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Contract Variation; Promissory Estoppel

Contract law 2017-18
by

Peter Cserne

on 7 March 2018

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Transcript of Contract Variation; Promissory Estoppel

Contract Variation; Promissory Estoppel
Contract Law 2017–18
Peter Cserne

Consideration
Estoppel
Basic requirements
1. A makes a promise or representation
2. B (promisee /representee) relies on it (possibly to her detriment)
3. it would be inequitable (unfair) to allow A to renege (go back) on his/her promise/representation.
Contracts and formalities
Promises
(Agreements)
Formal contracts
made in a deed
("under seal")
Informal ("simple") contracts
a way to enforce gratuitous promises
Special formality required
No formal requirement
valid in virtue of form
no consideration necessary
Law Reform (Miscellaneous Provisions) Act 1989, s.1
in addition to consideration
exceptional. usually "in writing". rationale?
E.g.
Contracts of guarantee (Statute of Frauds 1677 s.4)
Contracts for sale or disposition of interest in land
(Reform (Miscellaneous Provisions) Act 1989 s.2 )
general rule
evidentiary difficulties
So what is "consideration"?
2. Past consideration does not count
Agreements made out of gratitude for past services are unenforceable
it is a gratuitous promise (not a bargain)
A does a service to B, afterwards B (or C) promises A a payment for the past service
Eastwood v Kenyon
(1840) 11 A & E 438
Re McArdle
[1951] Ch 669
no present consideration
rationale?
no long-term contract inferred from course of dealings:
uncertainty
of terms
no clear intention
to create legal relations
Baird Textile Holdings v Marks & Spencer
[2001] EWCA Civ. 274
valid if there is consideration
Main rules
3. performing/promising to perform a pre-existing duty is no good consideration but there are important exceptions
- especially relevant in
contract variation (modification)

Why require consideration?
1. quasi-formality
Evidentiary function – signals intention.
2. preference for exchanges (bargains) over gifts (gratuitous promises)? To preserve social value of the pure gift?
3. Controls contract variations (more on this later).

1. Valuable but not adequate (equal)
the law does not inquire if consideration is a "fair price"
adequacy may be assessed through other doctrines
was this a sale transaction?
what was the "ordinary retail selling prize"?
are chocolate bar wrappers part of consideration?
HoL case, 3:2 majority: YES
not merely a condition but valuable to Nestlé
Chappell & Co Ltd v Nestlé Co Ltd
[1960] AC 87
3. Performance of pre-existing duties
No clear general rule.
Courts tend to find lack of good consideration; exceptions.
Court's strictness varies depending on the nature of the pre-existing duty
a) non contractual (especially public) duty
b) contractual duty to third parties
c) contractual duty to the promisor
a) Pre-existing non-contractual duty
Distinguish: enforceability of
promised
payment for past consideration
Lampleigh v Brathwait
(1615)
Looks like a promise without consideration, so unenforeceable
But:
Glasbrook Bros v Glamorgan CC
[1925] AC 270
"police went beyond their public duty"
Ward v Byham
[1956] 2 All ER 318
1) promise to pay more
2) promise to accept less (partial performance)
c) Pre-existing contractual duty to the promisor
"Agreements to pay more" as variation of an existing contract
danger of extortion?
Traditional approach
Harris v Watson
(1791) Peake 102
Hartley v Ponsonby
(1857)
Stilk v Myrick
(1809) 2 Camp 317; 6 Esp 129
Modern approach
Williams v Roffey Bros. & Nicholls (Contractors) Ltd

[1990] 1 All ER 512, CA

Agreements to accept less (partial performance/part-payment of debts)
Foakes v Beer
[1884] 9 AC 605, HL
Re Selectmove Ltd
[1995] 2 All ER 531
Shadwell v Shadwell
(1860) 9 CB (NS) 159
b) Pre-existing contractual duty to a third party
Promise to accept less is enforceable if
• part payment as agreed settlement of disputed claim
• earlier payment than agreed
• payment by means other than money
the performance of B's contractual duty to C (a third party) may constitute good consideration for A's promise to B, if performance is to A's benefit or B's loss
Pao On v Lau Yui Long
[1979] 3 All ER 65, Privy Council
A more complex exceptional case
non-enforceability of paying more
Is the decision compatible with
Stilk v Myrick
?
Does it override the requirement of consideration? A realist (as opposed to formalist) approach?
Not generally followed,
see e.g.
South Caribbean Trading Ltd v Trafigura Beheer
[2005] 1 Lloyd's Rep 128
A controversial case
English law keeps estoppel within strict bounds.
Shield and not a sword
May suspend promisor’s rights, rather than extinguish them
Remedy protects ‘reliance’ interest, not ‘expectation’ interest
When is estoppel applicable/useful?
"Shield not sword"
available as a defense against a claim
BUT cannot create an independent cause of action
requires an existing legal relationship (existing rights)
Requires promisee's (reasonable) reliance
i.e. commitment to a course of action which he otherwise would not have adopted
does not need to be to "his detriment"

estoppel protects promisee's "reliance interest"
How to solve contract modification problems?
Reasoning backwards:
finding doctrinal routes for (non-)enforcement
- lack of consideration OR (economic) duress
- consideration OR promissory estoppel
Promissory estoppel:
full-blown alternative or "poor substitute"?
Combe v Combe
[1951] 1 All ER 767
Central London Property Trust Ltd. v High Trees House Ltd.
[1947] 1 KB 130
The "birth" of the doctrine
enforceability of promised payment:
if
- A requested services of B
- and there was an
implied obligation
to make reasonable payment
then the later express promise IS enforceable
Inapplicability of
promissory estoppel:
only defence, not a course of action.
The legal technical term that describes the element of exchange or bargain
e.g. A promises B to sell her his car,
in exchange for
B promising to pay A £3000. A's promise is consideration for B's and vice versa.
General rule: a
contract needs to be supported by valuable consideration to be enforceable
.
Unilateral contracts: promisee's performance counts as consideration
Historically: "the reason for which a party entered into a contract": "considering..."
cf. causa in Roman, cause in French law.
the law selects among these reasons and only gives its support to some but not others - why?
Functions (controversial)
1. consideration has to be valuable but does not need to be adequate (equal)
2. past consideration does not count
Anything valuable:
detriment to the promisee
OR a benefit to the promisor
e.g. a promise not to sue
Thomas v Thomas
(1842) 2 QB 851 - "peppercorn rents"
A promises payment to B for doing what B is duty-bound to do anyway.
Is A's promise enforceable?
A's promise to pay B for doing what B has a (non-contractual) legal duty to do.
agreements to vary (modify) an existing contract.
lack of fresh consideration for a new promise
apparently no reciprocity
now addressed by (economic) duress
reasoning unclear:
- public policy or lack of consideration?
reports unclear
see Peter Luther: 'Campbell, Espinasse and the sailors: text and context in the common law'
Legal Studies
19 (1999), 526–551
promise of extra payment enforceable
"practical benefit" as consideration
How (not) to distinguish
Foakes v Beer
and
Williams v Roffey
?
general rule:
creditor is not bound by his promise to accept less than full performance
this new promise is not supported by consideration
Reasoning forwards:
Stilk v Myrick
or
Williams v Roffey
?
Refining "consideration"?
Alternative analyses, see McKendrick ch. 5.14
In such a situation the law ‘estops’ i.e. prohibits A from going back.
equitable remedy:
judicial discretion
"clean hands": promise must not be induced by promisee's inequitable conduct
“that which was given in exchange for the promise of the other party”
English law enforces bargains or exchanges: “the price of a promise” (Currie v Misa (1875) LR 10 Ex 153)
offeror's promise comes after the promisee confers a benefit on him
note use of 'reasoning backwards' and role of public policy.
no detriment to promisee, or benefit to promisor
Captain's promise unenforceable because sailors were only agreeing to do what they were already bound to do. No additional benefit to the Captain.

MWB Business Exchange Centres Ltd v Rock Advertising Ltd
[2016] EWCA Civ 553

distinguishing from
Re Selectmove
; not mentioning
Foakes v Beer
practical benefit of "avoiding the void"
(when and how) can estoppel make promises without consideration enforceable?
Could it have been applied in
Stilk v Myrick
? In
Williams v Roffey
?
CA's reluctance to apply it in debt rescheduling case
MWB Business Exchange Centres Ltd v Rock Advertising Ltd

Powerful doctrine but
only available under limited circumstances
remedy tends to be reliance interest not expectation interest
rights are suspended not extinguished
E.g., In CLP v High Trees, the landlord could not claim full rent for period 1940-45, but had given notice of entitlement to full rent from 1945 (when all flats were let).
consider facts carefully!
what is "practical benefit" here?
"Problematic" consideration
Pinnel's Case (1602)
Does contract variation require fresh consideration, in the sense of legal benefit/detriment? Is practical benefit sufficient?
availability of promissory estoppel? (next lecture)
Full transcript