However later Court of Appeal authority in Williams v. Roffey Bros. [1991] outlines this idea of practical benefit. The plaintiff, subcontracted by the defendant, got into financial difficulty and the defendant offered to pay the plaintiff an extra £575 per flat completed as main contract containing time penalty clause and were worried the work wouldn’t be completed on time. Plaintiff sued for additional sum promised and Glidewell LJ, distinguishing rule in Stilk v. Myrick, held that promise to pay extra for something already obliged to do is good consideration, but only if there is a practical benefit. TOGA would clearly be receiving a practical benefit in paying the additional sum of 200,000 to XENA, as to ensure that the production and delivery of the 5000 units is completed in time for Christmas; similar to material facts in Williams v. Roffey, where the flats had to be completed in time. Therefore a valid positive modification to the contract exists; there is adequate consideration.
XENA approaching and informing TOGA about the necessity of this additional sum makes this current case distinguishable from Williams v. Roffey, where the defendant offered to pay extra for the work to be completed on time. This indicates that the legal principle of economic duress may have played a role in decision making.
If economic duress exists then the positive modification to TOGA and XENA’s contract will be voidable. The requirements for economic duress were laid down by Lord Scarman in the House of Lords case Universe Tankships Inc. of Monrovia v. ITW Federation, The Universe Sentinel [1983]; an illegitimate threat coercing consent.
An illegitimate threat is usually an unlawful one, however a lawful act can also amount to an illegitimate threat; releasing information in the case of blackmail is lawful but is an illegitimate use of that threat. In North Ocean Shipping Co. Ltd v. Hyundai Construction Co. Ltd, The Atlantic Baron [1979] Mocatta J held that a threat to break a contract may take the form of “economic duress”. Further more Court of Appeal authority in B&S Contracts & Design Ltd v. Victor Green Publications Ltd [1984] held that threat of breach of contract alone is not suffice, it will only constitute duress if consequences of breach are serious, immediate and there are no other alternatives.
In the present case, XENA informing TOGA that the units may not be produced and delivered on time unless an additional sum is provided, is a threat of breach of contract; not meeting the deadline of the end of October 2005 would result in a serious and immediate consequence. Breach of contract is against private law, and therefore unlawful and illegitimate; evidently outlining there is an illegitimate threat involved between XENA and TOGA.
The criteria required to determine what illustrates economic duress is outlined in the Privy Council case, Pao On v. Lau Yiu Long [1980]. Was there a protest? Was there any alternative? Did the victim get any independent advice? Did the victim take any step to avoid the agreement? TOGA “reluctantly” agreed to pay the additional sum of 200,000; suggesting that TOGA was unhappy and pressured into this modification. TOGA had originally established the contract with XENA in January 2004, XENA informing TOGA that it required this additional sum in August 2006, leaving only two months until the units were required to be delivered. It is therefore highly unlikely that TOGA would be able to negotiate a suitable contract and form adequate relations with another supplier in only 2 months, as well as have the units completed in time; any alternative unlikely to exist in such short time. It is equally unlikely that TOGA sought any independent advice; appreciating that there were no alternative and not wanting to slow down decision making. TOGA “reluctantly” agreed to the additional sum, suggesting that they agreed as a last resort after perhaps trying to avoid agreement. The criteria for economic duress are evidently fulfilled in the modification to the existing contract; there is an illegitimate threat coercing consent, rending the agreement voidable.
XENA’s acceptance of 600,000 in full settlement from TOGA, and XENA’s change of heart and demand of payment of the full settlement, raises doubts about this modification of the contract and whether it is good consideration. Based on early Court of Common Pleas authority established in Pinnel’s Case (1602) payment of a lesser sum, in relation to a greater sum, is not an enforceable promise. This point of law was later confirmed by the House of Lords in Foaks v. Beer (1884) where Earl of Selborne LC held that partial payment of debt cannot be satisfaction for a greater debt. Based on this authority, in the case of XENA and TOGA, 600,000 in full settlement of the £1 million is part payment of debt and therefore not good consideration for the whole. XENA’s demand of payment of the full settlement is viable and TOGA is liable to pay as the previous ‘modification’ lacks consideration and is therefore not a binding agreement.
On the other hand it may be argued that this concept of practical benefit from Williams v. Roffey, as outlined above, is applicable in the present case; XENA receiving some money rather than none which may occur if TOGA goes bankrupt. This stance was rebutted by Court of Appeal authority in Re Selectmove Ltd [1995] where Peter Gibson LJ said obiter that rule in Foaks v. Beer was binding and therefore Williams v. Roffey and the concept of practical benefit did not apply to part payment of debt. Further support is evident by the Law Commission of Canada’s agreement with Re Selectmove Ltd. Part payment of 600,000 is not good consideration and so XENA is entitled to recover the full settlement of £1million.
However a defence to XENA’s cause of action may be available to TOGA. Promissory estoppel is an equitable remedy that protects reliance on a promise, enforcing agreements not supported by consideration. The foundations of the doctrine of promissory estoppel were laid down by the House of Lords in Hughes v. Metropolitan Railway Co (1877), who held that based on rules of equity it would be unfair for the landlord to go back on his promise, as tenant had relied on this promise, and so tenant was not liable to repair the flat. Birmingham & District Land Co v London & North Western Railway Co (1889) confirmed this point of law, and held promissory estoppel was not limited to tenant/landlord disputes but was of a general application.
The requirements to raise the defence of promissory estoppel were later established by the House of Lords in Central London Property Trust Ltd v. High Trees House Ltd [1947], Denning J held that based on the rules of equity, if a promise is made from A to B and B relies on this promise and it is unfair for A to go back on this promise, then promissory estoppel can be raised to suspend rights. Further support for this authority is evidently illustrated in Moorgate Mercantille Co. Ltd v. Twitchings [1976]; Lord Denning affirming this point of law. In the present case, XENA accepting 600,000 from TOGA as full settlement was a promise from A to B, which TOGA relied on, and it is clearly unfair for XENA to go back on this promise.
Promissory estoppel is primarily suspensory not extinctive in nature; the case of XENA and TOGA is concerned with part payment of debt, if estoppel was established, then the debt would be kill off, which is not estoppels objective. However in E. A. Ajayi v. R. T. Briscoe (Nigeria) Ltd [1964] Lord Hudson held that if it is a one off, then promissory estoppel can be used to completely kill off a debt. This shows clear uncertainty in the law, raising doubts whether TOGA would be successful with this defence. Promissory estoppel undoubtedly undermines the rule in Foaks v. Beer “by reference to a wide ranging assessment of events leading up to and even after, the modification, and by flexibility in the remedial response.”
I advise my client, TOGA, that with regards to the first contractual modification of an additional sum of 200,000 for the same work, to bring an action of duress against XENA to recover this sum. The material facts here bare a resemblance to that of Williams v. Roffey; a practical benefit is present (units being delivered on time); there is consideration and therefore an agreement. Establishing economic duress would render this agreement voidable, leaving TOGA entitled to recover the 200,000 in damages.
In regards to the second contractual modification with XENA’s acceptance of 600,000 in full settlement of £1 million, as established above part payment of debt is not good consideration of the whole; XENA is highly likely to succeed in their cause of action in recovering the full £1 million. However I advise my client, TOGA, to rely on the defence of promissory estoppel as the only potentially successful defence to this claim. There was a promise between TOGA and XENA which TOGA relied upon and is inequitable for XENA to go back on and sue TOGA. But this will be a very difficult case for my client to win, as outlined above, in the ambiguity of the law and the technical difficulties between Foaks v. Beer and the doctrine of promissory estoppel.
Bibliography
Poole, Jill (2006) Casebook on Contract Law, New York: Oxford University Press
Chen-Wishart, Mindy (2005) Contract Law, New York: Oxford University Press
2 Camp 317; 170 ER 1168, Campbell’s Report
Universe Tankships Inc of Monrovia v. ITW Federation, The Universe Sentinel (1983) 1 AC 366 (HL)
