Consideration and Existing Contractual Duty

         To answer that question, I would like to explore other cases which also tackled the issue of consideration and contractual duties but we shall indulge in that later.  Roffey Brothers & Nicholls (Contractors) Ltd. (the defendants) were a firm of builders contracted to renovate a block of 27 flats.  Their own contract contained a penalty clause for late completion, so it was in their interests to finish the work on time.  To avoid late completion, they sub-contracted the carpentry work for a total price of £20,000 to Williams (the plaintiff).  As work progressed, Williams fell behind schedule because he ran into financial difficulties as the contract price was too low and because he failed to supervise the men properly.  The defendants were concerned that the flats would not be completed on timeand they would incur penalties under their main contract.  They negotiated a new deal with Roffey, where an additional sum of £10,300 at the rate of £575 per flat was to be paid to the plaintiff upon the completion of each flat.  The plaintiff continued to work on the flats until eight of them were “substantially completed” but the defendants only made one further payment of £1,500 and refused to pay the rest.  This resulted into the halt of work and legal action by the plaintiff.

 

In defense, Roffey claimed that the new agreement with Williams was void, as there was no sufficient consideration from Williams.  The Court considered the case of Stilk v Myrick and decided that it was robust and should stand: an agreement cannot be enforced without consideration.  However, the Court held that in this case there was consideration: the new agreement conferred additional `practical benefit' on Roffey, in particular an early completion would allow them to avoid the exercise of the penalty clause as well as avoid the expense involved in engaging another carpenter to complete the sub-contracted work.  In the end Glidewell LJ chose to follow a couple of more recent cases in which Lord Denning had said that performing an existing duty could be a good consideration in appropriate circumstances. These cases were Ward v Byham and Williams v Williams.  The following is the judgment of Russell LJ in Williams v. Roffey.

 

“For my part I wish to make it plain that I do not base my judgment on any reservation as to the correctness of the law long ago enunciated in Stilk v. Myrick.  A gratuitous promise, pure and simple, remains unenforceable unless given under seal.  But where, as in this case, a party undertakes to make a payment because by doing so it will gain an advantage arising out of the continuing relationship with the promise the new bargain will not fail for want of consideration.”        

        Given the long-standing principle of Stilk v Myrick, how could the plaintiff be entitled to recover any part of the additional payments?  It can be argued that Stilk v Myrick was a case involving economic duress.  Although bargaining occurs legitimately in commercial contracts, duress may occur in the form of breaching an existing contract between the two parties unless the innocent party agrees to enter into another contract.  The contract can be voided if the innocent party can prove that it had no other practical choice (as opposed to legal choice) but to agree to the contract.  On the other hand, there was no duress in Williams v Roffey but the defendant’s promise to pay additional sums secured them practical benefits which were sufficient enough to provide consideration.        

        

        Although it is recognizable that Williams v. Roffey is inconsistent with Stilk v Myrick, considering the fact that Williams v. Roffey requires consideration in the form of practical benefit to support one-sided variations of existing contracts, the case of Williams v Roffey may have been a blessing in disguise as it resulted in the court squarely facing up the doctrine of consideration and its place in today’s commercial world.  I would like to point out however, that the decision of the judges in this case did not bring to an abolishment of the old law, but essentially expanded the conception of consideration.  As a result of this decision, promissory estoppel, which was previously only used to defend against legal action, can now be used to both commence and defend against legal action.  

        Let us also look at the recent case of South Caribbean Trading Ltd. v. Trafigura Beheer (herein after known as SCT v. Trafigura) which also dealt with the concept of consideration and performance of existing contractual duties.  South Caribbean Trading Ltd. had entered into 3 contracts with Trafigura Beheer

(1) By contract 5508-1 SCT agreed to sell to Trafigura 350,000 U.S. barrels of Wet fuel oil blendstock (WFOBS);

(2) By contract 5508-02 SCT agreed to re-purchase the 350,000 barrels of WFOBS together with 134,000 U.S. barrels of cutter; and

(3) By contract 5536 SCT agreed to sell Trafigura 484,000 U.S, barrels of fuel oil.

“This distinction can be exemplified by the following. A expresses to B his wish to purchase from B widgets manufactured by B from certain metals and B informs A that he cannot acquire such metals on the market. A indicates his ability to acquire such metals and his willingness to sell them to B. They then enter into two contracts. (1) A sells to B quantities of metal calculated to be sufficient for manufacture of a given quantity of widgets and (2) B agrees to sell to A that particular quantity of widgets. Clearly both parties assume when they enter into the contracts that what is delivered under (2) will exclusively comprise the components purchased under (1). But if the question arises whether B is entitled to deliver widgets which otherwise comply with the contract specifications but do not incorporate components delivered under (1), the determinant is whether what was mutually assumed to be the mode of performance by B is reflected in a term of (2) whereby B is under a duty to perform only in that way.” 

        The decision in the case of Williams v. Roffey was criticized by Coleman J in the dicta of SCT v. Trafigura. What he disliked about it was that it “is inconsistent with the long-standing rule that consideration, being the price of the promise sued upon, must move from the promise”.  The issue in SCT’s case was the enforceability of an agreement to vary (by delaying) the date on which SCT would deliver blended oil under an existing contract. Based on the facts, Coleman J found additional consideration from SCT for the variation in its promise to overcome the unexpected problems in achieving effective blending of the oil. However, Coleman J made it clear that he would not have accepted SCT’s mere promise to deliver the oil as sufficient consideration for Trafigura’s promise to accept later delivery, as SCT was already under contractually obliged to do so.  His preference for the requirement of practical benefit has strengthened the doctrine of consideration.  It can be seen that Coleman J accepts that Williams v Roffey “appears to have introduced some amelioration to the rigidity of this rule in cases where there has been refusal to perform not amounting to economic duress by the party who might otherwise be in breach of any existing contract and where the other party will derive a practical benefit from such performance”.  However, he made it clear that he would not have followed Roffey but for it being binding on him, not having ‘yet’ been declared ‘wrongly decided’ by the House of Lords 

        Another case to take note of would be that of Pao On v Lau Yiu Long which ended up in the Privy Council.  It also involves the issue of economic duress as well as the argument of consideration.  It was said that an act done before the giving of a promise to make a payment or to give some other benefit can sometimes be consideration, given that:

(1) The act must have been done at the promisor's request;

(2) the parties must have understood that the act was to be remunerated either by money or some other benefit; and

(3) the money or other benefit, must have been legally enforceable had it been promised in advance.

This case was also important because it refused to allow arguments of a "dominating bargaining relationship (undue influence or economic duress) where businessmen are negotiating at arm's length.... There was commercial pressure but no coercion."        

        It is at this point that I turn to Australian law.  In Australia, the Williams v. Roffey case has been further applied to Musumeci v Winadell Pty Ltd.  Musumeci, and his wife, a small fruit and vegetable shopkeeper had entered into a lease of a shop in a shopping centre.  Musumeci, through their solicitors asked for lease re-negotiation, and a new 5 + 5 lease, as they could not compete with a larger retailer who was also selling fruits.  There was also a suggestion of [Contracts Review Act/Trade Practices Act (CRA/TPA)] breach.  The landlord’s solicitors rejected this, and rejected re-negotiation, but proposed a one-third rent reduction.  

Musumeci ‘accepted’ a one-third reduction, but continued to ask for a new 5 + 5 lease, and suggested grounds for a CRA/TPA claim.  The rent reduction operated for about six weeks, then the landlord purported to withdraw that also, because in correspondence, Musumeci’s solicitors had taken the attitude that ‘rent’ included an ‘outgoings’ factor, and paid on that basis only.  Further correspondence ensued, but the defendants accepted lesser payments ‘without prejudice'.  In the end, the defendants tried to evict the tenants but went about it illegally.  The court held in this case that Musumeci had provided Windadell a practical benefit by continuing the lease.  

        So now we have an Australian case which questions the concept of performance of existing contractual duty.  There have been doubts arising from this case on whether the judicial approach to Williams v. Roffey should be followed.  First of all, Australia’s existing duty rule protects against extortionate demands.  The theory that pressure by threat not to perform may be duress does not apply in Australia.  Secondly, there is no legal benefit or detriment in either performing an existing duty or being relieved of the obligation to make a payment.  However, this takes no account of practical benefits or detriment.  Often, we choose the more convenient way of solving a problem – the promise to accept extra or less money against the alternatives which my confront the promisor, such as termination or reformation of contract.  Third, a ‘hoped for’ consequence is not adequate enough for a consideration.  This goes back to the ‘duty’ rule of the promise, where there is bound to be ‘residual significance’.  But then again, the question is whether the promisee is in fact, providing some practical benefit.  After all, the main reason why we involve ourselves in contracts is for the sole purpose of benefiting from it, however narcissistic it may sound.   Besides that, one way to go around this case is the use of promissory estoppel and forbearance.  It can be argued that, even if there is no consideration for the landlord's promise, the landlord is estopped from renouncing the new terms if the tenant has relied on the promise.        

        If the approach adopted in Musumeci v. Windadell Pty Ltd is right, then perhaps the English law should take into account the points laid out by the Australian law. Be that as it may, John Edwards and Roger Bronsword pointed out in the Modern Law Review:

“Williams v. Roffey represents an important staging post in the transformation of our conception of consideration. Judicial rhetoric still clings to the remnants of an exchange model, of benefit being derived in return for the promise. However, the driving force behind the recent decision on the existing duty question quite clearly has been a mixture of consideration of fairness and commercial utility (aided by the developing doctrine of economic duress). In Williams v. Roffey, the court appreciated both that the defendants’ promise was commercially necessary and that it would be inconsiderable for them to go back on their word. Moreover, not only did the court appreciate these matters, it was prepared to act on them.”

                It would seem that Williams v. Roffey overruled Stilk v. Myrick, but it also can be said that Stilk v. Myrick still remains a good law.  The court came to the conclusion in Williams v. Roffey by giving a wider meaning of consideration that have previously been thought appropriate.  Moreover, even though practical benefits also accrued to the captain of the ship in Stilk v. Myrick, the main point of distinction between the cases is that no pressure was put on the defendants in Williams v. Roffey to make the offer of additional payment.  In conclusion, I think that the decision in Williams v. Roffey should be welcomed as I believe that it is a good law.  Despite the fact that it also has a set of its own problems, it is still a considerably good progress on the concept of performance of existing contractual duty.  

             

Bibliography

Books

Chen-Wishart, Mindy, Contract Law, (Second Edition), Oxford University Press

Articles

Hird, Norma J. and Ann Blair, “Minding Your Own Business – Williams v. Roffey Re-visited: Consideration Re-considered” (1996) J.B.L. May 254

Adams, John and Roger Brownsword, ‘Contract, Consideration and the Critical Path’, MLR Vol.53, No. 4 (July 1990) 536

Hooley, Richard, “Consideration and The Existing Duty” (1991) J.B.L. (Jan) 19

Internet Sources

Duhaime, Lloyd, “Consideration”, 13 October 2007, <http://www.duhaime.org/LegalResources/Contracts/tabid/339/articleType/ArticleView/articleId/88/Part-3-Consideration-amp-Deeds.aspx>

Lisá, Barbara, “Consideration Considered: How English Law Identifies Valid Contracts”, 2007

<http://review.society.cz/index.php?option=com_content&task=view&id=13&Itemid=2>

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