Issue: Can Dunlop sue Selfridge even though they have no contract with them?
Holding: For the plaintiff Selfridges. Dunlop does not have privity and cannot sue.
Ratio: Only parties who are privy to a contract can sue on it. No privity no action.
Consideration must flow from the promisee to the promisor or to another at the promisor's request for the contract to be binding
An undisclosed principal may sue on an agreement made by his agent if consideration flowed from such principal to the other party at the request of the other party.
To sue on a contract, one must have given consideration at the promisor's request. Here, there was no consideration from Dunlop to Selfridges. Only Dew could sue Selfridges. Dunlop was over a barrel here because Dew was not an agent of Dunlop, nor had Dew breached the contract between themself and Dunlop. Dunlop had to try to sue Selfridges because this was the only contract that was breached.
Comment: Edwards; "the bible...a classic case...such a bugaboo". Denning tries to destroy the ratio used in this case but doesn't succeed here. He gets his revenge in Beswick v. Beswick. We can clearly see that the doctrine of privity is at loggerheads with the doctrine of examining intention (Denning's favourite). The doctrine of privity has been abandoned in the U.S.
WILLIAMS v. ROFFEY BROS. & NICHOLLS (CONTRACTOR) LTD.
1990 Eng. C.A.
Facts: The defendant contractor entered into a contract to refurbish 27 flats. There was a deadline for the job and a penalty if it was not met. They subcontracted the carpentry work to the plaintiff. The problem was that the plaintiff subcontractors had gravely underbid the job. The defendant contractor was over a barrel and renegotiated the contract giving the plaintiffs more money so they could finish on time. The defendant couldn't make the increased payments to the plaintiff and they ceased work. The defendant was forced to hire someone else to complete the job. The plaintiff sued for the balance of money that he was promised to finish the work. The defendant claimed the renegotiated contract was unenforceable because there was no consideration.
Issue: Was there consideration given by the plaintiff in return for an increased payment on a job which he was already legally bound to finish?
Holding: Appeal dismissed. There was valid consideration for the renegotiated contract.
Ratio: In absence of duress or fraud, a promise to increase a benefit for performance of an existing obligation is good consideration where continuation of the agreement is beneficial to the promisor.
The defendant agreed to pay the plaintiff extra money in exchange for a benefit. This benefit was the avoidance of a penalty under the main contract, or having to engage another contractor. This amounted to consideration, even though the plaintiff was not required to undertake any work additional to that which he was already contracted to do.
The benefit can be practical if not in law. In law he is already bound to do the job. In practice, the extra money is a benefit because it enables the person to finish on time (although there is no legal benefit). This is only true if there is no duress.
Comment: The contractor certainly received practical benefit for his increased payments. This is consideration and gives rise to binding contract Sufficient benefit will overwhelm a lack of detriment. This case does not overrule Stilk v. Myrick because that case was decided on duress, not consideration, which is the issue at hand. However, it does destroy University Steel and expands the notion of Shadwell to immediate parties.
While Shadwell stated that a pre-existing legal duty was good consideration when it originated from a third party contract, Williams v. Roffey goes one step further by stating that the pre-existing legal duty in the original contract is good consideration when it creates practical benefit. To have practical benefit, when there is no legal benefit (something of value in the eyes of the law) or legal detriment. If both parties benefit from an agreement it is not necessary that each also suffer a detriment.
LAMPLEIGH v. BRATHWAIT
(1615) Eng. K.B.
Facts: The defendant Brathwait was charged with killing a man. The defendant asked the plaintiff Lampleigh to do everything he could to obtain a pardon from the King. The plaintiff, with much effort, did obtain a pardon, and the defendant afterwards promised to pay the plaintiff ?100 for his efforts. The defendant never paid and the plaintiff sues in assumpsit (non-performance of a simple contract) for the payment of ?100.
Issue: Is there consideration for the promise of _100?
Holding: For the plaintiff. There was good consideration.
Ratio: A benefit promised later for a prior beneficial act done at the request of the promisor is good consideration.
The person receiving benefit from the act must have understood that there would be lawful payment for the act.
A voluntary act can be consideration if done by request and there is a promise for later payment. A voluntary act on someone's behalf by itself is not consideration, but it becomes consideration if that act is requested, and leads the offeror to fulfill his promise for the voluntary act on the belief that he will later be remunerated for it.
Comment: In this case it was not past consideration because there was an assumption that the plaintiff was going to be paid for his services but just how much was excluded. So when after the pardon was obtained, the defendant offered to pay ?100 for services rendered. This was just confirmation on an implied promise. First, there is a request then a promise based on that request. That promise is not for past consideration.
THOMAS v. THOMAS
(1842) Eng. Q.B.
Facts: A testator shortly before his death expresses a desire that his widow should have the house they lived in or _100. His executors (his two brothers) had no problem with this wish so long as she was alive, did not remarry, and paid _1 per year in rent and repairs of the house. The widow brings action for breach of contract after the brother (one died) did not keep up his end of the bargain as he refused to convey the house to her. In fact he evicted her...the bastard!
Issue: Was there a valid contract? Is motive consideration?
Holding: For the plaintiff. There was a valid contract. She got her house back.
Ratio: Motive for promising something does not amount to consideration unless:
1. The thing secured in exchange for the promise is of some value "in the eyes of the law".
2. The consideration flows from the promisee (the plaintiff widow) .
The rent paid for the house was good consideration because it was paid to the executors and not the landlords. The promise to keep up the house in good condition was also good consideration from the widow. The consideration here may not be "fair" but it is adequate. The widow's acts were of "some value in the eyes of the law". While the consideration was not described by the court as "nominal" (having token value), nominal consideration is still good consideration. i.e., a pencil for a car.
Comment: Consideration cannot be incidental to the terms of the contract; it must flow from the contract itself. The testator's desire was a motive for the defendant's promise, but not part of the consideration for it. The plaintiff's promise to pay the _1 was the motive that constituted the consideration. In this case, the wife got the house in exchange for money and the responsibility of keeping up the house. Had she paid the rent to the landlord there would be no consideration. She paid to the executor.
A Brief Introduction to Pre-Existing Legal Duty
Public Duty:
1. Doing what you are legally obligated to do. No consideration. E.g., a fireman is legally obligated to put out a fire while on duty.
2. Doing above and beyond what you are legally obligated to do. Good consideration. E.g., police supervising a soccer match at the request of the teams (Harris v. Sheffield United).
Rule #1
A promise to perform an existing legal public duty is not good consideration
Private Duty:
Consideration may be:
a) a promise to perform an act
b) actual performance of an act
Rule #2
A promise to perform a pre-existing legal private duty to third party is good consideration. The authority for this is...
SHADWELL v. SHADWELL
(1860) Common Bench N.S.
Facts: Nephew is engaged to marry, which was a binding contract at the time. His uncle, upon hearing of the marriage, promised to pay the nephew _150 per annum until the nephew made _600 per annum. The uncle pays for ten years, dies, and his executors refuse to pay further on the grounds that there was no consideration for the uncle's promise since the nephew was already legally obligated to marry.
Holding: For the nephew; the executors must pay.
Ratio: There was consideration because the original consideration and contract was with the third party fiancée and not the uncle.
STILK v. MYRICK
(1809)
Facts: Sailors were jumping ship during the Napoleonic wars. On one voyage, after many sailors had jumped ship, a captain promised his remaining crew more money on their return to the port if they stayed with the ship. The men were already bound to stay with the ship. Back in port the captain refused to pay and one sailor sued.
Issue: Was there consideration for the captain's promise of a bonus?
Holding: For the captain; no consideration; no contract.
Ratio: A pre-existing legal obligation is not good consideration when there is no 3rd party.
While it is now stated that this case turned on duress, the sailors were already legally bound to sail home so they did nothing more than they were originally bound to do. This decision was also a policy decision because the court was trying to stop mutineering scurvy dogs from extorting more money from their captain. The element of duress must always be examined in these types of cases. e.g., D&C Builders v. Rees.
While it might be said that the captain received a practical benefit of getting his ship home, this argument is countered by the oath that sailors had to take. It stated that they were obligated to do whatever was necessary to keep the ship afloat.
PAO ON v. LAU YIU LONG
(1980) P.C.
Facts: The plaintiff Pao On owned the company, Shing On, which owned a building. The defendant Lau were majority shareholders in a public company, Fu Chip, which wanted to acquire the building. So they made a deal...
Primary Contract: All Shing On shares (effectively the building) to be exchanged for 4.2 million shares in Fu Chip. Problem was, this large a share shift might damage the trading value of the shares. The Fu Chip shares were, therefore to be transferred in two batches a year apart.
Subsidiary Contract: An additional agreement was added to protect Pao On against a drop in share value over the year. The defendant would buy back the number of remaining shares at $2.50/share (2.5 million shares). In return Pao On could not sell 2.5 million shares for one year.
The plaintiff then realized that this agreement would deprive them of any gains (which were expected) and they refused to complete the main agreement unless the subsidiary agreement was cancelled and replaced with a guarantee that the shares would retain their value. The defendant, fearing for the deal, signed a deal guaranteeing the plaintiff would be indemnified against any drop below $2.50/share. Fu Chip went belly up and the defendant refused to pay up. Defendant argued that the consideration was past and that the only consideration was that they perform the existing contract.
Issue: Was the past consideration good consideration in this case?
Was there consideration for the defendant's buy-back guarantee?
Holding: For the plaintiff. There was consideration. Binding contract.
Ratio: Past promise made at the request of one party constitutes consideration for a counter promise later made by the same party.
The court went back to Lampleigh v. Braithwaite to figure this mess out. An act done before the giving of a promise can sometimes be consideration for the promise.
Three conditions need to be met:
1) The act must have been done at the promisor's request.
2) The parties must have both understood that the act would require consideration.
3) Consideration must have been legally enforceable.
ALL THREE WERE MET. The repudiation left a void that both parties knew needed to be filled to protect the plaintiff. The second contract was seen as necessary by both to complete the initial deal, on a principle established at the outset; therefore, the consideration was performed at the outset, in the initial deal. If there had been duress, the second agreement would have been unenforceable. The court said there was no duress.
