The crux of consideration in common law (1)


The doctrine of consideration is one of the core pillars of contract law in common law. “The basic idea of the consideration requirement is that in order to acquire the right to enforce another’s undertaking, a party must undertake to give, or actually give, something stipulated by the other as the price for his or her undertaking.” Another broadly accepted definition of consideration is “An act or forbearance of the 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.” The doctrine of consideration is rooted in the bargain theory which was supported by the mutual exchange, between the promisor and promisee, of something which has value in the eye of law.

As a unique feature of common law, the doctrine of consideration is not without limitation and for many years there has been intense discontents with application of this doctrine. Initially the criticisms of the consideration doctrine arise from the requirements of nexus and value. The doctrine of consideration also evolved with refinement of its scope to deal with difficulties inherent within it. But more criticism comes out for its refinement. For example, in the famous case Williams v Roffey Bros & Nicholls (Contractors) Ltd , the court said that the practical benefit can be treated as valid consideration. Then this expansion of the scope of consideration caused more discontents and was criticized by many voices as diluting the requirement of consideration.

Regarding to the solution to this problem there are mainly two schools. One school proposes to abolish the doctrine of consideration and replace it with other alternatives. Another school insists to preserve the doctrine of consideration based on the idea of contract as an exchange by refining the scope of the doctrine of consideration.

The problem now is that under this circular of “discontent-refinement-discontent”, what should be the final destiny of consideration, to abolish it or continue to refine it?

My viewpoint is that practically, by refining the scope of valid consideration in a way that is consistent with the idea of contract as exchange is a better way than simply abolishing the doctrine of consideration. However, it should not be the terminal point of this “Retro Snake” style debating, the future reform on the doctrine of consideration should avoid the previous presumption that common law principle and equity principle are competing rivalries, but to work in the direction to reach a substantial fusion of the two pillars of contract law. A more detailed discussion will be followed in this essay.

B.The test to determine which one is the better solution

It is not a simple question to answer which one solution is better and we can only answer this question on a practical perspective. Normally, every argument is proposed to provide a solution to a problem, but sometime, new problems will emerge while a solution solve one problem. If one solution creates more problems than it would solve, then we can conclude that it would not a good options. By contrast, if one solution solve more problems than it create, then we can conclude that it was still a good and practical option. The following discussion will follow this test to determine whether abolishing the doctrine of consideration is a good idea instead of refining the scope of consideration.

Before we determine which solution is better one according the test stated above, it is necessary to review some discontents of the doctrine of consideration briefly.

There two major discontents with aspects of the consideration doctrine: uncertainty and apparent inconsistency in the conception of ‘value’ and the uneven application of consideration as ‘practical benefit’ .

The first discontent derives from the decision of Chappell & Co. Ltd. v. Nestlé Co. Ltd . In this case, Lord Somervell of Harrow proposed the famous “rule of peppercorn” by saying “Wrapper is part of consideration. The statement that the wrappers are of no value is irrelevant. A contracting party can stipulate for what consideration he chooses. 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.” This position was criticized by Phang J.A. who argued that the doctrine of consideration was “substantially undermined by the rule that consideration need not be adequate” illustrated in the case of Chappell & Co. Ltd. v. Nestlé Co. Ltd. The critics allege that under the “rule of peppercorn”, “even the most trifling benefit or detriment qualifies as valid consideration.”

The second discontent is regarding the influence of acknowledging the practical benefit as good consideration. In the case Williams v Roffey Bros & Nicholls (Contractors) Ltd , Glidewell LJ concluded that: “(i) if A has entered into a contract with B to do work for, or to supply goods or services to, B in return for payment by B; and (ii) at some stage before A has completely performed his obligations under the contract, B has reason to doubt whether A will, or will be able to, complete his side of the bargain; and (iii) B thereupon promises A an additional payment in return for A’s promise to perform his contractual obligations on time; and (iv) as a result of giving his promise, B obtains in practice a benefit, or obviates a disbenefit; and (v) B’s promise is not given as a result of economic duress or fraud on the part of A; then (vi) the benefit to B is capable of being consideration for B’s promise, so that the promise will be legally binding (emphasis added).” The acknowledgment of “practical benefit” as a good consideration was also criticized by Phang J.A. as it “dilutes an already emaciated doctrine (of consideration) to the point of abolition is overly pessimistic.”

Regarding to the problems arisen from the doctrine of consideration, a doom for the doctrine of consideration to be abolished looms larger and larger. But after application the test proposed above, we can infer that this theory is still immature and cannot be taken seriously.

C. Abolishing consideration creates more problems than it would solve

Whether to abolish consideration in common law is an old question which has been debated since from about 100 years ago . There are two reasons proposed by the group of judges and academic to support their position that the consideration doctrine should be abolished.

(1).All serious intentions should be enforced base on the theory of individual autonomy?

In common law, traditional contract law did not deny that the a contractual liability should be based on serious intentions, but serious intentions are just necessary conditions, which means that merely with serious intentions cannot make a contractual promise legally enforceable, an additional consideration based on the idea of exchange is also needed. However, the anti-consideration group alleges that mere serious intentions would be sufficient for a contractual liability to be legally enforceable and they further support that all serious intentions should be legally acknowledged and enforced. The legally enforceable serious intentions not only include intentions supported with consideration, but also include intentions not supported by consideration.

This theory originated from the Fuller’s viewpoint that the doctrine of consideration performs the same function of a formality, such as a deed, and therefore, the consideration should works as a form, which illustrate the serious intentions of two parties to be bound by each other . The corollary is that if there is serious intention between two parties, it would be enough for the promise to be legally enforceable, and traditional consideration as the exchange of benefit from each party will be no longer necessary. More specifically speaking, in contract law, there would be an absurd outcome, “all contractual questions (When is there a contract? What are its contents? Is a contract vitiated? What are the remedies for breach?) would be answered by sole reference to the parties’ serious intentions. The only issue becomes one of fact finding.”

This theory is backed up with the negative autonomy theory which defines freedom as individual choice free from interference from outside world. The problem of this theory is that it was backed up by an absolutist version of individual autonomy, which would lead to absurd and unacceptable outcome. Nozick even argue that an individual was allowed to sell himself into slavery in a true liberal society . In contract law, the absolutist would make any foolish promise to be bound without any mechanism to adjust the past mistake of a party. This theory makes individual autonomy as the sole threshold for contractual liability and thus eliminates the necessity of the considerations. It “confines the state’s role to that of providing the necessary framework for making and upholding transactions, but otherwise to refrain from evaluating the choices made.” Furthermore, it will also put social and domestic agreements, which are traditionally out of the sphere of contract law, under the control of contract law. Mostly, social and domestic agreements are governed by personal trust and morality, which is a complete different sphere from the domain governed by contract law. If all social and domestic agreement, especially the gratuitous promises, were to be made enforceable by law, a chaos of social relationship would emerge and the potential negative influence would be hard to predict. Mindy Chen-Wishart has pointed: “The unenforceability of gratuitous promises ‘helps to define and construct the legal understanding of intimacy, and to mark the dignity and specialness of intimate relationship that distinguishes them from the economic transactions between strangers.” Making gratuitous promise legally enforceable would cause disastrous outcome to the social domain of intimate relationship, the cost of which is hard to afford for the modern society.

(2).Other alternatives can replace the function of consideration?

In Singapore case Gay Choon Ing v. Loh Sze Ti Terence Peter , Andrew Phang J.A made a revolutionary proposal to replace consideration with other doctrines including economic duress, undue influence, unconscionability and promissory estoppel. He gave three reasons for his proposal, the first one is that consideration is a mysterious concept which has been diluted by the acknowledgment of practical benefit as good consideration; the second reason is that all serious intentions should be legally enforceable, which has been discussed above, and the third one is that consideration is meaningless because there are already other alternatives which can perform its function.

According to Andrew Phang J.A, the two more effective substitutes which can replace the consideration are vitiating factors, including economic duress, undue influence and unconscionability and promissory estoppel, which “appear to be more clearly suited not only to modern commercial circumstances but also (more importantly) to situations where there has been possible ‘extortion’ ”

But this proposal is problematic. As Mindy Chen-Wishart observed, the suggestion to replace the consideration with vitiating factors is based on two incorrect assumptions: “consideration is just evidence of serious intention to be bound, and that the vitiating factors relate to the negation of this serious intention” And promissory estoppel is a complete different concept which “concerns a distinctive head of liability (induced reliance rather than purchased expectation)”

The problem of replacing consideration with vitiating factors is that it would limit the theory of duress to concern just about complainants’ internal will, leaving the external factor uninvestigated. It will not only undermine the doctrine of consideration, but also undermine the theory of duress.

The presumption of replacing consideration with vitiating factors is that all serious intentions should be legally enforceable, which means that without effective consent, a promise cannot be enforced. But it’s this corollary caused inconsistence and illogical consequence. Merely with defective consent cannot explain many contract practices under the theory of vitiating factors. Under the theory of duress, sometimes, a promise with consent should nevertheless be excused from the obligation, but sometimes, a promise without sincere consent can still be legally enforceable. Something else besides consent would be needed to explain these scenarios. Similarly, just as Mindy Chen-Wishart stated “undue influence cannot be understood in terms of defective consent.” In Royal Bank of Scotland Plc v. Etridge (No 2) , Lord Nicholls decided that even thought there is a consent, but judge sometime will take is a against claimant’s will and judged this kind of consent as improper. To the theory of unconscionability, Mindy Chen-Wishart said that “Mere undervalue is insufficient, the contract must be overreaching and oppressive or entail such substantial undervalue that it “shocks the conscience of the court”

Therefore, we can conclude that many gaps in practice, which need more schemes and theories to explain, would arises if we replace the doctrine of consideration with these alternatives we discussed above. It is clear that with this revolutionary but immature approach, the contract law in common law will be taken into a chaos of uncertainty and arbitrariness, which is contrary to the original intention of the revolution. (to be continued)

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