The Doctrine of Consideration, Williams v Roffey - Coursework Example

This paper provides an analysis of the doctrine of consideration. In doing so, the paper first looks at the traditional concept of consideration as established in Foakes v Beer and into the latter approach introduced by Williams v Roffey Bros. The paper provides an analysis with a view of determining whether the rule in Foakes should remain good law in view of the decision in Williams. Introduction The doctrine of consideration provides that a gratuitous promise is not enforceable unless it is made under seal or the promise has provided consideration. The definition of consideration was considered in Currie v Misa1 where the court defined consideration as some right, profit, benefit or interest accruing to a party or forbearance loss, responsibility or detriment undertaken by the other party. The basic principle behind the concept of consideration is the reciprocity which provides that an individual cannot enforce a promise of another unless that individual has promised or is prepared to give something in return for the promise2. Consideration therefore is the value that an individual contributes to a bargain. When a contract is modified consideration must also be provided. The issue of consideration upon modification of a contract has undergone changes and this issue concerns renegotiation of a contract, especially where one party is promised additional benefit for the performance of a preexisting contractual duty. Where there is a preexisting duty under a contract a renegotiation can result in either a promise to pay more for the preexisting duty or a promise to accept less than the preexisting duty3. A promise to accept less for a preexisting duty The general rule in regard to a lesser sum is that payment of a lesser sum in satisfaction of a greater sum is no satisfaction for the sum owed on the contract. This rule was established in Pinnels case4 and upheld in Foakes v Beer5. In Pinnels case the claimant was owed £8 and 10shillings. The defendant on his part paid £5 2 shillings and 2 p to settle the debt, which the claimant accepted as full payment for the debt. The claimant sued for the outstanding amount and the court held that the claimant was entitled to recover the full amount even if there was an agreement to accept less. The court in its decision held that part payment of a debt cannot be considered satisfaction to the greater amount unless the payment is made before the due date, made to a different destination or is made with a chattel rather than money. The agreement to pay less could only be binding if a fresh consideration was provided6. The decision in Pinnel was confirmed in Foakes V Beer where the defendant had obtained a judgment against Foakes for a sum of £2090 and 19s. The defendant was also entitled to an interest until the debt was settled. Foakes asked to pay the amount with a deposit of £500 and installments of £150 until the debt was settled. Foakes paid the debt according to the agreement and the defendant later brought an action claiming the interest on the debt. Although the defendant had promised not to enforce the interest, the court held that the promise not to recover the interest was not binding because it was not supported by a consideration. The defendant was therefore entitled to recover the interest. The court confirmed the rule that a payment of a lesser sum of a debt does not discharge the obligation to settle the full amount owed. The judgment in this case is founded on the reasoning that although the agreement did not take into consideration the interest owed it could be implied by an enforceable contract7. Nevertheless a promise to pay a debt cannot be sufficient consideration as there is no extra benefit moving from Foakes to Beer. This principle was also argued in Re Selectmove Ltd8 where the court held that the principle in Foakes was well established and could not be avoided. The facts of this case was that Re Selectmove Ltd owed money to the Inland Revenue but had failed to settle the debts. The company had then tried to pay in installments but the arrangement was not supported by a valid agreement. The company was required to settle the debts in full failure to which the company would be wound up. The petition to wind up the company was subsequently made and the company argued that the petition should be dismissed because of the agreement to pay the taxes in installments. In arriving at its decision, the court considered that no agreement had been made because there was no consideration in support of the agreement. The position in Foakes v Beer clearly shows that where there is a renegotiation of a contract the renegotiated terms introduced to the contract can only enforceable if they are supported by a consideration. Although consideration is required to enforce a modified promise under a contract, the existence of a practical benefit of the promise can constitute a valid consideration9. A promise to pay more for the preexisting duty The general rule is that where there is preexisting contractual duty such duty cannot constitute a valid consideration. The position here is that if parties are bound by a contract and a party to the contract makes a promise which is similar to the contract they are already bound, then such promise or its performance cannot be held to constitute a consideration for a new agreement. This rule is connected to the case of Stilk v Myrrick10which involved a crew of eleven sailors who had agreed to sail a ship. Two of the crew members deserted the ship and the captain of the ship promised the other sailors the salary of the two who had deserted but later refused to pay. The sailors brought an action to recover the money. In arriving at its decision, the court argued that there was no consideration for the promise made by the captain as the sailors were obliged to sail the ship as per the original contract and could not enforce the latter agreement11. Despite this rule a party can enforce such an agreement if they confer a practical benefit to the agreement as held in Williams v Roffey Bros12. In this case Roffey Bros subcontracted Williams to complete some carpentry work at a cost of £ 20, 000 but was not able to complete this task on time as the price he had quoted was not sufficient to complete the work. Roffey Bros offered an increase of £10,300 if William could complete the work on time. However Roffey failed to pay the additional payment and Williams brought an action to recover the sum. The question before the court in this case was whether the claimant provided consideration for the extra amount promised by Roffey. The court found for William and in its decision argued that although the claimant was performing his preexisting contractual duty, he had provided good consideration for the extra payment. The decision in this case defied the principle established by Stilk v Myrrick and established the practical benefit test. This decision challenged the rules of consideration which includes the preexisting duty principle and defined a new path for the concept of consideration13. Discussion The outcome in Williams implies that the previous decisions in Foakes and Pinnels will have to be reconsidered. This position was argued in Re Selectmove Ltd but this view was rejected. The defense sought by Re Selectmove Ltd was that it had a binding contract in regard to the agreement to pay in installments. Their argument followed that the promise to pay the outstanding sum as well as the current liability created the necessary consideration. The consequence of the arrangement was that the promisee continued in business while the promisor benefited from the payment. This argument was dismissed on the grounds that the decision in Foakes v Beer was applicable and there was no proper consideration14. The decision in Williams v Roffey Bros was further expounded in Musumeci and Another v Winadell Pty Ltd15. The court in this case held that where there is a contract between two parties for the supply of goods and services and in the course of the contract the performance becomes doubtful and one party promises the other additional payment to secure the performance of the contract, then a detriment to one party or a benefit to the other can be considered as a valid consideration. However the benefit arising from such an agreement must be worth more than what the aggrieved party can recover as a remedy16. From this analysis, it is clear that there are two competing principles in respect to the doctrine of consideration. Modifications to contractual terms are done in the public interest where both parties are allowed to renegotiate their way out of unanticipated situations, but on the other hand parties should be held to their contractual terms. The question therefore is whether the decision in Foakes v. Beer should remain good law given the later outcome in Williams v Roffey.17 Although the outcome in Williams greatly expanded the scope of the doctrine of consideration, the decision is seen as conflicting with the outcome in Foakes and therefore the decision in Foakes should remain good law. It is noteworthy that the decision in Foakes was a decision of the House of Lords while Williams was decided by the Court of Appeal. The decision in Williams is therefore not an authoritative precedent until it is upheld by the House of Lords. Additionally, this decision challenges the concept of consideration established by the House of Lords in Foakes. Although some courts have recognized the outcome in Williams they are nevertheless reluctant to accept it as it is considered a making Foakes redundant as argued in Re Selectmove Ltd18. Conclusion The rules of consideration are inconsistent and this can be seen in the way two similar cases, Foakes and Williams, can be decided in different ways. Although the decision in Williams v. Roffey challenges the traditional rules of consideration, it is noteworthy that this decision has not been considered by the House of Lords and therefore the decision remains insignificant. The challenges presented in the rules of consideration in Williams can also influence the abolition of the concept of consideration in favor of a reliance based test19. Cases Currie v Misa (1875) LR 10 Ex 153 Foakes v Beer (1884) 9 App Cas 605 Musumeci v Winadell Pty Ltd (1994) 34 NSWLR 723 Pinnels Case (1602) 5 Co Rep 117a Re Selectmove Ltd [1995] 1 WLR 474 Stilk v Myrrick [1809] EWHC KB J58 Williams v Roffey Bros [1990] 2 WLR 1153 Bibliography Chen-Wishart Mindy, ‘In Defence of Consideration’ [2013] 13 Oxford University Commonwealth Law Journal 209 Dawson Francis, ‘Contract as Assumption and Consideration Theory: A Reassessment of Williams v Roffey Bros’ [2011] 42 Victoria U. Wellington L. Rev. 135 Del Mar Maksymilian, ‘Exemplarity and Narrativity in the Common Law Tradition: Exploring Williams v Roffey’ [2013] Queen Mary School of Law Legal Studies Research Paper 139 Giancaspro Mark, ‘Practical benefit: An English anomaly or a growing force in contract law?’ [2013] Kuhnel-Fitchen Kathrin and Tracey Hough, Optimize Contract Law, Routledge 2014 Lee Pey-Woan, ‘Contract Modifications-Reflections on Two Commonwealth Cases’ [2012] 2 Oxford University Commonwealth Law Journal 189 Liao Zhixiong, ‘Intention to Create Legal Relations and the Reform of Contract Law: A Conservative Approach in the Modern Global Era’ [2013] 4 Beijing Law Review 82 MacMillan Catharine and Richard Stone, Elements of the law of contract, University of London 2012 Ogilvie’ MH, ‘Of What Practical Benefit is Practical Benefit to Consideration’ [2011] 62 UNBLJ 131 Swain Warren, ‘Contract as Promise: The Role of Promising in the Law of Contract. An Historical Account’ [2013] 17 Edinburgh Law Review 1 Read More