The Doctrine of Consideration - Essay Example

The Doctrine of Consideration The doctrine of promissory estoppel plays an essential role in the law of consideration. It is not recognized, openly by contract law. However, it applies to the consideration of a contract. The parties to a contract should be conscious that they are in a legal relationship, involving an exchange. The law specifies that there should be consideration for a contract. However, the doctrine of promissory estoppel rescinds the legal requirement of consideration from cases, in which there are contractual variations. However, such variations are of a temporarily binding nature. Variations are of two types. First, variations in which the obligations of one party to the contract are enhanced, such as promises by one of the parties to perform additional activities or to make payments at the earliest instance possible1. Secondly, variations that reduce the obligations of a party to the contract, for instance waiver cases, which permit that party to pay less than the agreed upon amount or to make payment at a later date2. In Baird v Marks and Spencer3, the plaintiff Baird had thought that his relationship with Marks and Spencer was a long term relationship. In order to terminate the relationship, he had to give a notice of reasonable term nature. It had been contended that the supply arrangements had been terminated by Marks and Spencer, without giving a reasonable term notice4. Baird argued that Marks and Spencer’s actions, in their buyer – supplier relationship, indicated that they had wanted to continue their relationship forever. Believing that there would be long term relationship, Baird had invested money in assets and expanded his workforce. Baird had also provided several training courses for his employees. In addition, he had made no attempt to adversely affect the interests of Marks and Spencer. Moreover, Baird refrained from entering into relationships with other retailers, because he thought that such a course of action would be harmful to their relationship5. The claimants contended that they had been supplying clothes to Marks & Spencer, for a period of thirty years as one of its major suppliers. In accordance, with the agreement between the parties, Baird was allotted the task of designing and manufacturing clothes, by Marks & Spence. During this period, the claimant managed his workers in a manner that satisfied the requirements of Marks & Spencer. Baird stated that the contractual relationship between them had been terminated, by the respondent company, without giving any notice, despite the fact that there had existed a long-term arrangement between them. The court of appeal held that the contractual relationship between the parties had arisen from a series of agreements for supplying clothes and not out of any long-term arrangement between the parties. The appellate court arrived at this conclusion relying on the findings that Marks and Spencer had indicated their intention of not favouring any long-term agreement6. He also stated that his procurement policies had been beneficial to Marks and Spencer. They had worked according to the seasonal timetables prepared by Marks and Spencer, in order to have better cooperation between them. Baird had believed consistently that Marks and Spencer would engage them as their primary supplier. However, the court reasoned that it was Baird’s assumption and there was no reason to believe this to be the intention of Mark and Spencer. The court did not accept the argument of Baird7. A significant setback had to be countenanced by those who subscribe to the view that the extant law had to depict greater sensitivity to the normative frameworks resulting from exchanges. This had resulted from the disagreement of the court with the argument that the series of exchanges, between the contending parties, had assumed the status of a long term understanding. The court also held that only a continuous exchange could constitute a long term relationship8. There are several questions regarding the function of the contractual doctrine, which are brought to the forefront, due to the disinclination of the common law to accord greater importance to the relational elements in contracts. Relational contracts are founded on implied agreements and this renders them less clear than discrete contracts. This is in direct contrast to the stance of the traditionalists, who had relied on formal written documents and deliberations at the time of entering into a contract. These intractable issues make it clear that although the practical approach adopted by common law, confers appropriate status on some types of parties to a contract, the fact remains that English law has no general law of9. In the Jorden case it was clarified by the court that the basis of estoppel has to be a statement of fact and not mere promises, this excludes the possibility of utilizing estoppel to enforce a promise10. In the Amalgamated Investment case, it was opined that an estoppel, unlike a contract, cannot give rise to a cause of action. However, instances had come to light, wherein only an estoppel could have enforced the cause of action11. The general rule that estoppel cannot be a cause of action has generated considerable debate. The requirement is to specify what the term cause of action denotes. In the Letang case, a cause of action was defined to be the existence of certain facts, which empower a person to approach the courts, in order to be granted a remedy against another. It goes without saying that these facts should be adequate for the law to permit a remedy12. Nevertheless, estoppel can prove to be the only reason for the success of a cause of action and its use for such purposes is not precluded, even at a later stage in the legal proceedings13. Accordingly, estoppel can be resorted to, so as to succeed in an action for breach of contract. However, if the action relates to the breach of a promise, without the involvement of a contract, then such an action requires something more than estoppel for success14. Although, the courts have not precluded enforcement, which relies on estoppel; all the same a promise has never been legally enforced, solely on the grounds of estoppel. This has been borne out in a significant number of cases15. The application of the doctrine of consideration in situations, wherein there had been some contractual obligation, between the parties to a contract, proved to be controversial. Moreover, the question arises as to whether the performance of such obligation constitutes consideration16. In the Williams v Roffey case, the appellate court deemed the fulfilment of a prior contractual obligation to be consideration for another contract. The reason was that proper performance of the original obligations would lead to practical benefit for the parties17. In Re Selectmove Ltd, the appellate court considered the possibility of applying this principle to obligations relating to financial payments. In this case the plaintiff argued that its agreement with the Inland Revenue was in respect of payment of arrears to P.A.Y.E. and N.I.C. in instalments. In its decision of the court was that in the absence of immediate payment of arrears, there was no good consideration, in respect of the promise made to the Inland Revenue18. Promissory estoppel can be used as an instrument of defence and not as a cause of action. The rule of promissory estoppel was first used in the case of Central London Property Trust Ltd v High Trees Ltd19 and was strengthened in Coombe v Coombe20. It is the opinion of legal luminaries that the rule can be used as a shield but not as a sword. In Re Wyvern Developments Ltd, the court held that an instance of promissory estoppel can be used as a sword, or a cause of action. In this case two parties say X and Y had acted on the promise made by another party say A and altered their positions. Subsequently A changed his mind and refused to fulfil his promise. The court employed the doctrine of promissory estoppel and instructed A to carry out his contractual obligation. A relied upon the ruling in High Trees to contend that a promise, unsupported by consideration could not be realized, however, Templeman J, rejected this argument by A21. In Greasley and others v Cooke, the court considered the recourse made to promissory estoppel, by the defendant. The Court had also permitted the defendant’s counter – claim to obtain an irrevocable license, which would enable the defendant to occupy the property under dispute. The plaintiffs had made a promise that disabled them for claiming this disputed property. The court considered this promise as the basis for the counter – claim by the defendant22. The case law of the UK is indicative of the fact that the courts are permitting the use of promissory estoppel as a shield. Nevertheless, the courts are endeavouring to substantiate cause of action on promissory estoppel. The decisions of the courts in awarding damages, in cases of promissory estoppel clearly demonstrate that they are protecting expectation interest and reliance interest of the parties. This trend forces one to deduce that if promissory estoppel were only a defence, then expectation interest would not have been safeguarded. A scrutiny of the award of damages by courts, discloses that they are favouring the expectation interests of the promisee, thereby awarding contractual damages23. Bibliography 1. Amalgamated Investment & Property Co. Ltd v. Texas Commerce International Bank Ltd (1982) 1 QB 84 2. Baird Textile Holdings Ltd v Marks & Spencer Plc [2001] EWCA Civ 274 3. Central London Property Trust Ltd v High Trees Ltd (1947) 1 K.B. 139 4. Cooke, Elizabeth, 2000, The Modern Law of Estoppel, Oxford University Press. P. 121 – 124 5. Coombe v Coombe (1951) 2 KB 215 6. Greasley and others v Cooke (1980) 1 WLR 1306 7. Jonathan Nash. RECENT DEVELOPMENT IN CONTRACT LAW. Text of a Lecture to the London Solicitors Litigation Association. Retrieved 27 January 2008 from http://www.3vb.com/pgs-articles/jn-recent-devs-contract.shtml 8. Jorden v. Money (1854) 5 HLC 185 9. Ken Burnett, ESTOPPEL, retrieved 27 January 2008 from http://www.touchbriefings.com/pdf/976/26.pdf 10. L.L. Fuller and William R. Perdue Jr., "The Reliance Interest in Contract Damages", Yale Law Journal, vol. 46 (1936-37), p. 52 at p. 54. 11. Letang v. Cooper (1965) 1 QB 232, CA 12. Mulchacy, Linda; Tillotson, John. 2004. Contract Law in Perspective, Routledge Cavendish. Pp. 50 – 52 13. Pinnel’s Case (1605) 5 Co Rep 117 14. Re Selectmove Ltd [1995] 1 WLR 474 15. Re Wyvern Development Ltd (1974) 1 WLR 1097 16. Stilk v Myrick (1809) 2 Camp 317 17. Williams v Roffey Brothers & Nicholls (Contractors) Ltd. [1991] 1 QB 1 Read More