Contract Law

Introduction

Donna agreed to pay £ 30,000 to a restaurant owner Alan, for hiring the

restaurant, and for providing the staff and making all the catering arrangements. This

was with regard to her wedding, which was to be celebrated at this venue. She paid

Alan £ 20,000, as advance and agreed to pay the remaining amount on the day of

the wedding.

Alan was much impressed with the exotic menu concocted by his chef

Charles and agreed to pay him £ 50 as a reward. Moreover, Alan hired the Create

Your Dream Builders (CYDB) to make certain alterations to the restaurant for this

event. The CYDB agreed to complete the work within two weeks. However, the slow

pace of their work made Alan apprehensive and he promised to pay them an

additional amount of £ 1,000 to complete the work on time, which was then

completed within the stipulated period.

On the wedding day, Donna informed Alan that she could not pay him more

than £ 5,000 out of the remaining £ 10,000. This Alan accepted with considerable

misgiving. Subsequently, he came to know that Donna had earned an enormous

sum in a lottery.

For advising Alan, with regard to the promises he made to Charles and the

CYDB, the following issues have to be considered.

1
Issues

Whether Alan’s promise to CYDB, regarding the additional payment of £

1,000 is legally enforceable.

Whether Alan can claim the remaining £ 5,000 from Donna.

Whether Alan’s promise to pay £ 50 is legally binding.

Analysis

The doctrine of promissory estoppel serves to bind the parties to an

agreement, even in the absence of consideration. In cases involving breach of

promise, plaintiffs can invoke this principle. Since, promissory estoppel can be only

used as a shield, it cannot be employed by an aggrieved party to enforce a promise. 1

In a contract, when one of the parties to the contract promises that he will not

enforce his contractual right, either by words of conduct; then the equitable doctrine

of promissory estoppel comes into play. The objective of this principle is to preclude

injustice to a promisee who had acted to his detriment on the basis of the promise

made to him by the promisor, which the latter had subsequently refused to honour. 2

In Williams v Roffey, the Court of Appeal ruled that the plaintiff carpenters

were entitled to the promised additional payments, with respect to the flats that they

had completed. During this decision, the learned judges accorded a wider

connotation to the concept of consideration. Specifically, Glidewell LJ highlighted the

1
W J Stewart, ‘consideration’ (Collins Dictionary of Law, 2006)
<http://www.credoreference.com/entry.do?id=5979319&secid=> accessed 9 May 2013.
2
Wan Izatul Asma Wan Talaat, ‘The Threats to the Limitations Outlining the Present Parameters of
Promissory Estoppel: A Comparative Study’ [2012] 3(6) International Journal of Business and Social
Science 155, 155.

2
practical benefits that would be realised by the defendants, on account of their

promise to make additional payments. 3

Some of these benefits were; first, the defendants would ensure that the work

would be continued by the plaintiffs and that this work would be completed. Second,

the defendants would circumvent the penalty clause for not completing their contract

with the owner of the block of flats. Third, the defendants would not have to undergo

the trouble and expense of locating and hiring other carpenters to complete the work.

The principal difference between these two cases is that in Williams v Roffey, the

defendants had not been pressurised by the plaintiffs to offer extra payments. 4

As such, in Williams v Roffey a promise was made by one of the parties to the

contract to the other party, whereby the promisor agreed to pay an additional amount

to ensure the performance of the contract by the promisee. The Court of Appeal

ruled that such promise was binding if the promisor obtained a new practical benefit

or avoided some detriment.5 This decision tended to disregard the significance of

consideration, with regard to a promise to make additional payment. 6

A related rule to this issue is that a debt cannot be discharged by making part

payment. This rule has not been influenced in any manner, what so ever, by the

ruling in Williams v Roffey. It was established by their Lordships in Foakes v Beer. In

this case, Foakes owed Beer £ 2,000. He offered to pay her £ 500 immediately and

the remainder in instalments. Beer consented to this, but subsequently claimed

3
Catharine MacMillan and Richard Stone, Elements of the law of Contract (University of London
2012) 34.
4
ibid.
5
Williams v Roffey Bros. and Nicholls (Contractors) Ltd [1991] 1QB1.
6
Jill Poole, ‘Casebook on Contract Law’ (2005) <
http://fdslive.oup.com/www.oup.com/orc/resources/law/contract/poole/books/002casebook/guidance/
poole_guidance_williams.pdf > accessed 9 May 2013.

3
interest from Foakes. As such, judgement debts incur interest, and it was held that

Foakes had to pay Beer the interest amount. 7

However, the Hughes v Metropolitan Railway Co8 and the Central London

Property Trust Ltd v High Trees House Ltd9 cases, established five limitations to the

doctrine of promissory estoppel. These are first, promissory estoppel can be used

only as a shield and not as a sword. Second, there must be a pre – existing

contractual relationship. Third, an explicit undertaking must be in existence. Fourth,

there should be evidence of detrimental reliance by the promisee on the

representation made by the promisor. Fifth, the suspension of contractual rights and

obligations has to be temporary.10

Nevertheless, in Stilk v Myrick, some of the crew members had deserted the

ship. The ship’s captain promised the remaining crew that he would pay them an

additional amount for bringing the ship back to London. 11 On reaching London, the

captain refused to make the additional payment. It was held that no consideration

had been provided by the crew members for the additional amount. Hence, they

were not entitled to any extra payment.12

All the same, in South Caribbean Trading v Trafigura,13 Coleman J stated that

the promisee was imposing economic duress, if he refused to perform an existing

duty. Therefore, the promisee, in such cases, cannot resort to the defence of

practical benefit to the promisor. 14

7
Foakes v Beer [1884] UKHL 1.
8
Hughes v Metropolitan Railway Co [1876 – 1877] UKHL 1.
9
Central London Property Trust Ltd v High Trees House Ltd [1947] KB 130.
10
Wan Izatul Asma Wan Talaat, ‘The Threats to the Limitations Outlining the Present Parameters of
Promissory Estoppel: A Comparative Study’ [2012] 3(6) International Journal of Business and Social
Science 155, 155.
11
Stilk v Myrick [1809] EWHC KB J58.
12
Richard Stone, The Modern Law of Contract (9th edn, University of London 2011) 104.
13
South Caribbean Trading Ltd v Trafigura Beheer BV [17] [2004] EWHC 2676.
14
Mindy Chen - Wishart, Contract Law (4th edn, Oxford University Press 2012) 130.

4
 As held in the Pinnel’s Case,15 the performance of something additional has

the effect of discharging the debt in its entirety. However, making a payment that is

less, on or after the date when the payment is due, does not constitute consideration

for a promise to give up the remaining amount. 16

Another important rule regarding the sufficiency of consideration declares that

consideration has to be provided after the related promise, in order to render it

enforceable. A promise that is provided on completion of the alleged consideration

cannot be enforced. Thus, in Re McArdle, the plaintiff refurbished a house in which

that person husband’s siblings had a beneficial interest. 17

Subsequently, the plaintiff demanded that they should contribute towards the

expenditure incurred, which these siblings had consented to. As the promise to make

the payment had been made, after the consideration had been performed, it was

held that the promise to make payment was not enforceable. Thus, past

consideration is invalid.18

For instance, in D&C Builders v Rees, Rees upon coming to know about the

financial straits that the plaintiffs were undergoing, offered to pay £ 300 as full and

final payment for the £ 482 owed to them. These builders, due to the pressing debts

and financial instability, reluctantly accepted the exploitative offer made by Rees. 19

Subsequently, they claimed the remaining amount and it was held that Rees

could not rely on estoppel, due to the absence of a true agreement to accept a lesser

15
Pinnel’s Case [1605] 5 Co Rep 117a.
16
Catharine MacMillan and Richard Stone, Elements of the law of Contract (University of London
2012) 35.
17
ibid.
18
ibid 36.
19
D & C Builders v Rees [1966] 2 WLR 28.

5
amount. This was on account of the fact that Rees had unjustly exploited the

financial position of the builders.20

Similarly, in our present problem the CYDB, had finished the work in time,

relying on the promise of Alan. As such, Alan has benefited due to the work being

completed within the specified time.

However, in the Post Chaser,21 a promise was made and withdrawn almost

simultaneously. This action was so quick that the other party did not undergo any

disadvantage from reliance on the promise. It was held that under these

circumstances, it was justified to permit the promisor to escape from the promise. 22

The modification of a contract that is supported by consideration, usually has

a permanent influence and persists throughout the existence of the contract.

However, this does not hold god for promissory estoppel. On occasion the promise

itself will be subject to time limitation. An instance is provided by the Central London

Property Trust Ltd v High Trees House Ltd case, in which the promise to accept

diminished rent was to be in force only during the pendency of the Second World

War. After the cessation of the War, the original terms of the contract were revived. 23

In our case, the CYDB had completed the work within the time stipulated in

the contract, due to reliance on Alan’s promise for making extra payment. Alan was

enabled to provide Donna with a well arranged venue for conducting her marriage,

due to completion of the work by the CYDB, which put in extra effort to complete the

work as per schedule.

20
ibid.
21
The Post Chaser [1982] 1 All ER 19.
22
Catharine MacMillan and Richard Stone, Elements of the law of Contract (University of London
2012) 39.
23
ibid.

6
 In several cases, it had been noticed that the legal outcomes, despite being

just, were unfair or unduly harsh on one of the parties. To rectify this situation, equity

courts were established. These courts provide clemency to individuals, in instances

where the legal result seems to be unfair. 24

The equity courts established the doctrine of promissory estoppel. This

doctrine arises whenever a person believes reasonably that he has formed a

contract, even if there is no contract. Moreover, the promisee changes his position,

due to reliance on this reasonable belief. Such a situation arises when the promise

made by the apparent offeror is deceptive. 25

Such associations are not contractual relationships. However, if it can be

established that the promisee had materially altered his position, on account of

reasonable reliance on the promise, the law will come to his rescue and ensure that

he does not undergo harm. Under these circumstances, the promisor will be

compelled to compensate the promisee. As such, the promisor is estopped from

going back on his promise, as this would cause injustice to the promisee. 26

However, it is generally stated that the influence of promissory estoppel is

limited to a suspensory effect on the requirement to make payment. In the context of

periodic payments, this is reasonable. Thus, it is equitable for an individual to abstain

from payments or to make reduced payments for a stipulated period or until certain

conditions prevail. After this period is over, full payments have to be made. 27

A major exception is provided by promissory estoppel. This doctrine permits,

under certain circumstances, part payment towards the full satisfaction of a debt.
24
Jeffrey A Helewitz, Basic Contract Law for Paralegals (Aspen Publishers Online 2010) 97.
25
ibid.
26
ibid.
27
David Capper, ‘The Extinctive Effect of Promissory Estoppel’ [2008] 37(2) Common Law World
Review 105, 105.

7
Moreover, bankruptcy also allows part payment for the satisfaction of a debt in full.

However, there should be a composition agreement, in such cases, between the

creditors and the debtor. This is in accordance with the Bankruptcy Act 1966. 28

The suspensory effect of promissory estoppel makes it similar to the effect of

a breach of promise. Sometimes a party convinces another party that their

negotiations would result in a contract. Thereafter this party fails to honour its word.

In such instances, the court can prevent such a party from taking recourse to a

defence of absence of contract. 29 In such cases, it is considered that there is a

contract between the parties.

Promissory estoppel can be established, only if the following conditions are

proved. There should be a presumption of an explicit legal relationship between the

parties. The second party should have been responsible for the assumption. The

acts of omission or commission of the first party should have been the result of this

assumption. 30

It had been the intention of the second party to make the first party act. A

detriment should have been suffered by the first party, if this assumption were to

have failed. No measures had been adopted by the second party to prove that the

assumption was false.31

Consideration has the outcome of either some benefit to the promisor or a

detriment to the promisee. Each of the parties to a contract has to provide some

consideration to the other party. If a party receives interest, benefit, profit or right,

28
Geoff Monahan, Essential Contract Law (2nd edn, Routledge 2001) 29.
29
Roger Leroy Miller and Frank B Cross, Business Law (12th edn, Cengage Learning 2011) 321.
30
Steven Clark, ‘Promissory Estoppel’ (2009) < http://stevenclark.com.au/2009/11/19/contracts-101-
part-13-promissory-estoppel/> accessed 11 May 2013.
31
ibid.

8
then this is termed as valuable consideration. This is also true, if one of the parties

undergoes loss, detriment, forbearance or responsibility. 32

In Roscorla v Thomas, the Queen’s Bench held that a promise to pay a

higher amount for a horse, if it was of satisfactory quality, was not enforceable. 33 This

case involved past consideration. The plaintiff was made to believe by the defendant

that the horse was of even temper. Subsequently, this horse displayed a vicious

nature. However, the promise regarding the nature of the horse had been made after

the sale of the horse. Hence, the court held that the plaintiff had not provided any

consideration for the promise regarding the nature of the horse. Consequently, the

plaintiff could not claim damages. 34

Several of the rules pertaining to consideration entertain important exceptions.

This also holds good for the rule related to past consideration. Thus, in Pao On v

Lau Yiu Long, the court examined the circumstances under which a promise made

after the acts constituting consideration, would be enforceable. 35

In this context, Lord Scarman, established the following conditions. First, the

act deemed to be the consideration should have been performed at the request of

the promisor. Second, it should have been understood by the parties to the contract

that the work in question would have to be paid for either by money or some other

benefit. Third, the promise made should have been legally enforceable, if it had been

made before the acts constituting the consideration. 36

32
Max Young, Understanding Contract Law (Routledge 2009) 44.
33
Roscorla v Thomas [1842] 3 QB 234.
34
Simon Salzedo, Peter Brunner and Michael Ottley, Briefcase on Contract Law (4th edn, Routledge
2004) 52.
35
Pao On v Lau Yiu Long [1979] UKPC 2.
36
Catharine MacMillan and Richard Stone, Elements of the law of Contract (University of London
2012) 36.

9
 However, establishing that the parties must have understood the necessity

for providing some benefit for the work raises considerable difficulty. The court will

have to adopt an objective approach and determine the action that reasonable

parties would have expected under these circumstances. 37

As such, past consideration is in general, not regarded as good

consideration. However, there are some exceptions to his rule. In Pau On v Lau Yiu

Long,38 the Privy Council ruled the existence of valuable consideration. It was held

that for a new contract, a previous advantage or disadvantage was valuable

consideration. Specifically, Lord Carman, while stating the advice of the Privy

Council, declared that a promise to perform a pre – existing obligation under a

contract to a third party was good consideration. 39

In addition, in Re McArdle,40 a house was left by a father to his children.

However, these children had to permit his wife to reside in that house, as long as she

was alive. Thereafter, this father passed away, and his widow lived in that house.

One of the children and his wife were also living in that house with the widow. After

some time, the son’s wife made some alterations to the house. Subsequently, the

widow died and the house was transferred to all the children. 41

At that point of time, the other children consent to pay the son’s wife £ 488 for

the improvements she had made to the house. Later on, when no payment was

forthcoming, she claimed the amount in court. However, the Court of Appeal rejected

her action on the grounds that her consideration was past. As the work had been

37
ibid.
38
Pau On v Lau Yiu Long [1979] UKPC 2.
39
Laurence Koffman and Elizabeth Macdonald, The Law of Contract (6th edn, Oxford University Press
2007) 61.
40
Re McArdle [1951] Ch 669.
41
Michael J Fisher and Desmond G Greenwood, Contract Law in Hong Kong (Hong Kong University
Press 2007) 79.

10
completed in the past, the promise to pay her was without any consideration to

support it.42

Similarly, in our case, Charles had designed an Italian themed menu, and

Alan made a promise to give him a cash reward, as a token of his appreciation.

However, in this problem, the promise was made after the work had been completed.

In accordance with the above case law, past consideration is invalid and

unenforceable under the law. Consequently, Charles cannot make a claim for the

amount promised by Alan towards his Italian themed menu, which was used in the

wedding.

With the exchange of promises, between the offeror and the offeree, a

contract comes into existence between these parties. This is the situation, under the

usual rules pertaining to the formation of contracts. Moreover, there is no necessity

for these parties to have relied on the promise made by the other party, in order to

enforce the promise. This changes with promissory estoppel, wherein the party

attempting to enforce the promise made by the other party should have changed his

position or taken some action on the promise. 43

In other words, the party relying on the promise should have taken some

action on the basis of the promise. Thus, in the Central London Property Trust Ltd v

High Trees House Ltd case, the action done due to reliance on the promise was the

paying of lower rent.44 Although, it has been suggested by some that the promisee

should have suffered a detriment due to reliance on the promise, this is not essential.

42
ibid.
43
Richard Stone, The Modern Law of Contract (9th edn, Taylor & Francis 2011) 116.
44
ibid.

11
 For example, in WJ Alan & Co v El Nasr, the Court of Appeal declined to

accept that detriment was mandatory for promissory estoppel. 45

Conclusion

Alan was benefitted by the timely completion of the work by the CYDB.

Hence, if Alan attempts to avoid making the promised additional payment, then the

CYDB can invoke the doctrine of promissory estoppel to obtain the extra amount.

All said and done, the concept of detrimental reliance is an important feature

of the principle of promissory estoppel. The extra effort made by the CYDB in

completing the work in time, would have been detrimental to them, in the absence of

additional payment. Consequently, Alan has to make the extra payment, which he

had promised to them. Moreover, the CYDB had not pressurised Alan to make the

extra payment. As a result, Alan will be liable for damages, if he fails to make the

additional payment to CYDB.

Similarly, Donna had offered a lesser amount to Alan after the completion of

the event, stating that she could not pay the amount originally promised. As per the

decided case law, Alan can raise a claim for the full amount in a court of law for the

remaining amount.

In case of Charles, Alan is not liable for any payment, since the consideration

is past consideration. This is because; Alan made the promise after the completion

of the task by Charles. Alan is not liable for any payment towards Charles.

45
WJ Alan & Co v El Nasr [1972] 2 All ER 127.

12
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13
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14