The Place of the Doctrine of Consideration in Modern-day Contract Law Introduction The common law, as Wright deliberates, 1 has long upheld the requirement of something external to the agreement in itself for a contract to be legally enforceable (albeit with the exceptions of agreement in the form of a deed and in certain circumstances where promissory estoppel operates such as in Walton Stores (interstate) Ltd V Maher); 2 something both unprejudiced and practical, outside motive, desire and incentive – elements all contradictory to mutuality. Consideration – in its ultimate simplicity, the promise of something of value in return for a promise – is the common law’s answer. The price must need not be money; something of value will suffice. This may equate to the promise of an act to do (as in the case of Carlill v Carbolic Smoke Ball Co (1893) 1 QB 256),3 or not do something; a detriment to the promisee; a benefit flowing to the promisor or a third party at their direction (for example: offering to mow A’s lawn if they pay $10 to C); or refraining from doing something (giving D $2 to stop talking). Since Rann v Hughes (1778) 101 ER 1014, 4 the support of consideration has been required in all simple contracts. In Eastwood v Kenyon (1840) 11 Ad & E1 438,5 this was backed when it was ruled that moral obligation alone is not sufficient consideration. However, the source of consideration is not the focus of this essay – rather its place in modern-day law. Consideration is described by as Llewllyn as “a vast, sprawling field, with parts of its roots hopelessly intertangled with other roots from other phases of our law.’ 6 This essay examines whether this complex doctrine is archaic and outgrown; a technicality that exists merely as an artefact of the historical development of contract. As Wright so puts it: ‘rules of law must be prepared to justify themselves against attacks, and cannot shelter behind antiquity or 1 Wright, "Ought The Doctrine Of Consideration To Be Abolished From The Common Law?" (1936) 49 Harvard Law Review 2 Walton Stores (interstate) Ltd v Maher (1988) HCA 7 Carlill v Carbolic Smoke Ball Co (1893) 1 QB 256 3 4 Rann v Hughes (1778) 101 ER 1014 Eastwood v Kenyon (1840) 11 Ad & E1 438 6 K. N. Llewellyn, "Common-Law Reform of Consideration: Are There Measures?" (1941) 41 Columbia Law Review. 5 prescription,’7 and it is only appropriate that the doctrine of consideration, long criticised in a broad sense, 8 be subjected to such scrutiny when deliberating its adequacy for the current legal environment. Relevant case authorities and various sources are drawn on with the benefits being observed firstly, followed by a discussion of the main criticisms. These are weighed against each other and the main conclusion found is that the doctrine of consideration is indeed, in its twilight years, and a number of possible options for reform are outlined. However, it is emphasized that mindfulness must be practiced in the context of such a reform. Justifications for the Doctrine of Consideration There are substantial criticisms of consideration which will be explored later in this essay, however the justifications must also be noted and as Gamage explains, these generally fall within two broad groups: 9 Under the first of these, a belief that the doctrine offers a mechanism for determining parties’ intentions is held. This creates a proverbial hoop that must be jumped through, allowing clear visibility of which promises are intended to form legal obligations. This, however, does raise the question of why consideration specifically need be used in order to regulate which promises are intended to be legally binding: could this desire not be declared so simply in writing? 10 Posner further clarifies: There is no reason to require parties to recite a consideration as opposed to reciting that they want their promise to be enforceable. Efforts to rationalize this practice as a way of ensuring that courts can distinguish enforceable and unenforceable promises fail because they do not explain the 'form' of the formality.11 7 Above, n 1. 8 Above, n 1. David Gamage, ‘Commodification and Contract Formation: Placing the Consideration Doctrine on Stronger Foundations’ (2006)Berkeley Law Scholarship Repository, 1300. 10 Ibid 1301. 11 Eric A. Posner, "Economic Analysis Of Contract Law After Three Decades: Success Or Failure?" (2003)University of Chicago Law School, 850-851 9 It should be noted that in Australian law some flexibility has evolved, allowing the court to take into account the judge’s own views of a case’s merits. This deviates from the traditional obligation of remaining firmly in accordance with the legal rules. An example of this can be seen in the doctrine of promissory estoppel, allowing gratuitous promises to be enforced in the event they have been relied upon and it would be unconscionable for the promisor to not be bound. Returning to the second camp concerned with the justification of consideration, substantive theorists, view the doctrine of consideration as a means for separating unilateral promises from exchanges. The argument here is that a unilateral promise signifies something less socially appreciated than those made as part of a bilateral exchange (where a unilateral contract is enforceable from the time someone chooses to begin to fulfil the act, a bilateral contract is immediately enforceable with both parties being bound). Only true exchange promises are believed worthy of legal enforcement – no contemplation is given to the actual intentions of the parties or the steps taken to communicate their desire to form a legally binding obligation. 12 Criticisms of the Doctrine of Consideration The doctrine of consideration has faced increasing scrutiny over the years, with many deeming its existence artificial, unnecessary, and inherently dysfunctional – so much that it is widely suggested its abolishment would only serve to greatly enhance the rationality of contract law.13 Professor Burrows concluded that: The law would be rendered more intelligible and clear if the need for consideration were abolished and gratuitous promises which have been accepted or relied on were held to be binding (subject to the operation of normal contractual rules relating to, for example, the intention to create legal relations, duress, and illegality).14 The very nature of the definition of consideration itself and its scope is wrought with inconsistency, allowing a worrisome leeway when determining the enforceability of a promise. Rodell goes as far as to say the doctrine is an ‘enormous and shapeless grab bag, so full of unrelated particulars that it is just 12 Above, n 8. 13 Zhuoyan Xie, ‘Owards a Normative Basis of the Doctrine of Consideration’ (Master of Laws Thesis, University of Toronto, 2010). 14 A. S Burrows, Understanding The Law Of Obligations (Hart, 1998). as meaningless and just as useless as it was before’. 15As Chen-Wishart states, this instability is reinforced by the rule that consideration need not be adequate.16 To elaborate further on this, if the rules of consideration are adhered to strictly, agreements can be enforced or avoided with disregard to their practical merits; for example, while in substance they are essentially the same, an agreement to exchange a car for something of only nominal value can be enforced, whereas an agreement to do so alone is not. 17 Criticism of this rule can be found as far back as 1881 in Couldery v Bartrum, where Jessel said: According to English Common Law a creditor may accept anything in satisfaction of his debt except a less amount of money. He might take a horse, or a canary or a tom-tit if he chose, and that was the accord and satisfaction; but by a most extraordinary peculiarity he could not take 19s 6d in the pound; that was nadum pactum18 Three years later in Foakes v Beer, The Lord Chancellor, the Earl of Selborne, gave the leading judgement: The doctrine itself, as laid down by Sir Edward Coke, may have been criticised, as questionable in principle, by some persons whose opinions are entitled to respect, but it has never been judicially overruled; on the contrary I think it has always, since the sixteenth century, been accepted as law. If so, I cannot think that your Lordships would do right, if you were now to reverse, as erroneous, a judgment of the Court of Appeal, proceeding upon a doctrine which has been accepted as part of the law for 280 years.19 Conflicting with this case was Williams v Roffey Bros. and Nicholls, which found valid consideration in the performance or promise to perform an existing contractual obligation where it deliberates the promisor a ‘practical benefit’. 15 Fred Rodell, Woe Unto You, Lawyers! (Fred B Rothman & Co, 1939), 19. 16 Mindy Chen-Wishart, Contract Law (Oxford University Press, 4th ed, 2012). 17 Philip Clarke and Julia Clarke, Contract Law: Commentaries, Cases and Perspectives (Oxford, 2nd ed, 2012)145. 18 19 Couldery v Bartrum (1880) 19 Ch. D. 394 Foakes v Beer  UKHL 1 The indeterminate latitude of ‘practical benefit’ and the tendency of courts to imply consideration into cases has served to add another source of criticism over consideration. The decision in William v Roffey Bros. and Nicholls was controversial, as in the past, consideration wasn’t deemed ‘good’ when referring to the completion of pre-existing duties. Another case demonstrating a result seemingly running against the grain of some of the most rudimentary principles of consideration, and one often discussed with Williams v Roffey Bros. and Nicholls, is Central London Property Trust Ltd v High Trees House Ltd (1947) KB 13020 With ever-increasing globalisation and international trade, abandoning the requirement for consideration would also act to harmonise: ‘unification rather than diversification should be an important objective of contract law reform.’ 21 With consideration not being a common feature of all legal systems – notably unrecognized in countries under a civil law structure – such a reform would alleviate trading barriers and promote competitive advantage. It should be noted that countries operating without the requirement of consideration built into their legal framework have no functional issues because of it. As Professor Coote notes ‘ the idea that consideration is essential to the very notion of a contract is a typical common law concept, but it is quite untrue,’ continuing, ‘ if it were true, common law countries would be the only ones who knew what a contract was.’ 22 On this topic, Wright deliberates that numerous tribunals which administer laws other than the common law, such as the laws of South Africa and Ceylon who use Roman Dutch law, and France, Germany, Italy, Spain, and Japan have no place for consideration. Another argument against the doctrine is that it does not serve any purpose that isn’t already covered by the requirement that parties must have reached an agreement and intended it to be binding. 20 Central London Property Trust Ltd v High Trees House Ltd (1947) KB 130 21 Zhixiong Liao, ‘Intention to Create Legal Relations and the Reform of Contract Law: A Conservative Approach in the Modern Global Era’ (2013) 14 (2) Beijing Law Review 82, 91. 22 B Coote, ‘Contract—An Underview’ (1995) Wellington: Legal Research Foundation, 22. Conclusion As presented in the previous sections of this essay, there is little compelling justification for the doctrine of consideration in modern-day law; with the criticisms far outweighing the justifications and the two main groups in defence of it often in conflict. The result is manifested as further uncertainty and confusion, with courts failing to provide consistent application of the rule of consideration – part of this can be drawn from their own foggy understanding. Consideration is simply unnecessary as a way of proving intention to create a legally binding agreement. While it is straightforward to point out the flaws the doctrine of consideration presents, the notion of a complete reform is certainly an ambitious one and outright abolishment would result in its own significant confusion. The answer to this is a gradual reform of current contract law, with the aim of theoretical uniformity; stability; and taking into particular account our major trading partner, China, who currently do not recognize consideration; international consistency. Some possible options for reform could include replacing consideration with a test of intentions, the redefinition of consideration as any sound reason for enforcement, and expanding the existing operation of promissory estoppel. References A – Articles/Books/Reports Burrows, A. S, Understanding The Law Of Obligations (Hart, 1998) Chen-Wishart, Mindy, Contract Law (Oxford University Press, 4th ed, 2012) Clarke, P and Clarke, J, Contract Law: Commentaries, Cases and Perspectives (Oxford, 2 nd ed, 2012)145. Coote, B, ‘Contract—An Underview’ (1995) Wellington: Legal Research Foundation, 22. Gamage, D. ‘Commodification and Contract Formation: Placing the Consideration Doctrine on Stronger Foundations’ (2006)Berkeley Law Scholarship Repository, 1300. K. N. Llewellyn, "Common-Law Reform of Consideration: Are There Measures?" (1941) 41 Columbia Law Review. Liao, Z, ‘Intention to Create Legal Relations and the Reform of Contract Law: A Conservative Approach in the Modern Global Era’ (2013) 14 (2) Beijing Law Review 82, 91. Posner, Eric A,"Economic Analysis Of Contract Law After Three Decades: Success Or Failure?" (2003)University of Chicago Law School, 850-851 Rodell, F, Woe Unto You, Lawyers! (Fred B Rothman & Co, 1939), 19. Svantesson, Dan J B, ‘Codyfing Australia’s Contract Law – Time for a Stocktake in the Common Law Factory’ (2008) 20(2) Bond Law Review 1, 10. Wright, "Ought The Doctrine Of Consideration To Be Abolished From The Common Law?" (1936) 49 Harvard Law Review Xie. Z, ‘Owards a Normative Basis of the Doctrine of Consideration’ (Master of Laws Thesis, University of Toronto, 2010). B – Cases Carlill v Carbolic Smoke Ball Co (1893) 1 QB 256 Central London Property Trust Ltd v High Trees House Ltd (1947) KB 130 Couldery v Bartrum (1880) 19 Ch. D. 394 Eastwood v Kenyon (1840) 11 Ad & E1 438 Walton Stores (interstate) Ltd v Maher (1988) HCA 7 Rann v Hughes (1778) 101 ER 1014 Foakes v Beer (1884) UKHL 1
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