Legal Case Contract

Prepare answers to the following questions based on the case of Williams v Roffey Bros & Nicholls (Contractors) Ltd [1991] 1 QB 1

Identify the legal issues raised by the case.

This main issue in this case concerned whether the promise given by Williams (‘W') to complete his existing contractual obligations was valid as a form of consideration. Whilst Roffey Bros (‘R') had accepted this promise as consideration, it later argued in court that the verbal agreement in which the promise was given was unenforceable; as such a promise could never be classed as sufficient consideration to form a contract.

A secondary issue that the court had to determine was whether ‘substantial' completion of contractual obligations by W, as opposed to actual completion, entitled W to receive the contractual and verbally-agreed payments from R. At first instance, the assistant recorder had held that the ‘substantial' completion by W of his contractual obligations entitled him to be paid by R. R, however, argued as the contractual obligations were not

Explain how the court uses Ward v Byham and Pao On v Lau Yiu Long in deciding the case in favour of Williams.

The court was faced with an established principle that held that a promise to complete existing obligations could not be valid as consideration, as the promisee received no additional legal benefit, and the promisor did not suffer further legal detriment. The court in Williams sought to move away from this “rigid” approach, and instead relied upon Ward v Byham, which argued that a practical, rather than legal, benefit to the promisee could amount to valid consideration. The court used this case to argue that the law recognises that where a promise is valid consideration where a promisee (in this case R) gains a practical benefit, or avoids a detriment, from having the promise made.

Further support was found for this position in the Privy Court's decision in Pao On v Lau Yiu Long, in which their Lordships held that a promise to perform an existing obligation to a third party was valid as consideration. Whilst Pao was not binding on the court, Glidewell LJ found the case to be persuasive, and was satisfied that this rule was applicable to bipartite, as well as tripartite, agreements. Pao also provided the court with an opportunity to consider the doctrine of economic duress, and led to the court arguing that the doctrine was relevant to this case, as it represented one of the ‘elements' to be considered when determining whether a promise to complete existing obligations represented valid consideration.

On what basis did the court decide that Williams had completed performance under the contract?

As mentioned above, R disputed the decision at first instance that W was entitled to payment for the ‘substantial' completion of the work he had agreed to do. Glidewell LJ acknowledged (at p8) that there had been no explanation as to why this was the case at first instance. However, his Lordship then considered the decision in Hoenig v Isaacs [1952] 2 All ER 176, in which the Court of Appeal ruled that where X had substantially completed its contractual obligations, except for some minor defects or omissions, Y could not refuse to pay X the contractually agreed sum on the grounds that X's contractual obligations had not been completely met. Instead, Y would be required to pay X the agreed amount minus any reductions reflecting any claim Y could bring for the defects or omissions. His Lordship does not provide any explanation as to why this case is applicable in these circumstances, merely stating (at p9) that he is satisfied that Hoenig represents the rationale behind the first instance decision.

State the ratio decidendi of this case and identify any obiter dicta

The ratio decidendi that was reached in Williams was that a promise to complete an existing obligation could amount to valid consideration if the obligation allows the promisee to gain a practical (as opposed to legal) benefit, or avoid a detriment. Where there was no such benefit, the promise would not be valid as consideration. Furthermore, such a promise would only be valid if the promisor had not used fraud or economic duress in order to force the promisee to make further payment.

Whilst reaching its decision, the Court of Appeal considered (obiter) the developing doctrine of promissory estoppel. Whilst stating that the doctrine was not relevant in this case, as neither side had sought to invoke the doctrine, their Lordships expressed a view that estoppel could, in the future, be a suitable replacement for the rule in Stilk v Myrick. This view was held because the court felt that the doctrine provided the necessary flexibility to allow both parties to base valid agreements on such promises, with the courts being able to intervene in order to prevent promisors from breaking promises that the promisees had relied up. This was seen (by Russell LJ in particular (at p17)) as preferable to ignoring the intention of the parties in making such agreement, and instead determining whether such promises had the necessary quality of consideration for the agreement to exist in the first place.

In the light of the rules of judicial precedent explain:

a) what are the rules of precedent that govern the court that decided this case; Decisions made by the Court of Appeal are binding on the High Court the courts of first instance, and normally the Court itself. However, the Court does have the power to overrule its own decisions in certain circumstances. House of Lords decisions are binding on the Court of Appeal.

b) what does the court do with the case of Stilk v Myrick?

Whilst the Court of Appeal in Williams sought to emphasise the fact that Stilk remained good law, it also suggested (at p21) that the authority may not be so applicable today. The court argued (at p16) its decision represented an attempt to refine and limit the principle in Stilk. Commentators have tended either to discuss how or whether Stilk and Williams can be reconciled, or argue that, as Williams has widened the scope of what consideration is by incorporating certain forms of consideration that Stilk expressly sought to exclude, Stilk has been effectively overruled. The principle in Williams has received both support and criticism in the courts, but has yet to be overruled. It is therefore submitted that, until the House of Lords decide on the subject, Williams, rather than Stilk, represents the correct approach to the law in this area.


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