THE DOCTRINE OF CONSIDERATION (The role of consideration in contract modifications) by John Wilson Twyford A dissertation Submitted for the degree of Doctor of Juridical Science University of Technology, Sydney February 2002 CERTIFICATE OF AUTHORSHIP/ORIGINALITY I certify that the work in this dissertation has not previously been submitted for a degree nor has it been submitted as part of the requirements for a degree except as fully acknowledged within the text. I also certify that the dissertation has been written by me. Any help that I received in my research work and the preparation of this dissertation itself has been acknowledged. In addition, I certify that all information sources and literature used are indicated in the dissertation. John Wilson Twyford i ACKNOWLEDGEMENTS I would like to acknowledge the generous assistance given to me in the preparation of this dissertation by my Principal Supervisor Mr Geoffrey Moore and my Co-supervisor Dr David Meltz. John Wilson Twyford ii THE DOCTRINE OF CONSIDERATION (The role of consideration in contract modifications) TABLE OF CONTENTS Certificate..................................................................................................................i Acknowledgements................................................................................................. ii Table of Contents................................................................................................... iii Table of Cases.........................................................................................................vi Abstract...................................................................................................................xi CHAPTER 1 Objects ...........................................................................................1 Introduction ...............................................................................................1 Contract variations....................................................................................2 Satisfying the consideration requirement for contract modifications .......4 The role of equitable estoppel in contract modifications ..........................6 Approach....................................................................................................6 CHAPTER 2 Historical development of the doctrine of consideration.8 2.1 The origins of the doctrine of consideration..............................................8 2.2 The history of the doctrine.......................................................................10 2.3 Attempts to define consideration .............................................................16 2.4 Contracts as bargains ...............................................................................17 2.5 What is a bargain?....................................................................................17 2.6 Evolution of bargain theory .....................................................................18 2.7 The Australian position on bargain theory ..............................................20 2.8 Consideration must not be illusory..........................................................26 2.9 Development of the existing legal duty rule (public duty)......................27 2.10 Development of the existing duty rule (contractual duties).....................33 2.11 The existing duty rule and the sailors’ wages case..................................34 2.12 Stilk v. Myrick .........................................................................................37 2.13 The existing duty rule and enforced contract modifications....................43 2.14 The existing duty rule as a rule of general application............................44 2.15 Application of the existing duty rule .......................................................45 iii TABLE OF CONTENTS (continued) 2.16 The existing duty rule in other jurisdictions ............................................46 2.17 Summary of the working of the existing duty rule ..................................50 2.18 The incidents of the doctrine of consideration.........................................51 2.19 Consideration must move from the promisee..........................................52 2.20 Benefit to the promisor or detriment to the promisee..............................60 2.21 Does the detriment or benefit need to comply with the description legal?...............................................................................61 2.22 Consideration need not be adequate ........................................................63 2.23 Is there a requirement for mutuality?.......................................................72 2.24 Consideration in the context of ongoing transactions .............................76 2.25 The development of the Doctrine of Economic Duress...........................77 CHAPTER 3 The decision in Williams v. Roffey Bros & Nicholls ........80 3.1 Overview………………..........................................................................80 3.2 The facts………………...........................................................................81 3.3 The parties’ cases.....................................................................................82 3.4 The judgments of members of the Court of Appeal ................................85 Glidewell LJ……….................................................................................85 Russel LJ..................................................................................................88 Purchas LJ................................................................................................90 3.5 Comment on the judgments .....................................................................92 CHAPTER 4 Analysis of the decision in Williams v. Roffey..................96 4.1 Subsequent judicial application...............................................................97 4.2 The contract of employment cases.........................................................100 4.3 Williams v. Roffey restricted.................................................................104 4.4 Williams v. Roffey explained ................................................................105 4.5 Should practical benefit be seen in terms of legal remedies?................110 4.6 Summary of post Williams v. Roffey decisions ....................................113 4.7 The effect of Williams v. Roffey on the cautionary function of consideration......................................................................................115 4. 8 The impact of the decision on the incidents of consideration ...............116 iv TABLE OF CONTENTS (continued) Bargain theory .......................................................................................116 The existing duty rule.............................................................................117 Consideration must move from the promisee ........................................119 Benefit to the promisor or detriment to the promisee............................120 Does the detriment or benefit need to comply with the description ‘legal’?..................................................................122 Consideration need not be adequate .....................................................122 The requirement of mutuality.................................................................123 4.9 How did the decision accommodate the requirements of justice?.........124 4.10 Intention of the parties post Williams v. Roffey Bros ..........................126 4.11 The nature of consideration as exemplified by Williams v. Roffey.................................................................................126 CHAPTER 5 The development of the law of estoppel in contract .....128 5.1 Estoppel .................................................................................................128 5.2 Limitations on the application of the rules of estoppel..........................129 5.3 Equitable estoppel..................................................................................131 5.4 Recognition of equitable estoppel..........................................................135 5.5 Estoppel as a component in a cause of action........................................137 5.6 Development of the law of estoppel in Australia ..................................138 5.7 The decision in Waltons Stores v. Maher..............................................143 5.8 An attempt to unify the principles of estoppel.......................................149 5.9 The juridical basis of equitable estoppel................................................156 5.10 Application of the High Court decisions to contract modifications ......156 Detrimental reliance..............................................................................157 The discretionary nature of equity.........................................................160 Consideration versus estoppel...............................................................161 5.11 Good faith ..............................................................................................164 5.12 Contract modifications in the United States of America .......................166 CHAPTER 6 Conclusions..............................................................................173 Bibliography .....................................................................................................178 v TABLE OF CASES Abernethy v. Landale (1780) 2 Dougl. 539.............................................pp33, 35–37, 41 Ajax