Promissory Estoppel and Consideration: Limited Impact in Contract Law

Origins and Development of Promissory Estoppel

In the High Trees case, Denning J. observed that promissory estoppel will apply under circumstances in which a promise made by the promisor is clearly and unambiguously intended to create legal relations, is expected to be acted upon by the promisee, and has in fact been acted upon. The rights of the debtor to collect the full sum of the debt will be temporarily suspended despite the absence of any consideration. This obiter dictum, however, has been much debated in subsequent cases.

The doctrine of promissory estoppel is based on the doctrine of waiver. The case Hughes v. Metropolitan Railway Co. established that in order to rely on promissory estoppel, the promisor must show that there is objectively a clear promise intended to alter the contracted obligation. This is an equity remedy to counter the harshness of the doctrine of consideration, because in some circumstances it would be inequitable (while Lord Tenterden in Welby v. Drake regarded this action as fraud) for the promisor to go back on a promise to accept part payment. As Stone, Devenney, and Cunningham (2011) note, the doctrine derived from High Trees, which has become known as promissory estoppel, has developed in a way that means it has only limited impact on the doctrine of consideration.

The Doctrine of Consideration in Common Law

The doctrine of consideration has been part of common law for a long period of time. If the parties to a contract did not mutually agree on all the terms in the agreement, then the agreement is void according to the doctrine. Consideration is the price in exchange for a promise. It was viewed as the good reason for contractual enforcement. The doctrine is confirmed by cases such as Foakes v. Beer and Pinnel's Case. Both cases established that an agreement to accept part payment of a debt to forgo the remainder of the debt is unenforceable. This is because no particular consideration was given to the creditors as they did not receive a benefit in return.

Limitations of Promissory Estoppel

The High Trees decisions have indeed impacted the doctrine of consideration; however, to a large extent, the impact is limited. The limitations of promissory estoppel provide a means to reconciling the doctrines of consideration and equitable relief, allowing courts to address situations where strict adherence to consideration would produce unjust results.

First, the doctrine of promissory estoppel is suspensory and not extinctive, thus its impact on consideration is limited. In Tool Metal Manufacturing Co. Ltd. v. Tungsten Electric Co. Ltd., the House of Lords observed that the promise of receiving part payment in full satisfaction could be reverted by the owner, given that there is reasonable notice to the borrower. The notion of suspension must apply especially in cases with continuous contractual relations, for example rent paid to a landlord. The effect of promissory estoppel is temporary and it can be canceled if the parties consent to do so. The creditor is not estopped from claiming the balance at a later date.

Second, the doctrine of promissory estoppel only applies when it is inequitable for the creditor to go back on his words and seek the full sum of the debt; therefore, its impact on consideration is limited. In the case of D & C Builders v. Rees, the courts held that under circumstances of threats, economic duress, or fraud, promissory estoppel will not apply as it is inequitable to do so. Moreover, for promissory estoppel to arise, the promisee must rely on the promise. The promisee must show that he or she will be in a worse position if the promise was never made. This is because the fundamental principle of the doctrine is that harm must be done when the promisors go back on their words (unless there is no way to restore the promisee to his original position). In Emmanuel Ayodeji Ajayi v. R. T. Briscoe (Nigeria) Ltd. and Morrow v. Carty, it was held that for the promisee to bring an action, detriment is essential—the promisee must be worse off.

Third, promissory estoppel's impact on consideration was limited because it only applies when the promise is clear, precise, unambiguous, and unequivocal. There must be a strong indication of the intention of the promisor not to enforce the promise on the promisee. When the language is imprecise, the doctrine will not apply. This is reflected in the case of Woodhouse.

Fourth, the doctrine cannot raise an action, so its effect on consideration is limited. The principle laid out in Combe v. Combe is that the doctrine cannot be used to bring an action. However, Collier v. P & M J Wright (Holdings) Ltd. attempted to challenge this principle. Arden L.J. held that where a promisor (creditor) agrees to accept part payment, the reliance of the debtor is sufficient when he relies on the promise that he can part-pay. The decision was not widely accepted as a critical issue with the doctrine was found—namely, that part payment is not genuine reliance. Longmore L.J. showed disagreement and stressed the need to show real reliance. He stated that "if this position is sustained, the court should go slow to find a promise to forgo rights." Marco C.J. explained the court should do "what is required, but no more" to prevent detriment to the promisee. This shows that in most cases, promissory estoppel cannot bring an action, so it has limited impact on consideration. Longmore L.J. was more cautious than Arden L.J. and stressed the need for "meaningful reliance."

Based on the limitations of the doctrine, we can see that it has little predictive or explanatory power, and judges' discussions of promissory estoppel are often incoherent. In contrast, consideration is a more certain and well-established doctrine. Promissory estoppel expanded the scope of consideration and allows a more flexible remedy, but it does so only by creating exceptions to it, and it does not replace consideration automatically. The doctrine of consideration was still recognized as good law after the decision of the High Trees cases. The fact that precedents bind lower courts ensured that the doctrine of consideration was to be followed. This is reflected in subsequent cases, like Vanbergen v. St. Edmunds Properties Ltd., Re Selectmove Ltd., Ward v. Byham, and Williams v. Roffey.

In Williams v. Roffey, the court found that the defendants had obtained a practical benefit by virtue of the claimants' promise to complete the work on time. That particular benefit was identified as the consideration of the contract. In Ward v. Byham, the court also found consideration by stating that the mother did more than her legal duty because she kept her child happy. Lord Denning (though his opinion is a minority one) held that if benefit is involved, the performance of legal duty can be good consideration as well. This showed the readiness of the court to apply consideration, and promissory estoppel is only applicable where strict tests have been met.

The Coexistence of Both Doctrines

However, to a small extent, promissory estoppel has impacted the doctrine of consideration. The doctrine of consideration was criticized for being under-inclusive in failing to protect some promises that were intended to be legally binding, and promissory estoppel upholds the idea of intention to create legal relations and equitable relief may be more appropriate in cases like Hughes v. Metropolitan Railway Co. We can also see that the scope of the doctrine is widening (the wider the scope, the more it impacts consideration) in Alan v. El Nasr, where it was held that detriment is not necessary. The claimant only needs to show that his or her position was altered. The absence of real detrimental reliance in promissory estoppel cases may be expanding to all promissory estoppel cases. For instance, Henderson acknowledges the expansion of promissory estoppel into the bargain area of contract. Though we can see that promissory estoppel is expanding its influence, it is a far cry from saying that the doctrine of consideration has been abolished completely.

The preferable view is that the two doctrines may not be conflicting, as the nature of remedy between promissory estoppel and consideration is different. Consideration enforces the whole contract in order to remedy the promisee and meet his or her full expectations. In contrast, promissory estoppel avoids detriment when the promisor goes back on his words and is a protection of the reliance interest of the promisee. It is also noted that the doctrine can be viewed as only applicable in contract modification or the enforcement of subsisting promises, but not in the formation of a contract. Promissory estoppel should be non-contractual in nature and cannot automatically lead to the enforcement of a contract. It complies with the formalities requirements in respect to an agreement supported by consideration. Therefore, it is arguable that promissory estoppel has limited impact on the doctrine of consideration, given that they are not entirely contradictory.

Conclusion: Limited but Meaningful Impact

Promissory estoppel did provide an exception to the doctrine of consideration, but the impact is limited. The High Court of Australia concluded that there is no inconsistency between the two doctrines, and the decision was followed in Baird. As observed by scholars, "the doctrine of consideration is still an established part of the common law landscape." The doctrine should be applied when promissory estoppel would be unjust. While the doctrine of consideration is essential to the elements of contract, the doctrine of promissory estoppel can be used to defend against unjust actions, functioning as a complementary equitable remedy rather than a fundamental reformation of contractual doctrine.