The traditional rules of consideration
Williams V Roffey Bros And Its Challenge To The Traditional Rules Of Consideration
This essay will establish the traditional position by looking at case law such as Stilk v Myrick; Hartley v Ponsonby; Pinnels case and Foakes v Beer. Second this paper will examine the decision in Williams v Roffey Bros to establish whether the law has departed from the traditional rules of consideration. Third this paper will examine subsequent case law to see how the courts have applied the principle in Williams v Roffey Bros. It will do this by asking should the decision in Williams v Roffey Bros be extended to cases concerning part payment. Finally, the essay will conclude its findings.
The Traditional Position
In Stilk v Myrick a ships' master promised his crew that the wages of the deserters would be shared out between the crew which remained. The court in this cases held that the promise to pay by the captain was not enforceable on the basis the crew had not provided any consideration. The crew was already under contract to complete the voyage. This can be praised as a good decision because it prevents unscrupulous crew members from blackmailing the ship's master into agreeing to make extra payments. This decision can be interpreted as an early attempt by the courts to protect the ship's master from the possibility of economic duress.
A different approach was taken in Hartley v Ponsonby where the ships crew had a large number of desertions. The court held the crew were able to recover an extra £40 pay and that this promise to pay had the necessary consideration. The court said the seamen were not obliged to do this under their existing contracts of service and were free to enter into a fresh contract. This recognised exception to Stilk v Myrick was approved by the court in The Atlantic Baron.
The position in Stilk v Myrick seems to have also been applied to cases concerning partial payment in full satisfaction for the debt. In Pinnel's Case the defendant had not provided any consideration for the plaintiffs promise not to sue on partial payment accepted. Sir Edward Coke had stated that:
“payment of a lesser sum on the day in satisfaction of a greater, cannot be any satisfaction for the whole, because it appears to the Judges that by no possibility, a lesser sum can be a satisfaction to the plaintiff for a greater sum.”
This rule was upheld and applied in the case of Foakes v Beer, but not without the express doubts of Lord Blackburn, who nevertheless concurred in the judgement in that case, that “men of business ... do every day 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.” Therefore, the position according to these old authorities seems to be that any attempt to vary a contract will lack consideration unless what is been received is all together new or different to the original promise.
The Decision In Williams V Roffey
Roffey contracted with, Williams, to do some carpentry work. The price for the carpentry work was agreed at £20,000. Williams found themselves in severe financial difficulties. Roffey were concerned that they would be liable under a penalty clause in the main building contract thus they promised to pay William an additional sum for each flat completed on time. Roffey then declined to make any further payments. The plaintiff sued for the additional monies promised. Roffey argued that by completing on time, the Williams had done no more than he was already contractually bound to do. The court held that the promise to pay addition monies was binding. Williams had provided the necessary consideration because Roffey had obtained a ‘practical benefit', namely avoiding the penalty and having avoided having to find a new sub-contractor.
Adams and Brownsword argue that the court have taken a ‘robust approach' and extended the principle outside of the traditional doctrine of consideration. It can be counter argued Roffey is achieving a major objective. It ensures that a contracting party that makes a promise under no pressure in a commercial context will be bound by this promise, even if there is almost no consideration. The problem that this creates off course is it seems to sit uneasily with the traditional common law position of consideration.
There is only one difference (that the court had the ability to deduce) between Roffey and Stilk that is the practical benefit that Roffey gained in that they were prevented from paying under the penalty clause. Glidewell LJ followed Ward v Byham where there was consideration because the mother was ordered to do more than what she supposed to do legally. Williams was only being asked to perform their existing duty. Glidewell LJ avoided referring to Hartley v Ponsonby which is distinguishing the same point, that the party brought something totally different to what was in the agreement.
The fundamental issue brought out of this case is not far away from the doctrine of estoppel. There are two predictable difficulties. First estoppel works on the basis it allows acceptance of part payment of the debts to be repaid as consideration for new deals. Second estoppel works as a protection not as an attack thus it cannot be normally used to find an action. Therefore it can be argued if the decision in Roffey is a good decision, then it should apply to cases concerning part-payment of debts.
Should We Extend The Principle In Roffey To Part Payment Cases?
In Re selectmove a company owed tax to the Inland Revenue and offered to pay this off in instalments. The tax collector said that he would be in touch with the company if the agreement could not be reached. The IRC ordered to pay all the taxes immediately or they would take immediate actions against the company. The company tried to invoke the principle of Williams v Roffey that the promise they made is carrying out an obligation which is existing was supporting the consideration for the deal to pay the debts in parts. The Court of Appeal differentiated Williams v Roffey that it contained the precedent of services and goods not debt payments. However, the distinction can be criticised as artificial and it can be suggested that there is no logical reason why the principle should not be extended to apply equally to both types of cases. The precedent that the court followed was Foakes v Beer and held that the IRC was not under any agreement binding them to accept part-payments. While the decision in this case shows that it conflicts with the ratio decidendi in Williams v Roffey, it could be obvious that the fundamental principles of paying the debts in parts still unaffected.
It can be argued extending the principle of Roffey to part-payment of debts would have severe consequence for creditors in insolvency. If a business goes into liquidation then the administrator may seek to recover part-payment of debts to discharge the larger debt in full and final settlement. This is damaging to creditors and could as a result have harmful effect on the economy as it shifts the risk of business onto the creditor.
The Court of Appeal could have extended Roffey to part-payment of debts in Selectmove. However, it must be pointed the courts decision not to do so and follow Foakes v Beer was necessary. The Court of Appeal has no power to overrule Foakes v Beer as it was a decision of the House of Lords. More recently in South Caribbean Trading Ltd (‘SCT') v Trafigura Beeher BV Colman J cast doubt on the decision in Williams v Roffey Bros. He noted that the decision was inconsistent with the long-standing rule that consideration must move from the promisee. He further noted that the House of Lords had yet to declare that Williams v Roffey Bros was wrongly decided.
This paper has presented the traditional position as stated in Stilk v Myrick and recognised that the principle of Roffey seems to be an exception to that. It appears the courts have extended the principle to meet the requirements of justice in Roffey. It should not be seen as an overriding principle of law but a rule which courts have decided not to extend in Re Selectmove. Further, as this matter seems to also effects the law of insolvency (which is based on who gets paid what on a winding up) the proper body to change the law in this case is Parliament.
Adams and Brownsword ‘Contract, consideration and the critical path' (1990) 53 MLR 540
Elliot, C and Quinn, F, Contract Law, 6th edition, Pearson Education, London, 2007
Koffman, L and Macdonald, E, The Law of Contract, Oxford University Press, Oxford, 2007
Richards,P, The Law of Contract, 8th edition, Pearson Education, London, 2007
Trietel, G.H. Some Landmarks of 20th Century Contract Law, Oxford University Press, Oxford, 2002