English Contract law

The classic model of English Contract law is a bargain and a bargain postulates an exchange. In his much respected work[1], Sir Frederick Pollock rightfully explained that “[a]n act or forbearance of one party, or the promise thereof, is the price for which the promise of the other is bought, and the promise thus given for value is enforceable. “[2] Consideration is therefore historically a fundamental doctrine of English law and has equally been the subject of much criticism owing to its rigidity and lack of coherence.

Lord Steyn[3] raised an important question as to why should the law refuse to sanction a transaction for want of consideration where parties seriously intend to enter into legal relations and arrive at a concluded agreement? A major failing of the bargain theory, it is said, is that it excludes detrimental reliance as a basis for enforcing a promise but allows for an executory promise to constitute consideration. One good example is the controversial case of Stilk and Myrick[4].

Accordingly, attempts have been made to circumvent the rigors of the doctrine using equitable principles which shifts the conceptual focus away from the notion of exchange to that of reliance to give effect to the reasonable expectations of parties or by taking into account whether the parties intended to be bound in the first place. The stage is now set for an analysis of the sweeping statement[5] made by Lord Denning in his judgement in Combe v Combe[6].

In Combe’s case a husband promised to pay his wife an annual amount for maintenance prior to a divorce but failed to do so when the divorce was realised. There was no consideration, but the wife tried to bring an action against her husband on the basis of promissory estoppel. The first instance judgement was overturned by the aforesaid judge on the basis that the principle in High Trees case[7] (which was applied by Bryne J in an earlier court) may be part of a cause of action, but not a cause of action in itself and thus could not be applied where there was no pre-existing contractual duty.

In obiter, the learned judge reaffirmed the position of the doctrine as so deeply entrenched in the common law tradition to be displaced by ‘a side wind’ which was in this case, the doctrine of promissory estoppel. It would not do justice to omit from our analysis the radical proposal for reforms brought about in the Law Revision Committee’s Sixth Interim Report.

In proposing the eradication of some of the most venerable flaws in the law of contract[8], the committee declared that “enough has been said to show that to-day in very many cases the doctrine of consideration is a mere technicality, which is irreconcilable either with business expediency or common sense, and that it frequently affords a man a loophole for escape from a promise which he has deliberately given with intent to create a binding obligation and in reliance on which the promisee may have acted. ”[9] However, the proposals were never implemented and it’s not hard to see why.

Francis Bennion[10] asserted in his work[11] that the suggestion that it is open for the courts to uproot a doctrine so firmly embedded in the common law could only be at the cost of incalculable damage to a far more important principle, that of stare decisis. Yet, academicians have argued that the courts have not always applied the doctrine in a rigid manner. Atiyah[12] was of the view that consideration was originally understood as a good reason (causa in Roman law)[13] for enforcing or not enforcing promises. It wasn’t until the nineteenth century that it formalised to a set of rules which was founded upon the doctrine of reciprocity.

However, the courts applied it only to situations they deemed worthy of enforcement such as promises contrary to public policy, promises made in the social and domestic sphere and bargains procured by duress or extortion[14], in effect, assuming a paternalistic role[15]. This shows that the courts may have never intended the doctrine of consideration to result in an overly technical and archaic set of rules and in the consequent loss of sight of the practical reasons for the doctrine in the first place, viz, distinguishing seriously intended and gratuitous promises.

In 1952, a year subsequent to Combe’s case, Denning LJ wrote an article[16] in The Modern Law Review where he addressed the distinction between a promise given in formation of a contract and a promise given in discharge of a contract. There he quoted Sir Frederick Pollock: “The doctrine of consideration has been extended, with not very happy results, beyond its proper scope, which is to govern the formation of contracts, and has been made to regulate and restrain the discharge of contracts. [17]

Consequently he wrote, “If one compares the cases concerning promises on the formation of a contract, with those concerning cases on its modification and discharge, it would seem that, since the fusion of law and equity, we are approaching a state of affairs which Ames regarded as desirable, namely, that any act done on the faith of a promise should be regarded as sufficient consideration to make it binding. If the law should develop in this way, nearly all recommendations of the Law Revision Committee will be achieved without recourse to legislation at all.

Denning LJ in 1979 also wrote the following[18], “Looking back over the last 32 years since the High Trees case, it is my hope that the principles then stated- and the extensions of them- will come to be accepted in the profession. The effect has been to do away with the doctrine of consideration in all but a handful of cases… It has been replaced by the better precept; ‘My word is my bond’, irrespective of whether there is consideration to support it. Once a man gives a promise or assurance to” his neighbour- on which the neighbour relies- he should not be allowed to go back on it.

In stating the principle, and its extensions, the lawyers use the archaic word ‘estoppel’. I would prefer to put it in language which the ordinary man understands: It is a principle of justice and of equity. It comes to this; when a man, by his words or conduct has led another to believe that he may safely act on the faith of them–and the other does act on them–he will not be allowed to go back on what he has said or done when it would be unjust or inequitable for him to do so. This expansive approach to the doctrine should put to rest criticisms towards consideration as being too much of a constraint.

Moreover, recent developments have shown the court’s readiness to hold the rigidity of the classical doctrine yielded to practical justice and to the needs of modern commerce as seen in the landmark case of Williams v Roffrey and Nicholls (Contractors) Ltd. 19] Nonetheless, in spite of these exceptions the courts have never outrightly sought to do away with the doctrine and have only allowed for them to act as a supplement to the rule. Although is not likely that the doctrine of consideration be overthrown by its equitable counterparts due to problems of uncertainty surrounding the latter, promissory estoppel has been widely accepted throughout many countries that have adopted the common law to facilitate a better administration of justice[20].

In the United States, it is seen through the enactment of a provision for promissory estoppel in Article 90 of the Restatement (Second) of Contracts. In India, this doctrine has also undergone rapid developments as can be seen in cases like Motilal Padam Sugar Mills Co Ltd v The State of Uttar Pradash[21] and Delhi Cloth & General Mills Ltd v Union of India[22]. Reference can also be made to the Law Commission of India’s One Hundred and Eighth Report on Promissory Estoppel (1986) where a new provision (s 25A) was proposed.

Closer to home, the position of this area of the law according to the Contracts Act 1950, however, is not so clear. The following words of Gopal Sri Ram JCA in the Malaysian landmark Boustead Trading Sdn Bhd v Arab-Malaysian Merchant Bank Bhd[23] gives an indication of how promissory estoppel is being treated by the Malaysian courts, “The time has come for this court to recognise that the doctrine of estoppel is a flexible principle by which justice is done according to the circumstances of the case.

It is a doctrine of wide utility and has been resorted to in varying fact patterns to achieve justice. Indeed, the circumstances in which the doctrine may operate are endless. ” However, Sinnadurai[24] pointed out that “without a detailed and careful analysis of the law, the observations of Gopal Sri Ram JCA in Boustead Trading… ought not to be understood as having altered or clarified the law on the doctrine of promissory or proprietary estoppel in Malaysia… hese observations can only be regarded as persuasive, and not having any binding effect, until these principles are fully reconsidered and adopted in another Federal Court decision. ”

On the other hand, the problems associated with promissory estoppel have also been highlighted by Peh Chin J in the Malaysian High Court decision of Goh Tuck Meng v Ngan Yin Groundnut Factory Sdn Bhd[25]: “The present state of the doctrine of equitable estoppel… ay be highly vulnerable to the criticism of creating uncertainty and a good many people may find it “an unruly horse” of the worst type; they can however take comfort in the great fund of self-restraint of judges in deploying it to prevent a person from enforcing his strict legal rights where it would be unconscionable and therefore inequitable to do so. ” Owing to its lack of clarity on the issues surrounding the doctrine of consideration, it has been suggested that various sections of the Contracts Act 1950 (especially s26) be subject to a thorough examination and overhaul.

Improvements via codification which will render this area of law no longer bound by the restrictive rules of equity and the statutory restrictions imposed by Section 3(1) of the Civil Law Act 1956[26]. In clearly defining the perimeters for the doctrine, provisions can be made for these equitable principles to be practiced alongside consideration which will lead to more certainty in litigation and facilitate its application by the Malaysian courts.

On the other hand, there has not been any provision bearing resemblance to equitable estoppels in the English legislature except Section 21(1) of the Sale of Goods Act 1979, which may be considered as a minuscule effort taken by the English Parliament to facilitate the application of equitable doctrines. Nevertheless, there is no such need to enact equitable doctrines in England and Wales because, unlike the position in Malaysia, the application of equitable as well as common law doctrines are not subject to the restrictions mentioned.

Looking at the way the doctrine is developing in the judicature of both English and Malaysian courts, the wholesale abolition of consideration and the replacing of it with some other equitable doctrine is both undesirable and hugely unnecessary. Consideration should be continue to be taken as a formal requirement, like the requirement that some agreements be put in writing in order for it to be enforceable, to alert parties to the fact that they are entering into a serious transaction.

On the other hand, it has been said and rightfully so, that business people are not concerned with formalities as lawyers and constantly make agreements without considering the necessities to make the variation legally binding[28]. While the classical model of consideration strictly requires for there to be a benefit to the promisor or a detriment to the promisee, the courts have in many cases adopted a more expansive approach, taking into account practical justice and the needs and practices of modern commerce.

By contrasting the case of Stilk v Myrick with the case of Williams v Roffey we can see the court’s “ongoing commitment to fitting agreements which make sense in the business community into a traditional framework of analysis. ”[29] In doing so, the essential function of the doctrine in governing the formation of contracts as well as in regulating and restraining the discharge of contracts ensures that the law, as best as it can, serves to protect the best interest of both parties.

In conclusion, Denning LJ was correct to point out the want of consideration as imperative to the enforcement of a promise. While equitable doctrines can serve only as a supplement and should and could not displace the far-reaching functions of the doctrine of consideration. I end with this persuasive statement made by Francis Bennion, “To usurp the function of the legislature in the name of a developing jurisprudence is surely to destroy the reality of the common law, to make its doctrines undependable and to leave those whom it should serve bereft in costly uncertainty. ”[30]