Contract Law - Seminar Consideration 1/2 PDF

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Stilk v Myrick : Consideration (Consideration and Pre-existing Legal Obligations) Kings Bench Division

Facts: Stilk was contracted to work on a ship owned by Myrick for £5 a month, promising to do anything needed in the voyage regardless of emergencies. After the ship dockedtwo men deserted, and after failing to find replacements the captain promised the crew the wages of those two men divided between them if they fulfilled the duties of the missing crewmen as well as their own. After arriving at their home port the captain refused to pay the crew the money he had promised to them. Issue: Was there legally sufficient consideration of this agreement to allow the sailors to collect? Held: The claimant was under an existing duty to work the ship back to London and undertook to submit to all the emergencies that entailed. Therefore he had not provided any consideration for the promise for extra money. (The agreement is void for want of consideration.) Ratio: Performance of a pre-existing duty is not legally sufficient consideration. Significance: Modern commentators say that the decision by the judge not to award the money to the plaintiffs was based at least partly on public policy; should he have done so it would have created precedent that would risk crew members blackmailing captains into giving them more money. It is accepted that the decision would likely be different if it was made in modern times, because of the doctrine of economic duress it would be difficult for such blackmail to be enforced in court [2]

Court: Kings Bench division

Williams v Roffey: Obligations Owed Under Contract with Promisor: CA Precedent: Decided that in varying a contract, the court will be quick to find consideration, if "factual benefits" are given from one to another party. Facts: Roffey was contracted to Shepherds Bush Housing Association to renovate 27 flats in London. They subcontracted carpentry to Lester Williams for £20,000 payable in instalments. Williams ran in financial difficulty and needed more money to continue the work. Roffey was going to be liable under a penalty clause for late completion, so they

decided that they will make extra payment to the Carpenter. Williams continued with work, but 3500£ was still missing. Instead, Roffey brought in new carpenters. Issue: Was there legally sufficient consideration of this agreement to allow the carpenters to enforce Roffey’s promise ? Has consideration moved from the promisee? Held: Consideration WAS provided by the claimant through conferring a practical benefit on the defendant. Here, helping them to avoid the penalty clause. Therefore the defendant was liable to make the extra payments promised.Where a party to a contract promised to make an additional payment in return for the other party's promise to perform his existing contractual obligations and as a result secured a benefit or avoided a detriment, the advantage secured by the promise to make the additional payment was capable of constituting consideration Ratio: A pre-existing duty to the promisor can be good consideration if there is a practical benefit conferred onto the promisor. Court: Court of Appeal Main argument for appeal from the defendants: * There was no consideration on behalf of the claimant so the contract was not enforceable. * If money was owed, it was upon competition of the flats in their entirety, no flat had been completed so no money was owed. Main arguments for D’s:  They had agreed to pay the $ but there was no consideration from the P Judge says “"In my view where the original subcontract price is too low, and the parties subsequently agree that additional moneys shall be paid to the subcontractor, this agreement is in the interests of both parties.” Also, the P does provide consideration as he suffers a detriment, spending money to complete the flats.  The additional sum was only payable upon completion of the relevant flats — Judge says that you can’t withhold all money until completition, you need to pay it and if necessary bring a cross-claim for the defects and omissions, or set them up in diminution of the price. Essentially, Williams had substantially completed, in the manner asked of him, the work.  They had derived a practical benefit but not a benefit in law since the plaintiff was promising to do what he had already agreed to do (relying on Stilk v Myrick). Duress wasn’t even considered because the D agreed that they conferred this PB. Foakes v Beer: HOL Significance: applied the controversial pre-existing duty rule in the context of part payments of debts.

Facts: The appellant, Foakes, owed the respondent, Beer, a sum of £2,090 19s after a court judgment. Beer agreed that she would not take any action against F for the amount owed if he would sign an agreement promising to pay an initial sum of £500 and pay £150 twice yearly until the whole amount was paid back. Foakes was in financial difficulty and, with the help of his solicitor, drew up an agreement for Beer to waive any interest on the amount owed. She signed. Foakes paid back the principal but not the interest. Then Beer sued Foakes for the interest. Issue: Is partial payment of a debt sufficient consideration for the original contract between Foakes and Beer? Is the agreement capable of being legally enforced? Held: The payment of a lesser sum cannot be any satisfaction for the whole. There was no consideration for Mrs Beer’s promise not to sue for interest since Dr F was doing no more then he was already obliged to do. Ratio: Payment of a lesser amount cannot serve as satisfaction of a larger amount. or The payment of a smaller sum of money for a lager sum is not consideration because in paying less is not whole satisfaction. Main issues:  The judges cited Lord Coke from Pinnel: - “that payment of a lesser sum on the day in satisfaction of a greater cannot be any satisfaction for the whole, because it appears to the judges that by no possibility a lesser sum can be a satisfaction to the plaintiff for a greater sum: but the gift of a horse, horse or robe etc, in satisfaction is good, for it shall be intended that a horse, hawk, or robe etc might be more beneficial to the plaintiff than the money, in respect of some circumstance, or otherwise the plaintiff would not have accepted of it in satisfaction.  They asserted, therefore, that Dr Foakes was liable to pay the interest. The agreement reached amounted to part payment of a debt and under the rule in Pinnel’s case this was not good consideration for a promise not to enforce the full amount due.  In short, even if she had agreed to forgo the interest in the initial deal, this contract was not binding upon her as it conferred no consideration to her, and thus the interest was due. Arguments for the defendant:  The agreement is void for want of consideration Re Selectmove: Issue: Was there sufficient consideration in the partial payment of the existing debt to find a binding contract?

Facts: In re Selectmove concerned a company which owed the revenue substantial amounts of tax. In July 1991 the managing director of the company met a collector of taxes and proposed that the company would pay any future liability as it fell due and would pay the outstanding tax in monthly instalments from February 1992. Held: The Crown argued that Foakes v Beer was the appropriate precedent for this case and that the agreement to pay less could not be consideration. Selectmove argued that Williams v Roffey Bros. & Nicholls (Contractors) Ltd. was the appropriate precedent as the Crown would have a practical benefit for waiting to retrieve the money owed as it would generate more money from an operating company rather than forcing a sale immediately. While Gibson, writing for the court, appreciates the argument made by Selectmove, he feels bound by Foakes and therefore dismisses the appeal. Ratio: Even in a case where there may be a practical benefit to accepting a lesser amount in payment of a debt, this is not sufficient consideration to find a binding contract. MWB Business Exchange Centres Ltd v Rock Advertising Ltd: - CA (Doesn’t overrule Foakes V Beer because CA rather than HOL ) Significance: Court of Appeal confirms that contracts which expressly prohibit oral amendments may nevertheless be amended orally. Issue: Did the anti-oral variations clause in the licence mean that the oral variation to reschedule the monthly licence fees was of no effect? - If an oral variation could still be effective, was it supported here by sufficient consideration provided by Rock? Main issue: Can practical benefit amount to good consideration when it comes to renegotiations. Facts: Rock Advertising (Rock) was the licensee of managed office space owned by the licensor (MWB). It had fallen into arrears with its monthly licence fees. MWB served a notice to terminate the licence. Rock argued that an oral agreement had been reached between MWB’s credit controller and a director of Rock to reschedule the monthly licence fees (so that Rock would pay at a lower rate for a number of months and would then pay at a higher rate for the remainder of the licence). Held: The Court of Appeal unanimously allowed Rock's appeal on the first ground, holding that the oral amendment to the licence contract was effective despite the express contractual provision requiring amendments to be in writing. Arguments in trial case:

 MWB denied that Miss Evans and Mr Idenhen had even reached an oral agreement. The judge concluded that Miss Evans did agree to the terms and schedule proposed by Mr Idenhen. She also had the relevant authority to do so  MWB claimed that the oral variation agreement then wasn’t enforceable because there was no consideration.  The judge concluded that there was commercial benefit in retaining an existing tenant, rather than allowing the property to stand empty.  MWB argued that the written contract didn’t allow for oral variations: “This licence sets out all of the terms as agreed between MWB and the licensee. No other representations or terms shall apply or form part of this licence. All variations to this licence must be agreed, set out in writing and signed on behalf of both parties before they take effect.  The judge concluded that this did indeed exclude an oral re-negotiation. Rock’s grounds for appeal:  The judge was wrong to hold that said clause excluded oral re-negotiation.  The judge was wrong to dismiss the estoppel argument. Actual issues to be dealt with for the CA: i) whether clause 7.6 precluded any variation of the agreement other than one in writing in accordance with its terms; ii) whether Rock provided any good consideration for the oral variation; and iii) whether the judge ought to have held that MWB was estopped from enforcing its rights under the original agreement. i) “The parties are therefore free to include terms regulating the manner in which the contract can be varied, but just as they can create obligations at will, so also can they discharge or vary them” - Beatson LJ in United Bank and World Online Telecom Essentially, “Those who make a contract, may unmake it. The clause which forbids a change, may be changed like any other. The prohibition of oral waiver, may itself be waived … What is excluded by one act, is restored by another. You may put it out by the door, it is back through the window. Whenever two men contract, no limitation self-imposed can destroy their power to contract again… ” ii) The oral variation agreement would have a number of beneficial consequences for MWB: they would recover some of the arrears immediately and would have hope of recovering the rest in due course. Secondly, Rock would remain a licensee and continue to occupy the premises. There has to be something more than simply accommodating the debtor. MWB would avoid the void. That kind of practical benefit can amount to good consideration. This is an exception to the practical benefit limitation. Essentially, because if they ended the relationship they would get nothing, so its better to get

less rather than nothing. Significant thing about this case: this case has eaten up the doctrine of consideration. iii) “If one party to a contract makes a promise to the other that his legal rights under the contract will not be enforced or will be suspended and the other party in some way relies on that promise, whether by altering his position or in any other way, then the party who might otherwise have enforced those rights will not be permitted to do so where it would be inequitable having regard to all of the circumstances.” Practical benefit that provided an actual benefit of real commercial advantage - in MWB its a continued relationship (nothing like this in Foakes v Beer)....