48 the enforceabilit y of promises

Therefore, Gaston will be liable to compensate the promisees for the expenses that they incurred in the expectation that the contract would be concluded.

There used to be a dispute whether pre-contractual liability of this type was based on contract or tort. Since the enactment of arts. 197–8, it has been accepted that liability is of a special type imposed ex lege.104 In Germany this dispute still goes on because they do not have such provisions governing pre-contractual liability.

Before the regulation of the matter in the Civil Code, pre-contractual liability was imposed by following Jhering’s theory of culpa in contrahendo. According to this theory, the party who caused the invalidity of the contract or its cancellation would be liable to compensate the other party. Jhering based pre-contractual liability in contract in cases of negligence because, in Roman tort law, an actio doli lay only for intentional wrong or dolus. Under the Civil Code, however, negotiations and the trust they engender are a source of liability. Greek law has indisputably gone further than it once did or than the law of other countries does.105

scotland

Scots law has long recognized that a voluntary obligation can arise from a promise. Stair describes a promise as ‘that which is simple and pure, and hath not implied in it as a condition, the acceptance of another’.106 Before contractual obligations arise, there must be an agreement between the parties, that is, an offer must be met by an acceptance. In the case of promise, in theory, a unilateral obligation arises as soon as the promisor declares his will. The promisor must have the intention to undertake legal obligations. While the test for intention is objective, presumptions apply. For example, there is a presumption of intention to create legal obligations in the context of business and commerce: there is a presumption against intention to create legal obligations in family arrangements. These presumptions are, of course, rebuttable.

Since the Requirements of Writing (Scotland) Act 1995,107 prima facie writing is not required to constitute a unilateral obligation: ‘subject to

104 Koumantos in ErmAK arts. 197–8 no. 8.

107Before the 1995 Act, proof of any unilateral obligation was restricted to the writ or oath of the promisor. This greatly reduced the utility of the pollicitatio in Scots law. See generally T. B. Smith, A Short Commentary on the Law of Scotland (1962), ch. 32. Proof by writ or oath has been abolished by s. 11 of the 1995 Act.

ture in reliance on the promise. Of course, resort to s. 1(3) and (4) only arises if the gratuitous promise is prima facie invalid because it is not constituted in writing. If a unilateral obligation is valid, the promisor’s estate is liable.

england

According to orthodox English law, the promises described in Cases 1(a), 1(b), and 1(c) are each unenforceable. The result is the same if Gaston dies, or the promisees rely on any of the promises, although it is possible through using a formality, or, less simply, the device of a trust, to make the promises enforceable.

The primary reason that the promises are unenforceable is that no ‘consideration’ was provided in exchange for them, that is, they were ‘gratuitous’ promises.109 Although the rule is often criticized, in English law only ‘bargains’, that is, promises given in exchange for consideration, are enforceable.110

As the application of the consideration rule is an issue that arises in nearly all the cases to be discussed, it may be helpful to note in advance that one recurrent problem will be the tension between the rule as stated ‘in the books’ and the rule as applied in practice. As described in the orthodox formulations found in the leading cases and textbooks, its application to many of the cases discussed below is reasonably clear. The issue that arises in answering the posed questions is whether the consideration rule as it appears ‘in the books’ accurately reflects how courts apply the rule ‘in practice’. It is frequently argued that courts find or ‘invent’ consideration in a range of cases where, according to the orthodox rules, none should exist. The courts do this, it is alleged, primarily through novel interpretations of the facts (or through creating explicit exceptions to the consideration rule, which does not raise the same issues). The factors which, it is further alleged, courts take into account in deciding whether to enforce so-called gratuitous promises are many, but the most important is undoubtedly detrimental reliance on the promise by the promisee.111

109E.g., Roscorla v. Thomas [1842] 3 QB 234, where a warranty as to the soundness of a horse already sold was held to be unenforceable.

110For a summary of criticisms, see Treitel, Contract, 147–9. In 1934, the English body responsible for considering legislative law reform, the Law Revision Committee (now the Law Commission), was charged with examining the desirability of reforming consideration. Their 1937 Report, which recommended certain changes though not wholesale reform, was not acted upon by Parliament.

111Atiyah, Law of Contract, 118–19, 137–41; P. S. Atiyah, ‘Consideration: a Restatement’, in P. S. Atiyah, Essays on Contract (1986).

amongst English lawyers.114 The most commonly quoted judicial formulation is from the nineteenth-century case of Currie v. Misa:115 ‘A valuable consideration,inthesenseofthelaw,mayconsisteitherinsomeright,interest, profit, or benefit accruing to one party or some forbearance, detriment, loss or responsibility, given, suffered or undertaken by the other.’ This definition, however, is generally thought to be somewhat narrow. A wider, and more accurate formulation, which was approved of by Lord Dunedin in

Dunlop v. Selfridge,116 is provided by Pollock in his Principles of Contract:117

(1)To constitute performance, a performance or a return promise must be bargained for.

(2)A performance or return promise is bargained for if it is sought by the promisor in exchange for his promise and is given by the promisee in exchange for that promise.

(3)The performance may consist of

(a)an act other than a promise, or

(b)a forbearance, or

(c)the creation, modification or destruction of a legal relation.

Different aspects of this definition are relevant to different aspects of the cases discussed below, but it may be useful to highlight in advance three of its important features. First, consideration may consist of doing or not doing something or of promising to do or not to do something: an actual transfer is not required. Second, the performance or promise must be done or made in exchange for the other promise: simultaneous promises of mutual gifts are not consideration for each other. Third, while mere gratitude or ‘natural affection’118 is not consideration, the performance or promised performance may be of nominal value and, indeed, need not be of any economic value in the normal sense of that term. Thus, it is often said that ‘a peppercorn’ is adequate consideration,119 and in one case the return to a manufacturer of wrappers from chocolate bars constituted consideration for the manufacturer’s promise to make available for sale at a special price certain musical recordings.120

It follows that Case 1(a), Gaston’s promise to give his niece money on her twenty-fifth birthday, is a straightforward gift, and thus unenforceable in the form it is made. Indeed, a gift of this sort is the classic, and uncontroversial, example of the type of promise that the consideration rule renders unenforceable.

120Chappell & Co. Ltd. v. Nestle Co. Ltd. [1960] AC 87. See generally S. Smith, ‘The Law of Contract – Alive or Dead?’ The Law Teacher 13 (1979), 73.

54 the enforceabilit y of promises

Case 1(b), the promise to give money to his daughter ‘because she was about to marry’, is not so straightforward. Interpreted literally, the promise is unenforceable for lack of consideration because, while agreeing to marry has been held good consideration for a promise,121 the money in Case 1(b) was not promised in exchange for the daughter getting married. Rather, the daughter’s marriage was merely the motive for the promise: the money was to be given because she was marrying. That said, in a case with similar facts, Shadwell v. Shadwell,122 an English court held that the promise was made in exchange for an agreement to marry. There was a strong dissenting judgment, approved of in a later decision,123 but the case remains a clear example of a court being willing to interpret facts imaginatively in order to find consideration. Whether a court is likely to do this on the facts of Case 1(b) is difficult to predict. The most relevant factor would be whether the daughter relied in some way on the promise; a second factor would be how seriously the promise was made (on which see below).

The promises in Cases 1(c) and 1(d) are, like the promise in Case 1(a), straightforward gifts, and thus are also unenforceable for lack of consideration (but see below).

A further reason for refusing to enforce the promises in Cases 1(a), 1(b), and 1(d) is that the promisor did not intend to create legal relations (there is insufficient information to discuss the status of the third promise in this regard). In English law, a second major limitation, in addition to the requirement of consideration, on the sorts of promises the law will enforce is that the parties must have an ‘intention to create legal relations’.124 This requirement is rarely relevant in litigated cases. There is no requirement of proof of a conscious intent to create legal relations in the ordinary commercial case, it being assumed, lacking clear evidence to the contrary, that such intent exists.125 One area where the requirement does play a role is in respect of social and family arrangements. There is a presumption that agreements between family members are not intended to create legal relations. For example, in Balfour v. Balfour126 a husband’s promise to pay his wife a monthly sum while they lived apart was unenforceable. This presumption can be rebutted by evidence of a contrary intent, for example where spouses lived apart and were not on good terms: Merritt v. Merritt.127 That the relevant agreement is in writing might provide further evidence of the necessary intent. On this basis, there is a

56 the enforceabilit y of promises

Nominal consideration, for example the payment of £1 in exchange for a promise, is sometimes also described as a formality. Whether this classification is correct or not, it is clear that promises made in exchange for nominal consideration are enforceable under English law because, as noted above, consideration need not be ‘adequate’; anything of value, however trivial, is sufficient. Thus, Gaston’s various promises would be enforceable if recast as (sham) bargains, that is, as given in exchange for a nominal sum or for something of nominal value.

A trust in English law is an equitable obligation to hold property on behalf of another. In the typical case, a trust is created by one person, the ‘settlor’, transferring property to another person, the ‘trustee’, with the stipulation that the trustee should not treat the property as his own, but rather as for the benefit of a third person, the ‘beneficiary’.133 A trust is often used as a way of attaching safeguards to what is essentially a gift, and thus Gaston could create a trust in order to realize an intention to benefit his niece, his daughter, the United Nations Children’s Emergency Fund, or even the waitress. No particular formalities are required to make an ordinary trust. Furthermore, it is not necessary for Gaston to introduce a third party into the arrangements, since it is possible, by creating a ‘declaratory trust’, for the settlor also to be the trustee of the trust. Whether or not the trustee is Gaston or a third person, however, there must be clear evidence of a present intention on the part of the settlor, here Gaston, to divest himself of the ownership in the relevant property (though it is not necessary that Gaston actually be aware that he is creating a trust). On the facts as described, such an intention does not exist, since in each case the only intention apparent is an intention to make, in the future, a simple gift. And, despite English courts’ occasional willingness to interpret facts liberally so as to avoid the rigours of the consideration rule (see Introduction), courts have hesitated to convert what is essentially a promise of a gift into a trust.134 A second requirement for the creation of a trust – and a second reason that on the facts no trust would be found in any of the cases, as described – is that the subject of a trust must be specific property, such as shares in a company, a plot of land, or the money in a particular bank account.135 This requirement of ‘certainty of subject matter’ would not be satisfied by the promise of a sum of money, although it could be satisfied if, for example, Gaston had put the money

133S. Gardner, An Introduction to the Law of Trusts (1990), 1.

134Milroy v. Lord [1862] 4 De G.F. & J. 264; but for an exception, see Re Rose [1952] Ch. 499, a case dealing with an unperfected transfer of shares and not applied more widely. See generally Gardner, Introduction, 51.

135See D. J. Heydon, The Law of Trusts, 2nd edn (1993), 75–6.

in a special account, which account then became the subject of the trust. If Gaston dies before changing his mind, his estate is in the same position as Gaston was when he was alive as regards the enforceability of the promises as contracts. That is, if the promises are not contractually binding on Gaston, they are not binding on his estate (and vice versa). An intention that benefits be transferred to another on one’s death can of course be enforced against the estate if the intention is expressed in a valid will. On the facts, Gaston has not made a will: aside from not complying with the formal requirements for a will (which are similar to those required for making a deed: see above), his intention is to make a gift

while he is still alive, not to transfer property on his death.

The possibility of the promisees in any of the four situations incurring expenses in reliance on the relevant promises is irrelevant, strictly speaking. An act done in reliance on a promise satisfies the consideration requirement only if it is done in exchange for the promise, and, as we have seen, Gaston requested nothing in exchange for any of his promises. There is one important category of promises where the fact of reliance on the promise does, exceptionally, affect the legal significance of the promise, although it is not relevant to Case 1. This category is where the promise purports to release the promisee in whole or in part from a preexisting legal obligation owed to the promisor: for example, where a landlord informs his tenant that the tenant need pay only half the owed rent.136 According to the doctrine known as promissory estoppel, a promisor may be barred from enforcing a pre-existing legal relation where he has promised not to enforce the obligation, in full or in part, and the promisee has reasonably relied on that promise. The exact status of the promisee’s interest, in particular whether it is an interest to enforce the new promise qua promise or an interest merely to recover any detrimental reliance incurred, is not entirely clear.137 It is clear, however, at least in English law,138 that, aside from promises to convey an interest in land,139 estoppel may be raised only as a defence against a claim for the enforcement of pre-existing legal rights. It cannot be used to found a

136See, e.g., Central London Property Trust Ltd v. High Trees House Ltd [1947] KB 130, where a landlord’s promise to reduce his tenant’s rent for the duration of the war was upheld.

137In this respect, it is important to note that an ‘estoppel’ may be raised other than through a promise, for example by a representation, although all of the possible examples considered here (and in other cases discussed below) deal with promises.

138Australia has recently allowed promissory estoppel to be used as a cause of action (Walton Stores (Interstate) Ltd v. Maher [1988] 164 CLR 387), and such actions have long been allowed in the United States: § 90 Restatement (Second) of Contracts (1979). The Walton decision has attracted much attention in England.

139Crabb v. Arun DC [1976] Ch. 179.