Contract Law reading session 2

Chen-Wishart chapter 4

 “bare pacts” or simple undertakings are unenforceable. There must be an

undertaking “plus”. This “plus” can often be consideration, where “something of
value has been given in return for another’s undertaking”. An alternative to
consideration is to frame the promise within a “formal requirement” e.g. where a
promise is contained in a deed. Third way is “promissory estoppel” where A has
relied on B’s undertaking no to insist on strict legal rights and where it would be
“unconscionable” for B to go back on it.

 Consideration is used for evidence of the seriousness of the agreement;

reflects the idea of reciprocity i.e. that a bargain is supposed to benefit both parties,
NOT exploitation; marks the boundary of legal involvement to enforcing the valuable
ability to contract (an important way of securing autonomy) but prevents the law from
interfering with family/social situations where moral/social sanctions are more
appropriate than law; facilitation of exchange i.e. by making contracts enforceable we
allow people to accumulate what is most valuable to them (assuming people to be
rational maximisers of their own welfare) and thereby allow people at large to get
what they most value, maximising society’s economic welfare.

 Nexus: Consideration states that only undertakings which have been paid
for are enforceable and only parties who have paid can enforce the undertaking.
Consideration “must move from the promisee”. i.e. the promise. A party who doesn’t
provide the consideration cannot enforce the agreement (hence privity of contract).
However the Contract Act 1999 allows a 3rd party to enforce a contract for his benefit,
provided consideration has been given by someone.

 Consideration is conferring a benefit or obviating a disbenefit and must

have been requested by the offeror for it to be valid. E.g. In Combe v Combe a man
promised to pay his wife £100 a year after their divorce. Relying on this, she didn’t
apply for maintenance. The CA said it was an unenforceable agreement, since he, the
promisor, had not asked her to do it. Sometimes the courts imply a request.

 Consideration cannot be given before the promise (otherwise it would

merely have been a gift). Consideration is past (and therefore bad) if: (1) its
performance predates the promise given; (2) The consideration has already been used
for a promise e.g. if I give you £5 for a book then I cannot rely on that £5 for another
book.

 There have been attempts to expand meaning of consideration so as to

have greater enforcement: Wider enforcement is good to recognise genuine bargains,
recognise subjectivity of values (regardless of whether the courts think they price paid
was far too high or low), protect promisee’s reliance, encourage finality in dispute
resolution. AGAINST enforcement are the arguments that gifts/deals in the private
 domain shouldn’t attract legal enforcement, it would validate one-sided/unfair
bargains, it would enforce extorted promises (i.e. those duties which a party would
perform anyway.

 Ways of expanding enforceable contracts: NOMINAL consideration:

Consideration doesn’t need to be “adequate” but must be “valuable in the eye of the
law” e.g. an agreement to sell a Monet for 5p is enforceable, because 5p is valuable in
the law’s view. Problem is that this could mask something as a contract when it is
rally a gift. EXECUTORY consideration is where there isn’t actual consideration but
a right to enforce consideration. INTANGIBLE consideration e.g. where D promises
to pay a sum to E upon his marriage to F, or a wife’s agreement to behave properly

 Limitations to what consideration is enforceable: MOTIVE or desire to

confer a benefit is not consideration. There is also a distinction between consideration
(which supports the enforcement of a promise) and the SATISFACTION OF A
CONDITION which doesn’t. E.g. in Carlil catching influenza was a condition, not a
consideration (which came from her buying the ball). Generally INTANGIBLE
benefits are not consideration e.g. love and affection but see above. ILLUSORY
consideration is rejected by the courts and exists where (1) both parties know at the
time of contracting that it is impossible for the consideration to be given; (2) where
the promise of consideration is discretionary i.e. not enforceable; (3) where the
offeror didn’t ask for that particular consideration

 Compromise is where X agrees not to pursue a claim against Y in return

for a settlement, but Y doesn’t admit wrongdoing. Forbearance is where Y admits
wrongdoing but X agrees not to pursue the claim in return for something. These are
considerations. Again only valid if asked for as consideration. Invalid if the forbearer
knows that his claim is invalid. Valid where the claim is merely “doubtful”/made
BF/on reasonable grounds.

 Acts done under pre-existing duties (that they would have done anyway) is
valid consideration where the duty arises from a contract with a third party, but not
where it comes from general law or by an existing contract with the promisor. The
third one has been modified by a “practical benefit” doctrine. – SEE CW FOR
EXTENSIVE ANALYSIS OF THIS RULE

 Modifications of the contract: where both parties still owe consideration

and release each other from obligations as consideration to be released from their
own. Not valid where only one party gives up contractual rights. One can also agree
to end the existing contract and make a new one. Or one can make modifications
supported by consideration on both sides. Modifications which can only benefit one
party are unenforceable.

 SEE CW FOR REFORM PROPOSALS

 Formalities can replace consideration or are sometimes required in
addition to consideration: The Law of Property Act 1989 requires that a deed is
clearly intended to be a deed by the person making it and is validly made (signed,
witnessed and delivered as a deed).

 Formalities might be needed by statute, or for evidence/caution or to

protect the weaker party to ensure that they are aware of the terms

 Promissory estoppel is where one party induces another to act to their own
detriment and can make a contract binding even in absence of formality or
consideration. Promissory estoppel creates “independent liability”. It has 5 stages (1)
A makes a clear promise to B; (2) B acts in reliance on it; (3) It would be inequitable
for A to resile from the promise; (4) it is suspensory (not extinctive) and merely
suspends A’s entitlement up to the point where he gives reasonable notice that he
wishes to resume his rights, but not forever; (5) It restricts A, but does not grant new
rights to B

 Promissory estoppel can only be a substitute for consideration in enforcing

promises of getting the “same for less”, but NOT “more of the same” or “new legal
rights”. Other estoppels Can create a new cause of action. (1) Conventional estoppel
acts where both parties act in their transaction on a mutual assumption and prevents
either party from denying the assumption; (2) proprietary estoppel gives a cause of
action where A watched B make improvement’s to A’s land when under the false
impression that it is B’s.

 Promissory estoppel creates an action that might be considered to be

“contractual” while others consider it to be closer to “tortious” liability – see p.183
outlining the debate

1. Consideration
•• Atiyah, “Consideration in Contracts: A Fundamental Restatement” (1971) pp. 27-34,
reprinted (with slight revision) as Essay 8, Essays on Contract (1986) pp. 206-214.
•• Treitel, “Consideration: A Critical Analysis of Professor Atiyah’s Fundamental
Restatement” (1976) 50 ALJ 439

i) Definition of consideration
Chappell v Nestlé [1960] AC 87: P had the copyright over a song which D manufactured
and sold to anyone who paid some money (well below ordinary cost of the record) and
sent in three of D’s chocolate wrappers. The relevant statute demanded that a
manufacturer selling a record to which another had intellectual property rights had to
notify that party and pay a royalty of 6% of “ordinary retail price”. D paid P 6% of the
sum of money charged, while P said that they should be given more since the ordinary
retail price at which D would be selling included the 3 wrappers as part of their “ordinary
price” i.e. that the (worthless) wrappers were part of the consideration. HL allowed P’s
claim.

Lord Reid: D aimed to induce the sale of their chocolate by the deal and NOT to trade in
records. Therefore it was v. important to D that the wrappers were sent in (since it meant
that chocolate had been bought). It is valid for the offeree to give consideration that
consists partly of money and partly of doing an activity of value to the offeror. In this
case, therefore, the retail price had to include both the sum sent in AND the wrappers sent
in (which are valuable because of the necessary purchase from D in acquiring them). The
“collateral” contract approach of Lord Simon in Esso Petroleum i.e. that the contract to
buy the record at a cheap price had consideration from both the sum paid AND the
engagement in another contract, evidence for which was the sending in of wrappers.
Therefore it makes sense to construe the consideration for the record as the value of the
money sent in + the value of the other contract (i.e. the cost of 3 chocolate bars).

Lord Somervell: The wrappers are consideration, NOT a condition of making the
purchase as in the case of a card to shop at a supermarket. He says it doesn’t matter that
the wrappers have negligible objective value, since parties can ask for whatever
consideration they like e.g. If I sell you a house for a peppercorn, it is still a valid contract
even if the seller dislikes pepper and will throw it away. Since D would gain in sales from
demanding the wrappers it would be wrong to treat them as not consideration. It seems
odd to say that an object of no value can constitute consideration since this undermines
the whole point of consideration: that each side should gain something from the deal, lest
the agreement become one of a gift.

Viscount Simonds (dissenting): the wrappers themselves are worthless and thrown away,
while they are merely a “condition” of the purchase, not part of the purchase itself. He
also tries to argue that the wrappers didn’t necessarily represent something of value to D
in terms of increasing sales, since they might have been sent by someone other than the
purchaser, or might have been purchased before the deal started. In those few exceptional
cases this is true, but in most cases this is an unimportant objection.

NB it was key to the majority reasoning that the wrappers were of commercial value to D
since they could only be acquired through purchase from the company. However, if in a
case an individual sold a work of art for something worthless like wrappers, with no
commercial importance, then there would be no consideration- McKendrick. Not
necessarily: what about Somerell’s peppercorn example.

White v. Bluett (1853) 23 LJ Ex 36: D was sued by the executor’s of his father’s will for
an outstanding debt. D claimed that his father had cancelled the debt in return for D’s
agreement not to annoy his father with complaints about not receiving the same
inheritance as his siblings. CA said no contract.

Pollock CB: To admit this as consideration would be to allow anything of negligible

value to constitute consideration in which case the idea of a trade of benefits in a contract
would be lost. Secondly, he says that the son had “no right to complain” since his father
could do as he wished with his money, and therefore it would be absurd to construe it as
consideration that the son would desist from something he had no right to do. The second
argument is dodgy: his “right” is freedom of speech. The key point is that there is no
value in an agreement not to whinge.

Hamer v. Sidway 124 NY 538 (NB American case, but CW says regarded as good law by
English courts): P paid his nephew to refrain from smoking, gambling and drinking and
the court held the contract to be valid since the consideration was the foregoing of a legal
right to engage in those activities. CW: this could equally be said of Bluett where the son
was giving up his right to freely speak on the matter of his inheritance (despite Pollock’s
incorrect assertion above). Therefore the two cases conflict.

Wade v. Simeon (1846) 2 CB 548: The court held that consideration may lie in the
promisee' s forbearance from suing the promisor, unless the promisee has no case

Lipkin Gorman v Karpnale [1992] 2 AC 548: A solicitor at the firm, P, stole from the
firm’s client account, changed it for chips at the gambling club, D, and lost it. The firm
then claimed for unjust enrichment, there being no consideration for the money that he
gave the club. The law was that where a victim sought to recover money from an
innocent third party, the law was that the third party had to restore it unless he had given
full consideration for it. Since Gaming contracts were illegal at the time, it claimed that
the consideration it gave was in the form of the chips. HL said that the chips were not
consideration since (1) they were inherently worthless (no different to Chappell) and
were merely a means of facilitating gambling and therefore held no value in themselves
(just as the wrappers in Chappell were simply a means of marketing). Clear
contradiction with Chappell, which isn’t even mentioned in the ratio of HL.

ii) Past consideration

Lampleigh v Braithwaite (1615) Hob 105, 80 ER 255: B was convicted of unlawful killing
and asked L to petition the king on his behalf. L was successful and B offered him £100 a
reward, but later refused to pay. The court ruled that in general “a past benefit cannot be
invoked as consideration for a future contract”. However this principle didn’t apply
where (1) the past benefit had been at the request of the party who received it AND (2)
where there was an understanding/expectation that there would be a reward in the future
(in this case created by the subsequent promise of B), the past consideration could be
“assumed” into the agreement.

Eastwood v Kenyon (1840) 11 Ad & E 438, 113 ER 482: P was the guardian of X and had
borrowed money to educate her etc. X’s husband, D, undertook to repay P what he had
borrowed to bring up X (previously it had been X herself repaying P). He failed to do so.
The court ruled that conferring a benefit on someone voluntarily, which they did not ask
for, is not enough to found a contract even when supported by subsequent promise.
Lord Denman: even if the expense had been at the request of X, there still would be no
contract since “past consideration is no consideration at all”. This rule “must be made
absolute” and that past consideration creates only moral, NOT contractual, obligation.
Re Casey’s Patents [1892] 1 Ch. 104: Ps used D to promote their inventions and “in
consideration of [his] services” they offered him 1/3 of the patents in a letter, effective
immediately. Ps then tried to claim no contract either because (1) the consideration was
future consideration (i.e. services in the future) or (2) was past consideration, which was
defective. Bowen LJ, with others, ruled that D was to retain his share of the patents since
(1) if it is future consideration then the consideration is the promise to render services,
not the services themselves (which, Ps argued, were not completed) and (2) that from the
evidence Bowen LJ could conclude that payment was really part of the initial deal, so that
the question of past consideration is not really ruled on. He explicitly avoids ruling on
whether past consideration is valid.

PaO On v Lau Yiu [1980] AC 614: Ps had a company which they agreed to sell to Ds’
company, in return for shares in Ds’ company rather than money. To protect Ds’ share
price, a subsidiary agreement was made that Ps would keep 60% of their shares until after
April 30, 1974, and to protect Ps against a possible drop in share price, Ds agreed to buy
60 per cent of the allotted shares on or before April 30, 1974, at $2.50 a share. Ds later
(when Ps refused to move forward with the deal since they wanted a more lucrative
agreement for themselves) agreed to provide a guarantee of indemnity (i.e. that they
would only pay $2.50 per share if the shares fell below that price, but would pay the
asking price otherwise). This was due to Ds’ fear of costs of litigation + falling
confidence in Ds’ company if the deal was delayed. Ps’ shares collapsed in price and Ds
refused to honour the subsidiary agreement since they said it was non-existant, while the
indemnity agreement was invalid due to duress and past (i.e. invalid)-consideration.

HL held that (1) there was no duress, merely commercial pressure, and the coercion of
the weaker bargaining party by the stronger one was not duress; (2) The promise not to
sell shares by Ps WAS valid consideration, despite being given before the indemnity
arrangement, since it was made at Ds’ request with the understanding that Ss would be
rewarded in some way for this conduct (even though the specific reward was only
established later) i.e. resurrection of the Lampleigh rules. This understanding “survived
through” the cancellation of the subsidiary agreement in favour of the indemnity one.

Lord Scarman: For past-consideration to be valid: (1) it had to have been performed at
the other party’s request; (2) The parties must have understood that the act was to be
remunerated either by a payment or the conferment of some other benefit (why is this test
subjective when normally the objective test is used for explaining the content of a
contract?); (3) The payment/benefit would have to have been legally enforceable if it had
been given in advance of the consideration. These are present here.

iii) Performance of a Pre-existing Duty

Glasbrook Bros. v Glamorgan CC [1925] AC 270: A colliery manager feared for the safety
of the colliery due to the threat of striking miners. The superintendent offered to deploy
what he thought was an adequate force, but the owner wanted more and therefore offered
to pay for the billeting of a larger force at the colliery, which the police accepted and did.
HL found that this was a valid contract.

Majority draw a distinction between the adequate protection that the police offer to
everyone and “special protection that some people demand and say that it is wrong to say
that the Police’s ordinary duties would be inhibited if they also provide special services
for payment. Therefore it’s not against public policy that that the police should provide
special services, provided they have enough officers to effect their other duties.

Ward v Byham [1956] 1 WLR 496: P and his D split up and P agreed to pay D £1 per week
to look after the child (previously he paid a neighbour to do this) and “keep the child
happ”, but ceased payments after D remarried. CA held that there was consideration and
the contract was valid.

Denning LJ: A promise to perform an existing obligation (in this case caring for the
child) is good consideration since it can still confer a benefit, since in this case the father
is benefiting from not looking after the child himself.

This seems to contradict the rule that in general social arrangements do not give rise to
contracts.

Williams v Williams [1957] 1 WLR 148: D (wife) deserted P and they made an agreement
that in return for some maintenance money, that P would pay each week, D would not
claim for any more, pledge the husband’s credit etc. P argued that there was no
consideration to pay the money since the wife was already legally incapable of claiming
for more money while in desertion. CA allowed D’s claim

Lord Denning: a pre-existing duty (here, not to sue for more money) can give rise to
consideration where it is not against public policy. In this case although the wife was
unable to claim for more money in court anyway (i.e. her forbearance was a pre-existing
duty), her refraining from doing so meant that the man did not have to go to court to
defend himself and so she did confer a benefit on him .Also, since D could end the
desertion, she would have been able to claim for more money upon returning to P, had it
not been for this agreement. Thus there was consideration and D had to pay.

Other 2 judges concurred but not on the same basis: they only used Denning’s second
argument.

Shadwell v Shadwell (1860) 9 CB (NS) 748, 142 ER 62: D found out about P (his nephew)
contracting to marry X and promised to pay him some money each year. When D died
and the money owed, P sued his executors to get the money. The question arose as to
whether there was consideration in return for the promise of money, and the CA said that
the marriage proposed was consideration and not merely a condition for getting the
money. The court said that since the uncle wanted the marriage to go ahead, the marriage
must have conferred a benefit on him and therefore P had provided consideration. They
also said that the uncle was bound because he had induced the marriage, which implied a
legal request in return for payment.

Byles J (dissenting): There is no consideration and this was a letter of kindness, not legal
relations.

New Zealand Shipping v Satterthwaite, The Eurymedon [1975] AC 154: X, a carrier, was
exempted from liability by law for goods that it transported. It entered into a contract
with D (whose objects it was transporting) where it stated that any actions brought
against itself or its agents were subject to a one year limitation within which the action
could be brought. D, an agent company used by P to unload the ship damaged an object
but were sued after a year by D. The question was whether P had the authority to contract
for a third party. HL found that D could take advantage of the contract.

Lord Wilberforce: there are 4 conditions for an agency contract to work: 1. The contract
makes it clear that the company working for X is to be protected by the limitations
provisions. 2. The contract makes it clear that X is contracting on behalf of the other
company (i.e. the company working on X’s instructions). 3. X has authority from the
other company to act as agent, or perhaps later ratification by the company would suffice.
4. Any difficulties about consideration moving from the company are overcome. In this
case all conditions were satisfied. In this commercial context the financial interests and
dealings of all 3 parties show that there must have been consideration between P and D,
however the fact that D was only directly dealing with P and not D (i.e. that it had a pre-
existing duty to D to do the work) showed how problematic the “offer and acceptance”
approach could be, but did not prevent D from claiming the protection of the clauses.
This should be regarded as a unilateral contract whereby P has offered protection from
prosecution to X and all the groups it uses to carry out the carriage, including D.

PaO On v Lau Yiu [1980] AC 614- see above: The promise not to sell the shares before a
certain date was consideration for the subsequent guarantee i.e. an act/promise made
before the actual agreement could suffice as consideration for the later promise.

Stilk v Myrick (1809) 2 Camp. 317: X paid D to get an object shipped to London by a
certain date. Two of D’s shipmen deserted and, unable to get replacements, he offered to
share out the deserters’ wages with the remaining crew if they could get the boat in on
time, which they did. He then refused to pay. The court held that D did not need to pay
for two possible reasons: Firstly, there was no consideration, since the sailor was already
contracted to sail the ship home and he wasn’t giving anything new in return for the extra
money. Alternatively (the “Espinasse” report) public policy was considered, since it
would be bad to allow employees to force their employers to offer more pay by working
slowly. The first reason would bar all claims for additional payments and would prevent
employers from incentivising employees to meet their deadlines in this way, whereas the
public policy rationale would allow promises of “more of the same” even where there is
no consideration).

Williams v Roffey Bros [1990] 1 All ER 512: D had a building contract and subcontracted
to P. So as to avoid a late-completion penalty D offered P extra money per flat. It then
failed to pay him the extra money. CA said that there WAS a contract and D had to pay.
It held that where one party paid additional money to another to complete an existing
payment so as to gain a benefit or avoid a detriment, the advantage secured by the
promise to make the additional payment was capable of constituting consideration,
provided it was not obtained by economic duress or fraud. In this case the commercial
benefit of completing the work on time was considerable and definitely consideration.

Glidewell LJ: distinguishes this from Stilk v Myrick by saying that that case was more
about public policy and fears about lack of consideration (i.e. he adopts the “Espinasse
report” approach to the case). Hence in this ruling, the CA pointed out that there had to
be some extra benefit gained/loss avoided in order for there to be consideration AND
there had to be no fraud/duress. Russel LJ also said that where a benefit is adduced, there
is no reason why it should not be regarded as consideration.

The outcome is right since it would make no sense for the courts to curtail the way in
which employers can pay and motivate employers. However the distinction with Stilk is
unconvincing since they are materially the same circumstance. Under the test in this
case, a modern court trying a Stilk type case would probably find for the sailor!

Anangel Atlas v. Ishikawajimi-Harima (No. 2) [1990] 2 LLR 526 at 544–5: X was a ship
builder and following a crisis in the industry, faced several cancellations of orders etc. To
try and improve business it offered A price reductions for the work that A had already
ordered, in the hope of being able to save deals with similar companies. The court found
that this deal was valid, applying the Roffey approach, and extended it to say that the
opportunity to gain/avoid losing business deals was consideration. NB very great
extension since “opportunity” is not a calculable benefit! Furthermore the benefit was
not promised nor would necessarily ever be conferred by A, while the source of the
desired benefit comes from 3rd parties. CW concludes that consideration after this case is
little more than a motive for a promise.

Foakes v. Beer (1884) App Cas 605: P was owed money by D and stated that D, who
couldn’t repay him on time, could pay in instalments and P would not sue for the interest
from the late repayment. HL said no contract, since this was a nudum pactum with no
consideration from D. P could sue for the interest. Earl of Selbourne LC points out that
payment of a lesser sum than that which is owed, with the rest coming with delay, cannot
possibly be benefit/avoidance of harm to P. There is a general rule from Coke that
payment of part of a debt is not good consideration for a promise to discharge the whole
for the debt. Lord Blackburn: Although he won’t overrule Coke’s doctrine, he does
criticise it, since it is an avoidance of harm to business people to receive part of what is
owed to them for certain and the rest later than to have to pursue their whole debt through
the courts at great expense and taking much time. Therefore they should have the ability
arrange for enforceable agreements of early payment.

Treitel also object to the rule: it would be easy to evade if the debtor provides
consideration, for example by paying part of the debt a day early: this means that the law
would be encouraging artificial behaviour. Also it is out of step with Roffey, which allows
“same for less” or “same for more” agreements (though NB this still has the
qualification that some benefit has to come from the agreement, which has not been
proved in this case).

Scotson v. Pegg (1861) 6 H & N 295; 158 ER 121: A had a contract to sell coal to B, and
C made a contract to guarantee that A would sell the coal to B in compliance with that
contract. The court established that an agreement to do an act which the party was already
bound by a third party to do was valid. This was on the grounds that consideration given
to a third party (since A risked being sued if he failed to comply) was valid.

In Re Selectmove [1995] 2 All ER 531: D owed revenue, P, tax and NIC and tried to
offer the tax collector a proposal to stagger the owed payments. He said he would have to
check it with his superiors and tell the company if it was unacceptable. D heard nothing
more. CA held that the silence of the tax collector, who did not himself have the authority
to make such an agreement obviously meant there was no acceptance of the contract,
while there was no consideration since delayed payment of a debt already owing is
clearly not consideration. Gibson LJ said that Beer was analogous and would have to be
disregarded if the Williams doctrine was extended to cases of debt. As for the argument
that the Revenue had accepted the terms, this was wrong because the tax collector had no
authority to make an acceptance, or even to bind his superiors to do so.

South Caribbean Trading Ltd. v Trafigura Beheer BV [2004] EWHC 2676 (Comm),
(2005] 1 Lloyd's Rep 128: D was selling a product to P which he wasn’t able to make on
time, but P agreed to accept delivery at a later date. It was held that this was a mutually
agreed variation and that it was binding because sufficient consideration had been given.

Coleman J (in obiter): If no extra consideration had moved from the seller to the buyer,
when making the new agreement, he would not have considered the promise to release
the cargo at a later date sufficient consideration since it was what the seller was bound to
do anyway, and that he would follow Stilk as opposed to Roffey. He said that Glidewell
LJ’s reasoning of “factual benefit” (that the promise must confer some benefit in fact,
even when it is no more than he was legally obliged to perform anyway) is a non-sequitur
(since I hsouldnt have to pay you more for the same). He also says that economic or other
duress will prevent reliance on the factual benefit. But on the other hand it is fact that
people will work harder on the same task when being paid more, while the employer or
contractor may consider extra money paid to get the job done a lesser cost than that of
litigation.
2. Promissory Estoppel

Hughes v Metropolitan Rly (1877) 2 App Cas 439: P was a lessee of property that D
served a repair notice which had to be complied with within a time limit or P would face
ejection. P offered to sell the property to D and negotiations continued for several
months. Eventually they broke off, the repairs having been neglected and P was ejected.
HL ruled that ongoing negotiations had the effect of suspending a notice to repair
property i.e. the time limit within which to repair the property was effective from the
point that negotiations ceased. Lord Cairns: it would be inequitable not to suspend the
repairs since a party who thought that they might sell the remainder of the lease would
obviously not undertake repairs. There was an implied promise in the correspondence
that the repairs notice would be delayed, and therefore it had to be ruled that the repairs
notice was delayed during negotiations.

Central London Property v High Trees House [1947] KB 130: D was letting flats in a
building owned by P and couldn’t pay the rent. P agreed to reduce the rent for a period of
time, but later tried to claim arrears for the full level of rent. The court (Denning J) ruled
that as a result of the equitable doctrine, a promise to accept a smaller sum in discharge of
a larger sum, if acted upon, is binding regardless of the absence of consideration. This
followed the Hughes ruling.

Combe v Combe [1951] 2 KB 215: A man promised to pay his wife £100 a year after
their divorce. Relying on this, she didn’t apply for maintenance. The CA said it was an
unenforceable agreement, since he, the promisor, had not asked her to do it. Denning LJ
asserted that promissory estoppel can only be used to prevent someone from relying on
their strict legal rights of going back on a promise. It is NOT a cause of action itself. LJ
Birkett supported this, describing promissory estoppel as a “shield, not a sword). Denning
LJ also said that promissory estoppel only applies to modifications of a contract, whereas
contract formation itself still requires consideration. The doctrine of equitable estoppel
gives no new rights. Denning said this was to prevent it clashing from the general
requirement of consideration for establishing new contracts/new rights.

Tool Metal v Tungsten Electric [1955] 1 WLR 761 (H.L.): D had to pay P royalties for
creating and selling its product, and paying compensation when it produced in excess of a
certain volume. The right to compensation was suspended during WWII and P tried to
reinstate it in 1945. The HL ruled that “reasonable notice” had to be given in order to
resume strict legal contractual rights. This was determined basically on account of what
would be “equitable” i.e. fair.

Ajayi v Briscoe [1964] 1 WLR 1326: D had trouble with lorries that he had was using on
a hire-purchase basis from P, and P had said that he could delay payment while the lorries
were being fixed by the plaintiffs and not in active service. When P sued D for overdue
instalments owed from the point when the lorries were available for use again, D claimed
equitable estoppel, in that they had not been given reasonable notice that the lorries were
available for use again. Privy Council held that promisory estoppel (PE) applied where
one party, in absence of consideration, agreed not to enforce his rights. However there are
3 qualifications: (1) that the party claiming PE had altered his position; (2) that the
promisor could revoke his promise once reasonable notice had been given; (3) the
promise was only irrevocable where the promise couldn’t resume his former position. In
this case the position of D had not been altered AND the lorries had been made available
to him with reasonable notice.

D and C Builders v Rees [1965] 3 All ER 837: Ps were builders who were owed money
by D who knew that P was in financial trouble. They delayed paying and then offered a
lesser amount or nothing, which was accepted due to the financial trouble and P gave a
receipt for settlement of the debt. P then sued for the balance and CA allowed their claim.

Lord Denning (majority approach): There was no true accord/agreement since P was
pressured into acceptance due to the threat of being paid nothing, as asserted by D. Had
there been a true accord then P could not have claimed the full amount. However in this
case there was no equitable reason for disentitling P from recovering the full amount.
Winn LJ took a different approach (not considering estoppel doctrine) but came to same
conclusion.

Woodhouse AC Ltd v Nigerian Produce Ltd [1972] AC 741: P bought cocoa from D who
charged in Nigerian Dollars, but on P’s request agreed to charge in British pounds. They
later revoked this by letter. D then wrote a new letter stating that payment could be made
in either currency for all current and future purchases. Pound devalued and when P tried
to buy in pounds (taking the letter to mean “the price is 12, so give us either $12 or £12),
they were refused. HL ruled that the letter sent to P (paraphrased above) actually referred
to payment of the purchase price in sterling and not its measurement in sterling. HL also
said that the promise on which one can base a promissory stoppel defence has to be “clear
and unequivocal, i.e., so expressed that, farfetched or strained interpretations apart, it
would be understood in the sense required”. The letter was not clear enough.

Lord Hailsham: justice demands that promissory estoppel be clear so that the promisor
does not bear any cost of ambiguity.

WJ Alan v El Nasr [1972] 2 All ER 127: A sold coffee to B, charging in “shs” which
could have referred to Kenyan shillings or British sterling. Payment was later accepted in
sterling, until it became devalued against the Kenyan pound. CA held that looking at the
circumstances the original price was charged in Kenyan shillings. However, Denning LJ
held that the sellers had waived their right to be paid in that currency having accepted
payment in sterling, while the other two CA judges held that the seller had accepted a
variation in the terms of the agreement.

Lord Denning: Where one party induces another to act a certain way by promising not to
assert strict legal rights, one cannot immediately renege on that promise, even if the
promisee acted in a different way to how one expected, upon learning that the promisor
would not assert strict legal rights.
Neither the approach of “modification of the contract” makes sense since there is no
consideration coming from the promisee (in fact it has been to the seller’s harm), nor the
approach of estoppel/waiver (since the circumstances were clearly too unclear given the
requirements set out in Woodhouse).

Societe Italo-Belge v Palm Oils, The Post Chaser [1982] 1 All ER 19: P was buying
goods from D which it needed to sell on, and therefore needed a special “declaration”
from D that the contract stated would be sent “as soon as possible after the ship sets sail”.
The declaration only came v. late after P had failed to say anything, since it was trying to
hold the deal together. However, in absence of the declaration it was unable to sell on the
produce and refused to buy when the sellers arrived with the stock. The court (Goff J)
ruled that the declaration was an essential part of the deal, that P’s lack of protest did not
constitute a waiver of their rights and therefore that D was in breach. There was “no
unequivocal representation” by P that they did not intend to keep their strict legal rights.

Amalgamated Investment v Texas Commerce Int. Bank (1981) 3 All ER 577: T’s
subsidiary made loans to A’s subsidiary and they worked on the assumption that A was
guaranteeing the loans, when in fact the wording of the contract meant that only loans
made by T itself (main company) were to be guaranteed by A. However the CA said that
A was “estopped by convention” from seeking a declaration that it had no liability
regarding loans to A’s subsidiary.

Lord Denning: where two people are agreed on the “conventional basis” for dealings
between them, and that basis is shown to be flawed, it is given effect as though it were
fact.

Brandon LJ: conventional estoppel cannot give a cause of action itself, but may be used
to make a cause of action successful where it otherwise failed. This goes against the idea
of estoppel as a “shield, not a sword” and as CW says, this is the qualification that eats
up the rule.

Baird Textile Holdings Ltd v Marks and Spencer Plc [2002] 1 All ER (Comm) 737 : B
had supplied M for 30 years and when M cancelled its contract it it sued for lost profits,
claiming either that there was an implied term of reasonable notice of 3 years being given
before terminating the contract, OR that M was prevented from cancelling the contract by
estoppel.

Andrew-Morrit VC: The parties had expressly avoided a definite contract over the 30
years in which B had supplied M and there was insufficient certainty on which to found a
contract e.g. uncertainty as to price and quantity. Estoppel does not create an enforceable
right, but merely regulates the contract which has been entered into by making
enforceable any waivers of rights that are conceded, conventions that are mutually
assumed etc. Given that there is no contract here, neither can there be any estoppel.

Mance LJ: B tried to argue that conventional estoppel should at least allow them to imply
“bare terms” by which the parties can be governed. However estoppel does not create a
cause of action, and to create an obligation by estoppel here would be to create a contract
by estoppel i.e. to replace consideration AND terms with estoppel.

Crabb v Arun D.C. (1976) Ch 179: P had access to a road at point A and wanted access at
point B. He had a meeting with D and they agreed that P could have another access point
“in principle”. D then built a fence as agreed with P and put in a gate at point B, so that P
now had his second access. P later assigned his rights to access point A to a 3rd party so
that his only access to the road was at the gate at point B. D then replaced the gate with a
fence, locking P in. CA allowed P’s claim.

Lord Denning: Estoppel can give a cause of action concerning rights or interests over
land and is founded in equity. This is “proprietary estoppel”. In this case D lead P to
believe that he would have a right to access the road at point by putting in a gate etc and
P relied on this, so that it would be inequitable to allow D to go back on his implied
granting of the right. Lawton LJ found a firm agreement between D and P and stated that
D had given an undertaking and therefore P had a right top access at point B. Estoppel is
to “mitigate the rigours of strict law”.

Lord Scarman: the courts cannot find an equity established unless it would be
“unconscionable and unjust” to allow a strict enforcement of legal rights. He also said
that he didn’t find the proprietary-promissory distinction helpful. The danger with this is
that, unlike Denning, he has set no restrictions on which forms of estoppel could be used
to found a cause of action.

Taylor Fashions Ltd. v. Liverpool Victoria Trustees Co. Ltd [1982] QB 133: Ps had a
contract of lease on a house which they had the option to renew. However D claimed that
the option was void because the houses weren’t registered under the land registration act.
Oliver J said the correct approach to any estoppel is by “ascertaining whether, in
particular individual circumstances, it would be unconscionable for a party to be
permitted to deny that which, knowingly, or unknowingly, he has allowed or encouraged
another to assume to his detriment”. Because of the circumstances in each case, he said
that one P could rely on estoppel, whereas the other P could not.

Walton Stores v Maher (1988) 62 ALJR 110, (1988) 164 CLR 387 (Australian case): P
entered negotiations with D about D knocking down a building and building a new one to
P’s specifications that P would lease. When 40% of the work was completed Ps decided
to break off the agreement. High Court of Australia ruled that although there was no
contract (no definite offer and acceptance since it was a case of “I’ll let you know if there
are any problems” which is NOT an acceptance- see Re Selectmove doctrine). However,
P was estopped from denying being bound and would have to pay damages.

Majority approach: In central London properties Denning J in obiter extended promissory

estoppel outside of contractual relationships. It extends to the enforcement of voluntary
promises on the basis that a departure from the assumption underlying the transaction
must be “unconscionable.” The circumstances of this case (where D knew that P laboured
under the impression that the promise would be enforced) made it unconscionable to
allow D to rescind on the promise.

Brennan J: In ordinary agreements where both parties recognise they have the freedom to
withdraw then it cannot be unconscionable for them to do so. It is only if one party
induces the other to believe that they are bound that it is unconscionable for them to then
withdraw. A non-contractual promise only creates equitable estoppel where the promisor
induces the promisee to induce or expect that their relations have become binding that the
promise becomes enforceable. Unlike contractual obligations, equitable estoppel requires
NO consideration. It is illogical that equity should be regarded as a “shield, not a sword”
since there is no moral reason why a promise not to enforce legal rights should be capable
of estoppel, but not a promise to give new legal rights. This is an artificial distinction
(though it does preserve the purpose of consideration, and to get rid of it would create
problems of exploitative agreements being valid). To establish equitable estoppel there
are 6 conditions: (1) P believed a legal relationship existed between P and D; (2) D
induced P to adopt the assumption; (3) the plaintiffs act/omit to act based on that
assumption; (4) D knew or intended P to do so; (5) P’s act/omission will be a detriment to
him if promise not fulfilled; (6) D failed to avoid the detriment occurring to P.

Commonwealth of Australia v Verwayen (Australian case)(1990) 64 ALJR 540, (1990)

170 CLR 394: C sank V’s boat and C said that it would not, as a policy, take advantage
of statute of limitations and therefore it would have to admit liability. When V prosecuted
them in a tortious action, C tried to use the statute of limitations whose use it had claimed
that it would forego. V argued that it could not use those statutes, promissory estoppel
preventing it. The High Court said that there was no waiver

Mason CJ: All types of estoppel serve the same purpose: “protection against the
detriment which would flow from a party's change of position if the assumption (or
expectation) that led to it were deserted”- From Walton. The promise must relate to
existing fact, NOT future fact or mere intention. Furthermore the promise must be that
the promisor will consider themselves bound by their promise: here there was no such
indication, even though V may have wrongly interpreted it this way. I.e. an objective test
is used: what they are really asking is whether a reasonable person would consider the
promisor to have bound themselves.

Articles:

Atiyah, “When is an Enforceable Agreement not a Contract? Answer: When it is an

Equity” (1976) 92 LQR 174:
 Lawton J said the whole thing turned on whether or not there was an
enforceable agreement, and then decided the case based on equity.

 Argues that the case should and could have been decided on contract rules,
and could have got over the consideration by an implication that the price was to be
decided (though at the time, before the Sale of Goods Act leaving out the price would
have meant that the contract was too uncertain to be valid).
 He says the basis on which the courts came to the conclusion is very
unclear

Millett, “Crabb v Arun DC – A Riposte” (1976) 92 LQR 342:

 Atiyah is wrong to say that a contract claim could have succeeded: no
consideration, no agreement, no compliance with property law statutes that require
documentation etc

 Equity and contract serve different purposes, contract being the breach of
an enforceable agreement, while estoppel relating to the promisee’s detrimental
reliance on a falsely induced belief.