Three Critical Elements in Contracts Agreement

There are three critical elements when we look at contracts, the agreement, the intention to be legally bound and the consideration. The doctrine of consideration is one of the fundamentals of contract law; its purpose being to set legal limits on the enforceability of agreements, even where they would otherwise be legally binding. The two main rules of consideration is that it has to move from the promisee but need not move to the promisor and that it need not be adequate but must be sufficient. This benefit-detriment analysis of contracts serves to ensure that no party enters a contract that is not beneficial to himself in one way or another.

In this day and age, is the doctrine of consideration still relevant? Is there a need for the application of Williams v Roffey or have other doctrines made this irrelevant. As highlighted in the appendix, the modern approach in contract law requires very little to find the existence of consideration and in some more extreme cases, we see judges going to extreme lengths to conjure up considerations as with the case of Williams v Roffey. It is not impossible to find a form of consideration in every contract. With that in mind, does it make the doctrine of consideration redundant? This is especially so in the case of commercial transactions where the consideration is very clear. What purpose then, does the doctrine of consideration serve? Also, the case of Williams v Roffey showed that a factual, as opposed to a legal, benefit or detriment is sufficient consideration. This resulted in a much wider definition of what constitutes sufficient consideration. In the context of Singapore law, the decision in Williams v Roffey is recognized and applied in several High Court decisions like the case of Sea-Land Service Inc v Cheong Fook Chee Vincent [1994] 3 SLR 631. With a wider scope of what constitutes sufficient consideration which determines if a contract exists, it is even easier to find some form of consideration. As such, the doctrine of consideration is becoming obsolete if not already redundant.

The doctrine of consideration is based mainly on the concept of factual benefit or detriment, with the added notion that the consideration has to be sufficient. The concept factual benefit or detriment serves the same purpose as the doctrine of consideration; negating the portion on consideration being sufficient, seeing that it is easy to locate some element of consideration. Does it not then make the doctrine of consideration redundant?

There are also several contradictions in the application of the doctrine of consideration. What then does the judge choose to apply when faced with such a circumstance? With early cases going both ways, which judgement should be applied? In the case of Williams v Roffey, the judge ruled that the promise made was given due consideration and is enforceable. However, in the case of Stilk v Myrick, it was ruled that there was no consideration as the consideration dealt with the performance of an existing contractual obligations. Both these cases have elements of a promise being made to pay more given the same contractual obligations, however the rulings were vastly different with the case of Williams ruling that the promise was enforceable and the reverse for the case of Stilk. Given the similarities in the cases, why then was Stilk v Myrick not applied in the case of Williams v Roffey? Lord Justice Russell said in his judgement on the Williams v Roffey case, “I do not believe that the rigid approach to the concept of consideration to be found in Stilk v. Myrick is either necessary or desirable. Consideration there must still be but in my judgment the courts nowadays should be more ready to find its existence so as to reflect the intention of the parties to the contract where the bargaining powers are not unequal and where the finding of consideration reflects the true intention of the parties.” It is clear that Russell L. J. did not agree with the judgement of the Stilk v Myrick case. With such a vast difference in understanding of the doctrine of consideration, what then do cases thereafter use to base their judgement upon? Such inconsistency in approaches taken leads one to contemplate the effectiveness of the doctrine of consideration itself.

There are definitely problems with the current doctrine of consideration which raises questions on its effectiveness and relevance in today’s cases. Seeing that there is evidence that points towards the doctrine of consideration becoming increasingly redundant, we look towards the other areas of the law which might encompass the basis of the doctrine of consideration and solve the problems generated from the doctrine of consideration. There are several other doctrines as mentioned in the extract which are namely the doctrine of promissory estoppel, economic duress, undue influence, unconscionability and the requirement of writing. In the following paragraphs, we will look into the feasibility of using these doctrines as alternatives to the doctrine of consideration while bearing in mind the concept of factual benefit or detriment.

The doctrine of promissory estoppel seeks to make promises binding even if unsupported by consideration. This is clearly in contradiction with the doctrine of consideration where consideration has to be sufficient for contracts to be valid. However, promissory estoppel can only be used as a shield and not as a sword which limit its application as Lord Denning MR said in his judgement of Amalgamated Investment & Property Co Ltd (in liquidation) v Texas Commerce International Bank Ltd, “estoppel is only a rule of evidence, estoppel cannot give rise to a cause of action, estoppel cannot do away with the need for consideration, and so forth.” From Lord Denning’s statement, it should be noted that there is some correlation between the doctrine of promissory estoppel and the doctrine of consideration. Should the doctrine of consideration be abolished, there would be areas which promissory estoppel would be inapplicable and the promises still require a consideration to be valid.

There is also a proposal for using the vitiating factors as an alternative to the doctrine of consideration. The doctrines of economic duress, undue influence mainly serve to make contracts which were formed through means of improper conduct voidable. The doctrine of economic duress is applicable where unlawful pressure resulted in the parties entering into the contract. This seeks to prevent cases of extortion which extends a further reach than the current doctrine of consideration which would view that there was sufficient consideration for the contract to be valid. This would result in a highly unfair judgement and does it not than make the doctrine of consideration invalid?

Undue influence arises when one party uses his dominant position to coerce the other party to enter into a contract. Similarly with the doctrine of economic duress, this doctrine prevents parties from being forced to enter into contracts which might not be entirely beneficial to them. In most of such cases, it would be easy to find some form of consideration that would make the contract valid which under the doctrine of consideration would result in an unfair judgement.

With the doctrine of unconscionability, it seeks to prevent parties’ weaknesses from being exploited which might result in unreasonable contracts. The doctrine of unconscionability is however relatively new and as the extract states, is still a fledgling doctrine, historically being applied narrowly to cases involving expectant heirs and improvident transactions as with Lloyds Bank Ltd v Bundy [1975] QB 326. With such a limited scope of application, the question arises to whether the doctrine of unconscionability can replace the doctrine of consideration.

There are areas in the law which the doctrine of consideration does not extend its reach to such as cases of extortion. The alternative doctrines raised, covers a much wider array of applications compared to that of consideration. There are several points which tend to show that the doctrine of consideration is becoming redundant. Should we seek to abolish it, the alternative doctrines have to fill the gap in the law which the doctrine of consideration would leave behind.

These doctrines of economic duress, undue influence and unconscionability all seek to prevent unscrupulous behaviour from being exacted in the formation of contracts. This seems to be more appropriate and relevant in today’s context where there is an increase in unethical behaviours in businesses which are driven by money. The doctrine of consideration does not extend towards the area where there is possible extortion. One would be unable to discharge themselves from an unfair contract by applying Williams as consideration need only be sufficient. The doctrines of economic duress, undue influence and unconscionability however, serves much better in these areas which protects the interests of the exploited party. In such cases, especially where extortion is involved, it is clear that the doctrine of consideration is incapable of exacting justice to obtain a fair judgement. The alternative doctrines suggested would be better catered to deal with such circumstances.

While the alternatives raised are capable somewhat of fulfilling the duties of the doctrine of consideration, they are not without their own weaknesses. These doctrines are not as established as the doctrine of consideration. Being one of the fundamental doctrines in contract law, the abolishment of the doctrine of consideration would definitely not be easy. Being practically embedded into the legal system, its abolishment would most likely result in as much problems as it currently generates.

As such, the best solution would be to maintain the current plethora of legal options for judges to discern whichever is more applicable to the case involved. No doubt the current doctrine of consideration is flawed in a sense, it’s abolishment is not the best solution as the other alternatives suggestion are not as established as the doctrine of consideration in the common law. With their own individual strengths and weaknesses, a mesh of legalities would serve better to mask the weaknesses of another. Revisions could be made to the current doctrine of consideration to better define the scope of coverage and applicability so as to maintain its effectiveness in the legal system.

The doctrine of consideration has proven to be a debatable topic over the past century and civil law countries do without the doctrine when considering the validity of the contract but their legal systems have been highly developed still. Even some common law countries are moving away from this requirement. We would thus have to look at its relevance in today’s context and whether the suggested alternatives could replace it as well as the effects of the decision in Williams v Roffey on it.

Formally, consideration is defined as “an act or forbearance of one party, or the promise thereof, is the price for which the promise of the other is bought, and the promise thus given for value is enforceable” and is an essential element in the formation of a contract. Consideration must move from the promisee and must be sufficient. It was originally meant for promises made in domestic settings and property transactions since landowners controlled most of the wealth in the 18th century. Because commerce was much less developed then, less emphasis was placed on trade agreements. Thus, the doctrine may not have been shaped appropriately to be extended to commercial contracts today. Since the context of application has evolved, the doctrine could have become outmoded.

In addition, confusion between factual and legal benefit/detriment arising from the judgement of Williams v Roffey (1991) also questions the validity of consideration today. The court held that Roffey Bros had to pay Williams because they derived a practical benefit which was sufficient consideration. The general rule is that a promise to perform an existing contractual obligation cannot be sufficient consideration. However an exception arose because parties would not derive additional practical and factual benefits when the other party fulfils his obligation in ordinary circumstances. “Factual benefit or detriment is something of value which is in fact obtained or suffered” while “legal benefit or detriment… refers to no consideration being given if a party is merely doing what he is legally obliged to do, even though this may in fact confer a benefit on the promisor or be a detriment to the promisee.” On the other hand, common law traditionally looks at legal benefit or detriment e.g. for existing obligations under public duty. Consequently, since factual benefit can be readily found in everyday behaviour, the scope of consideration would have to be altered so as to remain applicable if Williams v Roffey were to apply.

Since the verdict was highly dependent on the sufficiency of consideration, I do not agree that the court went too far to conjure up consideration. However, the judgement has resulted in a blur in the scope of benefit/detriment analysis. If a practical benefit can be sufficient consideration, there should not be any difference in the judgement made for anyone receiving such benefit. Consequently, it should follow that any practical benefit conferred should be sufficient consideration too when there is a promised reduction in price. However in Re Selectmove Ltd, the court held that the decision in Williams v Roffey did not hold when there was a promise to pay less. The general rule for this follows Pinnel’s Case – that part-payment of a debt cannot be sufficient consideration (Foakes v Beer). For Foakes v Beer, the court held that there was no additional benefit moving from Foakes to Beer. If Foakes had shown additional benefit to Beer or detriment to himself in exchange for Beer’s agreement to offset the interest payment, we could conclude that there would likely be sufficient consideration. However, the court did not specify the likely outcome if there was additional practical benefit. Thus the common law position is indeed ambiguous. Also, in evaluating the performance of a duty to a third party (Pao On) using legal benefit/detriment analysis, there may be sufficient consideration without economic duress. However, applying the decision in Williams v Roffey would render legal benefit/detriment analysis redundant because factual benefit is easily located. Since the extent of application of Williams is unknown, traditional consideration rules would mostly still apply and various common law jurisdictions would have their own liberty to apply Williams to different scenarios since cases in different hierarchies are only persuasive and not binding.

Moreover, the importance of a contract should be the parties’ intention to be legally bound. Much of the priority of contract law has been given to intention (Chwee Kin Keong v Digilandmall.com Ptd Ltd). No contract is made if there is no intention to contract due to the general presumption that there is the necessary intention to create legal relations to give business efficacy in commercial agreements (Edwards v Skyways – 1964), even if there is sufficient consideration i.e. honour clauses and agreements within letters of comfort and administrative relationships. Alternatively, parties could make their agreement legally binding through that of a deed or a seal which enables contracts to disregard consideration during formation. If such an option exists for parties with intention, consideration would seem outmoded since it can no longer cover all parts of the law. Also, the doctrine of consideration only came after the rule for contracts under seal did, so all the more consideration seems to be a secondary requirement and may somewhat be inapplicable today.

Intention is also important because the discharge of a contract is closely related to the intention of the contracting parties and it may thus be valid to say that the formation of one could also be highly dependent on the intention rather than consideration. This is especially relevant to implied terms. Courts imply terms which they consider as having been intended by the parties into a contract to ensure business efficacy – The Moorcock (1889). As such, the doctrine of consideration may appear to show some redundancy on the surface because of the importance of intention in the terms in the contract which then lead to the intention of the contracting parties for its fundamental purpose.

Yet, there may be difficulties in the enforcement of promises if the doctrine of consideration is abolished because of apparent redundancy. The usefulness of consideration depends on the type of agreement in the first place. When it comes to social/domestic agreements, consideration would be less important since there is no intention to be bound. Even if there is consideration, it may be treated as an “offer and acceptance of hospitality” unless otherwise shown by case facts. However, because of the general presumption for commercial contracts that there is such an intention, consideration is important if there is no clear indication that the parties would like to enter into a contract. This problem would be minimized with the inclusion of honour clauses but without which consideration would be better able to clarify doubts arising from the exchange of promises. Without consideration, it would be more difficult to ascertain the validity and legality of many contracts and agreements made. Thus, the doctrine may not be entirely redundant.

The next question, then, is whether the alternatives raised are feasible options to the doctrine of consideration. One of the alternatives raised was the doctrine of economic duress, undue influence & unconscionability. The doctrine of economic duress and undue influence set the rule that there can be no agreement if a contract is formed with unfair pressure being placed on an individual. Application of the equitable doctrine of undue influence and unconscionability relieves the weaker party of the burden of the unfair contract. However, it is difficult to objectively determine whether there is economic duress, as in the case of Williams v Roffey where courts held that there was only normal commercial pressure and not economic duress.

If economic duress is found, it will override consideration and the validity of the contract is directly affected. Yet, this shows that the courts readily considered the presence of duress before looking at consideration although there seems to be no strict guideline in determining what would measure up to economic duress and more uncertainty may result. Also, since this alternative only renders a contract voidable and not void (Barton v Armstrong), it has a different role as compared to the doctrine of consideration in which its absence would not even allow the formation of a contract. This thus cannot be a total replacement for consideration because the two doctrines are applicable at different stages. Moreover, if the probability of presence of undue influence advocates a “broader concept of public policy” (Glasbrook) to replace consideration, there may be misuse by public servants who stand to gain additional benefits during the performance of public duty even though the likelihood of extortion is low. This conflicts with public policy per se since it should protect society. More cases are thus required to better define the boundaries of economic duress. Given that our modern society is heavily dependent on trade and commerce, economic duress will grow in importance but it is not yet sufficiently developed to replace consideration.

Another alternative suggested was estoppel. In particular, promissory estoppel softens the general requirement of consideration and the rule in Pinnel’s Case. Parties must have an existing legal relationship with a clear and unequivocal promise that is intended to affect that relationship. The promisee must have relied upon the promise and altered his position such that it is inequitable for the promisor to be allowed to go back on his promise (High Trees). The usual effect of promissory estoppel is merely suspensive to the legal relationship and the promisor could give reasonable notice of his intention to restore the original contractual relationship unless there is “no way of putting the parties back in their status quo ante”. The defendant can only raise promissory estoppel as a defence to a claim by the plaintiff. Thus, it is actually highly “reliance-based and cannot measure up to the doctrine of consideration” because it is not an independent doctrine applicable on its own. However, there have been recent developments where certain common law jurisdictions like Australia have allowed promissory estoppel to commence lawsuits in certain situations – Waltons Stores v Maher (1988). The Australian High Court recognized promissory estoppel as a general principle that could be applied in the entire legal system and not just within existing contracts. However, it also shows that promissory estoppel works hand-in-hand with the doctrine of consideration and both are mutually exclusive. Even if there is advancement in the development of estoppel, it would be one to further complement consideration rather than replace it and it is thus not feasible to abolish consideration.

As such, there are also difficulties in abolishing consideration and using these suggested alternatives in replacement. These alternatives are not fully developed and established yet to serve as a feasible replacement. Moreover, the fundamental roles played by these alternatives differ from that of consideration. As of now, consideration works hand-in-hand with them. They serve as exceptions which exist because of the existence of an established doctrine in the first place. They are not requirements of a contract and generally, the original doctrine would still apply. Thus these alternatives do not measure up to the doctrine of consideration and there will be difficulty in determining the validity of contracts in areas that fall outside these exceptions if consideration is abolished.

In conclusion, consideration may be outmoded but is definitely not redundant and given the changing commercial landscape, common law will, in time to come, evolve to reduce the redundancies and suit the needs of our modern society. More cases from different common law jurisdictions would be needed for alterations to the current doctrine. Because the development of law tends to be slower than the development of society, we all have to bear in mind that the law would always encompass certain imperfections. Exceptions arise to reduce these imperfections but doctrines that have shaped the law should stay because they affect way too many operations that we engage in today. The same would thus apply for consideration and its relevance. An abolishment would only create more chaos and confusion in the legal landscape.