Estoppel and Consideration in a Contract - Assignment Example

ESTOPPEL AND CONSIDERATION IN A CONTRACT INTRODUCTION The doctrine of Estoppel overrides the concept of consideration under specific conditions. The following discussion establishes this statement. A contract that is not under seal, is not binding in Australia. Such a contract is rendered binding only when the promisee provides consideration for the promise, or when the party claiming absence of consideration is estopped from such claim. The emphasis, for this requirement, is upon consideration and not estoppel or seal.1 Consideration constitutes an act of forbearance by one party, or a promise thereof, and the promise so given for value is enforceable. Consequently, executory consideration or the exchange of a promise for another promise, and executed consideration or the exchange of a promise for an act of forbearance are valuable consideration. Past consideration and good consideration are insufficient for fulfilling this requirement.2 Consideration makes the promise a legally binding obligation. Nevertheless, reliance does not make a promise legally binding, unless it had been claimed as a part of the agreement, which effectively transforms into consideration.3 In order to avoid direct confrontation with the requirement of consideration, promissory estoppel is prevented from generating a new cause of action. This confrontation does not arise, when it is conceded that promissory estoppel and consideration are two discrete kinds of liability. Consideration provides a contractual cause of action for the enforcement of the full expectation of the promisee. On the other hand, promissory estoppel endeavours to circumvent the disadvantage resulting from the reliance on the promise by the promisee, if it would be unjust for the promisor to break the promise.4 In Waltons Stores (Interstate) Ltd v Maher, the High Court of Australia emphasised this difference between promissory estoppel and consideration.5 In Australia, promissory estoppel can generate a cause of action or it can be employed as a sword. However, the ruling in Walton Stores clarifies that enforcement through promissory estoppel does not depend upon the provision of consideration. On the other hand, it is determined by the creation or encouragement by the party estopped in the other party, regarding the assumption that a contract would formed or a promise executed.6 In addition, the other party should have relied on that assumption to its detriment. In this case, the Court held that the argument could not be enforced, due to its failure to comply with the statute. Upon recognising an estoppel, in this case, estoppel would not be employed as giving a cause of action in itself. Moreover, there would be no diluting of the requirement of consideration. Instead, it would preclude the potential lessee from raising a collateral objection to the binding nature of their agreed upon lease. Thus, promissory estoppel rests content with bridging the gap in formalities and not the lacunae in consideration. As such, promissory estoppel does not produce a similar influence and does not conflict the doctrine of consideration.7 It is necessary to have an unambiguous and firm threshold. Lowering this threshold brings one closer to stating that promises are enforceable, in the absence of consideration. The critical feature of the difference between estoppel and consideration is the potential distinction in the remedial response.8 In other words, it is the difference between enforcement of the full expectation and enforcement to the extent that would be essential for negating detrimental reliance. As such, promissory estoppel should not excessively benefit the promisee. The latter’s expectation should be safeguarded when it is the sole method available for protecting his reliance.9 This was the gist of the ruling in Crabb v Arun.10 On the other hand, consideration ensures the full enforcement of the expectation. As such, the Australian approach to unconscionability is provided by the ruling in Waltons Stores. In this case, the plaintiff sought specific performance of a lease. The plaintiff’s contention was that the defendant had induced it to believe that the lease would be executed. This had caused the plaintiff to demolish the structures present on that piece of land.11 The High Court of Australia was of the view that it was unconscionable to promote the detrimental conduct and as a result declared that the defendant was estopped from adopting the stance that it was not bound. Thus, the estoppel came into force, despite the absence of a pre-existing contractual relationship betwixt the parties.12 Moreover, it functioned as a cause of action that enabled the plaintiff to enforce the representation made to it. The courts endeavour to prevent detrimental reliance, as a consequence, the estoppel in Waltons Stores will be inapplicable to cases that do not entail detriment. An instance of such a case is provided by Central London Property Trust Ltd v High Trees House Ltd. In this case, the defendant had leased a block of flats from the plaintiff. Several of these flats remained unoccupied, due to the onset of World War II. As a result, the rent was significantly reduced by the Central London Property Trust. After the cessation of hostilities between the Allies and the Axis powers, with the surrender of Germany and Japan, which brought the Great War to an end, occupancy increased substantially in these flats, and very soon these were fully occupied. The plaintiff demanded the restoration of the originally contracted rent. The court granted the rent for the future.13 It did not grant the arrears of rent claimed by the plaintiff, as the latter had not suffered a detriment. As such, it is not essential for the estoppel to produce full enforcement of the promise. The remedy granted by the courts will be restricted to the minimum equity required for circumventing detrimental reliance. This minimum equity principle was highlighted in Commonwealth of Australia v Verwayen.14 The estoppel in Waltons Stores safeguards the promisee against detrimental reliance, resulting from the unconscionable conduct of the promisor. This could lead to the conclusion that reliance damages would be awarded, instead of orders to fulfil the expectations of the promisee.15 Nevertheless, in Giumelli v Giumelli,16 the High Court of Australia held that estoppel was not entirely dependent upon a requirement of detrimental reliance. As a consequence, the Court recommended that prima facie, the expectation measure was pertinent for ensuring the fulfilment of the promise. It was the opinion of the Court that a reliance-based remedy was appropriate, only in instances involving detrimental reliance.17 Thus, the Australian courts have been depicting a wider application of the estoppel concept. Nevertheless, further clarification has to be provided regarding the details and theoretical basis of this doctrine. Specifically, if it were to be assumed that the presence of unconscionable conduct was essential for such equitable intervention, then the conditions wherein proprietary estoppel can be applied instead of promissory estoppel have to be clearly specified.18 The House of Lords, with regard to proprietary estoppel, had specifically rejected unconscionability as the grounds for raising that estoppel, when there was no proprietary claim. This was the gist of the ruling in Cobbe v Yeoman’s Row Management Ltd.19 As such, general estoppel has several difficulties associated with. This is due to its uncertain nature and the issues that arise during its application. The Australian courts have made it very clear that there is no single and unified estoppel. However, their judgments have effectively merged the various estoppels to the extent that one is forced to conclude that there is a single unified estoppel. 20 Several important decisions relating to estoppel have emanated from the Australian courts. Some of these being the decision in Commonwealth of Australia v Verwayen, and Waltons Stores. The decision in Waltons Stores is of great significance, as it brought about the fusion of the doctrines of promissory and proprietary estoppel, under the term equitable estoppel.21 However, the issues emerging from promises that alter existing contracts have not been properly addressed. This is due to the fact that the promisee has to undergo a detriment for the doctrine of estoppel to become operational. In addition, the remedy, due to its equitable nature, tends to be discretionary. CONCLUSION Consideration brings about the completion of an obligation without reliance upon the actions of the promisee. Thus, consideration ensures the existence of the obligation of a promise, independently, of any harm caused to the promisee, due to breach of the promise. However, reliance that has not been bargained for, cannot perfect an obligation. Nevertheless, it can be used as evidence, to show that the promisee was influenced by the expectations to the extent rendering the promisor responsible for overcoming them. The extant tradition that promissory estoppel suspends and does not terminate the original rights of the promisor strengthens the rationale that it accords a lower level of protection to the promisee than consideration. Since, promissory estoppel and consideration enforce promises for different reasons, they do so to different degrees. As such, Australian Courts regard detrimental reliance as crucial in deciding estoppel cases. This work established the contention that the doctrine of estoppel ignores the consideration issue under certain circumstances. BIBLIOGRAPHY A Articles/Books/Reports Brocherie, Ben, The Law Handbook (Thomson Reuters (Professional) Australia Limited, 13th ed, 2012) Chen-Wishart, Mindy, Contract Law (Oxford University Press, 4th ed, 2012) Edwards, Kirsten, Australian Essential Equity and Trusts (Cavendish Publishing, 2000) Gillies, Peter, Concise Contract Law (Federation Press, 1988) Poole, Jill, Contract Law Concentrate: Law Revision and Study Guide (Oxford University Press, 2013) Poole, Jill, Textbook on Contract Law (Oxford University Press, 12th ed, 2014) Pratt, Michael G, ‘Equitable Estoppel: Defining the Detriment - A Reply to Denis Ong’ (2000) 12(1) Bond Law Review 48 Stone, Richard, The Modern Law of Contract (Routledge, 10th ed, 2013) B Cases Central London Property Trust Ltd v High Trees House Ltd [1947] KB 130 Cobbe v Yeoman’s Row Management Ltd [2008] UKHL 55 Commonwealth of Australia v Verwayen (1990) 170 CLR 395 Crabb v Arun District Council [1975] EWCA Civ 7 Giumelli v Giumelli (1999) 163 ALR 473 Waltons Stores (Interstate) Ltd v Maher (1988) 164 CLR 387 Williams v Roffey Bros & Nicholls (Contractors) Ltd [1989] EWCA Civ 5 Read More