Existing obligations

Question 1

An obligation in an existing contract between parties

Answer 1

• If a party to a contract is already contractually bound to do something, then an agreement to vary the contract so that the other party pays them an additional sum of money to perform the same thing is not binding?

Question 2

Why is paying more money for the same obligation not binding?

Answer 2

• No consideration has been provided to support the variation of the contract.
• There is no valid exchange between the parties, the party paying extra is getting nothing of value in return for their additional payment.

Question 2

What happened in Stilk v Myrick (1809)?

Answer 2

• Captain of a ship promised his crew that, if they shared between them the work of two seamen who had deserted, the wages of the deserters would be shared out between them.
• Held: the promise was not binding because the seamen gave no consideration: they were already contractually bound to do any extra work to complete the voyage.

If the sailors had agreed to exceed their existing obligations, then there would have been consideration.

Question 2

What happened in Hartley v Ponsonby (1857)?

Answer 2

• Sailors were contractually obliged to take ‘all reasonable endeavours’ to get a ship home.
• But, they went beyond these existing obligations when they agreed to make the journey in dangerous conditions and when the ship was seriously undermanned - this amounted to good consideration.

Question 3

Why were the sailors in Hartley entitled to extra pay, and those in stilk weren’t?

Answer 3

• One explanation is that the proportion of sailors that deserted in Hartley was far greater, radically changing the nature of the voyage home.
• However, there also appears to have been a concern in stilk about undue pressure being placed on the captain to pay more

Question 4

What has the court more recently developed in terms of undue pressure?

Answer 4

The doctrine of economic duress which provides that a promise to pay in such circumstances might be unenforceable on the basis that the captain’s consent to the contract was effectively obtained by (economic) force.

Perhaps, if the same situation were to repeat itself today, the court would decide Stilk on the basis of economic duress rather than consideration.

Question 5

What happened in Williams v Roffey Bros & Nichol (Contractors) Ltd [1991]?

Answer 5

• Roffey brothers (defendants) has been contracted to build a block of flats.
• They subcontracted the plaintiff, Lester Williams, to carry out the carpentry work in 27 of the flats for the agreed price of £20,000.
• Before the work was completed, Williams got into financial difficulty and it was clear that, without additional money, he would be unable to finish and would, therefore, be in breach of contract.
• Had the work not been finished on time, Roffey Bros would have been liable for substantial penalties to the main contractors under their contract to build the flats.
• Therefore, they promised williams an additional £575 per completed flat.
• Roffery Bros did not stick to their promise and Williams sued for the additional sum.

Question 6

What did Williams need to show to enforce the promise of extra payment?

Answer 6

Needed to show that they had provided consideration in return

Question 7

What consideration did the court find in Williams v Roffey Bros & Nichol (Contractors) Ltd [1991]?

Answer 7

The court, did find consideration in the form of the ‘practical benefit’ that Roffey had received. The practical benefit Roffey obtained in was the avoidance of the late completion payment in the main contract, a more efficient working arrangement and avoiding the need to find an alternative contractor to do the work.

Question 8

What did the court call the type of consideration in Williams v Roffey Bros & Nichol (Contractors) Ltd [1991]?

Answer 8

Factual consideration, as opposed to legal consideration.
The term ‘factual’ consideration acknowledges that nothing new is being promised but the party in receipt of the promise is still getting something out of the reshaped deal.

Question 9

As set out by Lord Justice Glidewell in Williams v Roffey, what conditions are necessary to establish factual consideration?

Answer 9

(i) if A has entered into a contract with B to do work for, or to supply goods or services to, B in return for payment by B; and
(ii) at some stage before A has completely performed his obligations under the contract B has reason to doubt whether A will, or will be able to, complete his side of the bargain; and (iii) B thereupon promises A an additional payment in return for A’s promise to perform his contractual obligations on time; and
(iv) as a result of giving his promise, B obtains in practice a benefit, or obviates a disbenefit; and (v) B’s promise is not given as a result of economic duress or fraud on the part of A; then (vi) the benefit to B is capable of being consideration for B’s promise, so that the promise will be legally binding.

Question 10

Obligations under a public duty

Answer 10

The principle in these circumstances (where a party claiming to have given consideration under public law, as opposed to under an existing contract) is that merely carrying out a public duty imposed by the law will not amount to sufficient consideration.

Question 11

What happened in England v Davidson (1840)?

Answer 11

• Defendant offered a reward for information leading to the conviction of a particular criminal.
• The plaintiff, a police officer, gave the relevant information, but the defendant refused to pay, alleging that the police officer, by supplying the information, was doing no more than the public duty imposed on him by law.
• It was held: The duty of a police officer is the prevention of crime and they are not under a duty to provide information to a private individual.
• In doing so he went beyond his public duty and thus provided consideration for the offer of reward.

Question 12

Existing obligation to a third party

Answer 12

In contrast to the previous two categories, it is clear that the performance of the pre-existing duty owed to a third party will be regarded as sufficient consideration for a promise given by the promisor.

Question 13

What is existing obligations to a third party?

Answer 13

A situation where Party A has an existing contractual obligation to Party B, and wishes to rely on a promise to do the same thing as consideration for a contract with Party C.

Question 14

What happened in New Zealand Shipping Co v AM Satterthwaite & Co (The Eurymedon) [1975]?

Answer 14

• Claimant made an offer to the defendant that, if the defendant would unload the claimant’s goods froma ship, then the claimant would treat the defendant as exempt from any liability for damage to the goods.
• In fact, the defendant was already bound to do this by a contract with a third party.

Question 15

What did Lord Wilberforce make a point of in New Zealand Shipping Co v AM Satterthwaite & Co (The Eurymedon) [1975]?

Answer 15

That a party offering this sort of consideration is offering to itself at risk of double liability - if it fails to meet its obligations, it will face action from two parties.

Question 16

What is the problem with a debtor promising to pay part of their debt in return for a release from the remainder of their liability?

Answer 16

It is not good consideration:
They are simply offering to do something which they are already obliged to do: they are seeking to offer an existing obligation as consideration.
The debtor remains liable even where the creditor has agreed to release them from further liability.

Simply paying a smaller sum than that owed will not be sufficient consideration.

Question 17

What happened in Foakes v Beer (1884)?

Answer 17

• Mrs Beer had obtained a judgment against Dr Foakes for £2,090
• Dr Foakes requested time to pay and the parties agreed in writing that, if Dr Foakes paid £500 at once and the balance by instalments, Mrs Beer would not ‘take any proceeding whatever on the judgment’.
• The agreement made no reference to the question of interest although by virtue of the Judgments Act 1838, all judgment debts carry interest until paid.
• Dr Foakes ultimately paid the whole amount of the judgment debt itseld and Mrs Beer then claimed the accrued interest.
• Dr Foakes refused to pay on the basis of the written agreement whilst Mrs Beer claimed that the agreement was unsupported by consideration.
• The House of Lords held: Mrs Beer’s claim should succeed - the agreement was unsupporte by consideration.

Question 18

When does the rule in Foakes v Beer apply?

Answer 18

It is only applicable if the promise of the creditor to accept a lesser sum is unsupported by fresh consideration from the promisee.

However, if, at the creditor’s request, some new element is introduced, then this will amount to good consideration, and the court will not enquire as the value of the new element.

Question 19

What are some examples of creditor’s requests that would mean good consideration?

Answer 19

1. Payment at a different place
2. Payment at a different time
3. Payment in a form other than money (Pinnel’s case (1602))

Question 20

Payer of a lesser sum by a third party

Answer 20

Where a third party enters into an agreement with a creditor, by which the creditor accepts payment by the third party of a lesser sum than the debt in full satisfaction of the debtor’s obligation, the creditor cannot sue the debtor for the difference.

Question 21

What did Re Selectmove Ltd [1995] show about the rule of practical benefit?

Answer 21

The Court of Appeal took a restrictive approach, concluding that Williams v Roffey and practical benefit had no application to cases where a creditor agrees to accept a lesser sum in settlement of a debt. This case created a clear dividing line between promises to pay more for an existing contractual obligation, where practical benefit can be applied, and promises to accept less than your legal rights, where it cannot.

Question 22

What happened in MWB Business Exchange Centres Ltd v Rock Advertising Ltd [2016]?

Answer 22

• A landlord agreed orally to reschedule rental payments under a licence agreement to give a tenant longer to pay, thereby varying the licence.
• The Court of Appeal considered whether there had been valid consideration for the variation.
• The court acknowledged that part payment of a sum already due is not normally good consideration.
• However, the judges agreed that there was sufficient consideration.

Question 23

What was the court's justification for their judgment in **MWB Business Exchange Centres Ltd v Rock Advertising Ltd [2016]**?

Answer 23

Their justification was that the **landlord obtained a practical benefit by keeping the tenant in the property (compared to leaving the property vacant).** This benefit went beyond the advantage of receiving prompt payment of a part of the arrears and a promise that it would be paid the balance over the coming months.

Question 24

What else did the court consider in **MWB Business Exchange Centres Ltd v Rock Advertising Ltd [2016]**?

Answer 24

* The fact that the landlord was not under economic duress from the tenant. * In reaching this decision. the court applied the terminology of 'practical benefit' and absence of duress from Williams v Roffey * Decision appeared to blur the dividing line between a promise to accept less and a promise to pay more.

Question 25

What happened on appeal in **MWB Business Exchange Centres Ltd v Rock Advertising Ltd [2016]**?

Answer 25

* The appeal was allowed on the basis that the oral variation was invalid for reason unconnected to consideration. * Disappointingly, therefore, that made it unnecessary for the court to deal with the issue of consideration. * The question of whether providing a practical benefit in the absence of duress is sufficient to make a promise to accept less binding went unanswered.

Question 26

What is **promissory estoppel**?

Answer 26

Equitable doctrine that effectively allows a contract to be enforced despite not being supported by consideration.

Question 27

In essence, what is promissory estoppel about?

Answer 27

* It is about protecting a party's reliance on a non-bargain promise. * Many instances in which promissory estoppel is invoked involve part payment of a debt in response to a promise by the creditor that they will not require the debt to be paid in full - but promissory estoppel is not limited to these instances.