Contract Law. First assessed essay.
"The decision of the Court in Williams v Roffey Bros. [(1991) 1 QB 1, Court of Appeal] which suggests that performance of an existing (contractual) duty can constitute consideration where it results in 'practical benefit' to the promisor creates further ambiguity in the scope of consideration in English contract law."
Discuss.
Consideration is the essential part of the contract that comprises a legal agreement. English law requires that in all contracts other than those by deed both parties have to bring something to the agreement i.e. provide consideration to the bargain according to the "benefit - detriment" scheme. This aspect is explained by Sir Fredrick Pollock's definition in Dunlop v. Selfridge1: "An act of forbearance of one party, or the promise thereof, is the price for which the promise of the other is brought, and the promise thus given for value is enforceable." One of the fundamental judicial rules relating to it is that the performance of already existing contractual duty owed to the promisor is not sufficient consideration (based on Stilk v. Myrick2).
However, in Williams v. Roffey Bros.3, quite unusual interpretation was expounded by the Appeal Court judges, putting thereby the classical doctrine of consideration under strain. It was held that where a party (Roffey Bros.) to an existing contract later agrees to pay an extra supplement in order to ensure that the other party (Williams) performs his duties under the contract, then that agreement is binding. If the party agreeing to pay the bonus, it has thereby obtained some new 'practical benefit' or avoided a disadvantage. In the present case there were number of evident benefits to Roffey including (a) making sure Williams continued his work, (b) avoiding payment under a damages clause of the main contract if Williams was late, and (c) avoiding the expense and trouble of getting someone else.
One of the most controversial problems of such conclusion is derived from the disputes on overruling the Stilk case, which served as a leading case in this field for almost two centuries. Furthermore, this issue assumes the failure to refer on the superior authority (House of Lords) decision in Foaks v. Bear4, upon which Stilk relied. In both Williams and Stilk, the defendants required reassurance that existing duties would be performed. The decisions upon such similar scenarios appeared to be opposed at first glance. All three Williams' judges, however, pointed out an approval of the Stilk's principle. These ...
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One of the most controversial problems of such conclusion is derived from the disputes on overruling the Stilk case, which served as a leading case in this field for almost two centuries. Furthermore, this issue assumes the failure to refer on the superior authority (House of Lords) decision in Foaks v. Bear4, upon which Stilk relied. In both Williams and Stilk, the defendants required reassurance that existing duties would be performed. The decisions upon such similar scenarios appeared to be opposed at first glance. All three Williams' judges, however, pointed out an approval of the Stilk's principle. These are the words of Glidewell L.J. in the leading judgement of the case: "If it be objected that the propositions above contravene the principle in Stilk v. Myrick, I answer that in my view they do not: they refine and limit the application of that principle, but they leave the principle unscathed..." This judgment clearly settled a modern trend ahead of a rigid approach to the need for consideration in renegotiated contracts; It has been proposed to refine the Stilk principle from the "...rigours of seafaring life during the Napoleonic wars..." to those that would be applicable to the modern times. The implied refinement refers mainly to the previously mentioned doctrine of 'practical benefit' as an alternative to formerly used principle of 'legal benefit', and observes the changing of the circumstances at the time of the renegotiation (such as running into financial difficulties as it happened to the plaintiff in Williams).
Consequently, wide criticism was imposed on these findings, one of the strongest of which was published in rather sceptical article in the Journal of Business Law: "With respect, it is therefore impossible not to conclude that if this reasoning is followed the principle remains in name only. We can assume that to reach the desired result, consideration will be found at any price. Not only does this mean doing violence to one of the fundamental principles of classical contract law, it also entails conflict with other settled doctrine".5 Disparagements of this kind were also supported by the fact that in practice Williams has not been widely followed in subsequent cases. For example, in the case of Re Selectmove6 the Court of Appeal decided that the House of Lords judgment in Foakes v. Beer prevented the concept of 'practical benefit' from being used to support the idea of part-payment of debt to be viewed as an adequate consideration. The High Court's decision in Lee v. GEC Plessey Telecommunications7, however, was clearly based on Williams. Thus, it would be inaccurate to draw strict guidelines for the whole, present and future extent of cases, where the issue of consideration is involved, especially while focusing on only a handful of such proceedings happened since Williams.
Yet, taking the case's results as quite innovative, there are several additional factors, mentioned in judges' decision to be examined. First relates to the principle of promissory estopple, which provides a means of making a promise binding in the absence of consideration. The best explanation of this mechanism is given by Lord Denning: "When a man, by his words or conduct, has led another to believe that he may safely act on the faith of them ? and the other does act on them ? he will not be allowed to go back on what he has said or done when it would be unjust or inequitable for him to do so".8 In Williams, this doctrine was mentioned by all three judges concerning the fact that the defendants were estoppped from their promise to pay the plaintiff extra payment. However, these statements were later regarded as an obiter in the light of the previous findings on the subject of the 'practical benefit'.
Another significant subject is the matter of economic duress, which has quite strict authority to rescind contracts at the will of the innocent party while proven. In our case, however, it had not been proved, but, on the contrary, the court held that by promising to pay extra money, the defendant secured benefits, and there were "no finding, and no suggestion, that in the case the promise was given as a result of fraud or duress".
The obligation to perform an existing contractual duty to the third party had made an additional impact on the case, as Glidewell L.J. related to Pao On v. Lau Yiu Long9 case. The general rule used in Pao On is that "the performance, or the promise to perform, an existing contractual duty owed by the promisee to a third party, is good consideration". Therefore, this rule can be applied on Williams since the defendant was obliged to finish the work on time in order to perform the main contract.
The examined case provides a more flexible approach to the interpretation of the core rules in English contract law. The court showed greater awareness of the practical benefit that may arise from a renegotiation, as a result modifying the old principle set out almost two centuries ago in Stilk. Nevertheless, the doctrine of consideration remains the main weapon in the judges' armoury against the use of duress and extortion, defending thereby the weakest party in many two-party renegotiation cases.
Bibliography
* Duxbury, R., "Contract In a Nutshell", (6th ed., 2003), Sweet & Maxwell.
* Hird, N.J., Blair, A., "Minding Your Own Business - Williams v. Roffey Re-Visited: Consideration Re-Considered", J.B.L. 1996, May, 254-265.
* Hooley, R., "Consideration and the Existing Duty", J.B.L. 1991, Jan, 19-35
* http://www.bournemouth.ac.uk/fal/pdfs/BH_Doctrine_ consideration.pdf
* Lord Denning, "The Discipline of Law", (1979), Butterworths.
* Manchester, Salter, Moodie and Lynch, "Exploring the Law: The Dynamics of Precedent and Statutory Interpretation" (2nd ed., 2000), Sweet & Maxwell.
* McKendrick, E., "Contract Law Text, Cases and Materials", (2003), OUP.
* Williams v Roffey Bros & Nicholls (Contractors) Ltd [1990] 1 All E.R. 512 (CA)
[1915] AC 847
2 (1809) 2 Camp. 317 (1809) 6 Esp. The captain promised the crew members extra wages if they would work the ship home, but they were already bound to do this under their contracts therefore it was held that the captain's promise was not binding.
3 (1991) 1 QB 1, Court of Appeal
4 (1883-1884) L.R. 9 App.Cas. 605, HL. The plaintiff was entitled to recover the interest from the debt by the decision that paying a part of the obligation was not sufficient consideration for a promise of clearing the entire debt.
5 Hird, N.J., Blair, A., "Minding Your Own Business - Williams v. Roffey Re-Visited: Consideration Re-Considered", J.B.L. 1996, May, p.255.
6 [1995] 1 W.L.R. 474.
7 [1993] IRLR 383. The promise by the employer to extend enhanced severance payments to redundant workers, which was included into the contract of employment, was found to be supported by consideration in so far as the employer, in making the promise, avoided any argument that the payments should have been higher. The Court clearly regarded these as 'practical benefits' sufficient to satisfy the demands of the revised doctrine of consideration. (The review of the case is taken from http://www.bournemouth.ac.uk/fal/pdfs/BH_Doctrine_ consideration.pdf)
8 Lord Denning, "The Discipline of Law", 1979, Butterworths, p. 223.
9 [1980] A.C. 614.
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