Tuesday, 13 October 2009
Friday, 24 July 2009
Statutory change in contract law
The requirement for consideration and the principle of privity of contract are of course fundamental to English contract law. Derived from these rules is the principle with which these cases are concerned - that a contracting party can only claims the losses that he has suffered as a result of a breach of contract, not anyone else’s.
These rules make English law somewhat different from other legal systems. They have led to considerable criticism over the years. If a contract between two parties says expressly that it is for the benefit of another named person, why should that person not be able to sue under the contract if obligations are not performed?
The Law Commission suggested new legislation, a central element of which would be that a third party would have a right to enforce a contract where the contract expressly states that the third party is to be able to do so. The recommendations of the Law Commission were incorporated into English law by way of the Contracts (Rights of Third Parties) Act 1999. It applies to all contracts entered into after 11May 2000.
It is interesting to consider how St Martins Investment, Darlington and Unex would have fared if they had brought their claims under this law if enacted - they would have LOST. This is because the proposed new law requires that the contract expressly mentions the third party. In none of the building contracts was the subsequent owner or occupier expressly identified.
These rules make English law somewhat different from other legal systems. They have led to considerable criticism over the years. If a contract between two parties says expressly that it is for the benefit of another named person, why should that person not be able to sue under the contract if obligations are not performed?
The Law Commission suggested new legislation, a central element of which would be that a third party would have a right to enforce a contract where the contract expressly states that the third party is to be able to do so. The recommendations of the Law Commission were incorporated into English law by way of the Contracts (Rights of Third Parties) Act 1999. It applies to all contracts entered into after 11May 2000.
It is interesting to consider how St Martins Investment, Darlington and Unex would have fared if they had brought their claims under this law if enacted - they would have LOST. This is because the proposed new law requires that the contract expressly mentions the third party. In none of the building contracts was the subsequent owner or occupier expressly identified.
The effect of the clause prohibiting assignment without consent
In all the cases except Darlington, the building contract contained a clause prohibiting assignment without consent. One party to a contract can never transfer his obligations to a third party without the consent of the other party. But, providing he gives notice, he is able to assign his rights under a contract unless the contract prohibits it. The logic behind prohibiting transfer of the employer’s obligations under a building contract without the contractor’s consent is that the contractor wants to know whom he is dealing with.
Despite the prohibition on assignment, the court in St Martins and Darlington found the contractor liable for substantial damages suffered by a third party. In the St Martins case, Lord Browne-Wilkinson decided it was proper "to treat the parties as having entered into the contract on the footing that Corporation would be entitled to enforce contractual rights for the benefit of those who suffered from defective performance but who, under the terms of the contract, could not acquire any right to hold McAlpine liable for breach."
It is difficult to understand this, as the prohibition on assignment would seem to lead to completely the opposite conclusion – namely that McAlpine showed an express intention of wanting to avoid responsibilities to third parties, directly or indirectly.
Despite the prohibition on assignment, the court in St Martins and Darlington found the contractor liable for substantial damages suffered by a third party. In the St Martins case, Lord Browne-Wilkinson decided it was proper "to treat the parties as having entered into the contract on the footing that Corporation would be entitled to enforce contractual rights for the benefit of those who suffered from defective performance but who, under the terms of the contract, could not acquire any right to hold McAlpine liable for breach."
It is difficult to understand this, as the prohibition on assignment would seem to lead to completely the opposite conclusion – namely that McAlpine showed an express intention of wanting to avoid responsibilities to third parties, directly or indirectly.
Third Party Rights to Damages
As a result of recent developments in the law of contract, contractors can now find themselves directly or indirectly liable to third parties with whom they have no contract.
The common feature of all these cases (and which led to the litigation) was that the original employer transferred his interest in the property to a subsequent owner or occupier for full value.
Defects were alleged to have appeared in the building, and the cost of repairing the defects fell on the subsequent owner or occupier. The original owner suffered no loss.
In each case, the contractor was sued under its building contract by or on behalf of a subsequent owner or occupier. Each contractor argued that he could not be liable to the subsequent owner/occupier because he had not contracted with him and the party he had contracted with had suffered no loss.
In the St Martins Property and Darlington cases the contractor lost.
In the Linden Gardens and Alfred McAlpine cases he won.
In the St Martins case, the House of Lords held that this principle could be adapted to construction cases.
In Darlington, the court followed the decision in St Martins, as did the Court of Appeal when it heard the Panatown case.
This dramatically changed English contract law - a party to a contract who has suffered no loss can now sue and recover substantial damages on behalf of a third party.
The decision was based on presumed intentions of the parties to the original building contract. This was despite contrary indications as to their intentions contained in non-assignment clauses and collateral warranty/duty of care deeds, which are analysed below.
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In the Panatown case, the House of Lords came close to developing English law still further. The court picked up a theory that had been advanced by Lord Griffiths (but not adopted by the rest of the court) in the St Martins case.
This theory suggests that a party to a contract where the other party had not performed does not have to show a financial loss. Rather, he could recover substantial damages (as opposed to nominal damages) for loss of bargain - because he did not receive what he had contracted for.
Two of their Lordships (Goff and Millett) found in favour of Panatown on this ground, and two against (Clyde and Browne-Wilkinson). Lord Jauncey agreed in principle with the loss of bargain theory, but thought that it was not appropriate to apply it in this case. This provides an important indicator to those who want to rely on it in the future to argue that the loss of bargain theory is now part of English law
The common feature of all these cases (and which led to the litigation) was that the original employer transferred his interest in the property to a subsequent owner or occupier for full value.
Defects were alleged to have appeared in the building, and the cost of repairing the defects fell on the subsequent owner or occupier. The original owner suffered no loss.
In each case, the contractor was sued under its building contract by or on behalf of a subsequent owner or occupier. Each contractor argued that he could not be liable to the subsequent owner/occupier because he had not contracted with him and the party he had contracted with had suffered no loss.
In the St Martins Property and Darlington cases the contractor lost.
In the Linden Gardens and Alfred McAlpine cases he won.
In the St Martins case, the House of Lords held that this principle could be adapted to construction cases.
In Darlington, the court followed the decision in St Martins, as did the Court of Appeal when it heard the Panatown case.
This dramatically changed English contract law - a party to a contract who has suffered no loss can now sue and recover substantial damages on behalf of a third party.
The decision was based on presumed intentions of the parties to the original building contract. This was despite contrary indications as to their intentions contained in non-assignment clauses and collateral warranty/duty of care deeds, which are analysed below.
-------------
In the Panatown case, the House of Lords came close to developing English law still further. The court picked up a theory that had been advanced by Lord Griffiths (but not adopted by the rest of the court) in the St Martins case.
This theory suggests that a party to a contract where the other party had not performed does not have to show a financial loss. Rather, he could recover substantial damages (as opposed to nominal damages) for loss of bargain - because he did not receive what he had contracted for.
Two of their Lordships (Goff and Millett) found in favour of Panatown on this ground, and two against (Clyde and Browne-Wilkinson). Lord Jauncey agreed in principle with the loss of bargain theory, but thought that it was not appropriate to apply it in this case. This provides an important indicator to those who want to rely on it in the future to argue that the loss of bargain theory is now part of English law
Friday, 17 July 2009
Abraham Lincoln FAvourite Poem
Oh, why should the spirit of mortal be proud?
Like a swift-fleeting meteor, a fast-flying cloud,
A flash of the lightning, a break of the wave,
He passes from life to his rest in the grave.
The leaves of the oak and the willow shall fade,
Be scattered around, and together be laid;
And the young and the old, the low and the high,
Shall molder to dust, and together shall lie.
The infant a mother attended and loved;
The mother that infant's affection who proved;
The husband, that mother and infant who blessed;
Each, all, are away to their dwelling of rest.
The maid on whose cheek, on whose brow, in whose eye,
Shone beauty and pleasure - her triumphs are by;
And the memory of those who loved her and praised,
Are alike from the minds of the living erased.
The hand of the king that the sceptre hath borne,
The brow of the priest that the mitre hath worn,
The eye of the sage, and the heart of the brave,
Are hidden and lost in the depths of the grave.
The peasant, whose lot was to sow and to reap,
The herdsman, who climbed with his goats up the steep,
The beggar, who wandered in search of his bread,
Have faded away like the grass that we tread.
The saint, who enjoyed the communion of Heaven,
The sinner, who dared to remain unforgiven,
The wise and the foolish, the guilty and just,
Have quietly mingled their bones in the dust.
So the multitude goes - like the flower or the weed
That withers away to let others succeed;
So the multitude comes - even those we behold,
To repeat every tale that has often been told.
For we are the same that our fathers have been;
We see the same sights that our fathers have seen;
We drink the same stream, we feel the same sun,
And run the same course that our fathers have run.
The thoughts we are thinking, our fathers would think;
From the death we are shrinking, our fathers would shrink;
To the life we are clinging, they also would cling -
But it speeds from us all like a bird on the wing.
They loved - but the story we cannot unfold;
They scorned - but the heart of the haughty is cold;
They grieved - but no wail from their slumber will come;
They joyed - but the tongue of their gladness is dumb.
They died - aye, they died - we things that are now,
That walk on the turf that lies over their brow,
And make in their dwellings a transient abode,
Meet the things that they met on their pilgrimage road.
Yea, hope and despondency, pleasure and pain,
Are mingled together in sunshine and rain;
And the smile and the tear, the song and the dirge,
Still follow each other, like surge upon surge.
'Tis the wink of an eye - 'tis the draught of a breath -
From the blossom of health to the paleness of death,
From the gilded saloon to the bier and the shroud
Oh, why should the spirit of mortal be proud?
Like a swift-fleeting meteor, a fast-flying cloud,
A flash of the lightning, a break of the wave,
He passes from life to his rest in the grave.
The leaves of the oak and the willow shall fade,
Be scattered around, and together be laid;
And the young and the old, the low and the high,
Shall molder to dust, and together shall lie.
The infant a mother attended and loved;
The mother that infant's affection who proved;
The husband, that mother and infant who blessed;
Each, all, are away to their dwelling of rest.
The maid on whose cheek, on whose brow, in whose eye,
Shone beauty and pleasure - her triumphs are by;
And the memory of those who loved her and praised,
Are alike from the minds of the living erased.
The hand of the king that the sceptre hath borne,
The brow of the priest that the mitre hath worn,
The eye of the sage, and the heart of the brave,
Are hidden and lost in the depths of the grave.
The peasant, whose lot was to sow and to reap,
The herdsman, who climbed with his goats up the steep,
The beggar, who wandered in search of his bread,
Have faded away like the grass that we tread.
The saint, who enjoyed the communion of Heaven,
The sinner, who dared to remain unforgiven,
The wise and the foolish, the guilty and just,
Have quietly mingled their bones in the dust.
So the multitude goes - like the flower or the weed
That withers away to let others succeed;
So the multitude comes - even those we behold,
To repeat every tale that has often been told.
For we are the same that our fathers have been;
We see the same sights that our fathers have seen;
We drink the same stream, we feel the same sun,
And run the same course that our fathers have run.
The thoughts we are thinking, our fathers would think;
From the death we are shrinking, our fathers would shrink;
To the life we are clinging, they also would cling -
But it speeds from us all like a bird on the wing.
They loved - but the story we cannot unfold;
They scorned - but the heart of the haughty is cold;
They grieved - but no wail from their slumber will come;
They joyed - but the tongue of their gladness is dumb.
They died - aye, they died - we things that are now,
That walk on the turf that lies over their brow,
And make in their dwellings a transient abode,
Meet the things that they met on their pilgrimage road.
Yea, hope and despondency, pleasure and pain,
Are mingled together in sunshine and rain;
And the smile and the tear, the song and the dirge,
Still follow each other, like surge upon surge.
'Tis the wink of an eye - 'tis the draught of a breath -
From the blossom of health to the paleness of death,
From the gilded saloon to the bier and the shroud
Oh, why should the spirit of mortal be proud?
Tuesday, 14 July 2009
Contractual Cartography Guidelines
Whatis Contractual Cartography Guidelines?
Is to help the court to distinguish which express statement amount to a representation or a terms of a contract. The distinction is important so that proper remedies can be granted to the claimant accordingly and to avoid too rigid adherance towards parties freedom of anatomy.
Thus, a few guidelines has been put down to help the court to do so by Lord Moulton in Heilbut Symons v Buckleton.
1. The time the statement was made and the importance of the statement and undertakings by the promisor
Cases that illustrates thispoint are:
Bannermanv White[5] •
This is where a prospective buyer, in the course of negotiating for the purchase of hops, asked the seller if any sulphur had been used in their treatment, adding that, if it had, he would not even trouble to ask the price.
• The seller answered that no sulphur had been used.
Held: It is anundertaking and therefore is a term of a contract. A reasonable man would notbuy if he had known that the hops had sulphur.
Couchman v Hill[6](Court of Appeal)
• There was a statement that a heifer is “unserved” by a seller is a term and may override any written terms to negate liability.
Birchv Paramount Estates[7]
Whena seller makes a promise about something that which is or should be within hiscontrol intending that the buyer would act on it, it was easy to infer that thestatement was a term of the contract.
2. Did the person who made the statement have special knowledge or skill as compared to the other party?
Inorder to understand to different, the cases such as Oscar Chess v Williams and Dick Bentley v Harold Smith Motor should be considered.
Oscar Chess v Williams[8] (Court of Appeal) • A statement by a seller to car dealers of the model of a car is was not a term of the contract It was the plaintiffs as car dealers, who possessed special skill and knowledge, and who if anyone could have discovered in time the true age of the car.
Contrast this with:
Dick Bentley v Harold Smith Motors Ltd. [9] • The defendants were motor dealers made a statement in relation to the mileage of the car to the plaintiffs who were private purchasers.
• The statement turned out to be wrong, as the actual mileage was more.
Held: The defendant’s statement in relation to the mileage of the car was aterm of the contract. The defendants were as motor dealers involved in therunning of a car business whereas the plaintiffs were not. Therefore it wasreasonable for the plaintiffs to rely on the statement made by the defendants.
3. Accepting responsibility or advising on verification?
This guide concerns as to whether the maker of the statement takes responsibility over the statement.
Consider the case of Schawel v Reade[10]
Here, there is a declaration of a seller, “ You need not look foranything; the horse is perfectly sound. If there was anything the matter withthe horse I would tell you.” Would render a statement a term
Compared this case to:
Ecay v Godfrey[11] - Here, there would not be a term inferred if there is no undertaking by sellers – such undertaking could be negated by suggesting for a survey to be conducted.
4.Was the statement reduced to writing?
This is where you would have to understand the impact and status of statements that were reduced into writing and those which are not.
Routledge v McKay[12]
If the parties intended the statement to be a term where there is a written agreement, the statement would have incorporated into the written agreement. Failing to incorporate such a term would indicate that it may not be important enough to be a term
Is to help the court to distinguish which express statement amount to a representation or a terms of a contract. The distinction is important so that proper remedies can be granted to the claimant accordingly and to avoid too rigid adherance towards parties freedom of anatomy.
Thus, a few guidelines has been put down to help the court to do so by Lord Moulton in Heilbut Symons v Buckleton.
1. The time the statement was made and the importance of the statement and undertakings by the promisor
Cases that illustrates thispoint are:
Bannermanv White[5] •
This is where a prospective buyer, in the course of negotiating for the purchase of hops, asked the seller if any sulphur had been used in their treatment, adding that, if it had, he would not even trouble to ask the price.
• The seller answered that no sulphur had been used.
Held: It is anundertaking and therefore is a term of a contract. A reasonable man would notbuy if he had known that the hops had sulphur.
Couchman v Hill[6](Court of Appeal)
• There was a statement that a heifer is “unserved” by a seller is a term and may override any written terms to negate liability.
Birchv Paramount Estates[7]
Whena seller makes a promise about something that which is or should be within hiscontrol intending that the buyer would act on it, it was easy to infer that thestatement was a term of the contract.
2. Did the person who made the statement have special knowledge or skill as compared to the other party?
Inorder to understand to different, the cases such as Oscar Chess v Williams and Dick Bentley v Harold Smith Motor should be considered.
Oscar Chess v Williams[8] (Court of Appeal) • A statement by a seller to car dealers of the model of a car is was not a term of the contract It was the plaintiffs as car dealers, who possessed special skill and knowledge, and who if anyone could have discovered in time the true age of the car.
Contrast this with:
Dick Bentley v Harold Smith Motors Ltd. [9] • The defendants were motor dealers made a statement in relation to the mileage of the car to the plaintiffs who were private purchasers.
• The statement turned out to be wrong, as the actual mileage was more.
Held: The defendant’s statement in relation to the mileage of the car was aterm of the contract. The defendants were as motor dealers involved in therunning of a car business whereas the plaintiffs were not. Therefore it wasreasonable for the plaintiffs to rely on the statement made by the defendants.
3. Accepting responsibility or advising on verification?
This guide concerns as to whether the maker of the statement takes responsibility over the statement.
Consider the case of Schawel v Reade[10]
Here, there is a declaration of a seller, “ You need not look foranything; the horse is perfectly sound. If there was anything the matter withthe horse I would tell you.” Would render a statement a term
Compared this case to:
Ecay v Godfrey[11] - Here, there would not be a term inferred if there is no undertaking by sellers – such undertaking could be negated by suggesting for a survey to be conducted.
4.Was the statement reduced to writing?
This is where you would have to understand the impact and status of statements that were reduced into writing and those which are not.
Routledge v McKay[12]
If the parties intended the statement to be a term where there is a written agreement, the statement would have incorporated into the written agreement. Failing to incorporate such a term would indicate that it may not be important enough to be a term
Friday, 19 June 2009
Consideration Part Essay Part Problem
Answer both questions
(a) X was having dinner with his father Y. whilst chatting, Y made a promised to X that in the event that X were to pass his LLB examinations, he would be given a car for his birthday. The car model was agreed to be a Ferrari 355 Spider. X stated that he is afraid that Y would forget the promise and wrote the promise down on the back of the tissue paper where Y signed after being repeatedly nagged by X. X passed his examinations and Y refused to buy X the Ferrari but a CLK (Cute Little Kancil) on the pretext that he had paid for the Examination Fees.
Advice X.
Guide:
X does not want the CLK but would want to claim for the 355 Ferrari. One has to note that on the facts, X and Y had came to an agreement that in the event that X were to pass his examinations, Y would buy him a Ferrari i.e. that the element of offer and acceptance being satisfied (Butler Machine Tools v Ex- Cell-O Corp)
However, the other elements that X would need to show on the facts is that he had provided consideration for the promise and there is an intention to create legal relations.
Consideration?
L. Dunedin in the case of Dunlop Pneumatic Tyres V Selfridge incorporated the definition given by Sir Federick Pollock that consideration should be some act or forbearance to purchase the promise of the other. However, the act or forbearance must have some value in the eyes of the law before it could be considered to be valuable consideration (Chappel v Nestle).
On the facts, X is supposed to pass his examinations. Examination are one that is rather subjective. At times, one may had studied really hard but still find that they had failed the exams. But it may be argued that one’s initial obligation or intention for sitting for an exam is to pass their exams. If we are going to assume this, then X may not have provided consideration for the promise.
The case of White v Bluett would indicate to us that for a person to provide consideration, the particular person must actually do something where in which that he is not suppose to do. A clearer picture could be drawn by the case of Hamer v Sidway, where in which the uncle told the nephew that he would pay him something if he would abstain for vices. Here, it was held that the nephew could claim for the promise of the uncle since he had done the act stipulated. One has to take note that one of the reasons that the courts may have taken into consideration is that the liberty of the nephew could have been affected. Although in general, we should abstain from vices, the fact that one has done it, they are giving up their choice of life.
One has to take note, is that in Arrale v Constain Civil Engineering, it was stated that the forbearance must be an activity which the promisee never intended to pursue, then there is no detriment to the promisee nor benefit to the promisor. Drawing an analogy with the cases above, we would be able to come to a conclusion that in order for somebody provide consideration, the person must have shown that he had done something over and above his previous obligations. We would now have to question as to whether what type of student is X. in the event that X is a weak student and due to the promise he had worked harder to pass his examinations, it could be argued that he would have provided consideration. However, in the event that X is a very bright student and would have pass his examinations and would have passed his examinations anyway without the promise, there is no consideration provided.
Intention to Create Legal Relations?
X is advised of the case of Jones v Padavatton which, would dictate that in a contractual relationship of mother and daughter (similarly OTF father and son), the presumption is that there wouldn’t be an Intention to Create Legal Relations.
Therefore, X would not be able to enforce the “contract” in a court of law until and unless X could bring in extrinsic evidence to show that there is such intention (Merritt v Merritt).
On the facts of this question, it could be seen that Y had signed a piece of tissue that he promised that he would buy X the car if he passes the exams. Technically speaking, the situation is some what similar to the case of Merritt v Merritt. However, one has to understand the background behind the said case. On the facts of the case, the husband and wife were going through a divorce. Therefore would be easier to show that the parties would want to be legally bound.
However, on the facts of the question, Y signed the tissue after being repeatedly nagged by X to do so. Would this be sufficient to rebut the presumption of no ITCLR? One has to note that X and Y was merely having dinner when the conversation arose, moreover, the initial intention of putting the promise down on the piece of tissue is because that X was worried that Y would forget about the promise.
Therefore, looking at the surrounding circumstances, it is submitted that it is unlikely that Y wanted to legally bound. Hence, X is advised that he would not be able to sue Y for the Ferrari. (b) Champion is renting Loser's room for the sum of €1000 a month. Champion had defaulted in payment for 3 months. Champion find out that Loser is getting married and would need the extra money. Champion came over to Loser and suggest that Loser were to accept €2000 as the full settlement of the defaulted payment.
Loser is now married and would want to recover the room and would want Champion to leave. Advice Loser
Guide:
Introduction:
It is indicated on the facts that Loser (L) would want to reclaim the room from Champion (C) would like C to move out of the premises. L is advised however that in order for L to do so, he would have to show that C had breached a contractual term which is a condition of the contract (Readon Smith Lines v Hansen Tangen); or committed a serious breach of an innominate term (Hong Kong Fir v Kawasaki Kisen Kaisha).
L would be able to prove that C had breach a term of the contract in the sense that by C did not provide valuable consideration that he paid €2000 instead of €3000. This is because that by looking at the case of Lombard North v Butterworth, one would have to realise that a default of payment of rental would usually would tantamount to a breach of a condition.
Insufficient Consideration?
L is advised to rely on the case of Foakes v Beer which had relied on the rule in Pinnel's case where it was stated that in the event that a person did not fully perform his obligations as on the facts, where C is supposed to have paid €3000 but had only paid €2000, that said person would not have provided valuable consideration. Therefore, C would be in breach of a condition and would entitle L to repudiate the contract and reclaim the room.
Any remedy available for C?
Practical benefit argument?
C would want to rely on the argument laid down by John Adams & Roger Brownsword in their article "the critical path" stated that the rule in Foakes v Beer should be looked at differently today in light of the case of Williams v Roffey Brothers & Nicholls Contractors in the sense that where it was found that in the event that there is a practical benefit, there would be consideration provided.
With this argument, C is going to assert that L would have obtained a practical benefit when he had accepted the lesser sum on the basis of the maxim of "a bird in the hand is better that the birds in the bush" i.e. it is better for L to have taken €2000 rather than nothing.
However, this is merely an academic argument. This argument came to the perusal of the Court of Appeal in the case of Re Selectmove. However, Peter Gibson LJ recognised that there is such possibility but declined to rule on it stating that in the event the courts are going to look at the rule in Foakes v Beer differently today, it must be for either the House of Lords or Parliament to decide before the Court of Appeal to recognise the argument. Therefore, it is submitted that C would not be able to rely on that argument as it still remain an academic argument. Moreover, it is submitted that C may not be able to rely on the Case of Williams as on the facts, C seemed to have taken advantage of the financial position of L as he was getting married and is in need of money. This may tantamount to an economic duress, which would taken as a vitiating factor (Pao On V Lau Yiu Long) in the said case.
Promissory Estoppel ?
C would now want to rely on the obiter judgement of Denning J (as he then was) in the case of Central London Properties v High Trees Housing where it was stated that in the event a promise was made and the promisee had relied on the promise, and it would be unconscionable for promisor to go back on his promise; the promisor would be estopped from going back on his promise. This is to say that since L had promised C that he would accept the lesser sum, he should not be entitled to go back on his promise now as it would be unconscionable towards C. However, the elements that needs to be satisfied in order for promissory estoppel to apply needs to be looked at individually.
C must show that there is a clear and unequivocal promise to accept less by L (Woodhouse Israel Cocoa v Nigerian Produce Marketing). It is submitted that this requirement would be easily satisfied on the facts as there is nothing to suggest that the promise was obtained impliedly. The case of Durham Fancy Goods v Michael Jackson Fancy Goods dictates to us however, that promissory estoppel is only applicable in a situation arising out of a contractual relationship which would be satisfied on the facts as C is renting a room from L and would definitely be in a contractual relationship.
L is advised now that C would be able to rely on promissory estoppel as L is trying to sue C for a breach of contract and C would want to rely on the doctrine as it always act as shield towards the cause of action. (Combe v Combe; Baird Textile Holdings v Marks & Spencer) However, L is advised that C should not be able to rely on promissory estoppel by submitting that C would not be able to show detrimental reliance on the facts. This is because that the case of Ajayi v Briscoe dictates that mere factual reliance i.e. by merely paying the reduce sum; should not be sufficient to show reliance as reliance under promissory estoppel would require detrimental reliance. Moreover, there is nothing on the facts to suggest that C would be place at a worse of position compared to the time the promise was not made to show reliance (as per Robert Goff; The Post Chaser)
Over an above that, it could be argued that C was unconscionable in taking advantage of the financial position of L (getting married) as promissory estoppel being an equitable remedy would not allow such a conduct (D&C Builders v Rees).
Conclusion
Hence it is submitted that since C would not be able to rely on promissory estoppel and would not rely on the factual benefit argument, he would not have provided valuable consideration and would be at breach of a contractual term which is a condition. Therefore, it is submitted that L would be entitled to repudiate the contract and reclaim possession of the room.
(a) X was having dinner with his father Y. whilst chatting, Y made a promised to X that in the event that X were to pass his LLB examinations, he would be given a car for his birthday. The car model was agreed to be a Ferrari 355 Spider. X stated that he is afraid that Y would forget the promise and wrote the promise down on the back of the tissue paper where Y signed after being repeatedly nagged by X. X passed his examinations and Y refused to buy X the Ferrari but a CLK (Cute Little Kancil) on the pretext that he had paid for the Examination Fees.
Advice X.
Guide:
X does not want the CLK but would want to claim for the 355 Ferrari. One has to note that on the facts, X and Y had came to an agreement that in the event that X were to pass his examinations, Y would buy him a Ferrari i.e. that the element of offer and acceptance being satisfied (Butler Machine Tools v Ex- Cell-O Corp)
However, the other elements that X would need to show on the facts is that he had provided consideration for the promise and there is an intention to create legal relations.
Consideration?
L. Dunedin in the case of Dunlop Pneumatic Tyres V Selfridge incorporated the definition given by Sir Federick Pollock that consideration should be some act or forbearance to purchase the promise of the other. However, the act or forbearance must have some value in the eyes of the law before it could be considered to be valuable consideration (Chappel v Nestle).
On the facts, X is supposed to pass his examinations. Examination are one that is rather subjective. At times, one may had studied really hard but still find that they had failed the exams. But it may be argued that one’s initial obligation or intention for sitting for an exam is to pass their exams. If we are going to assume this, then X may not have provided consideration for the promise.
The case of White v Bluett would indicate to us that for a person to provide consideration, the particular person must actually do something where in which that he is not suppose to do. A clearer picture could be drawn by the case of Hamer v Sidway, where in which the uncle told the nephew that he would pay him something if he would abstain for vices. Here, it was held that the nephew could claim for the promise of the uncle since he had done the act stipulated. One has to take note that one of the reasons that the courts may have taken into consideration is that the liberty of the nephew could have been affected. Although in general, we should abstain from vices, the fact that one has done it, they are giving up their choice of life.
One has to take note, is that in Arrale v Constain Civil Engineering, it was stated that the forbearance must be an activity which the promisee never intended to pursue, then there is no detriment to the promisee nor benefit to the promisor. Drawing an analogy with the cases above, we would be able to come to a conclusion that in order for somebody provide consideration, the person must have shown that he had done something over and above his previous obligations. We would now have to question as to whether what type of student is X. in the event that X is a weak student and due to the promise he had worked harder to pass his examinations, it could be argued that he would have provided consideration. However, in the event that X is a very bright student and would have pass his examinations and would have passed his examinations anyway without the promise, there is no consideration provided.
Intention to Create Legal Relations?
X is advised of the case of Jones v Padavatton which, would dictate that in a contractual relationship of mother and daughter (similarly OTF father and son), the presumption is that there wouldn’t be an Intention to Create Legal Relations.
Therefore, X would not be able to enforce the “contract” in a court of law until and unless X could bring in extrinsic evidence to show that there is such intention (Merritt v Merritt).
On the facts of this question, it could be seen that Y had signed a piece of tissue that he promised that he would buy X the car if he passes the exams. Technically speaking, the situation is some what similar to the case of Merritt v Merritt. However, one has to understand the background behind the said case. On the facts of the case, the husband and wife were going through a divorce. Therefore would be easier to show that the parties would want to be legally bound.
However, on the facts of the question, Y signed the tissue after being repeatedly nagged by X to do so. Would this be sufficient to rebut the presumption of no ITCLR? One has to note that X and Y was merely having dinner when the conversation arose, moreover, the initial intention of putting the promise down on the piece of tissue is because that X was worried that Y would forget about the promise.
Therefore, looking at the surrounding circumstances, it is submitted that it is unlikely that Y wanted to legally bound. Hence, X is advised that he would not be able to sue Y for the Ferrari. (b) Champion is renting Loser's room for the sum of €1000 a month. Champion had defaulted in payment for 3 months. Champion find out that Loser is getting married and would need the extra money. Champion came over to Loser and suggest that Loser were to accept €2000 as the full settlement of the defaulted payment.
Loser is now married and would want to recover the room and would want Champion to leave. Advice Loser
Guide:
Introduction:
It is indicated on the facts that Loser (L) would want to reclaim the room from Champion (C) would like C to move out of the premises. L is advised however that in order for L to do so, he would have to show that C had breached a contractual term which is a condition of the contract (Readon Smith Lines v Hansen Tangen); or committed a serious breach of an innominate term (Hong Kong Fir v Kawasaki Kisen Kaisha).
L would be able to prove that C had breach a term of the contract in the sense that by C did not provide valuable consideration that he paid €2000 instead of €3000. This is because that by looking at the case of Lombard North v Butterworth, one would have to realise that a default of payment of rental would usually would tantamount to a breach of a condition.
Insufficient Consideration?
L is advised to rely on the case of Foakes v Beer which had relied on the rule in Pinnel's case where it was stated that in the event that a person did not fully perform his obligations as on the facts, where C is supposed to have paid €3000 but had only paid €2000, that said person would not have provided valuable consideration. Therefore, C would be in breach of a condition and would entitle L to repudiate the contract and reclaim the room.
Any remedy available for C?
Practical benefit argument?
C would want to rely on the argument laid down by John Adams & Roger Brownsword in their article "the critical path" stated that the rule in Foakes v Beer should be looked at differently today in light of the case of Williams v Roffey Brothers & Nicholls Contractors in the sense that where it was found that in the event that there is a practical benefit, there would be consideration provided.
With this argument, C is going to assert that L would have obtained a practical benefit when he had accepted the lesser sum on the basis of the maxim of "a bird in the hand is better that the birds in the bush" i.e. it is better for L to have taken €2000 rather than nothing.
However, this is merely an academic argument. This argument came to the perusal of the Court of Appeal in the case of Re Selectmove. However, Peter Gibson LJ recognised that there is such possibility but declined to rule on it stating that in the event the courts are going to look at the rule in Foakes v Beer differently today, it must be for either the House of Lords or Parliament to decide before the Court of Appeal to recognise the argument. Therefore, it is submitted that C would not be able to rely on that argument as it still remain an academic argument. Moreover, it is submitted that C may not be able to rely on the Case of Williams as on the facts, C seemed to have taken advantage of the financial position of L as he was getting married and is in need of money. This may tantamount to an economic duress, which would taken as a vitiating factor (Pao On V Lau Yiu Long) in the said case.
Promissory Estoppel ?
C would now want to rely on the obiter judgement of Denning J (as he then was) in the case of Central London Properties v High Trees Housing where it was stated that in the event a promise was made and the promisee had relied on the promise, and it would be unconscionable for promisor to go back on his promise; the promisor would be estopped from going back on his promise. This is to say that since L had promised C that he would accept the lesser sum, he should not be entitled to go back on his promise now as it would be unconscionable towards C. However, the elements that needs to be satisfied in order for promissory estoppel to apply needs to be looked at individually.
C must show that there is a clear and unequivocal promise to accept less by L (Woodhouse Israel Cocoa v Nigerian Produce Marketing). It is submitted that this requirement would be easily satisfied on the facts as there is nothing to suggest that the promise was obtained impliedly. The case of Durham Fancy Goods v Michael Jackson Fancy Goods dictates to us however, that promissory estoppel is only applicable in a situation arising out of a contractual relationship which would be satisfied on the facts as C is renting a room from L and would definitely be in a contractual relationship.
L is advised now that C would be able to rely on promissory estoppel as L is trying to sue C for a breach of contract and C would want to rely on the doctrine as it always act as shield towards the cause of action. (Combe v Combe; Baird Textile Holdings v Marks & Spencer) However, L is advised that C should not be able to rely on promissory estoppel by submitting that C would not be able to show detrimental reliance on the facts. This is because that the case of Ajayi v Briscoe dictates that mere factual reliance i.e. by merely paying the reduce sum; should not be sufficient to show reliance as reliance under promissory estoppel would require detrimental reliance. Moreover, there is nothing on the facts to suggest that C would be place at a worse of position compared to the time the promise was not made to show reliance (as per Robert Goff; The Post Chaser)
Over an above that, it could be argued that C was unconscionable in taking advantage of the financial position of L (getting married) as promissory estoppel being an equitable remedy would not allow such a conduct (D&C Builders v Rees).
Conclusion
Hence it is submitted that since C would not be able to rely on promissory estoppel and would not rely on the factual benefit argument, he would not have provided valuable consideration and would be at breach of a contractual term which is a condition. Therefore, it is submitted that L would be entitled to repudiate the contract and reclaim possession of the room.
Wednesday, 10 June 2009
Effectiveness
I believed there is no one absolute effective ways in doing something. It all boils down to how well you adapt and peservere with the situation in which you are at.
I might not be the best speaker as compared to the person next to me. But I have a choice ie: to grow in my speech and knowledge of what I teach
I might not be the fastest learner as compared to the person next to me. But I have a choice ie: to be humble and ask question and work 10 times harder
Thus, one rule of Thumb that every student should have is to stay positive and be glad that you have a complete body fits to do law as compared to the person who only have 1 limb or no limb at all.
It only matters how you work to the finishing line and not the surface result!
If one day a person ask you, why should I hire you? Do you answer because I have an A for my law paper or you will answer because I have the character that you need. I have peservere through the tough moments and now with my values and charater strength I want to contribute to your organisation.
See, a person with Good results sometimes too proud of them self and loose out on important values...I don't mean to apply accross the board, but I would rather have you to gain wisdom in what you do and experience in life than mere knowledge.
Meanwhile, stay cool and focus. Also taking this opportunity to wish all the Fathers Happy Father's Day :)
God Bless!
Wednesday, 3 June 2009
The Doctrine of Consideration; A Fiction?
What is the doctrine of consideration? Why do I call it a fiction? First of all, we need to consider what is this doctrine of consideration that we always say that plays such an important part under the law of contract. Later on in this essay, I would proceed to consider the various changes in the law that took place and comparing it with the definitions given by various judges and authors at the same time considering as to whether the reasoning are justifiable.
In the case of Butler v Ex-Cell-O Corp., the courts stressed that the existence of an offer as well as an acceptance is vital, in order to be a contract. Although this is true but what other elements is needed for a contract? A contract should consist of an expression of an offer that has been accepted, and be bound by the terms of the contact where in which the parties would have provided consideration to enforce such promise in the absence of any vitiating factors.
Why do we need to provide consideration? The emergence of the doctrine of consideration is really somewhat due to the Statute of Frauds 1677 where it was stated that any transfer of property would actually need to be done so by a deed. However, if one has supported his promise with consideration, then he would be able to enforce such promise under the law.
If we were to consider as to whether there is intention to create legal relations following cases like Edwards v Skyways1 and Merritt v Merritt2, how do we actually ascertain that there is an intention? If the facts are clear that they intent to have legal relations, than everything would be fine. But what if there is no clear intention on the facts? Then if there were consideration that has been provided, then we would be able to imply that there is intention to create legal relations.
How then do we ascertain the existence of consideration? Various academics and judges had tried to give us a definition for the doctrine of consideration. However, there is only 2 person that really standout i.e. Lush LJ as well as Prof. Atiyah.
Lush LJ in Currie v Misa (1875):
" A valuable consideration in the eyes of the law may consist either in some right, interest, profit or benefit accruing to the one party or some forbearance, detriment loss or responsibility given, suffered or undertaken by the other..."
Atiyah on the other hand had rigorously attacked the benefit detriment analysis in his work Consideration in Contract and have defined consideration in a most liberal manner when he said that:
" The truth is that the courts never set out to create a doctrine of consideration. They have been concerned with the much more practical problem of deciding in the course of litigation whether a particular promise in a particular case should be enforced ...
When the courts found a sufficient reason for enforcing a promise they enforce it; and when they found that for one reason or another it was undesirable to enforce a promise, they did not enforce it. It seems highly probable that when the courts first used the word "consideration" they meant no more than that there was a "reason" for the enforcement of the promise. If the consideration was "good", this meant that the court found sufficient reason for enforcing the promise."
What Prof. Atiyah actually meant by that statement is that valuable consideration is one that is merely legal i.e. a conduct that is not illegal in nature and does not mean there must be a benefit or a detriment before it can be said to be a valuable consideration. He further argues that at times, the courts actually bend their backs to enforce a contract and say that there is a valid consideration.
The reason in which I argue at the title itself, stating that the doctrine of consideration is merely a fiction is that because I share the same opinion as Prof. Atiyah i.e. in that the courts would actually enforce the promise stating that there is a consideration by taking in to account the surrounding circumstances.
It is often been argued that the 4 rules to consideration have the determining factor to the existence to the doctrine of consideration. But, do you actually think that these factors are actually useful today taking into account the changes of the law and the time that the cases had first been decided?
Taking each factor one by one, one could best see the relevance and the accuracy of such factors today. The first rule is that the consideration must move from the promisee. This is to say that in order a person would want to enforce a promise; the promisee would have to provide consideration for it. In the case of Thomas v Thomas, it was held that the wife was not allowed to enforce the promise because she did not want to pay the minimum sum of $1 in order to stay in the house3.
It is in my opinion that this rule of consideration is the only rule that is the most accurately stated out because the person who wants to enforce a promise must always provide something in order enforce a promise. However, I would like you to consider this example; would a contractor be able to enforce a payment when the workers are carrying out the construction work? Technically, wouldn’t the contractor be barred for claiming the payment because he did not do the job?
Although the law has always been acclaimed by the layperson that the law is always technical and tedious, the law is not really that hard at heart. In such a situation, the law would actually say that the promisee need not provide the whole consideration for the promise; thus the promisee can enforce the promise if he can show that consideration was provided partly by him and partly by his agent, partner or some other co-promisee (workers).
The second rule, which is by all means, is of without dispute is that the consideration need not move to the promisor. The case of Carlill v Carbolic Smokeball Co. Ltd. would best illustrate this. Here when Mrs. Carlill had used the smokeball in the stipulated manner and contracted influenza, then she would be entitled to the $100 “reward”. If we were to say that consideration must move to the promisor, then what benefit did the Carbolic Smokeball Co. benefited from Mrs. Carlill contracting influenza? Therefore, it is submitted that this rule is undisputed.
The other rule of consideration that is in contention is that the consideration must be sufficient and need not be adequate. As we always say, the distinction between these 2 words is hard to be drawn in a layman’s term for it would mean the same. However, under the law, this would actually mean that such consideration must have a bearing of value no matter how minimal it is and cannot be compared to the normal value.
This is to say that if I were to sell you my house for $1, there would be consideration provided if you were to pay me the $1 and it is irrelevant that the house actually worth $1,000,000.
What if the consideration does not bear any economic value? Would there be consideration then? In the case of Chappell v Nestle Co. Ltd., the chocolate manufacturers sold gramophone records for 1s6d plus 3 wrappers of their 6d chocolate. The issue arise as to whether the wrappers would amount to consideration because even though the Nestle Co. was to take the wrappers back, they would only throw the wrappers away and it is entirely worthless (“rubbish”). However, it was held in this case that the wrappers actually constitute valuable consideration.
If chocolate wrappers, which are worthless, would constitute valuable consideration, consider this case of Lipkin Gorman v Karpnale. Although the decision of this case is based under the law of trusts, the issue about the doctrine of consideration was considered. The issue in this case, the issue was whether the gaming chips supplied by the gaming club to one of its members was valuable consideration. It was held in this case that it does not constitute consideration for the money paid to them.
Why is this? These chips that was bought or “exchanged” was said to be worthless because it is said that it was mere plastic. However, it actually carry some value doesn’t it because the chips are actually valued for the some paid for and the chips could be exchanged back for cash. But, if we were to say that they are worthless, wouldn’t it be the same with regards to the chocolate wrappers in Chappell’s case?
The other reason that was given was that the chips remained the possession of the gaming club. This is because the chips are worthless outside the club, but this cannot be said to be conclusive, this is because the member would have paid good money for it and upon payment, the chips would have been transferred to the member. Therefore, the transfer of possession would clearly constitute good consideration.
The third reason is that the parties did not regard the transaction of transferring the chips as a contract but merely a convenient mechanism to facilitate gambling. The
case is regarded as one in which the court refused to invent consideration even though this course was technically open. They said that this is what the parties have intended, is this so? Intention of the parties is always subjective and we cannot actually say conclusively that this was the intention of the parties, the gaming club would of course argue that they did not enter into a contract. For the courts to say conclusively that this is what the parties have intended would be artificial.
The refusal appears to be based on the context in which the question arose. The issue was not whether the club could the member on any promise made by the member. The issue arose because the money paid by the member to the club had been stolen and the club, which had been received the money in good faith, argued that they had given valuable consideration for it so as to defeat the owner’s claim for the return of the money.
L. Goff lend some support based on a hypothetical case of tokens supplied by a departmental store in exchange for cash. This hypothetical situation is something like what we get locally from credit card companies and departmental stores where in which one could collect points when purchasing products from them and when a certain amount of points had been collected, the will then award you with cash vouchers etc.
In such a situation, L. Goff stated that “by receiving the money in these circumstances, the store does not for the present purposes give valuable consideration for it”. Yet in such circumstances, they had also accepted that an independent contract is made for the chips when the customer originally obtains them from the cash desk.
If we were to compare this situation in Lipkin, we are able to realise that the situation in Lipkin and the one that was given by L. Goff is somewhat similar and yet the courts would have decided the case differently.It is submitted that this case had caused made me argue that the doctrine of consideration is merely a fiction. Why is this? This is because it will seem that it the existence of the doctrine would be depended on whether it concerns the enforceability of a promise where in which the courts would take a broad approach; or on the other hand, the consideration is concerned with the enforcement the rights of a third party, then the courts would then take a narrow approach.
This point would be to justify Prof. Atiyah’s argument that the courts would actually bend backwards to justify a case.The third rule is one of the rules that I actually find that it is made quite redundant today losing the original idea of this rule, or it shouldn’t be there at the first place i.e. the performance of an existing duty. I would not be considering the issue of legal performance but on the issue of contractual duty.
The rule started off with the case where the seamen was not allowed to claim for the extra wages “promised” because they had not paid valuable consideration for it. This was seen in the case of Stilk v Myrick. The facts of this case is, in brief, is that the ship after reaching it’s destination and is about to return to England, there was a few men who had jumped the ship. At such, the existing members did not want to
continue with the journey unless they were paid extra. The ship Captain actually said that he would divide the wages of those that had jumped the ship to the existing members.
When the ship finally arrive at the English port and when the members demanded for the extra wages, the ship captain turned around and said that he would not pay them the extra. It was held in this case that the seamen wasn’t allowed to claim the extra and was said that they had not provided valuable consideration for that promise because the crew members were under a contractual duty to perform the act of taking the ship back to England.
Is this really so? If we are to consider it as a unilateral contract, where in which one would be paid in return of an act done, then it easily justifiable isn’t it? But what is the reasoning behind it? One of the reasoning given for this case is that the law needs to protect the promisors from extortion. This reasoning is so because at the time that this case was decided, there is no such vitiating factor that was recognised as economic duress. However, this argument would hold much weight today due to the fact that duress is now a recognised defence. Thus at that time, the courts would have say that there was no consideration to support the promise.
What if the promisee has done work that is over and above his normal duties4? However, it would be irrelevant if the promisor can actually show that there was duress by the promisee no matter how minimal.5 In short, what this really means is that the promisee can only claim for the extra sum if he could prove that the promise was made at the free will of the promisor in the absence of duress.6 Nonetheless, it was held that the promise couldn’t be impugned that the refusal amounted to an abuse by the promisee of a dominant bargaining position.
The other reason that was given is that the promisee has suffered no legal detriment in performing what was already due to him; nor the promisor received any legal benefit in receiving what was already due to him.
It is submitted that these reasons “prima facie” seem to carry weight. But examples can be given where in which the courts seemed to depart. The first example would be the case of Ward v Byham (1956). On the facts of this case, a father of an illegitimate child promised to pay its mother $1 per week providing you she prove that the child is well looked after and happy, also that the child is allowed to decide for herself whether or not she wishes to come and live with the mother. Since then, the mother started to look after the child. It was held in this case that the mother could enforce the father’s promise.
Why should the mother be entitled to claim the money? She did not provide any consideration for the promise. This is so because the mother is already under a statutory duty to take care of the child isn’t is? A mother is always bound to ensure that their child is well taken care of isn’t it? Put it this way, recently in August 2002
where the was an abandoned child in Malaysia by the name of Ming Hong and this has led to a public outcry about the attitude of the mother who is irresponsible. Does this now justify my argument that the mother should not be able to claim for the $1?
However, one of the bases of this decision is that the mother had provided consideration by showing that she had made the child happy. L. Denning was of the view that although the she was merely performing her legal duty to support the child, there are no grounds of public policy for refusing to enforce the promise.
Although I do feel for what L. Denning has to propound, but I’m not of the opinion that the law should not create consideration as they like. This is what I meant by the doctrine consideration is a fiction and the courts are bending their backs to justify their means.
The issue about the promisor has not benefited from the promise can be “flawed” if were to consider the case of Williams v Roffrey Bros. & Nicholls (Contractors) Ltd.7 Here, the Defendant (D) engaged the plaintiff (P) as a carpentry sub contractor for the purposes of performing a contract between D and X to refurbish a number of flats. The amount payable to P under the sub contract was $20,000, but the D later promised to make an extra payment to the P, who undertook no additional obligation in return.
The D made this new promise because the D’s own surveyor recognised that the originally agreed sum of $20,000 was too low, as well as being worried that the P would not be able to complete the work on time exposing the D to penalties for delay under the contract between D and X. The P was at that time in financial difficulties.
It was held in this case that the D’s promise to make extra payments to the P was supported by consideration in the shape of “practical benefits” obtained by the D from the P’s performance of his duties under the original contract between them. This is due to the fact that there was no allegation of duress on the P; the promise to pay extra could not be avoided. Moreover, it was alleged that there has been no threat by the P to break the original contract and the initiative for the agreement to extra payment has came from the D.
In this case, the point is that the D had obtained a practical benefit by not infringing the time penalty clause, looking for another contractor and it would ensure that the P would not stop and in breach. Doesn’t this benefit was created by the courts? Although this is true, but isn’t this the same for the case of Stilk v Myrick? The only distinction that can be drawn is that there may be an element of duress in the former case.
It is submitted that the courts do not actually lay down well define guide as to when would there be consideration and when there isn’t; the courts seems to be taking the case at a ad hoc basis. The case of Williams seems to infringe the final rule as well i.e. past consideration is not good consideration following the case of Roscorla v Thomas.7 (1991) 1 QB 1
Here, after the sale of the horse, the seller gave an extra warranty that the horse is free from vice. However, in this case, it was held that the plaintiff could not enforce the warranty because the consideration for the warranty has passed. It is submitted that the point of distinction is that whether the term or warranty was given before the completion of the contract. It is further submitted that this is the same in Williams.
In the case of Re Casey’s Patent,8 it was held that a past act could be consideration for a promise only if 3 conditions are satisfied. First of all, the act must be done by the request of the promisor.9 The second is that it must be understood that payment would be made and finally, that the payment if it is promised in advance, must be legally enforceable.
To illustrate this, imagine yourself as an employee in a company and your boss has stated to you that he would give you a “bonus” for the hard work you have performed. Applying the principle of Roscorla, the promise for the bonus had come after you have already entered into your contract of employment and thus would not have provided consideration for it. Would you then be able to enforce the promise? However, if we were to follow the principle in Re Casey’s Patent then you would be able to enforce that promise.
Thus, as we can see from the cases discussed, that the doctrine of consideration has departed from it’s initial rules and creating a situation where in which it looks as if the courts are bending backwards to justifying their means to decide a case. This has therefore, made the doctrine of consideration a fiction!!!
In the case of Butler v Ex-Cell-O Corp., the courts stressed that the existence of an offer as well as an acceptance is vital, in order to be a contract. Although this is true but what other elements is needed for a contract? A contract should consist of an expression of an offer that has been accepted, and be bound by the terms of the contact where in which the parties would have provided consideration to enforce such promise in the absence of any vitiating factors.
Why do we need to provide consideration? The emergence of the doctrine of consideration is really somewhat due to the Statute of Frauds 1677 where it was stated that any transfer of property would actually need to be done so by a deed. However, if one has supported his promise with consideration, then he would be able to enforce such promise under the law.
If we were to consider as to whether there is intention to create legal relations following cases like Edwards v Skyways1 and Merritt v Merritt2, how do we actually ascertain that there is an intention? If the facts are clear that they intent to have legal relations, than everything would be fine. But what if there is no clear intention on the facts? Then if there were consideration that has been provided, then we would be able to imply that there is intention to create legal relations.
How then do we ascertain the existence of consideration? Various academics and judges had tried to give us a definition for the doctrine of consideration. However, there is only 2 person that really standout i.e. Lush LJ as well as Prof. Atiyah.
Lush LJ in Currie v Misa (1875):
" A valuable consideration in the eyes of the law may consist either in some right, interest, profit or benefit accruing to the one party or some forbearance, detriment loss or responsibility given, suffered or undertaken by the other..."
Atiyah on the other hand had rigorously attacked the benefit detriment analysis in his work Consideration in Contract and have defined consideration in a most liberal manner when he said that:
" The truth is that the courts never set out to create a doctrine of consideration. They have been concerned with the much more practical problem of deciding in the course of litigation whether a particular promise in a particular case should be enforced ...
When the courts found a sufficient reason for enforcing a promise they enforce it; and when they found that for one reason or another it was undesirable to enforce a promise, they did not enforce it. It seems highly probable that when the courts first used the word "consideration" they meant no more than that there was a "reason" for the enforcement of the promise. If the consideration was "good", this meant that the court found sufficient reason for enforcing the promise."
What Prof. Atiyah actually meant by that statement is that valuable consideration is one that is merely legal i.e. a conduct that is not illegal in nature and does not mean there must be a benefit or a detriment before it can be said to be a valuable consideration. He further argues that at times, the courts actually bend their backs to enforce a contract and say that there is a valid consideration.
The reason in which I argue at the title itself, stating that the doctrine of consideration is merely a fiction is that because I share the same opinion as Prof. Atiyah i.e. in that the courts would actually enforce the promise stating that there is a consideration by taking in to account the surrounding circumstances.
It is often been argued that the 4 rules to consideration have the determining factor to the existence to the doctrine of consideration. But, do you actually think that these factors are actually useful today taking into account the changes of the law and the time that the cases had first been decided?
Taking each factor one by one, one could best see the relevance and the accuracy of such factors today. The first rule is that the consideration must move from the promisee. This is to say that in order a person would want to enforce a promise; the promisee would have to provide consideration for it. In the case of Thomas v Thomas, it was held that the wife was not allowed to enforce the promise because she did not want to pay the minimum sum of $1 in order to stay in the house3.
It is in my opinion that this rule of consideration is the only rule that is the most accurately stated out because the person who wants to enforce a promise must always provide something in order enforce a promise. However, I would like you to consider this example; would a contractor be able to enforce a payment when the workers are carrying out the construction work? Technically, wouldn’t the contractor be barred for claiming the payment because he did not do the job?
Although the law has always been acclaimed by the layperson that the law is always technical and tedious, the law is not really that hard at heart. In such a situation, the law would actually say that the promisee need not provide the whole consideration for the promise; thus the promisee can enforce the promise if he can show that consideration was provided partly by him and partly by his agent, partner or some other co-promisee (workers).
The second rule, which is by all means, is of without dispute is that the consideration need not move to the promisor. The case of Carlill v Carbolic Smokeball Co. Ltd. would best illustrate this. Here when Mrs. Carlill had used the smokeball in the stipulated manner and contracted influenza, then she would be entitled to the $100 “reward”. If we were to say that consideration must move to the promisor, then what benefit did the Carbolic Smokeball Co. benefited from Mrs. Carlill contracting influenza? Therefore, it is submitted that this rule is undisputed.
The other rule of consideration that is in contention is that the consideration must be sufficient and need not be adequate. As we always say, the distinction between these 2 words is hard to be drawn in a layman’s term for it would mean the same. However, under the law, this would actually mean that such consideration must have a bearing of value no matter how minimal it is and cannot be compared to the normal value.
This is to say that if I were to sell you my house for $1, there would be consideration provided if you were to pay me the $1 and it is irrelevant that the house actually worth $1,000,000.
What if the consideration does not bear any economic value? Would there be consideration then? In the case of Chappell v Nestle Co. Ltd., the chocolate manufacturers sold gramophone records for 1s6d plus 3 wrappers of their 6d chocolate. The issue arise as to whether the wrappers would amount to consideration because even though the Nestle Co. was to take the wrappers back, they would only throw the wrappers away and it is entirely worthless (“rubbish”). However, it was held in this case that the wrappers actually constitute valuable consideration.
If chocolate wrappers, which are worthless, would constitute valuable consideration, consider this case of Lipkin Gorman v Karpnale. Although the decision of this case is based under the law of trusts, the issue about the doctrine of consideration was considered. The issue in this case, the issue was whether the gaming chips supplied by the gaming club to one of its members was valuable consideration. It was held in this case that it does not constitute consideration for the money paid to them.
Why is this? These chips that was bought or “exchanged” was said to be worthless because it is said that it was mere plastic. However, it actually carry some value doesn’t it because the chips are actually valued for the some paid for and the chips could be exchanged back for cash. But, if we were to say that they are worthless, wouldn’t it be the same with regards to the chocolate wrappers in Chappell’s case?
The other reason that was given was that the chips remained the possession of the gaming club. This is because the chips are worthless outside the club, but this cannot be said to be conclusive, this is because the member would have paid good money for it and upon payment, the chips would have been transferred to the member. Therefore, the transfer of possession would clearly constitute good consideration.
The third reason is that the parties did not regard the transaction of transferring the chips as a contract but merely a convenient mechanism to facilitate gambling. The
case is regarded as one in which the court refused to invent consideration even though this course was technically open. They said that this is what the parties have intended, is this so? Intention of the parties is always subjective and we cannot actually say conclusively that this was the intention of the parties, the gaming club would of course argue that they did not enter into a contract. For the courts to say conclusively that this is what the parties have intended would be artificial.
The refusal appears to be based on the context in which the question arose. The issue was not whether the club could the member on any promise made by the member. The issue arose because the money paid by the member to the club had been stolen and the club, which had been received the money in good faith, argued that they had given valuable consideration for it so as to defeat the owner’s claim for the return of the money.
L. Goff lend some support based on a hypothetical case of tokens supplied by a departmental store in exchange for cash. This hypothetical situation is something like what we get locally from credit card companies and departmental stores where in which one could collect points when purchasing products from them and when a certain amount of points had been collected, the will then award you with cash vouchers etc.
In such a situation, L. Goff stated that “by receiving the money in these circumstances, the store does not for the present purposes give valuable consideration for it”. Yet in such circumstances, they had also accepted that an independent contract is made for the chips when the customer originally obtains them from the cash desk.
If we were to compare this situation in Lipkin, we are able to realise that the situation in Lipkin and the one that was given by L. Goff is somewhat similar and yet the courts would have decided the case differently.It is submitted that this case had caused made me argue that the doctrine of consideration is merely a fiction. Why is this? This is because it will seem that it the existence of the doctrine would be depended on whether it concerns the enforceability of a promise where in which the courts would take a broad approach; or on the other hand, the consideration is concerned with the enforcement the rights of a third party, then the courts would then take a narrow approach.
This point would be to justify Prof. Atiyah’s argument that the courts would actually bend backwards to justify a case.The third rule is one of the rules that I actually find that it is made quite redundant today losing the original idea of this rule, or it shouldn’t be there at the first place i.e. the performance of an existing duty. I would not be considering the issue of legal performance but on the issue of contractual duty.
The rule started off with the case where the seamen was not allowed to claim for the extra wages “promised” because they had not paid valuable consideration for it. This was seen in the case of Stilk v Myrick. The facts of this case is, in brief, is that the ship after reaching it’s destination and is about to return to England, there was a few men who had jumped the ship. At such, the existing members did not want to
continue with the journey unless they were paid extra. The ship Captain actually said that he would divide the wages of those that had jumped the ship to the existing members.
When the ship finally arrive at the English port and when the members demanded for the extra wages, the ship captain turned around and said that he would not pay them the extra. It was held in this case that the seamen wasn’t allowed to claim the extra and was said that they had not provided valuable consideration for that promise because the crew members were under a contractual duty to perform the act of taking the ship back to England.
Is this really so? If we are to consider it as a unilateral contract, where in which one would be paid in return of an act done, then it easily justifiable isn’t it? But what is the reasoning behind it? One of the reasoning given for this case is that the law needs to protect the promisors from extortion. This reasoning is so because at the time that this case was decided, there is no such vitiating factor that was recognised as economic duress. However, this argument would hold much weight today due to the fact that duress is now a recognised defence. Thus at that time, the courts would have say that there was no consideration to support the promise.
What if the promisee has done work that is over and above his normal duties4? However, it would be irrelevant if the promisor can actually show that there was duress by the promisee no matter how minimal.5 In short, what this really means is that the promisee can only claim for the extra sum if he could prove that the promise was made at the free will of the promisor in the absence of duress.6 Nonetheless, it was held that the promise couldn’t be impugned that the refusal amounted to an abuse by the promisee of a dominant bargaining position.
The other reason that was given is that the promisee has suffered no legal detriment in performing what was already due to him; nor the promisor received any legal benefit in receiving what was already due to him.
It is submitted that these reasons “prima facie” seem to carry weight. But examples can be given where in which the courts seemed to depart. The first example would be the case of Ward v Byham (1956). On the facts of this case, a father of an illegitimate child promised to pay its mother $1 per week providing you she prove that the child is well looked after and happy, also that the child is allowed to decide for herself whether or not she wishes to come and live with the mother. Since then, the mother started to look after the child. It was held in this case that the mother could enforce the father’s promise.
Why should the mother be entitled to claim the money? She did not provide any consideration for the promise. This is so because the mother is already under a statutory duty to take care of the child isn’t is? A mother is always bound to ensure that their child is well taken care of isn’t it? Put it this way, recently in August 2002
where the was an abandoned child in Malaysia by the name of Ming Hong and this has led to a public outcry about the attitude of the mother who is irresponsible. Does this now justify my argument that the mother should not be able to claim for the $1?
However, one of the bases of this decision is that the mother had provided consideration by showing that she had made the child happy. L. Denning was of the view that although the she was merely performing her legal duty to support the child, there are no grounds of public policy for refusing to enforce the promise.
Although I do feel for what L. Denning has to propound, but I’m not of the opinion that the law should not create consideration as they like. This is what I meant by the doctrine consideration is a fiction and the courts are bending their backs to justify their means.
The issue about the promisor has not benefited from the promise can be “flawed” if were to consider the case of Williams v Roffrey Bros. & Nicholls (Contractors) Ltd.7 Here, the Defendant (D) engaged the plaintiff (P) as a carpentry sub contractor for the purposes of performing a contract between D and X to refurbish a number of flats. The amount payable to P under the sub contract was $20,000, but the D later promised to make an extra payment to the P, who undertook no additional obligation in return.
The D made this new promise because the D’s own surveyor recognised that the originally agreed sum of $20,000 was too low, as well as being worried that the P would not be able to complete the work on time exposing the D to penalties for delay under the contract between D and X. The P was at that time in financial difficulties.
It was held in this case that the D’s promise to make extra payments to the P was supported by consideration in the shape of “practical benefits” obtained by the D from the P’s performance of his duties under the original contract between them. This is due to the fact that there was no allegation of duress on the P; the promise to pay extra could not be avoided. Moreover, it was alleged that there has been no threat by the P to break the original contract and the initiative for the agreement to extra payment has came from the D.
In this case, the point is that the D had obtained a practical benefit by not infringing the time penalty clause, looking for another contractor and it would ensure that the P would not stop and in breach. Doesn’t this benefit was created by the courts? Although this is true, but isn’t this the same for the case of Stilk v Myrick? The only distinction that can be drawn is that there may be an element of duress in the former case.
It is submitted that the courts do not actually lay down well define guide as to when would there be consideration and when there isn’t; the courts seems to be taking the case at a ad hoc basis. The case of Williams seems to infringe the final rule as well i.e. past consideration is not good consideration following the case of Roscorla v Thomas.7 (1991) 1 QB 1
Here, after the sale of the horse, the seller gave an extra warranty that the horse is free from vice. However, in this case, it was held that the plaintiff could not enforce the warranty because the consideration for the warranty has passed. It is submitted that the point of distinction is that whether the term or warranty was given before the completion of the contract. It is further submitted that this is the same in Williams.
In the case of Re Casey’s Patent,8 it was held that a past act could be consideration for a promise only if 3 conditions are satisfied. First of all, the act must be done by the request of the promisor.9 The second is that it must be understood that payment would be made and finally, that the payment if it is promised in advance, must be legally enforceable.
To illustrate this, imagine yourself as an employee in a company and your boss has stated to you that he would give you a “bonus” for the hard work you have performed. Applying the principle of Roscorla, the promise for the bonus had come after you have already entered into your contract of employment and thus would not have provided consideration for it. Would you then be able to enforce the promise? However, if we were to follow the principle in Re Casey’s Patent then you would be able to enforce that promise.
Thus, as we can see from the cases discussed, that the doctrine of consideration has departed from it’s initial rules and creating a situation where in which it looks as if the courts are bending backwards to justifying their means to decide a case. This has therefore, made the doctrine of consideration a fiction!!!
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