The crux of consideration in common law (2)

D. Refining the scope of consideration solve more problems than would generate

Contrary to the school supporting to abolish the doctrine of consideration and replace it with other alternatives, the other school supports to preserve the doctrine of consideration while at the same time, to make some adjustment of the function and scope of consideration to solve the difficulties it met in practice.

This standpoint is consistent with the legal practice in common law. In Chappell & Co v Nestle, the court put forward the “peppercorn principle” illustrating that consideration need not be adequate. In Pao On v Lau Yiu Long , the court decided that the past consideration can be taken as valid consideration if some conditions were fulfilled. In Williams v Roffey Bros & Nicholls (Contractors) Ltd, the court decided that practical benefit can be reviewed as good consideration. In the recent controversial case MWB Business Exchange Centres Ltd v Rock Advertising Ltd , the court moved a more step forward, deciding that part payment can also generate valid consideration. The logic behind this line of cases is that court wish to preserve the dominating status of consideration in contract law by enlarging the scope of connotation of consideration when court encountered cases which cannot be given a proper judgment rigidly adhering to the old doctrine of consideration.

The effort to refine the scope of consideration does not stop. In addition to the court decisions, there are also some academic proposals to modify the doctrine of consideration.

Mindy Chen-Wishart gives us a summary of these proposals to modify the doctrine of consideration: (i).Replacing consideration in contract modification with a test of intention (Antons Trawling v Smith ); (ii).Consideration includes a “good reason for enforcement”; (iii).To retain bargain consideration whilst recognizing other good reasons for non-contractual enforcement; (iv).To add the requirement of formalities in addition to consideration. The logic behind all these proposals is that the refinement of the doctrine of consideration is to correct the potential unfairness of a contract. Unfairness in the bargain process plays a important role in a host of vitiating factors (e.g. misrepresentation, duress, undue influence or unconscionability). All these above refinement of the doctrine of consideration are to protect the territory of consideration not to be eroded too much by the vitiating factors. Moreover, contractual imbalance may be ‘corrected’ by the finding of implied terms or collateral terms or by the invalidation of unfair or unreasonable terms by reference to common law or statute.”

We can infer that all the proposal of refinement of the doctrine of consideration discussed above did solve many practical difficulties while avoiding generating more serious and unacceptable problems like that caused by abolishment of consideration. Theoretically speaking, why it is better to refine the scope of consideration than to abolish it and substitute it with other alternatives? There are mainly three reasons.

(1).Theory of Positive Autonomy

The idea that all serious intentions should be legally enforceable was supported by a negative interpretation of individual autonomy which is the freedom from external interference. But just as we have discussed before, this perspective of autonomy may generate unacceptable outcome and therefore it is better to adopt another positive conception of autonomy, which is to pursue “acceptable and valuable projects and relationships” .It not only respect the individual choice for their promise, but also support state to read law to “create morally valuable opportunities, and to eliminate or discourage repugnant ones” . Under this interpretation of freedom, consideration is as important as serious intentions when reviewing the enforcement of contractual liability.

(2).Empiricism and social form

Mindy Chen-Wishart states that another reason why considerate cannot be replaced is that the law should protect social form. “Our community provides the context of our self-understanding…Contract law’s role is to support this social practice, taking into account the context in which the practice occurs and generally reflecting its social conventions, norms and intuitions.” But her opinion seems fragile because she did not locate the philosophical basis for the importance of “social form” in English common law, which is based on the English Empiricism developed by John Locke, George Berkeley and David Hume. Just as Hume said, “First, that reason alone can never give rise to any original idea, and secondly, that reason, as distinguished from experience, can never make us conclude, that a cause or productive quality is absolutely requisite to every beginning of existence.”

According the theory of English Empiricism, all human knowledge and belief cannot be established exclusively by reasons; they should be based on human experience. And human’s knowledge was limited to the sphere of human experience, and we cannot know anything outside the sphere of human experience. And in contract law, the doctrine of consideration is a principle developed in the long business experience to solve problems which would emerge in current and future business practice. To replace the doctrine of consideration with other alternatives will left contract law being unable to solve the potential problems which was out of the sphere of these alternatives.

(3).Reciprocity and gratuitous gift

The core spirit of the idea of contract as an exchange is the respect of reciprocity. Consideration is an idea developed under the bargain theory, while the serious intention is an idea developed under the will theory. The philosophical basis of bargain theory is “the norm of reciprocity”. “The norm of reciprocity, one of the ‘principal components’ of a universal moral code, is an important concrete expression of the attitude of respect in contracting. Reciprocity is a generalized moral norm, a deep intuition, and the foundation of human interactions. Gouldner refers to extensive anthropological studies, which highlight reciprocity as the basis of the entire social and ethical life of ‘primitive’ civilizations. It is a mutually gratifying pattern of exchange, which fosters mutual dependence and facilitates the division of labour.”

Under the bargain theory, the gratuitous gift should not be controlled by contract law because gratuitous gift was build on trust which has no concerns about the reciprocity and is an illustration of intimate relationship which is a private sphere law should not intrude. If replacing the consideration with serious intentions, then state would have legal basis to intervene with the intimate human relationship. The sacrifice of make gratuitous gift legally enforceable would be far larger than the benefit it will it protect. “Moreover, state enforcement may be counter-productive and exacerbate the problem they were supposed to resolve.” The trust building function of gratuitous gift will be destroyed and a chaos will be created while the bargain theory and will theory are intermingled together, which will loosen in the basic rock of contract law.

Furthermore, in the perspective in economics, reciprocity can promote the social division of labour, make the business transaction more efficient and therefore increase the total wealth fare of human society. This outcome is consistent with the ideal of utilitarianism philosophy which supports the idea the best human action should be that maximize the total utility to the society. “By the principle of utility is meant that principle which approves or disapproves of every action whatsoever according to the tendency it appears to have to augment or diminish the happiness of the party whose interest is in question: or, what is the same thing in other words to promote or to oppose that happiness. I say of every action whatsoever, and therefore not only of every action of a private individual, but of every measure of government.” The corollary would be that abolishing the doctrine of consideration would be equal with abolishing the norm of reciprocity, with the potential outcome of undermining the efficiency of business transaction, decrease the social welfare and impede the maximization of total happiness of human being under the utilitarianism philosophy, which is also the a philosophy ideal developed in the English culture.

After all the discussions above, we can conclude that there is sufficient reason not to abolish the doctrine of consideration and with progressive refinement of the scope of consideration, because this solution can solve urgent problem while not generating another knotty problem.

E. legal paternalism and a prospective solution

All the previous debates regarding the status quo and future of the doctrine of consideration ignore to do a historical analysis of the evolution of the doctrine of consideration and the alternatives which were proposed to be eligible to replace the doctrine of consideration. Actually, the doctrine of consideration and vitiating factors and promissory estoppel do not evolve exclusively but developed complementarily.

Following the doctrine of stare decisis, the contract law under the common law has developed into a cluster of dogmatic principles which would generate unjust outcome in practice. And this is the reason equity come into play its special role to correct the injustice caused by common law. In contract law, it is the equity principle of undue influence, duress, unconscionability and promissory estoppels plays the role to rectify the unacceptable outcome of the common law in contract. After a very long time during which the common law court and court of chancery (court of equity) worked independently from each other, the two courts fused together in later 19th century.

Even though in procedure it has been many decades since the fusion of the common law court and Court of Chancery, the doctrine of common law and equity still operates independently and the rivalry between them about who is entitled to dominate the spirit of law never stops. This rivalry is illustrated in the proposal to abolish the consideration and replace it with all these alternatives including duress, undue influence and promissory estoppel, which are all equity principle. Therefore, the inherent motive of replacing consideration with all the alternatives is to replace the common law principle with equity principle.

But the problem is that the scope of consideration in common law and the principles in equity do not completely overlap with each other. More specifically speaking, as illustrated in previous discussion in this essay, the scope of the doctrine of consideration is larger than the scope of these alternatives, therefore, to replace the consideration with these alternatives will generate more problems than it can solve, it will leave more practical problems unable to solve. The fundamental cause of this unacceptable outcome is the presumption that the principle in common law and that in equity are competing with each and no room was left for the fusion of the two clusters of principles which are both fundamental pillars in the contract law.

But on the hand, the equity principle is an illustration of legal paternalism in contract law because the principle other than consideration is needed to correct the excessive and unreasonable selfishness to make exchange between strangers in business world more efficient while minimizing the unfairness in the exchange. Abolishing the consideration will make function of legal paternalism void. So an ideal solution is to keep the function of legal paternalism by integrating these alternatives into the scope of consideration.

Under the legal paternalism, the more reasonable direction for contract law should be to purse the substantive fusion of the common law principle and equity principle, instead of continuing the rivalry between the two. To integrate the equity principle into the consideration should be one better option, just like the Court of Chancery was merged into the common law court, it is not infeasible. It would not only get through the wide gap between common law and equity, but also increase the legal efficiency in solving the complex contract problems in modern business world.

A prospective proposal for the fusion of the consideration and vitiating factors and promissory estoppels is the reconstruction of contract formation as pre-contract activities and contract itself. The principle of economic duress, undue influence, unconscionability and promissory estoppel would play their function to correct injustice during the negotiating process to form a contract. One the other hand, the doctrine of consideration will continue to govern the legal effect of a contract.

An important issue is that whether the idea of contract as exchange has to be preserved. The answer is positive. As has been discussed in previous sections, the exchanged theory is built on the philosophy norm of reciprocity; in contract law this theory is called bargain theory and it is the basis of the doctrine of consideration. Some critics stated that this feature was diluted when court treated the practical benefit as good consideration (Williams v Roffey Bros & Nicholls (Contractors) Ltd). But in this case, under a two contracts analysis we can infer that the modification of the contract is actually supported by consideration and this decision does not contravene with the idea of exchange. According to Mindy Chen-Wishart, “the receipt of actual performance or part performance may well give the promisor more than she had before” , which means that the performance itself can also be treated as consideration because get actual performance is better than mere legal right to sue. Even though in Chappell & Co v Nestle, there was still a bargain, just as Lord Reid said “Nestle Co. is using these records to increase their sales of chocolate. It looks like a bargain. The requirement that wrappers should be sent was of great importance to the Nestel Co.” Therefore, the bargain theory does not, contrary to what the anti-consideration group thought, suffer from detrimental undermining in these cases. There is no reason to abandon the basic presumption of contract. And what’s more, with the new proposal of the fusion of the doctrine of consideration and equity principle, the bargain and exchange will not collide with the application of other equity principles.

F.The conclusion

The conclusion is that, at least now, the doctrine of consideration should not be abolished because among all the available options, the doctrine of consideration is still the best option among many alternatives. Even thought Andrew Phang J.A, who declared “the Coda on Consideration” , stated that “maintenance of the status quo…may well be the most practical solution inasmuch as it will afford the courts a range of legal options to achieve a just and fair result in the case concerned…[notwithstanding] problems of theoretical coherence.” Mindy Chen-Wishart also said that: “we can resolve the most glaring target of criticism within the doctrine itself, without artificiality or deviation from the core idea of contract as exchange.”

But this does not mean that preserving consideration with refinement of its scope is the final stage of the ongoing debate about the destiny of consideration. Regarding to the future of the consideration doctrine, my conclusion is that the final solution is to integrate the proposed alternatives into the scope of consideration, only through this true fusion of the common law principle and equity principle can finalize the debate about whether or not to abolish the doctrine of consideration.

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