To discuss this extract, understanding of previous case law surrounding consideration must be undertaken. Pinnel's Case 1602

However the House of Lords supported the principle of Pinnel's case, and subsequent judgements have tended to follow this ruling for example Foakes v Beer 1884

Foakes v Beer 1884

In this case the House of Lords supported the view that that part-payment of debt could not be used as consideration to support a contract. This principle was already known from Pinnel's case, but this House of Lords decision strengthened it.

Foakes owed Beer about £2000 which was damages from an earlier case. Both Foakes and Beer agreed that if Foakes paid £500 immediately and the rest by installments then Beer would not take legal action. Foakes eventually paid the debt, but not the interest, which would have accrued since the date the award was made. Beer sued Foakes for the interest.

In defence, Foakes claimed that the new agreement, payment of the sum in installments, cancelled the original obligation, and that Beer had thereby waived the right to the interest. Beer claimed that the agreement was void as Foakes offered no consideration. The Court sided with Beer, allowing Pinnel's Case to stand.

Another piece of legislation supported Pinnel’s Case but also addressed the issue of parties forcing one another to accept “better terms” under economic distress and that was the case of Stilk v Myrick 1809

Stilk v Myrick 1809

In the case Stilk v Myrick a team of eleven sailors agreed to crew a ship from London to the Baltic and back. Two sailors deserted in the Baltic. The remaining nine refused to work, and pressed the captain for higher wages. He agreed at the time but ultimately refused to pay. The sailors sued the captain, but lost.

There are two ways to view this judgement. Firstly, it can be argued that the captain's offer was not supported by any consideration on the part of the sailors, and therefore there was no contract as the sailors were only doing what they had agreed to do in the first place. Secondly, it can be viewed as a decision to make a point of public policy. “It is not in the public interest for one party in a contract to be able to force the other party to offer better terms by placing him under economic distress.”³ 

The ruling in Stilk v Myrick is also supported with regard to parties within a contract doing what they had agreed to do in the first place in the case of Collins v Godefroy 1831.

Collins v Godefroy 1831

In Collins v Godefroy, where a statutory duty could not be seen as consideration, Godefroy promised Collins six guineas if he would attend court to testify on his behalf. Collins was subpoenaed and Godefroy refused to pay. In his defence, he claimed that there was no consideration from Collins, as he was obliged to attend court anyway. This view was upheld by the court.

There have been frequent attempts to interpret Stilk v Myrick in the second sense, to enable the courts to accept as consideration a promise to complete an existing contractual obligation, for example in Williams v Roffey 1991.

This highly contentious case, Williams v Roffey Bros. and Nicholls (Contractors) Ltd 1991, is taken to demonstrate that, in some cases, the performance of an existing contractual obligation can be taken as consideration in a new agreement. The

³ Lord Ellenborough Stilk v Myrick – Contract, Cases and Materials 4th Edition Beale, Bishop and Furmston 2001 page 114

traditional view, as previously discussed, has always been that it does represent a benefit to the party whose duties are already fulfilled to have the other party offer to do something he has to do anyway, the principle similar in effect to that in Collins v Godefroy.

Williams v Roffey Bros and Nicholls Ltd 1991

Williams entered into a contract with Roffey to undertake work as a subcontractor for carpentry work in a block of flats where Roffey had the total contract for the work. They agreed a date and price for the work. Williams got into financial difficulty because the agreed price was too low. The main contract contained a time penalty which would have to be paid by Roffey if the work was not finished on time. Roffey worried that Williams may not finish his work agreed to pay extra to Williams and changed the method of Williams work. Roffey did not keep up with the additional payments so Williams stopped working on the flats and sued Roffey for the additional amounts as per the oral agreement.

In defence, Roffey claimed that the new agreement with Williams was void, as there was not enough 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. By not paying the agreed extra amounts they were in fact stopping the work as Williams could no longer continue.

The application of Williams and Roffey to the case of Musumeci v Winadell Property Ltd 1994 was indeed the most significant aspect of the case.

Musumeci v Winadell Property Ltd 1994

Musumeci ran a business as fruiters. Winadell Property Ltd owned a shopping mall and let another business in the same mall to another fruiter and it was alleged that because of this action by Winadell there was a drop in trade to Musumeci. Musumeci wrote to Winadell requesting a reduction in rent to which Winadell agreed to reduce the rent by 33%. This was accepted but later Winadell withdrew this concession. Musumeci continued to pay 66% of the rent and this was accepted by Winadell as incomplete payments. Winadell changed their minds and entered the Musumeci shop and changed the locks.

Musumeci brought action for damages. Winadell argued that their promise to reduce the rent was unenforceable due to lack of consideration on how the reduction in the rent would affect themselves.

The court held that the promise to reduce the rent was supported by consideration as if they had not reduced the rent the Musumeci business may have failed and they would not have received any rent. The actions of Winadell had also place the Musumeci business under competition and Winadell should have considered this when leasing the other business to a fruiter.

When applying the decision regarding Williams and Roffey to Musumeci v Winadell Property we must first discuss why the previous ruling of Stilk and Myrick was not applied in full. Williams and Roffey had a contract, Williams was to complete carpentry work in a block of flats for an agreed price. It was recognised by both parties that the work would not be complete on time and so Roffey, understanding that he was subject to a time penalty clause, agreed to increase payments to Williams to have the work completed on time. Roffey then refused to pay.

This case is wholly similar to the case of Stilk v Myrick and on analysis Williams was placing economic distress to Roffey as he was subject to the time penalty clause. The significant aspect of this case was that Roffey had agreed the payments to Williams and by not making the additional payments was in fact preventing Williams completing the work and thus by Roffey withholding payment to Williams he was actually incurring the time penalty clause by his own doing.

When applying the rulings of Williams v Roffey to the case of Musumeci v Winadell the significant connection between the cases is that is there a difference in principle to a promise to pay more and a promise to accept less.

Roffey had agreed to pay more to Williams to ensure that he did not incur the time penalty clause and then did not pay the agreed extra sum. In the case of Musumeci v Winadell, Winadell agreed to accept less rent but then changed their minds and entered the business of Musumeci and changed the locks. Winadell also requested that the full rent had to be paid.

The ruling in both cases was the same and both cases favoured the plaintiff and from these cases we can conclude that there is no difference in principle between a promise to pay more and a promise to accept less.

Although the case of Williams v Roffey could be seen as overturning the traditional view of consideration, in practice it has not been widely followed in subsequent cases such as Re-Selectmove Ltd 1994.

This case confirms the existing principle that an offer to fulfil an existing contractual obligation cannot be seen as consideration to support a new agreement. The Inland Revenue tried to wind up Selectmove for non-payment of debts. Although it had been agreed to accept payments by installments, the Inland Revenue claimed that it could not be held to that agreement because Selectmove had no consideration. The Court of Appeal supported the Inland Revenue and applied the ruling in Foakes v Beer and not the decision from Williams v Roffey.

As previously stated, although the case of Williams v Roffey Bros. and Nicholls (Contractors) Ltd 1991 was highly contentious, the view that Stilk v Myrick supports the ruling that consideration cannot derive from an existing contractual obligation is still the dominant one.

Bibliography

Contract Law Fifth Edition – Catherine Elliott and Frances Quinn, Pearson/Longman

Contract Cases and Materials Fourth Edition – HG Beale, WD Bishop and MP Furmston, Butterworths

Key Issues in Contract 1995 – John Adams and Roger Brownsword, Butterworths

Contract Law, Text, Cases and Materials 2003 – Ewan Mc Kendrick, Oxford University Press