
- •1 The concept of promise
- •1. What is a promise?
- •(a) A definition of promise
- •(b) Promise: objectively existing phenomenon or human construction?
- •(c) Testing component elements of the definition of promise
- •(i) A promise is more than merely an internal mental process: promises as speech acts demonstrating commitment
- •(ii) A promise is a commitment to a performance of the promisor
- •(iv) A promise must relate to the future
- •(v) A promise must state a commitment in favour of another party
- •(vi) Things which are not components of the definition
- •2. Three crucial qualities of relevance to promises: gratuitousness, conditionality, unilaterality
- •(a) Gratuitousness
- •(b) Conditionality
- •(c) Unilaterality
- •3. Acts having some similarity to, but which are distinct from, promises
- •(a) Vows
- •(b) Oaths
- •(c) Threats
- •(d) Donation (gift)
- •(e) Warranties (guarantees)
- •(f) Agreement
- •4. Promise as a culturally universal and significant idea
- •5. Preliminary conclusions
- •2 Promises as obligations: morality and law
- •1. Introduction: promise as a type of obligation
- •2. Taxonomies of obligations in morality and law
- •3. Promises as moral obligations: the practice of promising
- •(a) Promising as moral, immoral, or amoral?
- •(b) Source of the morality of the practice of promising
- •(i) Promising as a virtuous act; the natural law tradition
- •Scripture
- •The canon law
- •Objections to the morality of promising as having a natural law/virtue basis
- •(ii) Promising as an act of the will: respect for personal autonomy
- •(iii) The ‘contract theory’ of promising
- •(iv) Consequentialism (utilitarianism)
- •(v) Reliance theory
- •A more limited role for reliance
- •(vi) Conclusion on the competing theories of the moral value of promises
- •4. Powers and sanctions relevant to breach of morally binding promises
- •3 The historical development of promissory ideas in the law
- •1. Roman law
- •(a) Formal contracts: the stipulatio
- •(b) Informal contracts
- •(c) Conclusion on Roman law
- •2. Medieval contract law
- •(a) Continental legal thought
- •(b) English law
- •(i) Debt
- •(ii) Covenant
- •(iii) Unilaterality and bilaterality in early English contract law
- •(iv) Assumpsit
- •(v) The doctrine of consideration
- •3. The Northern natural law school
- •(a) Hugo Grotius
- •(b) Samuel von Pufendorf
- •(c) James Dalrymple (Viscount Stair)
- •4. Eighteenth and nineteenth centuries
- •(a) English law
- •(b) Scots law
- •(c) Civilian systems
- •(i) German law
- •(ii) Robert Pothier
- •5. Contract theory and practice in the twentieth century
- •6. A revitalised will theory
- •4 Formation of contract
- •1. Wasted pre-contractual expenditure following termination of contract negotiations
- •(a) A Common law solution to the problem of pre-contractual expenditure: promissory and proprietary estoppel
- •(i) Promissory estoppel: promissory or reliance-based principle?
- •(ii) Promissory estoppel and failed contractual negotiations
- •(iii) Proprietary estoppel and failed contractual negotiations
- •(iv) Conclusion on estoppel and pre-contractual expenditure
- •(b) A civilian solution to wasted pre-contractual expenditure: culpa in contrahendo and bad faith termination of contractual negotiations
- •(c) A mixed legal system solution to wasted pre-contractual expenditure: liability from an implied assurance that a valid contract exists
- •(d) Other solutions to the problem of pre-contractual liability
- •(e) Conclusion on pre-contractual liability
- •2. Pre-contractual duties of disclosure
- •3. Offer and acceptance
- •(a) Offer and acceptance as conditional promise
- •(b) The traditional offer and acceptance model as a unilateral dictation of terms
- •(c) Distinguishing offer from conditional promise
- •(d) Problem cases for a promissory analysis of offer and acceptance
- •(e) Conceiving of offers as binding
- •4. Enforcement of auction/tender conditions
- •5. The firm or irrevocable offer
- •(a) Characterising the firm offer
- •(b) Promises of reward
- •6. Options
- •7. Letters of intent and preliminary contracts
- •(a) An intent to contract
- •(b) A preliminary contract, envisaging a further contract
- •(c) An expectation of a formal contract
- •(d) An expression of intention to do something other than contract
- •(e) A genuine unilateral promissory intention
- •8. Error in formation of contract
- •(a) Choosing the policies which inform the rules on error
- •(b) Constructing workable classifications which implement the policies chosen
- •(i) Roman Law
- •(ii) The Common law
- •(iii) The mixed legal systems
- •(iv) German law
- •(v) An ideal approach to promissory error?
- •9. Extortion in the formation of contract
- •(a) English law
- •(b) The mixed legal systems
- •(c) German law
- •(d) Conclusion on extortion
- •10. Implied terms
- •11. Consideration
- •(a) The Common law
- •(b) The mixed legal systems
- •(c) German law
- •(d) Model law
- •12. Requirements of form: unwarranted restrictions on promising?
- •5 Third party rights
- •1. The challenge to third party rights in contract
- •2. The historical legal background
- •3. Third party rights in modern contract law
- •(a) The Common law
- •(b) The mixed legal systems
- •(c) German law
- •(d) Model law
- •(e) Conclusion on third party rights under contract
- •4. Assignment
- •(a) English law
- •(b) The mixed legal systems
- •(c) German law
- •(d) Model law
- •5. The problem of transferred loss
- •(a) English law
- •(b) The mixed legal systems
- •(c) German law
- •6. Conclusion on third parties
- •6 Contractual remedies
- •1. The ‘interests’ protected by remedies
- •2. Mutuality of promises and withholding of performance
- •(a) The Common law
- •(b) Mixed legal systems
- •(c) German law
- •(d) Model law
- •3. Specific performance
- •(a) English law
- •(b) Mixed legal systems
- •(c) German law
- •(d) Model law
- •4. Perfect or substantial performance of contractual promises
- •(a) Contracts for services
- •(b) Sales of goods
- •5. Injunction (interdict)
- •6. Damages
- •(a) Contractual damages and interests other than the performance interest
- •(b) Damages for mere breach of contract, or for fault?
- •(c) English law
- •(d) Mixed legal systems
- •(e) German law
- •(f) Model law
- •7. Liquidated damages: penalty clauses
- •(a) English law
- •(b) Mixed legal systems
- •(c) German law
- •(d) Model law
- •8. Termination of contract for non-performance
- •(a) Historical origins of the right to terminate
- •(b) English law
- •(c) Mixed legal systems
- •(d) German law
- •(e) Model law
- •9. Restitution following termination for non-performance
- •(a) English law
- •(b) Mixed legal systems
- •(c) German law
- •(d) Model law
- •10. Good faith and contractual remedies
- •7 The renunciation of contractual rights
- •1. Terminology
- •2. Bilateral or unilateral renunciations
- •3. Characterising undertakings not to enforce contractual rights
- •4. Express contractual or promissory renunciation of rights
- •(a) The Common law
- •(b) Mixed legal systems
- •(c) German law
- •5. Forbearance, promissory estoppel and personal bar
- •(a) The Common law
- •(i) Forbearance at common law
- •(ii) Forbearance in equity: promissory estoppel in English law
- •(iii) Promissory estoppel in American Common law
- •(iv) Conclusion on promissory estoppel in the Common law
- •(b) Mixed legal systems
- •(i) South Africa
- •(ii) Louisiana
- •(iii) Scotland
- •(c) German law
- •6. Model Law and renunciations of rights
- •8 The future of promise in contract law
- •1. The restricted role of promise in the modern law
- •2. Future possible development of the law
- •(a) General remarks
- •(b) The Common law
- •(c) The mixed legal systems
- •(d) German law
- •(e) The development of supranational model law
- •3. Conclusion on the future of promise
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(c) A mixed legal system solution to wasted pre-contractual expenditure: liability from an implied assurance that a valid contract exists
A mixed legal system solution to the problem of wasted pre-contractual expenditure has been fashioned around the core idea that liability should arise when an implied but false assurance has been given by one negotiating party to the other that a contract exists, such assurance leading to detrimental reliance on the part of the other party. Where this occurs, then, under Scots law, recovery will exceptionally be allowed for the wasted pre-contractual expenditure incurred in reliance on the assurance.
This remedial entitlement was developed in a line of cases beginning with Walker v. Milne.62 Its restricted availability was explained in Dawson International plc v. Coats Paton plc,63 when Lord Cullen identified the three requirements for a claim by A as being that: (1) B has given an implied assurance to A that a valid contract has been entered into by the parties;
(2) this assurance is false, no valid contract in fact existing between them; and (3) A has incurred expenditure in reliance on the assurance given by B. In a subsequent action it was further judicially remarked that, because the remedy is equitable in nature, in order to claim, A must have no other remedy available to it for recovery of its wasted expenditure.64 These requirements evidently restrict the utility of the remedy quite extensively. In particular, given that there must have been at least an implied assurance that a contract already exists, it will be obvious that a mere promise that the other party intends to contract is insufficient, as is a mere breaking off of negotiations without any promise or assurance of any kind having been given. Though the remedy has been argued to be based on good faith, if that is so it is a narrower expression of that idea than in culpa in contrahendo.
The remedy was pled recently in a Scottish version of the Red Owl facts in the case of Khaliq v. Londis (Holdings) Ltd.65 As in Red Owl, the facts also concerned a shopkeeper who was keen to expand his business interests by joining a franchise. Like Mr Hoffman, Mr Khaliq’s negotiations, and his substantial expenditure in preparation for joining the franchise, also proved fruitless. On the facts of the case, the Inner House of the Court of Session took the view that Mr Khaliq did not meet the requirements for a claim under the Walker v. Milne type of liability. In the
62 (1823) 2 S 379. 63 1988 SLT 854.
64 Bank of Scotland v. 3i plc 1990 SC 215. 65 [2010] CSIH 13.
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principal judgment of the court, Lord Osborne classified the expenditure undertaken by Mr Khaliq as not made in reliance on any duty which he believed he was under in terms of a supposed contract between the parties, but rather as spent simply on the recommendation of the defender’s representative.66 This statement is somewhat controversial, as it suggests that, to trigger the equitable remedy established by Walker v. Milne, the expenditure must have been undertaken in the belief that it was made in fulfilment of such a contractual duty, yet prior to Khaliq none of the cases relating to this type of recovery have imposed such a requirement. All that hitherto has been insisted upon by the courts is that the wasted pre-contractual expenditure must have been undertaken in reliance on the existence of a contract, or, to put it another way, that the belief of the pursuer in the existence of the contract was the cause-in-fact of the expenditure. Lord Osborne’s amended requirement goes further than those prior authorities.
A further troubling aspect of the Khaliq decision are judicial remarks made by two of the judges which cast doubt on the very continued availability of the remedy for wasted pre-contractual expenditure. Both Lord Osborne and Lord Marnoch doubted whether, given various changes in the law, there remained any need for the availability of the equitable remedy for wasted pre-contractual expenditure.67 Yet the changes referred to would not have assisted Mr Khaliq, none of them being suitable to provide him with a remedy on the facts of his case. Mr Khaliq’s claim boiled down to the fact that various implied assurances made by Londis had led him reasonably to believe that the parties were in a contractual relationship, a belief which was erroneous. Only Londis could have appraised him of the correct position, but it did not do so until after he had undertaken substantial expenditure on the basis of the false belief which they had created in his mind. Such circumstances have traditionally constituted grounds for equitable recovery, and it would be regrettable if the established remedy permitting such were now to be deemed to have been superseded. Fortunately, the judges in Khaliq did not go so far as to declare the remedy
66Lord Osborne also added that Mr Khaliq, having had two neighbouring shops he owned refitted as part of the works he carried out, was continuing to derive a benefit from the refitting of one of those shops, from which he continued to trade, and that therefore it would be inequitable to allow recovery of the refurbishment costs of that shop (amounting to some £25,000 of the total expenditure).
67See Lord Osborne’s judgment at para. 26, and Lord Marnoch’s judgment at para. 37. The legal developments referred to by the court are the passage of s. 1 of the Civil Evidence (Scotland) Act 1988, ss. 1 and 2 of the Requirements of Writing (Scotland) Act 1995, and changes in the law relating to negligent misrepresentation.
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superseded, and it is to be hoped that in a future case the courts will reaffirm its continued existence and desirability. To repeal the remedy would leave an equitable gap in the law and would deprive Scots law of a result achieved in both the Common law and German law.
Admittedly, some (though not all) of the Scottish cases which might previously have been solved using the Walker v. Milne common law action for wasted pre-contractual expenditure could now more advantageously be solved by the application of the statutory form of personal bar found in the Requirements of Writing (Scotland) Act 1995 to which Lord Osborne referred in Khaliq. This form of personal bar allows, inter alia, a party which has detrimentally relied upon a contract relating to a real right in land to prevent the other party to the contract from denying its validity on account of a want of proper form so long as that other party knew of and acquiesced in the reliance of the first party.68 What this means is that in cases where it is only a want of proper form which hinders the contract formation, a party may now seek to enforce the contract concerned, thereby protecting its performance interest, rather than simply falling back on the recovery of wasted expenditure undertaken in the belief that the contract existed. Though the point has not been specifically addressed by the courts, it would seem to follow from judicial statements that the equitable, common law remedy is an exceptional one, available only where the pursuer has no other avenue of legal redress – that a potential pursuer is now required to enforce the contract through use of the statutory personal bar, rather than claim its wasted expenses, in cases where the statutory remedy is available. In other words, in cases where the problem is a want of proper form, statutory personal bar now appears to have replaced the recovery of wasted pre-contractual expenditure.
68Section 1(3), (4). Interestingly, the provision says only that the party seeking to enforce the contract must have ‘acted or refrained from acting in reliance on the contract’. It does not say that such reliance must have been reasonable. There is, thus, no definitive position adopted by the statute in relation to the question of whether the particular claimant ought to have known that contracts relating to land but not in the written proper form are invalid, and ought therefore to be precluded from triggering personal bar on the premise that its reliance was unreasonable. By way of contrast, in Yeoman’s Row v. Cobbe [2008] UKHL 55, Lord Scott made a point of noting in his speech (at para. 27) that it ‘would be an unusually unsophisticated negotiator who was not well aware that oral agreements relating to such an acquisition are by statute unenforceable and that no express reservation to make them so is needed. [The claimant] was an experienced property developer …’, such a consideration seeming to add weight to Lord Scott’s decision not to permit reliance by the claimant on the doctrine of proprietary estoppel.
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The Scottish approach has not been followed in other mixed legal systems. As discussed in Chapter 2, Louisiana already has a form of promissory estoppel69 inspired by the US Common law, which may explain the lack of any evident perception that recovery in this area requires to be expanded. Promissory estoppel was not received into South Africa, which recognises only estoppel by representation. In both of these jurisdictions it has been argued by some that there was (or is) no need for a doctrine of promissory estoppel,70 but this rather overlooks the point that no express acceptance of a promissory undertaking is required before promissory estoppel can apply, whereas such an acceptance (whether by word or conduct) would be required before a gratuitous contract might be concluded in either jurisdiction. On the circumstances prevailing in Red Owl, it seems unlikely that there would have been any liability in South African law for Hoffman’s wasted expenditure, whereas such liability would have arisen under Article 1967 of the Louisiana Code.
As for express but false assurances that a contract exists, the obvious answer is that such can be treated as an actionable misrepresentation in delict/tort. That solution is available in the Common law as well as in the mixed legal systems too. Such a claim evidently presupposes that the defendant has expressly held out to the claimant, either by words or conduct, that a contract exists between them, that such a statement is false, and that the defendant reasonably relied upon it to his loss. Such pre requisites will not be met in every case.71 Indeed, it does not seem clear from the reported facts of Red Owl that any of the representations made to Hoffman were false when made, albeit that Red Owl kept changing their requirements as time went on. If the case is simply one of a defendant who repeatedly changes its mind, then the facts will not give rise to any actionable misrepresentation.
69See CC Art. 1967. It has been argued that the application of this provision to solve facts such as those in Red Owl would be unnecessary, given that Louisiana law does not require consideration to enforce a promise and thus, it is said, does not need a doctrine of promissory estoppel: see Gordley, ‘Louisiana and the Common Law: Le jour de gloire, est-il passé?’. For a discussion of promissory estoppel as an alleged cause of action in Louisiana and comparative law, see Larroumet, ‘Detrimental Reliance and Promissory Estoppel’.
70See for Louisiana, Gordley, ‘Louisiana and the Civil Law: Le jour de gloire, est-il passé?’, 205; for South Africa, see Sonnekus, The Law of Estoppel in South Africa, p. 94.
71Though there may be the possibility in some cases of alleging other types of misrepresentation during the negotiating process: thus, in Walford v. Miles [1992] 2 AC 128, the one successful portion of the plaintiffs’ case was a misrepresentation claim (amounting to £700 for wasted expenditure) based upon the false statement of the defendants that they were not negotiating with a third party.