Mason Hayes Solicitors

Mason Hayes Scholar, Usman Ahmed, writes about the formation and enforceability of contracts and the doctrine of promissory estoppel >>

In January Eileen and Paul bought a large and very run down house on the seafront at Boring-on-Sea. They plan to renovate the house and convert it into flats. Their friend Anne is keen on do-it-yourself, and offers to help. They accept her help and tell her that they will, “see her right”.

Everything costs more than Eileen and Paul had expected so when Mike, a friend of Anne’s, shows an interest in renting one of the flats, they are delighted. The building work is only half completed when Mike moves in and starts paying rent in March. After three months, the work is still not finished and Mike is complaining about the noise and dust. Eileen and Paul need his income, so they suggest that he pay only half-rent. Mike agrees to stay on and begins to pay half-rent from June.

By September, the work is complete and Eileen and Paul tell Anne that in consideration of all the work she has done for them that she can have one of the flats to live in. Then they invite an estate agent to let the remaining flats. This is done very quickly, and Eileen and Paul are pleasantly surprised at how much rent they can charge. In light of this they tell Anne that they are losing money on her flat and tell her that she can no longer live in one of the flats

Now that the work is finished, they wish to put Mike’s rent back to the proper rate and to claim the arrears that he owes for the last three months, but he is refusing to pay, saying that he had an agreement with Eileen and Paul.

Advise Mike and Anne


This problem concerns the formation and enforceability of contracts, and the doctrine of promissory estoppel. For a (bilateral) contract to be valid and enforceable by the courts, it must contain agreement, certainty, intention to create legal relations and consideration. Each of the parties will be advised in turn.


Anne promised to help with the DIY, and in return Eileen and Paul promised to ‘see her right’. It must be objectively determined whether this gave rise to an enforceable contract. To do this, the key ingredients mentioned in the introduction must be discussed.

For a valid agreement to be reached there must be valid offer and acceptance. “an expression of willingness to contract on certain terms, made with the intention that it shall become binding as soon as it is accepted by the person to whom it is addressed”1, whereas acceptance is the “final and unqualified expression of assent to the terms of the offer”2. In this situation, Anne offers and Eileen and Paul appear to accept, therefore on the face of it, it appears that offer and acceptance is present. However, even when there is offer and acceptance, there must also be intention to create legal relations.

An issue of great importance here one is of intention to create legal relations. There are two types of agreements, commercial and social. In social or domestic arrangements it is presumed that there is no intention to create legal relations, Balfour v Balfour [1919]3Balfour4 is an important case as it was the starting point which set the precedent; it was one of the first cases to talk about making a distinction between social and commercial agreements. Lord Justice Atkin said “it is necessary to remember that there are agreements between parties which do not result in contracts within the meaning of that term in our law. The ordinary example is where two parties agree to take a walk together, or where there is an offer and an acceptance of hospitality. Nobody would suggest in ordinary circumstances that those agreements result in what we know as a contract”5. If this is taken into account, the agreement between Anne and Eileen and Paul appears to be social, and therefore may not give rise to any intention to create legal relations. Nonetheless this is just a presumption, one which can be rebutted. For example, in the case of Parker v Clark [1960]6 it was held that there was a legally binding contract between the parties because it was shown, in the circumstances, that an arrangement binding in law was intended on both sides. This is the burden of proof. InLens v Devonshire Club7 it was held that the winner of a competition held by a golf club could not sue for his prize since “no one concerned with that competition ever intended that there should be any legal results flowing from the conditions posted and the acceptance by the competitor of those conditions”8. Here Anne may be able to rebut the presumption because the nature of the work she did was commercial9. In commercial agreements there is a presumption that there is an intention to create legal relations. In Edwards v Skyways (1964)10the claimant was employed by the defendant company who informed him that he was to be made redundant and he was also promised an ex gratia payment. The defendant company then argued that the agreement about the ex gratia payment was not intended to create legal relations and that it was too vague to be enforceable. It was held that in business arrangements, the (heavy) onus of rebutting the presumption is on the defendant company, and in this case, the company failed to do soThis presumption can generally only be rebutted by express provision in the contract, Rose & Frank Co. v Crompton Bros Ltd [1925]11, where it was held that a commercial agreement between a British manufacturer and their appointed distributer in the USA which expressly stated that it was ‘not subject to legal jurisdiction’ in either country was sufficient to rebut the presumption that it was intended to be a contract. It is possible that a court would find that there was an intention to create legal relations in this scenario as even though the parties are friends, the nature of the work is commercial, and something that would normally be paid for. So it appears that offer and acceptance is present, as is intention to create legal relations. However, before this becomes enforceable, exactly what the parties agreed to must be examined.

The second of the two main problems here is that the initial terms are vague, so agreement will be considered in conjunction with certainty: which requires contracts contain no uncertain terms or be incomplete.

In Scammel & Nephew Ltd v Ouston12, Viscount Maugham said “In order to constitute a valid contract the parties must so express themselves that their meaning can be determined with a reasonable degree of certainty. It is plain that unless this can be done it would be impossible to hold that the contracting parties had the same intention; in other words the consensus ad idem would be a matter of mere conjecture”13. In this case, the respondents agreed to purchase a van on hire-purchase terms, but before the agreement could be entered into, the appellants refused to proceed. When the respondents brought an action claiming damages for breach of the contract, the appellants argued that there was no contract because the agreement was void for uncertainty. It was held that there was no enforceable contract as the clause relating to the hire-purchase terms was too vague and uncertain and required further agreement to be reached between the parties, Also in Loftus v Roberts14, an agreement to employ an actress at a ‘West End Salary’ was held to be too vague. So taking this law into consideration and applying it to the facts presented, the courts would most likely find that to ‘see her right’ is too vague, to be enforceable.

However, there are circumstances in which the courts are willing to uphold agreements that prima facie appear to be vague. InHillas & Co, Ltd v Arcos, Ltd [1932] 15 it was held that if some performance had been completed, the court would attempt to maintain the contract. On the other hand, this case can be distinguished from Anne’s situation on the basis that it was a clear commercial agreement and the parties had traded for a long time before there were any problems, “the parties were both intimately acquainted with the course of business in the Russian softwood timber trade”16, so this does not fully apply in Anne’s case. In addition, according to Chartbrook Ltd v Persimmon Homes Ltd17 the courts now also take into account the background of the agreement, and on the rare occasions where it is found that ‘something must have gone wrong with the language’, the parties can advance with the meaning that a reasonable person with all the appropriate background knowledge may have. Though, there must still be adequate background to present an objectively apparent meaning of the words used, and if the reasonable person could not understand the words used by the parties, the courts should not create agreement by filling in the gaps. Further, according to Steyn L.J. in Percy Trentham v Archital Luxfer18 the “law generally ignores the subjective expectations and the unexpressed mental reservations of the parties.”19 So the courts would look at what the reasonable person would expect, and as Anne is only a friend who is keen on DIY, her making of an offer coupled with the response of Eileen and Paul will probably not give rise to a clear, certain agreement which the courts would be prepared to uphold. So at this point, based on certainty and vagueness, it is reasonable to conclude that no agreement has come into existence.

At this point, even if there was an intention to create legal relations, the lack of clarity and certainty of the statement made by Eileen and Paul would mean that there is no agreement which the courts could enforce. However, Eileen and Paul subsequently tell Anne that she may live in one of the flats. It must now be considered whether this gives rise to an enforceable contract in law.

Now it needs to be determined whether Anne has given consideration for Eileen and Paul allowing her to stay in one of the flats. Offer and acceptance is present. There is also more certainty as it is known what exactly was offered, i.e. a flat to live in. Consideration is concerned with the price which is paid for a promise and is defined as “[a]n act of forbearance or the promise thereof is the price for which the promise of the other is bought, and the promise thus given for value is enforceable”20. There are four rules surrounding the operation of consideration which have come from case law, these are; it must move from the promisee, it must not be past, it must be sufficient but need not be adequate and it must not consist of a contractual duty owed.

The problem for Anne at this stage is that the work she has done (which she will rely on as being consideration for Eileen and Paul’s promise) came before their promise, so Anne’s consideration would be past consideration. In Re McArdle21 a son and his wife lived in his mother’s house. On her death, the house was to pass to the son and three other children. The son’s wife paid for repairs and improvements to the property. The mother then made her four children sign an agreement to pay her daughter-in-law back from the proceeds of her estate, and when the mother died the children refused to pay. The question in this case was, did the daughter-in-law give any consideration for the siblings’ promise? The daughter-in-law’s claim was unsuccessful as she had already preformed the act before the promise to pay had been made, which meant that her consideration was past and the promise to pay unenforceable, “[…] the true position was that, as the work had in fact all been done and nothing remained to be done by Mrs. Marjorie McArdle at all, the consideration was a wholly past consideration, and, therefore, the beneficiaries’ agreement for the repayment to her of the £488 out of the estate was nudum pactum, a promise with no consideration”22

However, there are circumstances under which what appears to be past consideration may be held to be good consideration. Lord Scarman’s dictum from Pao On v Lao Yiu Long23.provided three exceptions where past consideration would be found to be good consideration; “[a]n act done before the giving of a promise to make a payment or to confer some other benefit can sometimes be consideration for the promise. The act must have been done at the promisors’ request: the parties must have understood that the act was to be remunerated either by a payment or the conferment of some other benefit: and payment, or the conferment of a benefit, must have been legally enforceable had it been promised in advance”24, but Anne’s situation does not fit in with these exceptions as Eileen and Paul did not request that Anne do the work, she offered to do it on her own accord.

Therefore, it is concluded that the first promise will be found to be unenforceable due to its vagueness and lack of certainty. In relation to the second promise, the consideration that Anne has given is past, and it is for that reason not good consideration. Consequently there is no contract that the courts will enforce between Anne and Eileen and Paul.


According to the facts Mike is a tenant, and therefore has a legally enforceable valid contract. Mike’s situation is concerned with part payment of a debt, as Eileen and Paul are claiming arrears that they claim he owes. There are two types of variation agreements; where there is a promise to pay more, such as in Stilk v Myrick25, and where there is a promise to accept less. It is the latter type of variation agreement which is relevant in this situation.

Eileen and Paul have promised to accept half rent. The factual issue here is part payment of debt, and the legal issue is whether Mike has provided any consideration for Eileen and Paul’s promise. The common law relating to part payment of debt is unclear and was stated as long ago as 1602 in Pinnel’s Case26, “It was resolved by the whole court that payment of a lesser sum on the day in satisfaction of a greater, cannot be any satisfaction for the whole.”27 This common law rule has been affirmed by the House of Lords in Foakes v Beer28, “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 of England for 280 years.”29 So on a strict application of the law; it appears that Mike has not given any consideration for Eileen and Paul’s promise to accept less than is owed and they are therefore entitled to claim the arrears.

Even though the House of Lords endorsed the common law rule relating to part payment of debt, they also recognised problems with it and have criticised it. This is evident in Lord Blackburn’s dictum in Foakes v Beer30where he expresses concern that the strict application of the rule may fly in the face of commercial reality and common sense. He states, “[w]hat principally weighs with me in thinking that Lord Coke made a mistake of fact is my conviction that all men of business, whether merchants or tradesmen, do every day recognise and act on the ground that prompt payment of a part of their demand may be more beneficial to them than it would be to insist on their rights and enforce payment of the whole.[…] I had persuaded myself that there was no such long-continued action on this dictum as to render it improper in this House to reconsider the question. I had written my reasons for so thinking; but as they were not satisfactory to the other noble and learned Lords who heard the case, I do not now repeat them nor persist in them.”31

So because of the problems inherent to the common law rule of part payment of debt, Denning J, in his obiter statement inHigh Trees32developed the equitable doctrine of promissory estoppel to circumvent the harshness which could result This is the leading case in this area and has facts comparable to the situation faced by Mike. The claimants tried to claim rent owed from the defendant for a five year period during the Second World War in which they had promised to accept reduced rent. The claimants succeeded in their right to revert to the original agreement and claim full rent, as the war had now ended, but they were estopped from claiming the arrears which had accrued during the war period

The legal reasoning and the development of promissory estoppel in this case is interesting as High Trees33 is a High Court decision and Denning J was at the time just a first instance judge and did not have any sort of reputation meaning that the House of Lords could have stopped the equitable doctrine from developing any further than it did in High Trees34, but the House of Lords did not. This is because the criticisms presented by Lord Blackburn were widely acknowledged and so the House of Lords were ready to accept a way of circumventing the common law rule of part payment of debt. Therefore, despite the fact that the decision in High Trees35 does not deal adequately with the House of Lords precedent in Foakes v Beer36 and that High Trees37 is only a High Court decision, the equitable doctrine of promissory estoppel lived on, and was added to and developed by the courts in subsequent cases.

For Mike to be able to rely on the doctrine, so as to defeat Eileen and Paul’s claim in law, certain criteria must be met; there must be a clear promise or representation by the promisor38 indicating that his strict legal rights would not be enforced, an existing legal relationship, reliance on the promise, it must also be inequitable to allow the promisor to go back on his promise, estoppel can only be used as a defence, and it does not extinguish rights, but merely temporarily suspends them.

Eileen and Paul made a clear representation to Mike, which was that he should pay half rent as the work was not yet finished.

Mike and Eileen and Paul are already in a legal relationship, which is one of tenant and landlord.

Seeing as Mike had already complained of the noise and dust, his decision to continue being a tenant, judged objectively, seems to be because he would only have to pay half rent and so the courts would most likely find that he relied on the statement as he was “act[ing] differently to what he otherwise would have done”39.

It must be inequitable to allow the promisor to go back on his promise. This requirement comes from D&C Builders Ltd v Rees40, and would apply as Mike did not induce the reduction, he had clean hands.

Estoppel can only be used as a defence. This requirement comes from Combe v Combe41, which states that ‘equity is a shield, not a sword’. This means that until Eileen and Paul bring a claim against Mike for his arrears, he will not be able to rely on promissory estoppel.

Finally, according to Tool Metal Manufacturing Co. v Tungsten Electric Co Ltd42, estoppel temporarily suspends rights; it does not extinguish them. This means that whilst the conditions under which the promise to accept half rent continue to exist (the noise and dust) then the promisor’s strict legal rights are simply suspended, and when those conditions come to an end (the building work is finished) theycan be resumed by giving sufficient notice of their intention to the promisee. Here, formal notice by Eileen and Paul has not been given, so it would begin as soon as Mike was made aware that they wished to put his rent back to the ‘proper rate’.

Therefore, it is concluded that Mike does not owe the arrears which Eileen and Paul claim that he does. However, Eileen and Paul’s right to claim full rent can resume once they give notice of their intention to do so to Mike, meaning that both parties will return to their original agreement.

In conclusion, given all of the above I conclude that Anne does not have an enforceable legal agreement with Eileen and Paul. Mike is in a binding contract which has been varied. If Eileen and Paul take action in law to recover the rent arrears, he may rely on the equitable doctrine of promissory estoppel to defeat their claim.

Usman Ahmed:

1 Trietel, G.H., (2003). The Law Of Contract. London, Sweet & Maxwell. P.8

2 Ibid, p.16

3 2 KB 571

4 Ibid

5 Ibid, p. 579

6 1 WLR 286

7 (1914) The Times, 4 December

8 Ibid

9 Simpkins v Pays [1955]3 ALL ER 10

10 1 All ER 494

11 AC 445

12 [1941] AC 251 (HL)

13 Ibid, p. 255

14 (1902) 18 TLR 532

15 All ER Rep 494

16 Ibid, p.499

17 [2009] UKHL 38, [2009] 2 WLR 267

18 [1993] 1 Lloyd’s Rep. 25,

19 Ibid, Para.6

20 Dunlop v Selfridge [1915] AC 847 p. 855

21 [1951] Ch 669

22 Ibid, p. 679

23 [1980] AC 614

24 Ibid, p. 630

25 (1809) 170 ER 1168

26 (1602) 5 Co Rep 117a

27 Ibid, p.238

28 (1884) 9 App Cas 605

29 Ibid, per Earl of Selborne L.C, p.612

30 Supra, n.28

31 Ibid, per Lord Blackburn, p.622-623

32 [1947] KB 130

33 ibid

34 ibid

35 ibid

36 Supra, n.28

37 Supra, n.32

38 Collin v Duke of Westminster [1985] QB 581

39 Per Lord Denning M.R., WJ Alan v El Nasr [1972] 2 Q.B. 189, p.213

40 [1966] 2 Q.B. 617

41 [1951] 2 KB 215

42 [1955] 1 WLR

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