English Business Law - Essay Example

Need for consideration The proposition before us is to make out a case for a valid contract if there is intention to create legal relationship between the parties concerned without there being an explicit condition of consideration. Before we argue for the same, let us examine what the present English Law is about consideration. An important ingredient of a contract is “consideration”. Its definition drawn from Currie v Misa, is in still in use. “:".. 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." Sir Fredrick Pollock’s definition of consideration is “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." This was approved by Lord Dunedin in Dunlop v Selfridge Ltd ( 1915) It therefore follows that a gift is not a contract. There is no contract if there is no consideration. However consideration is required to be expressed in monetary terms. As such any discernible detriment to one of the parties could be that party’s consideration ( Duhaime) An agreement not to take a plot of land was considered a sufficient consideration(Hubbs). The law does not insist on the adequacy of consideration as it is between the parties to decide. The consideration should be reciprocal, each party offering consideration. Motive should not be confused with consideration. Our motive for contracting may be for personal reasons but it may coincide with the consideration we are giving or receiving. If the consideration is already “spent” in a prior contract, a new contract using that same consideration would be valid. "where a contractual duty already exists, it may be possible...to vary the original agreement without necessarily establishing a whole new contract with fresh consideration on both sides." In fact, refreshing a commitment to do something for a third party is consideration under common law” (Frdman G). Further the consideration should not be something or some act which is not legal or immoral or opposed to public policy. If a certain acts punishable under law then it is illegal. For example a work given to un unlicensed contractor is illegal. If the consideration is a past one, it will not make a valid contract. The court decisions on consideration suggest English law is in need of fundamental restatement with regards to Consideration. Dr Corbin and Prof Atiyah have already dealt with the need for reinstatement of consideration in America and U.K. respectively. The need for reinstatement of arises because court decisions are often inconsistent with pure doctrine of consideration. The conventional statement of doctrine of consideration would be as already discussed above , 1) A promise is not enforceable (if not under seal) unless the promisor gets some benefit or the promisee incurs some detriment in return for the promise and that the consideration must be of some economic value, 2) in a two way contract(bi-lateral) the consideration for the promise is the counter promise and in unilateral contract consideration is the performance of the act specified by the promisor, 3) The law of contract only enforces bargains and the consideration must be price of the promise, 4) past consideration is not sufficient consideration, 5) the consideration must move from the promisee, 6) the law does not enforce gratuitous promises, 7) the limited exception s to these principles have been recognized by the High Tree Principle(1947) Rather than it is reason for enforcement of a promise, consideration can be said to be the reason for recognition of an obligation . The Benefit and Detriment parts of contract as consideration as established by the dictum of Lush J. in Currie v Misa do pose some complications in that there is some doubt about the relative importance of the two. It is a universally accepted theory that though there must be detriment to the promisee, there need be no benefit to the promisor. The promise of a guarantor or surety is illustrative of this situation and enforceable in law. But it is not certain whether a benefit to the promisor without detriment to the promisee will be valid because of the rule that consideration must move from the promisee. The courts also do not enforce this rule. There are cases in which benefit is conferred by the promisee to the promisor without detriment to himself. An example of this has been cited in Bolten v Madden (1873) by Treitel . Another example of this is the case of a promisee giving away an unwanted pet to the promisor just to get rid of it though it is of value to the promisor. The courts have felt uneasy enforcing promises where there is detriment to the promisee without benefit to the promisor and have relieved a surety of his liability (Chitty). Therefore consideration defined in terms of benefit and detriment is not accurate. Further presence of benefit or detriment by itself does not make a promise enforceable as in common law there are other reasons that may render a promise unenforceable as in the case of promise being contrary to public policy, having been extorted by duress or undue influence, fraud or misrepresentation or the promisor having not intended to create legal relationship and so on. In the words of Atiyah “ to the orthodox lawyer these cases involve no inconsistency with the traditional doctrine because they involve legal rules which in some sense are drawn from outside the law of consideration altogether.” Courts do come out of the strict doctrine and make rules in an attempt to do what is just. Thus collective bargaining though not a legal contract at common law and promises contained therein were not legally enforceable, courts have recognized them for what is required by justice or policy.(Ford Motor Co 1969). though it was dealt with some other head of law of contract. It seems incorrect to assert that benefit or detriment are prerequisites for the enforcement of a contract since in executory bilateral contract neither benefit nor detriment arises until the contract has been partly performed. Here enforceability comes first and benefit or detriment afterwards. “ it is purely circular to assert that the presence of benefit and detriment can be a ground for enforcement of such contracts. It is also true that if an executory bilateral contract is in due course performed the promisor may receive a benefit and promisee may incur a detriment. But where the promisee sues for damages for breach of an executory contract the promisor has in fact received no benefit, and the promisee has not necessarily incurred any detriment” (Atiyah 1986) Bilateral executory contracts apart, there are not many instances of promises being enforced without benefit and detriment. After all promisor will promise for some reason. Otherwise it would seem an insane gesture and no one will also dare sue on such promises. Reasons are merely motive and motive itself cannot constitute a good consideration. But court would find it handy just to enforce a promise if circumstances warrant. To illustrate, the well-known case of Chappel & Co Ltd v Nestle Co Ltd(1960) decided by House of lords relating to the fact of chocolate wrappers having been sent to the defendants along with payment for gramaphone records as a part of advertising campaign can be looked into. Here the wrappers were thrown away on receipt as worthless and sending the wrappers cannot be said to be detrimental to the sender or benefit to the defendants. Defendants also did not make the offer out of pure generosity but with a view to derive indirect benefit in the form of enhanced sales. But this indirect benefit did not derive from the actual receipt of papers . It was the motive which inspired the promise. This is an instance of a promise which can be enforced without benefit to the promisee in the sense in which the word ‘benefit’ is normally used in the doctrine. Even after eliminating all these types, promises are enforceable even without actual benefit or detriment. We can take an example of a promise for a nominal consideration of ‘peppercorn’ which is enforceable. It is enforced not because the promisee incurs a detriment by delivering a peppercorn nor because the promisor derives a benefit by receiving the peppercorn. “ A peppercorn does not cease to be good consideration if it is established that the promisee does not like pepper and will throw away the corn”( Lord Somervell) So the reason for enforcement must have been found elsewhere and not in the peppercorn. One possibility is that promisor intended his promise seriously and intended to give the promisee a legally enforceable right. Other instances of promise being enforceable without benefit to the promisor or detriment to the promisee. An uncle promises his nephew $ 5,000 if the nephew does not smoke until he is 21. The nephew does not derive any benefit from forbearance. Yet it is has been held to be enforceable in America. ( Hamer v Sidway 1891) and relied on by many English Authorities. But in this case also it is the motive rather than the benefit. If it were the benefit many gratuitous promises would become enforceable for the sake of satisfaction of the promisee or his generosity or from the recognition of it by the promisee or public. It must now be clear that benefit or detriment is the reasons for enforcing a promise. Other kinds of considerations make consideration a wider function to recognize the obligations of non-promissory character. Whether the benefit or detriment should have an economic value. When it can be deduced that benefit or detriment are not necessary to enforce a promise, it can be as well said that there need be no economic value for the benefit or detriment. We have made a case here to decide enforcement of a promise without looking into the benefit or detriment pre-requisites but it is not to undermine the subtlety of doctrine of consideration. One may argue, the benefit or detriment of fact is not what was intended but the benefit or detriment in law is what is required. In the words of Corbin “the very common statement that consideration must be a legal detriment or that it must have value in the eye of law was induced by the discovery that courts were holding considering considerations to be sufficient even though they were not ‘detriments’ in fact and had no value in the market place, and were holding other considerations to be insufficient even though they were such and had such value detriments . We must abandon the term ‘legal detriment’ because it does not serve the desired purpose. We must separate the good from the bad considerations on some basis other “detriment’ or ‘market place value’. When courts are refusing to recognize the actual benefit or detriment for the reasons they are no so in the eye of law , it must be that court have other reasons for refusing to enforce. Therefore a restatement of the law must be made to find what the other reasons are. So also when the court enforces a promise even though there is absence of factual benefit or detriment, on the ground that there is benefit or detriment in the eye of law , the court is plainly enforcing a promise for some other reasons. As such a search for these reasons must be necessary part of the restatement of law. In the bilateral contracts examined so far the orthodox doctrine of consideration purport to have promises as considerations for each other. But in an unilateral contact we are going to see now as consideration is from the promisor as performance of the acts specified. In unilateral contracts when the promisor revokes his promise after the promisee started performance but before completion of it, it presents an easy escape to the promisor as he can claim that since consideration has not yet been moved from the promisee, there can be no contract. Technically and logically speaking, it is correct as it would be only logical that consideration can move from the promisee only when the performance gets completed. This situation could only be artificially circumvented by two methods, one by distinguishing acceptance of the offer from performance of the act. Commencement of the act can be said to be acceptance of the offer and enforcement of the promise after actual completion of the performance.(Treitel). The second method escape is to take a subsidiary promise from the promisor not to revoke his primary offer once performance has been commenced by the promisee. Here consideration for the promise is commencement of the performance. But this solution is criticized for its artificiality. However the second method has been endorsed Daulia Ltd v Four Millbank Nominees Ltd. (1978). But there is no protection to the promisee for ensuring performance of the promisor and he has always to take risks in unilateral contracts when commencing the performance. Refer Luxor ltd v Cooper (1941) and Errington v Errington (1952). The third proposition is the bargains part of the consideration. The law enforces only bargains and therefore all contracts are bargains. In short it is the price of the promise. But it doe not seem to represent law. Before considering the validity of the orthodox view of consideration as bargain, we shall see what is the meaning of the bargain. English writers seem to assume the meaning of the bargain is self-evident. English legal literature has not discussed the meaning of the concept of bargain. The American restatement defines a bargain as ‘ an agreement to exchange promises or to exchange a promise for a performance or to exchange performances’. This is in a wider sense. Corbin adopts a very narrow definition for his very great work by saying that a bargain is not merely an exchange but an exchange of equivalents. Nominal consideration is contained in the promise of a wider sense mentioned above. It can not fit into the narrow sense of the bargain. It follows that nominal consideration cannot fall; within the definition of a contract. Collateral contracts , bailments without reward, conditional gift promises are all not falling within the meaning of orthodox consideration as they do not involve bargains. In the case of unilateral contracts, some times arguments are put forward that unless an express or implied request is made for performance, the promise is not enforceable. (Smith ) Because if there is a genuine bargain, performance will be requested. Past consideration Past consideration is no consideration. The only exception to this rule is Bill of Exchange. The two more are exceptions are no more valid having been superceded by new Acts. The first of the two is promise to pay a statute-barred debt since superceded by Limitation Act and second one is promise to carry out a promise previously given for a consideration during infancy since reversed by the Infants Reliefs Act 1874. In the view of Atiyah, three more such situations can be conceived of. One is a promise given employer to an employee in respect of past services if the employee gives some undertaking in respect of future conduct such as he will not compete with or damage his employer’s interests. But orthodox definition of consideration would not consider this a case of past consideration as there is a counter promise by the promisee. Same is the case with golden handshakes in recognition of past services. Second, suretyship to pay some existing debt subject to the promisee rendering some future performance. Here again orthodoxy consideration is treated with lip service. Third, rule relating to enforcement of compromises or forbearance to sue as enforceable. In Pao On v Lau Yiu (1961). Privy Council held a promisor’s promise enforceable even though the promisee had actually received a consideration for his own performance from a third party. There is another case of similar nature Horton v. Horton where in a husband promised in a separation suit that he would pay his wife maintenance 30 pounds and again signed an agreement to pay it tax free. This was held enforceable though there was no fresh consideration. The court paid some lip service to orthodoxy by holding that there was some doubt as to what parties originally intended. “ Doubtless this sort of reasoning will continue so long as there are laws and layers, but it is exceedingly artificial” ( Atiyah) Consideration must move from the promisee This rule was first propounded in Tweedle v. Atkinson (1861) It was restated in Dunlop v. Selfridge. But courts treated them as a case of privity and not as a rule on consideration. Further in the case of joint promises, Bankers’ commercial credits, Motor Insurers’ Bureau agreement, exceptions to the rule that consideration must move from the promisee are found, they are being allowed by the courts under some pretext or other. We therefore have to arrive at a conclusion that rule is not observed by courts in practice. “ If a promisor receives a real and substantial consideration from a third party, this is itself a perfectly a good reason, in most cases , for enforcing the promise at the suit of the promisee. And so the courts hold” (Atiyah) Gratuitous Promises Unless the gratuitous promise is under seal, it will not be enforced by the courts. Gratuitous promise is one that is given without consideration. A promise to make a gift can not be enforced as it is not supported by consideration. Promissory estoppel The following fact-situations may be considered as given Prof Attiyah. 1. The promisor wants an act to be done which confers a benefit on him. For example A promises commission to an estate agent if he introduces a purchaser who buy’s A’s house. This promise is enforceable once the act is done. 2. Promisor requests and desires an act , but it does not give any benefit to him though there is detriment to the promisee. For example, A promises to give B the price of a house if B enters into a contract to purchase it from the third party. It is enforceable once the act is done. 3. The promisor requests and desires the act although it does not confer any direct benefit to him and does not involve any factual detriment to the promisee. For instance, A promises reward to the winner of a race. The winner can enforce the promise once he has complied with the condition. 4. The promisor states act to be performed by the promisee but does not request or desire it. It does not confer any benefit on him though it might involve a factual detriment to the promisee. An example of this can be a father promising his daughter an allowance if she leaves her husband. The promise is enforceable, if the promisee decides to do so. 5. The promisor does not state any act which is to be performed by the promisee but it is reasonably implicit such an act is requested or desired by him. A promises additional payment to his creditor without stating that he needs more time to pay but it is implicit in the circumstances that it is what he wants. This promise is enforceable once the some reasonable time has been given. It would be also enforceable if the creditor has expressly given time or impliedly promised to give some reasonable time. 6. The promisor does not state any act which is to be performed by the promisee but promisee does act in reliance on the promise in a way which was natural and foreseeable result of the promise. This promise is not enforceable as a contract but enforceable to the limited extent recognized by promissory estoppel. 7. The promisor states the act to be performed by the promisee, and the promisee performs some other act which is a necessary step towards the performance of the act as stated by the promisor but he does not perform the act stated. The promisee can not enforce the principal promise but in some circumstances be able to enforce an implied subsidiary promise. 8. The promisor does not state any act which is to be performed by the promisee, but the promisee acts in reliance on the promise in a way in which the promisor had no reason to anticipate. 9. The promisor does not act on the promise at all. According to Attiyah crucial cases are in the sl no 6, 7 and 8. Few would think case 9is enforceable in the present state of law either as a case of contract or as a promissory estoppel. Case no 6 is actually the promissory estoppel.but it can be enforced as a case of consideration. Conclusion In view of the above nuances surrounding the doctrine of consideration, if one says it should be abolished, it is non-sensical. To recapitulate, consideration means reason for enforcement of a promise. Broadly speaking it can be the recognition of an obligation in which it is all the more absurd to talk of abolition of doctrine. The suggestion before us is that the because of innumerable exceptions to the concept of consideration, it may be as well removed from the statute book as it does little purpose. It is more breached than complied though for good reasons under some pretext or other in the ever changing social order. The idea is to make it easier for the courts and the citizens to apply the good principles without having to struggle with the outmoded orthodox doctrine of consideration to serve law-abiding society. It is for these reasons the proposal is before us to make contracts binding by intent to create legal relationship. The proposal is not new. This has been under debate since few decades and lately Professor Corbin of America made out the case for restatement of doctrine of consideration. This has been the followed Prof Attiyah of U.K. who also advocated the need for reforming the law of consideration though there are also critics to the proposal. To completely abolishing it is to start all over again the process evolved over few centuries. Prof Atiyah feels “ the problems arising from the enforcement of gratuitous promises are too complex to be adequately dealt with by either the rules of consideration or the intent to create legal relations “formula”. He says that law should be more willing to enforce gratuitous promises. REFERENCES Atiyah p.s. 1986 Essays on Contract Bolten v Madden 1873 LR 9 QB 55 as cited by Treitel, Contract p 52 Chappel & Co Ltd V Nestle Co Ltd, 1960 AC 87 Chitty on Contracts, 25 th edition vol ii page 443-54 Curie v Misa 1875 LR 10 Exch 153 Daulia Ltd v Four Milbank Nominees Ltd (1978) Ch 231 www.Duhaime.org/contract/ca/con3 accessed on May 31 2006 Dunlop V Selfridge Ltd 1915 AC 847 Errington v Errington, 1952 1 KB 290 Fridman G The Law of Contract in Canada Ford Motor Co v AEU 1969 2 QB 303. Hamer v Sidway 1891 27 NE 256 Horton v. Horton , 1961, 1 QB 215 Hubbs v Black 1918 per Lord Somervell in Chappel & Co Ltd V Nestle Co Ltd 1960 AC at 114 Luxor Ltd V Cooper (1941) AC 108 Pau On v. Lau Yiu, 1980, AC 614 Smith, 69 Law Q. Rev 99 (1953) Treitel, Contract , p31 Tweedle V. Atkinson , 1861, 1 B and S 393 Read More