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The rule in Foakes v Beer[i] states that an agreement to vary a contract by accepting less is not binding unless the promisor agrees to accept less and receives something extra of value in the eyes of the law. The rule has stood the test of time for over one hundred years. However, the courts have relaxed the rules in relation to variation agreements where a party gives more for the same. This means that the law applicable to variation agreements is different depending on whether a party is agreeing to give more or accept less. The central argument in this paper is that the rule in Foakes v Beer needs to be abolished. The distinction between agreements to accept less and agreements to accept more are not convincing. There are legal, economic and practical reasons why consideration should not be required at all for any contractual variations whether giving more or accepting less. Both are agreements to vary a contract and the courts should be very reluctant to oppose such variations. The central argument in this paper is that the rule in Foakes v Beer should be abolished as part of a reform that sees any consideration requirement for variation agreements rendered obsolete. This paper will begin by outlining the core requirements for a contract and focus on the consideration requirement. The next part of the paper traces the relaxation of the consideration rules as applied to contractual variations. Recent case law in this area is explored. Finally, the argument for abolishing the rule in Foakes v Beer are recalled and explored. Where possible, a comparative review with other common law jurisdictions is made.

Agreement

A contract is formed where a party makes an offer which is accepted.[ii] Other requirements include certainty and intention to create legal relations. [iii] Where a contract is not made by deed, then the parties must show that the agreement is supported by consideration. Consideration is based on ‘the idea of reciprocity: that “something of value in the eye of the law” must be given for a promise to make it enforceable as a contract.’[iv] Scotland and most civil law countries do not require consideration. Where a contract is being formed for the first time three requirements must be satisfied. First, the law requires that a promise will only be supported by consideration if a person does something or refrains from doing something which has value in the eyes of the law. [v] However, the courts will not investigate the value of what has been provided – merely that something of value can be found.[vi] This reflects the laissez-faire approach to contractual agreement adopted by the courts in England and Wales.

Second, the consideration provided cannot be provided after the promise has been made unless there is an implied understanding between the parties that the consideration will be provided at a later time.[vii] Third, the law requires that the promisee at least provide consideration, but, it is notable that the

consideration provided does not need to flow to the promisor it can flow to a party.[viii] The consideration requirement performs the function of marking out promises that have legal obligations from gratuitous promises which do not. Contract law in England and Wales is deep-rooted in promise theory [ix] in that parties should be held to the promises they make, and consideration performs the function of highlighting promises that can be enforced from those that cannot. It also ensures that parties are only held to promises that they intended to be bound by, viewed from the standpoint of the objective observer, and to be released from obligations based on promises made in haste or impulse.[x] However, the requirement of consideration in contractual arrangements has met with criticism as failing to give effect to the intention of the parties involved,[xi] and being at odds with the law’s approach to recognising contractual rights e.g. under the Contract (Rights of Third Parties) Act 1999. However, complete abolition of this requirement at the contract formation stage is highly unlikely[xii] at present given the weight of precedent behind these requirements. That does not reduce the force of any argument that the doctrine should be reformed.

A relaxation of the doctrine

A contract needs to be supported by consideration both at the time the contract is formed and when it is varied. The law relaxes the consideration requirements when dealing with variation promises (although the formation rules are relatively relaxed also). Where a party is an existing contract, a promise to give more for performing an existing contractual duty can be supported by consideration if the promisor exceeds their contractual obligations.[xiii] Variations can also be supported by consideration where the promisor receives a practical benefit as stated in the seminal case of Williams v Roffey.[xiv] This assumes that the other requirements in Williams v Roffey are met: that A is in an existing contract with B; A recognises that B will not perform his obligations; A promises B an additional payment and this promise was not procured by economic duress.

A practical benefit is any factual benefit and the threshold to satisfy it is low. Indeed, some commentators have called the practical benefit test a form of ‘invented consideration’.[xv] In Williams v Roffey practical benefit included that the parties were in a more orderly payment system, the promisor would not need to hire another contractor and the promisor received an assurance that the work would be completed as planned.[xvi] These are benefits that did not go any further than what the promisor would have received anyway. It is difficult to see what value was provided here to support the promise to give more. It is also noteworthy that the Williams v Roffey test focuses on what the promisor receives as a practical benefit. This contradicts the rule in formation agreements that the promisee, not the promisor, must at least provide

something of value. Williams v Roffey is therefore an example of the courts contorting the meaning of the rules of consideration to uphold a variation. Finally, the assessment of practical benefit occurs at the time that the promise to give more is made. If I promise to pay an additional £100,000 to B for doing what they originally agreed to, because I wanted a job to be complete, so I could have a party in my home, it does not matter if the party is later cancelled. This highlights how the consideration requirement can be considered ‘illusory’.[xvii]

It is noteworthy that the variation agreement in Williams v Roffey relates to an increasing pact – an agreement where more rights are granted than what existed when the contract was formed. The law has developed a different approach to variation agreements where rights are being surrendered. An example would be an agreement to accept part payment of debt. Or an agreement to accept less rent payments in a rent or license agreement. The key case in this area is Foakes v Beer. This case involved a judgment debt. Julia Beer agreed not to sue Dr Foakes for interest on a judgment debt. However, the House of Lords held that the agreement not to sue for the interest was not supported by consideration. The Court concluded that:[xviii]

[T]he general rule is that a creditor is not bound by a promise to accept part payment in full settlement of a debt. … A counter promise by the debtor to pay only part of the debt provides no consideration for the accord, as it is merely a promise to perform part of an existing duty owed to the creditor.

In short, an agreement to accept part payment is not binding as no consideration has been provided to support the promise to accept less. However, the rule has been subject to exceptions. For example, part payment along with payment in a different currency or along with a chattel would provide consideration to support the promise to accept less. The court will not investigate whether the ‘something extra’ provided matches the value of the amount being surrendered, but, will look to see whether this extra addition to the agreement has some value in the eyes of the law. This means that payment of £90,000 to satisfy a debt of £100,000, without more, is not binding. An agreement to accept £50,000 and a bottle of wine to satisfy a debt of £100,000 is binding. To bind, there must be an agreement to accept less (applying the normal rules of offer, acceptance and intention to create legal relations’) and satisfaction which is shorthand for the require.

Practical benefit and decreasing pacts

It will be recalled that in Williams v Roffey the Court of Appeal upheld an agreement to pay more for the same as the promisor received a practical benefit which provided consideration to support the contractual variation. In Re Selectmove[xix] the Court of Appeal held that the practical benefit approach in Williams v Roffey was restricted to agreements to give more for the same. It was not applicable in relation to agreement to accept less. That remained the position until recently.

The most recent consideration of Foakes v Beer by an appeal court came in MWB v Rock Advertising.[xx] The main issue in this case was whether an oral variation could be upheld despite an express term in the contract that variations had to be in writing. However, for present purposes, the judgment was significant in that it dealt with the consideration requirement in relation to an agreement to pay less. MWB owned serviced offices. Rock Advertising was one of their tenants. Rock Advertising’s position was that they agreed with MWB to pay a smaller license fee for a short period but would pay more in the middle and end of the agreement with the effect that the total fee owed would be paid by the end of the license agreement. In short, a variation agreement to accept less.

The Court of Appeal held that the agreement to vary the contract was supported by consideration. Kitchin LJ recognised the importance of the rule in Foakes v Beer and Re Selectmove. However, Kitchin LJ recognised that MWB would receive many benefits from the rearrangement. First, MBW would recover some arrears owing by Rock v Advertising. [xxi]Second, Rock would remain in occupation of the premises and MWB would not have to find a replacement. Arden LJ endorsed a similar outcome. The judge emphasised that a promise to vary a contract can be upheld, as it was in Williams v Roffey, where the promisor receives an additional benefit. The benefit in MWB being that MWB ‘avoided the void’ of having to replace Rock as a tenant.[xxii] Arden LJ emphasised that in Re Selectmove there was no additional benefit to the Inland Revenue over and above receiving part payment of a debt.[xxiii] She further added that by finding that practical benefit along with part payment was good consideration, Arden LJ was merely showing that the requirement of a ‘horse, hawk or robe’ or something extra of value was satisfied in MWB by MWB receiving the practical benefit of avoiding the hassle of having to find an alternative tenant.[xxiv] The overall conclusion arrived at by Arden LJ was that there ‘can be no coherent distinction between agreement to pay debts and agreements to do work in this context’.[xxv]

MWB is a problematic case as the Court of Appeal failed to correctly apply legal principles. The Court has been commended for trying to give effect to the variation but not the method used. Shaw-Mellors argues that the decision is ‘welcomed for reaching a commercially sensible result and for the court’s wish to give effect to what the parties agreed’. However, the author argues that the decision creates uncertainty in that the case law and leads us down a ‘conceptual cul-de-sac’.[xxvi] Davies further adds that ‘it is not entirely satisfactory for the Court of Appeal effectively to side step Foakes and resort to the notion of “practical benefit” that was clearly not endorsed by the House of Lords in Foakes itself.’[xxvii] Shaw-Mellors and Poole further note that ‘[w]hile MWB can be defended in pragmatic terms for the desire to give effect to the parties’ freely agreed renegotiation, the court’s reasoning is difficult to accept’.[xxviii] The decision is further criticised as it creates uncertainty as to where to draw the line between agreements to accept less where the only benefit received by the promisor is the payment of money which will not be supported by consideration and those where something additional is provided which will be upheld.[xxix] For example, it is difficult to see why ‘avoiding the void’ along with part payment was good consideration in MWB but part payment along with avoiding the expense of chasing a tax debt in Re Selectmove was not enough. Roberts argues that after MWB the rule in Foakes v Beer is now restricted to the part payment of one-off liquidated debts. [xxx] MWB has not brought certainty to this area of law. It has muddied the waters further. One cannot be sure if practical benefit along with part payment is enough to support such a promise in relation to lease and license agreements, all agreements, debt agreements or other similar variations. The law as stated in MWB should not provide a blueprint for the future. The law should take the path of abolishing the rule in Foakes v Beer. The next part of this paper explores the arguments advanced for this course of action.

Arguments for abolishing the rule in Foakes v Beer

The Court of Appeal in MWB were seeking the correct outcome. Their method was wrong. It is argued that the law as it currently stands preserves the rule in Foakes v Beer. However, the law should be reformed. Reform through consideration by the Supreme Court or Parliament as opposed to the manipulation of legal rules in MWB that has received much criticism. The next part of this paper outlines the key arguments in favour of this reform.

First, the rule in Foakes v Beer is contrary to the general approach of the courts to uphold variation agreements. This can be seen in Williams v Roffey. The decision is Williams v Roffey has been followed in Australia [xxxi] and New Zealand.[xxxii] Courts in Singapore have also expressed criticism as to why a distinction is drawn between agreements to give more and agreements to accept less.[xxxiii] The approach in Williams v Roffey has been commended

for being ‘more flexible, less formalistic, and closer to modern commercial practice where there is a need for fluidity to take account of changing market condition’.[xxxiv] Halson further adds that:[xxxv]

This shift [towards practical benefit] of emphasis is to be welcomed. When premised upon a legal definition of consideration the pre-existing duty doctrine was too blunt and indiscriminate. If strictly applied it would deny legal force to many freely negotiated modifications like that in Williams v. Roffey Bros.

The courts continue to erode the requirements of consideration and there is no reason why this same approach cannot be applied to part payment situations.

Second, the courts are manipulating the law of consideration to unacceptable degree to try and uphold contractual variations. In New Zealand Shipping Co Ltd v AM Satterthwaite Co Ltd[xxxvi] Russell LJ stated that: ‘English law, having committed itself to a rather technical and schematic doctrine of contract, in application takes a practical approach, often at the cost of forcing the facts to fit uneasily into the marked slots of offer, acceptance and consideration.” This was also recognised by Russell LJ in Williams v Roffey where the judge criticised a ‘rigid approach’[xxxvii] to variations. MWB is a prime example of what happens when judges manipulate rules in an artificial way to suit the desired outcome. This is an unsatisfactory approach. Commercial law requires certainty.[xxxviii] The MWB approach does not provide this certainty at all and leaves more questions unanswered than resolved.

Related to this point, if we are to subscribe to the approach in MWB then it means that the doctrine of promissory estoppel is under threat as applied to decreasing pacts. Promissory estoppel can be used by a promisee to resist a claim by a promisor for the balance of a debt where a clean promise has been made that the balance would not be sought and the promisee has relied on this promise.[xxxix] If the ‘something extra’ in the form of satisfaction cannot be found in a contractual variation to support part payment then promissory estoppel can be pleaded as a defence by the promisee to estop the promisor from claiming any balance. In effect, it gives the promisee further protection even in the absence of consideration. However, if the MWB approach is followed, and part payment along with practical benefit is enough to support a promise to accept less, and the threshold for finding this benefit is as low as it is with Williams v Roffey type cases, then there will be no need for the doctrine

of promissory estoppel in these situations. Given that Kitchin LJ and Arden LJ both went on to discuss promissory estoppel in their judgments in MWB, without raising the question of it becoming obsolete in decreasing agreements, means that they could not have intended this outcome. However, if we use the practical benefit test in decreasing pact situations this would be the exact outcome.

Third, the law should give effect to the intention of the parties. Russel LJ noted in Williams v Roffey that the rules of consideration should be applied ‘so as to reflect the intention of the parties’.[xl] This speaks to the laissez-faire approach of the courts in relation to contractual agreements. Further, parties may obtain a commercial advantage to part payment as ‘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’.[xli] A further note is added by Adams and Brownsword who argue that parties may be ‘guided by economic imperatives, [prefer] to cut their losses rather than gain a Pyrrhic victory by standing on their legal rights’. [xlii] If both parties freely agree to alter the agreement then the courts should be very reluctant to intervene.

Fourth, the distinction between agreements to accept less and agreements to pay more is not defensible. Both agreements represent a variation of a contract. Both involve the promise receiving something of benefit. O’Sullivan argues that decreasing pacts are fundamentally different to increasing pacts – a debt is a monetary obligation that should not be undermined.[xliii] One cannot release a party from the balance as this would be gratuitous. [xliv] However, this argument is flawed. The author is contending that part payment should not be acceptable as it offends a theoretical principle of contract law. However, contract law in practice needs to be effective and theoretical arguments must give way to practical solutions. O’Sullivan’s argument may have academic strength but it has little to recommend it as a practical argument which recognises the reality of the business. O’Sullivan further argues that agreements to accept less could encourage the promisee to exert pressure on the promisor to accept a lower sum.[xlv] Again, this argument is not convincing. O’Sullivan’s argument fails to appreciate that the doctrine of economic duress and other vitiating factors can be used to void a variation where there has been bad faith. In conclusion, O’Sullivan’s arguments appear to be too technical. The author misses ‘the bigger picture’ that agreements to accept less are no different to other variations and should be upheld so as to give effect to what the parties voluntarily agree. Proponents of O’Sullivan’s arguments should remember that ‘the law of contracts serves the marketplace. It does not exist to satisfy lawyers’ desires for neat rules.’[xlvi] Commercial contracts should ‘be construed so as to avoid it making commercial nonsense or working commercial inconvenience.’[xlvii]

Where that agreement is not voluntarily, consideration is a poor mechanism to void the agreeme...