The Doctrine of Consideration and Hedley Byrne

As is well known, other jurisdictions deal with Hedley Byrne-type cases in the law of contract. In Germany, for instance, Hedley Byrne itself, Caparo and other such cases would have appeared before the courts as breach of contract cases—or more accurately, they would likely not have appeared at all, as it would have been obvi­ous that the plaintiffs had no chance of success.

The doctrine of consideration entails that a contract exists only if both parties commit themselves in some way. In that sense, unilateral contracts are impossible. Notoriously, the consideration can be anything of legal significance. So, to take the classic example, offering a peppercorn in return for a house is good consideration.

This is not an essay on the doctrine of consideration nor on contract law itself, but it is important here to make two interconnected points. Each point relates to one apparent implication of the doctrine: that agreements or promises made without consideration are not legally binding. The two points are that this impli­cation is absurd and that this is the reason why we have the form of liability that we have misleadingly labelled negligent misrepresentation.

The first point can be demonstrated by considering a hypothetical presented by Lord Devlin in Hedley Byrne. Imagine that ‘a defendant says to a plaintiff: “Let me do this for you; do not waste your money in employing a professional, I will do it for nothing and you can rely on me”’.^[506] Imagine, however, that though the plaintiff accepts, the defendant does not perform.

Something must be said about arguments defending the doctrine of considera­tion at this point. Speaking generally, these fall into two classes. The first partial defence maintains that the doctrine is a rough proxy for what really matters. The idea is that consideration offers evidence to show that the parties seriously intended to commit themselves.^[507] This defence is partial only because, as most proponents of this view are keen to stress, it is the intention that ought to matter and consideration is at best a rough guide as to its existence. Hence, most maintain that the doctrine ought to be replaced by that for which it is a proxy.

Arguments that belong to the second class of defence of the doctrine attempt to show that there is something special about agreements made with considera­tion that those made without consideration lack. The most detailed such account is provided by Peter Benson,^[508] but it is possible immediately to respond to it, and without examining its content. There is a problem with the logic of this argument. Even if there are special reasons for enforcing agreements made with considera­tion, it would not follow that agreements made without consideration ought not to be enforced.^[509] And even if we accept that an area of law—let’s call it ‘contract’— should be reserved for dealing with agreements made with consideration, it would not follow that no other area of the law should deal with agreements made with­out consideration.

It is also useful to consider Mindy Chen-Wisharts recent defence of the doctrine in this context.^[510] Chen-Wishart attempts to support the doctrine by arguing that abolition would lead to the enforcement of gratuitous promises and that this would be undesirable. She maintains, for instance, that the legal enforcement of gratuitous promises made in the ‘private domain' would undermine levels of trust, respectful treatment and reciprocity between individuals.^[511] At more than one point she provokes us to imagine the consequences of allowing people to sue for the failure of promised presents to arrive. These examples are powerful, but the problem with Chen-Wishart's argument is that it rests on a false dichotomy. One can agree that it would be wrong to enforce promises to give presents without thinking it wise to hold these promises enforceable if accompanied by a counter­promise to provide a speck of dirt, a pat on the head or a peppercorn, for example. In other words, the argument argues for something other than the doctrine of consideration.

The false dichotomy is between retaining the doctrine of consideration on the one hand and enforcing (all, almost all?) gratuitous promises on the other. These are not the only options available. No one is suggesting that we abandon consider­ation and leave the law of contract otherwise untouched. As indicated above, many hold that the doctrine is a defective proxy for what really matters and that atten­tion should be paid to what really matters rather than to this defective proxy.^[512] This calls for replacement, not mere abolition, of the doctrine of consideration and there is every reason to think that a suitable replacement will entail that a great many gratuitous promises will remain unenforceable.^[513]

This point becomes most telling when Chen-Wishart comes to examine the position in jurisdictions that do not hold to the doctrine.

The oft-made claim is that abolition of consideration would bring English law more into line with continental civilian legal systems.

In truth, civil law draws essentially the same line between gratuitous and reciprocal undertakings. Civil law includes gratuitous undertakings in the ambit of enforceable contracts but subjects them to a stringent formality requirement, unless they are ‘synal­lagmatic’ (ie consist of bilateral reciprocal undertakings). This is simply a mirror image of the common law position that an enforceable promise must be supported by consid­eration unless it is accompanied by the requisite formality.^[514]

The focus on the enforceability of gratuitous promises has occluded the real issue. It is not how frequently such promises are enforced. It is whether the bar on enforcing promises made without consideration is appropriate. The civil law insists on formality requirements because it means to ensure that promises made where there was no intention for them to be enforceable do not rise to the level of contracts. That is importantly different from endorsing even the mirror image of the doctrine of consideration, which is at best a defective proxy for what the civil law is focused on.

Chen-Wishart attempts to support her contentions by relying on Reinhard Zimmermann’s claim that:

[T]o define the scope of donation, the German Code [uses], under negative auspices, what has traditionally been, in a positive version, the essential test for the enforcement of promises in the English common law; the absence of any agreed-upon recompense characterizes donations in Germany, the presence of bargain consideration provides the normal reason for enforcing a promise in England.^[515]

First, it is not clear that it is appropriate to utilise Zimmermann’s work in this way. Zimmermann is concerned to show that laws of various jurisdictions possess a great deal of similarity at the level of structure, despite the differences of detail. Thus, Zimmermann is here stressing that legal outcomes in Germany and England are comparable, despite the fact that only the latter possesses the doctrine of con­sideration.

Another problem with Chen-Wishart’s view is that the uncontroversial differ­ence between the common and civil law as it relates to this chapter is important. As we have noted, in civilian jurisdictions, Hedley Byrne-type cases are regarded as contractual. In the common law, however, the doctrine of consideration has prevented this. As Chen-Wishart remarks, ‘the only reason that Hedley Byrne v Heller is a tort and not a contract case... is the absence of consideration’. ^[517] But this has turned out to be no small issue of categorisation. It has caused serious confusion. Even if Hedley Byrne should not be understood as a contract case proper, forcing it into the law of tort, and into the law of negligence more specifi­cally, has been a disaster.

The fundamental problem here is this. Let us accept, at least arguendo, the premise that contracts must require consideration. Many take it to follow from this premise that agreements or promises can be legally binding only if accompa­nied by consideration. This in turn implies that Hedley Byrne actions cannot be based on agreements or promises. Of course, that notion is reinforced by the idea that Hedley Byrne actions belong to tort law, and in particular to the law of negli­gence, that area of the law being concerned with carelessly caused injury and not with promises or agreements. The problem with this argument, however, is that the inference from the premise to the first conclusion is invalid.

That the civil law sees these cases as contractual makes this position seem natural. On the other hand, that the common law categorises them as tortious and as belonging to the law of negligence makes the same position seem jarring, even perhaps heretical. But if it is true that ‘the only reason that Hedley Byrne v Heller is a tort and not a contract case. is the absence of consideration’, then this ought strongly to suggest to us that Hedley Byrne is a contract-like, and not a negligence­like, case.

Unfortunately, the doctrine of consideration is not merely an idiosyncrasy of the common law, it can be little short of a fetish. It has so clouded our under­standing of the law in general, that we have been able to say things that are quite clearly false: such as that tort law deals only with imposed rather than assumed obligations, that no agreements or promises made without consideration should be legally enforceable and that the common law in fact does not enforce such agreements. In this area, the consequence has been that courts in particular, feeling that they cannot utilise in this context concepts belonging to contract law, have tried, in the most obscurantist fashion, to mirror norms of agreement and prom­ise in the language of the law of negligence, doing considerable damage to the Hedley Byrne action and the law of negligence more generally in the process. It is to this that we now turn.

VII.