NOTES OF CASES
| Published date | 01 January 1975 |
| DOI | http://doi.org/10.1111/j.1468-2230.1975.tb01402.x |
| Date | 01 January 1975 |
NOTES
OF
CASES
CONSIDERATION
AND
ESTOPPEL:
THE THAWING
OF
THE
ICE
THERE
are signs that the polar ice which has for
so
long encrusted the
doctrine of consideration is beginning to thaw, and this is true even
of
the somewhat younger relationship between consideration and
promissory estoppel.
In
my
Consideration in Contracts
I
suggested
that the whole doctrine of promissory estoppel was founded on the
mistaken assumption that
a
promise which is acted on in a manner
intended, or at least foreseen by the promisor, is not, of itself,
enforceable as
a
binding contract.
I
there suggested that this was due
to a misreading of the early nineteenth century cases, and that
promises
so
acted upon could have been held
to
be given for
consideration, and thus enforceable
as
contracts.
I
went on to say,
however, that it was probably too late now for the law to retrace
its
steps, and excise the whole doctrine of promissory estoppel. Two
recent cases have made me think that
I
may have been unduly
pessimistic.
The first case, which is really nothing more than
a
straw in
a
gentle
breeze, apart from some dicta by Lord Hailsham, is
Woodhouse A.C.
Israel Cocoa Ltd.
v.
Nigerian Produce Marketing
Co.
Ltd.' The case
concerned a number of contracts by Nigerian sellers for the sale of
cocoa to English buyers at
a
price payable in Nigerian pounds.
Shortly before the devaluation of sterling in
1967
the parties agreed,
by an exchange of letters, that the buyers could pay the price in
sterling in Lagos, but after devaluation a dispute arose as to the effect
of the correspondence. The buyers claimed that the contracts had
been varied
so
that they were permitted to pay in sterling, at the rate
of one pound sterling to one Nigerian pound, which had been the rate
prevailing prior to devaluation. The sellers claimed, however, that the
letters merely permitted an alteration in the place and currency
of
payment, but not in amount, and that therefore the buyers would
have to provide sufficient sterling to purchase the requisite number
of
Nigerian pounds. The buyers also argued that the letters, if not
sufficient to vary the original contracts, were sufficient to support
a
defence of promissory estoppel. At first instance, Roskill
J.
held that
the letters did not amount to a variation of the contract, but were
sufficient to raise
a
defence
of
promissory estoppel. Although the
sellers had not intended to vary the terms of the agreement in the
way sought by the buyers, he held that the buyers had not
unreasonably misunderstood the sellers' intentions. In the Court
of
Appeal this decision was reversed, and Lord Denning
M.R.
pointed
out that it would be an extraordinary consequence if
a
letter which
was not sufficient to vary
a
contract was held sufficient to work an
estoppel which would have the same effect
as
a
variation.
[1972]
A.C.
741
65
VOL.
38
(1)
3
66
THE MODERN LAW REVIEW
[Vol.
38
An appeal to the House of Lords by the buyers was dismissed. Lord
Hailsham shared Lord Denning’s incredulity at the suggested
distinction between a variation and an estoppel.
“
It would really be
an astonishing thing,”
he
said,* “if, in the case of a genuine
misunderstanding as to the meaning of an offer, the offeree could
obtain by means of the doctrine of promissory estoppel something
that he must fail to obtain under the conventional law of contract.”
He went on to add,
“
But basically
I
feel convinced that there was
never here any real room for the doctrine of estoppel at all.
If
the
exchange letter was not a variation,
I
believe it was nothing.” Then
we come to the nub
of
the matter. Why is this not equally true of
every case in which promissory estoppel is set up as
a
defence?
If
a
promise does not support a variation
(or
sometimes, a complete
release) why should it be enforceable through estoppel? The
conventional answer, of course, has been that promises
of
this kind
are often not enforceable as variations because
of
the absence of
consideration, but this difficulty did not seem to bother Lord
Hailsham, at least on the facts of this case.
“
If
the proposal meant what they [the buyers] claimed, and was
accepted and acted on,
I
venture to think that the respondents
[the sellers] would have been bound
by
their acceptance at
least until they gave reasonable notice to terminate, and
I
imagine that a modern court would have found no difficulty in
discovering consideration for such a promise. Businessmen
know their own business best even when they appear to grant an
indulgence, and in the present case
I
do not think there would
have been insuperable difficulty in spelling out consideration for
such a promise.”
It will be seen that Lord Hailsham contemplated that even if the
promise was binding as a contractual variation, it might still have
been open to the sellers to terminate the indulgence by giving
reasonable notice. This must mean that Lord Hailsham was prepared
to envisage that, as a matter of construction, the promise was not
intended to be wholly irrevocable. Hitherto it has often been thought
that one
of
the significant differences between the effects of a
contractual variation and of promissory estoppel has been that the
former is irrevocably binding, while the latter may
be
terminable on
notice. It is good to see the rejection of this suggestion. Whether the
indulgence should be completely irrevocable
or
not should depend on
construction rather than on the artificial distinction
(if
it is to survive
at all) between
a
binding contractual variation, and a promise
enforceable by way of promissory estoppel. Flexible use
of
the
construction process is much more likely to achieve just results in
this sort of case. But it will be noticed that with the disappearance
of
this suggested distinction between contractual variation and
2
[
19721
A.C.
at
p.
757.
3
[
19721
A.C.
at
pp.
757-758.
Jan. 19751
NOTES
OF
CASES
67
promissory estoppel, the case for the need for estoppel becomes
somewhat thin.
The more recent case is
Re Wyvern Developments Ltd.4
which is
one of those simple cases made to
look
difficult by counsel and court.
The case concerned a company,
W,
which had contracted to buy
some land from another company,
G,
for some
€20,000,
but had
defaulted in the payment of the price and was now in liquidation. The
Official Receiver was liquidator. The
G
company had an unpaid
vendor’s lien on the land which they proposed to sell, but as
W
had
contracted to buy it,
G
could not sell the land without an order of the
court unless the Official Receiver (on behalf of
W)
joined in the
conveyance. The Official Receiver’s practice in such cases was to join
in the conveyance if he was satisfied that the price was a proper one.
After some difficulty
G
eventually found
a
buyer willing to pay
€16,000
for the land, and the Official Receiver wrote to
G
saying he
would be prepared to join in the conveyance. In reliance on this
assurance
G
entered into a contract to sell the land at that price. The
majority shareholder in
W
then appeared on the scene, claiming that
the agreed price was far too low, and she adduced some evidence of
offers to buy the land at prices much in excess of
€16,000.
She applied
to the court for an order restraining the Official Receiver from
joining in the conveyance by
G.
The case was fought
on
the footing
that the court could not
so
restrain the Official Receiver
if
he was
contractually bound to join in the conveyance, and the question
therefore was whether he was
so
bound. This was treated as raising
problems with the doctrine of consideration.
This is surprising because even on the strict orthodox view it is
difficult to see why this promise should not have been binding.
G
had
clearly acted to its detriment
in
reliance on the promise, as the
Official Receiver
knew
it would, and indeed, there was an element
of
benefit to the Official Receiver in the transaction. Although the price
would not discharge the lien,
so
that
W
would not receive any of it,
the price would nevertheless go to reduce
W’s
indebtedness to
G.
On
any view, therefore, it is hard to see why there should have been any
problem. But the case was not apparently considered from this
angle, though the learned judge found at least three reasons for
holding the promise binding. First, he held that there was in effect a
tripartite arrangement between
W
(acting through the Official
Receiver),
G
and the buyer of the land. Since the Official Receiver
had authorised
G
to enter into the contract to sell the land, he had in
effect made
W
a party to the contract, and on “well established
principles
”
it was unnecessary to show any benefit to
W.
Secondly,
there is a somewhat tortuous holding that
W
did receive some benefit
from
G’s
implied promise not to apply to the court for an order for
sale, since such an application might have resulted in
G’s
being
allowed to add its costs onto the lien. There was some difficulty about
4
[
19741
1
W.L.R.
1097.
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