The Doctrine of Common Law Forbearance - Case Study Example

Foakes v beer (1884) All ER Rep 106 and Williams v Roffey Bros [1990] ALL ER 512 Introduction Williams v Roffey1 is a significant decision, which brings a low threshold to the requirement of consideration in relation contract modification. This is especially true taking into account the commercial realities and the real intentions of the parties.2 Discussion The defendant's contracting firm had been engaged in a building contract for the refurbishment of a block of twenty-seven flats. Some of the work was subcontracted to the plaintiffs for the price of twenty thousand pounds. The Plaintiff soon suffered from a financial crisis and realised that he had under priced the refurbishment. The defendant promised to pay an additional sum of money for each flats timely construction fearing he would face liquated damages for delay under the original contract. After finishing about eight more completed flats, the plaintiff refused to work any more and also refused to return the remaining 460, which was the amount owing from the subsequent promise or the eight completed flats. The defendant tried to argue that following Stilk v Myrick3, they were not liable to the plaintiff because the subsequent promise was not legally enforceable due to the fact that no consideration had been paid for it .The plaintiff had offered no consideration because, in exchange, the plaintiff was only offering to do what he was already bound to do.4 The Court held that there was indeed a benefit for the defendant in that he would avoid the penalty liquidated damages and have the convenience of continuing with the same carpenter At the time this case was decided, it was widely expected that that this new notion of a "practical benefit analysis" would be applied to future cases concerning part payment of debts. 5If thoroughly applied the previous cases of Foakes v Beer and Pinnel's case would be rendered as not good precedent.6 Therefore, where the creditor accepts less than the full amount owed to him and promises to waive the rest of the money it would not be difficult for him to prove that there have been any practical benefits received. 7Lord Blackburn who gave the dissenting judgement in Foakes v Beer acknowledged this, as follows:8 "All men of business ... do everyday recognise and act on the ground that prompt payment of a part of their demand may be more beneficial to them than it would be to insist on their rights and enforce payment of the whole. Even where the debtor is perfectly solvent, and sure to pay at last, this is often so. Where the credit of the debtor is doubtful it must be more so."9 The case of Re Selectmove Ltd.10 involved an appeal by a company from an order arising from the request of the IRC to recover a large amount of taxes and to wind up the defaulting company. The company pleaded that the IRC had promised through an agreement that they could pay the arrears in a monthly scheme and pay the new taxes promptly. The court held in line with Williams v Roffey brothers that this arrangement amounted to a practical benefit to the IRC. However the case was decided in the favour of IRC and Peter Gibson L J made it very clear that if the Court of Appeal were to accept the practical benefits analysis, "It would in effect leave the principle in Foakes v Beer without any application". He also said that the creditor will almost always look at the practical benefits of any bargain but they cannot be classified as new consideration and this has been the view in Foakes v Beer. This view of the Court of Appeal has been subjected to much criticism. 11It is often said that it overlooked the incompatibility between the decisions of the Williams v Roffey and Foakes v Beer and that it is not possible to restrict this case merely to a restriction or expansion of the practical benefits doctrine but a clear line needed to be drawn between a promise to pay additional sums of money under the Williams v Roffey Case and a promise to accept a lesser amount of money in lieu of the full payment under the rule in Foakes v Beer.12 Therefore, whereas the case of Williams concerns a change in contractual obligations, Foakes v Beer concerns the extinguishing of a debt under a contractual obligation. Treitel13 has expressed the view that Pinnels Case is no longer good precedent to follow and another academic Downes 14 has also pointed out that the rule has already been qualified by a lot of cases and doctrines like the that of promissory Estoppel. It has also been said that Foakes and Williams should have been decided on special facts and merits on the basis that the practical benefit to the creditor arising from the agreement in that case was not proved to the satisfaction of the court. McKendrick15 has expressed the view that although the case of Williams v Roffey Bros. & Nicholls (Contractors) Ltd. [1991] 1 QB 1 seems to introduce " some amelioration" to the rigidity of the Pinnels and Foakes cases, especially where one party is subjecting the other party to economic duress and extortion and the other party also stands to benefit from the performance. Recently, in the case of South Caribbean Trading Ltd v Trafigura Beheer BV16 , Coleman J was also of the view that there should be a distinction between the legal and a practical benefit dichotomy present in both cases.17 He criticised Williams v Roffey while realising that this case was inconsistent with the case of Stilk v Myrick which basically required the consideration in the form of a legal benefit to: "support one-sided variations of existing contracts"(Mc Kendrick). Secondly he also observed that Williams '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'18." Coleman J also expressed the view that Williams had been not 'yet' declared 'wrongly decided' by the House of Lords and therefore because of the doctrine of precedent 19. According to Mc Kendrick the decision " thus sides with the requirement of legal benefit in Foakes v Beer, rather than the diluted requirement of practical benefit in Roffey." Finally, Coleman J also gave the view that a promisee " who threatens not to perform an existing duty cannot rely on the benefit that its performance would confer on the promisor because its threat is 'analogous to consideration".20 Therefore, in reference to the statement in the question, the more realistic view would be that the modern approach to part payments advances "an alternative model of contractual obligation which is not dependent upon strict adherence to the notions of promise and bargain".21 Conclusion Williams v Roffey22 brought a great deal of attention to the requirements of consideration when it comes to contract modification. This significant decision took both the commercial concerns and the true intentions of the conflicting parties into account.23 The shortcoming of this24 modern account of contract is that it presents many conflicting theories in the nature and notions of "will, bargain and promise" while explaining the situation at hand, but the case of Williams clearly presents the willingness of the judiciary to adopt a more flexible approach, unlike the Pinnels and Foakes cases.25 References 1. Resurrecting the doctrine of common law forbearance,L.Q.R. 2007, 123(Apr), 286-313 2. What might the "child of commerce" ask of Santa this ChristmasL. Ex. 2002, Dec, 14-15 3. Minding your own business - Williams v Roffey re-visited: consideration re-considered,J.B.L. 1996, May, 254-265 4. Contract: variation of obligations (Case Comment),I.C.C.L.R. 1994, 5(7), C145-146 5. Part payment of a debt is no consideration (Case Comment),L.Q.R. 1994, 110(Jul), 353-356 6. In full and final settlement,I.B.F.L. 1993, 11(11), 131-132 7. Consideration and the existing duty,J.B.L. 1991, Jan, 19-35 8. Consideration and contract modification (Case Comment),Conv. 1990, May/Jun, 209-213 9. Trietel Law of Contract (8th ed, 1991) p 116. 10. Privity reform and the nature of contractual obligations,Catherine Mitchell, University of Hull 11. Adams and R Brownsword 'Contract, consideration and the critical path' (1990) 53 MLR 536 at 539. 12. R Halson 'The modification of contractual obligations' (1991) Current Legal Problems 111 at 112. 13. E McKendrick Contract Law (London: Macmillan, 3rd edn, 1997) p 88. 14. Economic duress and its consequences, P.L.J. 2002, 87, 9-10 15. Contract: variation of obligations (Case Comment),I.C.C.L.R. 1994, 5(7), C145-146 16. Part payment of a debt is no consideration (Case Comment), L.Q.R. 1994, 110(Jul), 353-356 17. In full and final settlement, I.B.F.L. 1993, 11(11), 131-132 18. Contract and consideration: a new commercial reality Bus. L.R. 1991, 12(1), 5-7 19. Consideration and the existing duty, J.B.L. 1991, Jan, 19-35 20. Opportunism, economic duress and contractual modifications, L.Q.R. 1991, 107(Oct), 649-678 21. Consideration at the crossroads (Case Comment),L.Q.R. 1991, 107(Jan), 21-24 22. Williams v Roffey: the death of Stilk v Myrick,L. Rev. 1991, 2(Spr), 17-18 23. Consideration and contract modification (Case Comment), Conv. 1990, May/Jun, 209-213 Read More