of consideration, economic duress has evolved to take on some of its functions, with some support for the adoption of the doctrine of unconscionably to oversee the fair execution of contracts.

Economic duress involves a contracting party using their superior economic status illegitimately, which the courts initially interpreted meant the weaker party was coerced into contracting and had their consent vitiated. However this definition has now been refined, most illuminatingly by Lord Scarman, who instead saw duress as recognition of 'the victim's intentional submission arising from the realization that there is no practical choice open to him'[17].

With no Doctrine of Unconscionability in the English courts, some, notably Lord Denning in Lloyd's Bank v Bundy, have argued that English law does have scope to protect individuals from unconscionable conduct with others (namely Lord Scarman) emphasising it does not. The doctrine of Unconscionability has however been adopted in the Australian jurisdiction during the landmark case of Commercial Bank of Australia v Amadio. Here the High Court of Australia streamlined contract law, combining duress, undue influence and some elements of mistake to create a new doctrine of Unconscionability.

However there is scope to suggest vitiating factors alone are insufficient to replace consideration. McKendrick has noted that duress is not concerned with the absence of consent but rather the wrongful nature of threats inducing consent, and thus has a different and separate role to consideration[18]. Mindy Chen-Wishart has further suggested the doctrines considered above do not examine contractual intention in the same manner as consideration. They relate to contracts that have already been formed and are thus ill equipped to take on the role currently performed by consideration[19].

The future of Consideration:
The Doctrine of Consideration has attracted a lot of criticism from many quarters, both in general and particular terms. The criticism towards the Doctrine is mainly based on the fact that it was an historical accident and that foreign system do without it.[20]The Doctrine is also seen as a formality[21], which lawyers usually tend to dread.

Consideration is also seen as a superfluous inclusion to the genesis of a contract, with many jurists and legal thinkers giving many examples, one example being the concept of intent to create legal relations, where consideration is seen as just an evidence of its existence, not as a proof of the same[22].

All arguments aside, the main question that should be asked right now is, If not consideration, then what? Although there have been a number of solutions that have been proposed, such as promissory estoppel, there has not been a viable alternative for the Doctrine. Although there were proposals by the Law Reform Committee in 1937[23], most of these reforms now no longer stand due to developments in the law in recent times, which signifies the continuance of the Doctrine of Consideration.

Bibliography:

  1. Akhileshwar Pathak; Contract Management. First published 2009, Macmillan India.
  2. Andrew Burrows; A Casebook on Contract. Second Ed. First Published 2007, Hart Publishing.
  3. Avtar Singh; Contract and Specific Relief, Eleventh Ed, First Published1973, Eastern Book Company
  4. Edwin Peel; the Law of Contract. Thirteenth Ed, First Published 1962, Sweet and Maxwell.
  5. Ewan McKendrick; Contract Law, Seventh Ed, First Published 1990, Palgrave Publishing.
  6. Mindy Chen-Wishart; Contract Law. Third Ed, First Published 2005, Oxford University Press.
  7. P.S Atiyah, Stephen A. Smith; Atiyah’s introduction to the law of contract. Sixth Ed. First Published 1995, Oxford University Press.


Case References:

  1. 1951 Ch 669: [1951] 1 All ER 905 (CA).
  2. Central London Property Trust Ltd v High Tree House Ltd [1947] KB 30
  3. Chappell & Co Ltd v Nestle Co Ltd [1959] UKHL 1
  4. Combe v Combe [1951] 2 KB 215
  5. Pao on v Lau Yiu Long [1979] UKPC 2
  6. Waltons Stores (Interstate) v Maher [1988] 164 CLR 387, 62 ALJ 110
  7. Ward v Byham [1956] 1 WLR 496
  8. White v Bluett [1853] 23 Lj Ex 36


End-Notes
[1] Akhileshwar Pathak; Contract Management. First published 2009, Macmillan India. 106.
[2] P.S Atiyah, Stephen A. Smith; Atiyah’s introduction to the law of contract. Sixth Ed. First Published 1995, Oxford University Press. 106-107
[3] Andrew Burrows; A Casebook on Contract. Second Ed. First Published 2007, Hart Publishing. 87-88.
[4] P.S Atiyah, Stephen A.Smith; Atiyah’s introduction to the law of contract. Sixth Ed. First Published 1995, Oxford University Press. 107
[5] Edwin Peel; the Law of Contract. Thirteenth Ed, First Published 1962, Sweet and Maxwell, 170.
[6] 6th Interim Report, para 32.Source: Avtar Singh; Contract and Specific Relief, 120.
[7]Avtar Singh; Contract and Specific Relief, Eleventh Ed,First Published1973,Eastern Book Company,119.
[8] 1951 Ch 669: [1951] 1 All ER 905 (CA).
[9]Chappell & Co Ltd v Nestle Co Ltd [1959] UKHL 1
[10] Ward v Byham [1956] 1 WLR 496
[11] White v Bluett [1853] 23 Lj Ex 36
[12] Andrew Burrows; A Casebook on Contract. Second Ed, First Published 2007, Hart Publishing, 77.
[13] Mindy Chen-Wishart; Contract Law. Third Ed, First Published 2005, Oxford University Press. 107.
[14] Central London Property Trust Ltd v High Tree House Ltd [1947] KB 30.
[15] Combe v Combe [1951] 2 KB 215
[16] Waltons Stores (Interstate) v Maher [1988] 164 CLR 387, 62 ALJ 110.
[17] Pao on v Lau Yiu Long [1979] UKPC 2
[18] Ewan McKendrick; Contract Law, Seventh Ed, First Published 1990, Palgrave Publishing
[19] Mindy Chen-Wishart; Contract Law. Third Ed, First Published 2005, Oxford University Press.
[20]Edwin Peel; the Law of Contract. Thirteenth Ed, First Published 1962, Sweet and Maxwell, 169.
[21] Beatson, Burrows, Cartwright. Anson’s Law of Contract. Twenty-ninth Ed, First Published 1884, Oxford University Press. 129
[22] Ibid
[23] Edwin Peel; the Law of Contract. Thirteenth Ed, First Published 1962, Sweet and Mawell, 169-170.

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