Action in Reliance on a Promise

Where action in reliance on a promise has been requested, there will usually be sufficient consideration to justify enforcement of the promise. But reliance may also justify judicial intervention in favour of the promisee by means other than through the doctrine of consideration. Promissory estoppel has the effect of enforcing promises which induce reasonable reliance, but its effect is much more limited than where a promise is supported by consideration.

Discuss this comment with reference to decided cases and explain whether or not you agree with it.

When a contract is formed there are four essential elements. Firstly there needs to be an intention to create a legal relation as outlined in Balfour v. Balfour [1919] 2 KB 571. There would also be an offer followed by an acceptance, the most important part being consideration. Whether a contract has been formed comes down to whether there was any consideration. This essay will look at the common law doctrine of consideration in comparison to the equitable doctrine of Promissory Estoppel and whether these two doctrines have any limitations.

Following the case of Currie v. Misa (1875) LR 10 Ex 153 which refers to a benefit and a detriment to each party. For there to be consideration there has to be some benefit to one party and a detriment to the other. This can be summarised as per Lush J “valuable consideration, in the sense of the law, may consist either in some right, interest, profit or benefit occurring to the party or some forbearance, detriment, loss or responsibility, given, suffered or undertaken by the other”. In other words whether it’s a promise or an act there should be a detriment to the person giving it and a benefit for the person receiving without this there would be no consideration and therefore no contract. Another way to look at consideration will be to think of consideration as the price one party pays for the other parties promise. This was considered in Dunlop Pneumatic Tyre Co. Ltd v. Selfridge & Co. Ltd [1915] AC 847 where Sir Frederick Pollock’s definition of consideration was referred to that is “an act or forbearance of one party, and all the promise thereof, is the price for which the promise of the other is bought” (Pollock on contracts, 13th addition, page 133). Generally speaking a promise is only binding if there is consideration or if there is a deed. Consideration may be executory (a promise) a bilateral contract or executed (an act) a unilateral contract. It could be said that the purpose of consideration is to distinguish between trivial agreements social arrangements and more important arrangements.

Consideration has a number of limitations notably these being.

Consideration does not need to be adequate but must be sufficient. This means that consideration does not have to reflect the actual value of the goods, service or promise for which it is given. It just needs to be significant in the eyes of the law, in other words it must be something that the law regards as being capable of amounting to consideration. This was confirmed in Thomas v. Thomas (1842) 2 QB 851 or Chappell & Co. Ltd v. Nestlé Co. Ltd [1960] AC 87.

Consideration must move from the promisee this means that a person to whom a promise was made can in force that promise provided that they have provided consideration for it. A promise cannot usually be enforced where there has been no consideration this as outlined in the case of Tweddle v. Atkinson (1861) 1 B & S 393. In this case the claimant’s action failed as there had not been any consideration for the promise.

Past consideration is no consideration. Consideration must not be past that is where an act has already been performed before any promise to pay has been made. This was outlined in the case of Re McArdle [1951] Ch 669.

However if the act was done at the request of the promisors and the parties understood that the act will be rewarded in some way either by payment or another benefit at a later date this will be legally enforceable as it had been promised in advance. This was found in the case of Lampleigh v. Brathwait (1615) Hob 105. Also if there was an implied promise to pay as per Casey’s Patents, Re [1892] 1 Ch 104, tends to be an exception to the rule that, passed consideration is no consideration.

Not all consideration is good consideration such as where the promisee is already under a legal obligation Collins v. Godefroy (1831) 1 B & Ad 950 or a contractual obligation Stilk v. Myrick (1809) 2 Camp 317 would not be considered significant consideration for a new promise. You cannot suffer a detriment if that detriment is something you are going to have to do anyway.

However there are some exceptions to this rule, where a public duty is exceeded Glasbrook Bros v. Glamorgan CC [1925] AC 270 where the contractual duty is exceeded Hartley v. Ponsonby (1857) 7 El & Bl 872, or where an existing contractual duty is owed to a third party Scotson v. Pegg (1861) 6 H & N 295. To clarify where an existing duty is owed and the duty owed is exceeded may be considered good consideration.

Following the decision in Stilk v. Myrick (1809) 2 Camp 317, performance of an existing contractual duty that is owed to the other party is not good consideration, where my promise to pay you more for performing an existing contractual duty would be deemed unenforceable. However the exceptions as laid out in Williams v. Roffey Bros and Nicholls (Contractors) Ltd [1990] 2 WLR 1153 apply. Those being were a practical benefit of timely completion, even though a pre-existing duty is performed, constitutes good consideration.

With bilateral contracts, where the consideration is all executory (a promise for a promise), it cannot be enforced through the courts where there is no consideration. However Promissory Estoppel is an Equity (in the sense of natural justice) solution.

It is not bound by the rigid procedures of the common law. Equity enforces the intention of the parties which provides a means of making a promise binding even without consideration. It is used to fill in gaps in the law were unfairness may prevail and to protect against potential injustices.

However Promissory Estoppel is used at the court’s discretion, where there is no binding consideration. As an Equity law remedy it can only be used as a shield (defence) and not a sword (start of a claim) Coombe v. Coombe [1951] 2 KB 215.

The Promissory Estoppel doctrine a relatively new doctrine also operates under a number of rules. These rules stem from Hughes v. Metropolitan Railway Company (1877) 2 App Cas 439, later confirmed in Central London Property Trust Ltd v. High Trees House Ltd [1947] 1 KB 130.

For instance there must be a pre-existing contractual relationship between the parties. There must be a clear or unequivocal promise affecting the legal relationship between the parties Collin v. Duke of Westminster [1985] QB 581. One party within the relationship agrees to waive rights they’re entitled to under the agreement Spence v. Shell (1980) 256 EG 819. That is the promisor will not insist upon his strict legal rights against the promisee in relation to the promise.

This is done knowing that the other party relies on the waiver in determining their future course of conduct W J Alan Co. Ltd v. El Nasar Export and Import Co. [1972] 2 QB 189. Promissory Estoppel is a reliance based doctrine, that is there is a reliance on the promise made Tool Metal Manufacturing Co. Ltd v. Tungsten Electric Co. Ltd [1955] 1 WLR 761. It is also inequitable for the promisor to go back on the promise D & C Builders v. Rees [1965] 2 QB 617.

If all these are present then the party agreeing to waive contractual rights is prevented by Equity (estopped) from going back on the agreement to waive rights. It also requires that both parties have acted properly and have so called ‘clean hands’.

However Promissory Estoppel cannot usually be used as a defence in cases concerning part payment of debts following the common law ruling in Pinnel’s Case (1602) 5 Co Rep 117a. Furthermore this ruling was upheld by House of Lords in Foakes v. Beer (1884) 9 App Cas 605 without giving any further consideration, for example, if the debtor provides goods, instead of cash, or if he or she pays early.

In Collier v P & M J Wright (Holding) Ltd (2008) the Court of Appeal took a more relaxed view to Estoppel where part payment of debts is concerned. They held that Collier might have a case in promissory estoppel but reaffirmed the rule in Pinnel’s Case that part payment of a debt cannot discharge the debt if unsupported by further consideration.

During the case of Re Select Move [1995] 1WLR 474 the House of Lords refused to extend the principles from Williams v. Roffey Bros and Nicholls (Contractors) Ltd [1990] 2 WLR 1153 to debt type cases. Where early part payment is made could be a benefit to the recipient where no duress or fraud is involved. In the recent case of Ashia Centur Ltd v Barker Gillette LLP [2011] EWHC 148 (QB) the court upheld there had been no consideration or reliance by the client on any promise, so there was nothing to stop them charging the full amount. Again up holding the principles in Pinnel’s Case and Foakes v. Beer (1884) 9 App Cas 605.

To conclude the rule remains that you can only sue on a promise if you have given consideration for it, and to that extent Promissory Estoppel has left the doctrine of consideration intact.

In the law of contract, there is always tension between fairness and certainty. It would lower the importance of the promise if not enforceable until some detrimental reliance occurred. Giving more weight to the intention of the parties would be the most convincing alternative, but it would be at the expense of certainty.

Promissory Estoppel under the right circumstances enforces a promise where there is reasonable reliance on it, but its effect is limited compared to where a promise is supported by consideration. The courts appear to be more willing to apply the doctrine of Promissory Estoppel although it is quite unlikely that the doctrine of Promissory Estoppel would be developed further.