Has the Supreme Court Expanded the Definition of Consideration?

2182 words (9 pages) Essay in Contract Law

05/08/19 Contract Law Reference this

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The Doctrine Marches On

An article written by Marcus Roberts, Senior lecturer of law, Auckland University was published in the Modern Law Review, 2017 ‘The Doctrine Marches On’ Discusses the recent decision by the Court of Appeal in the case of MWB Business Exchange Centres Ltd v Rock Advertising Ltd [2018] UKSC 24, [2018] All ER 81. The court held that ‘when an ongoing contract is varied so that one party’s obligation to pay money is reduced, the variation is binding as long as the other party receives a practical benefit’. (MLR p339) A decision which Roberts claims “raises serious questions” about the survival of established principles. He explains that ‘In 1989 the court of appeal expanded the definition of consideration for the purposes of variation agreements to include practical benefits that arose from the promise to perform the original contract’ (MLR p339).

This essay will evaluate this statement, it will establish whether the Court of Appeal has redefined the doctrine of consideration. It will, therefore, be necessary to understand the historical doctrine of consideration, alongside the rules and principles, created by Judges. A brief survey of cases will demonstrate how the doctrine(s) have evolved, over time. A summary of the findings will, in conclusion, answer the question:

Has the supreme court expanded the definition of consideration?

Throughout the sixteenth and seventeenth centuries ‘there was no single doctrine, but a number of considerations which were recognised as adequate to support an action for breach of promise’. (Furmston. 2017. Law of Contract). Demonstrated in Pinnel’s case in 1602. Pinnel was owed 8I 10s. The defendant, Cole argued his payment of a lesser amount, before the due date, discharged the debt in full. Lord Coke establishing ‘Payment of a lesser sum on the day in satisfaction of a greater sum cannot be any satisfaction of the whole…but the gift of a horse, hawk or robe etc, in satisfaction, is good. (Pinnel’s Case (1602) Co Rep 117). The gift was the benefit given to the plaintiff in the form of early repayment of a lesser sum. This is an exception; fresh consideration is not required if already obligated to perform but part payment is made before the due date.

By the 18th century, the requirement of sufficient consideration was a fundamental component of contract formation. The statute of Frauds 1677 c 3 requires that only certain agreements must be in writing. A verbal or written agreement will be enforceable if, in creation, there was an offer, acceptance, consideration and intention to create legal relations. To enforce an obligation the court will check facts fit, the person making the claim is the party to the contract, that consideration has been provided by the party bringing the action.

Consideration is described by the Open University as a mutual promise (Open University. 2018a. 3). Furmston explains the historical interpretation as the conferral of a benefit or incurring of a detriment, ‘the antithesis of benefit and detriment was not a happy one’ (Furmston, 2018. P 103). A claim was brought by sailors recruited for a return voyage from London to the Baltics. Stilk v Myrick [1809] 170 E.R 1168. Two of the ten crew abandoned ship. The captain promised to share their wages equally between the remaining crew if, two heads down, they sailed the vessel back to London. When docked the captain did not honour his promise. The claim failed as the sailors had not provided any additional benefit to the captain. As established in Pinnel’s case, for there to be sufficient consideration there must be something more offered than the performance of existing contractual obligation.

Attempts to redefine the principles in the 1750s by Lord Mansfield, Chief Justice of the Kings Bench, dismissed consideration in contract formation as ‘simply the parties’ intention to be bound’ (Furmston, 2017. P.102), later finding consideration in terms of moral obligation, impacting the outcome of cases for over 60 years. Rectified in Eastwood V Kenyon (1840) 11 A & E 438. The court heard that Kenyon, as promised at the time of his marriage to Sarah, promised to repay Easton for costs he incurred as her legal guardian. Lord Denman found no consideration, all acts occurring in the past. Equally, Lord Denman would not accept that moral obligation was consideration, stating ‘such a principle was the innovation of Lord Mansfield’ and that ‘to expatiate it would be to restore the pure and original doctrine of the common law (Furmston, 2017. P.102).  

A pivotal case decided on appeal to the House of Lords was Foakes v Beer (1884) 9 App Cas 605. Dr Foakes had borrowed money from Beer which he failed to repay. Beer brought an action to recover the debt. A judgement was awarded in her favour. Following the judgement, Beer had a document drafted that promised, not to enforce the judgement if scheduled payments were made, until the debt was paid in full. Foakes fulfilled his obligations as requested, paying 2090I. Soon after, Beer sought to claim for repayment of the interest she was owed, and legally entitled to, Lord Fitzgerald explained to the lords, it ‘is a clear statutory right, arising immediately on entering the judgement, and continuing, until the judgement debt is fully paid off. Statute 1 & 2 Vict. C. 110. 5. 17 provides that every judgement shall carry interest of 4% amounting to 113I 16s 2d, before remarking ‘we find the law to have been accepted as stated for a great length of time and I apprehend it is not within our province to overturn it’ (Foakes v Beer (1884) 9 App. Cas. 605 (HL)).

While debating this case in the House of Lords, an attempt to argue both the commercial and practical benefits of accepting part payment, was championed by Lord Blackburn, suggesting to the House of Lords that ‘prompt payment of part of their debt may be more beneficial to them than it would to insist on their rights and enforce payment of the whole’. (Foakes (1884) HL). Lord Selbourne in his summary ‘The doctrine itself as laid down by Sir Edward Coke, may have been criticised as questionable in principle but it has never been judicially overruled. I cannot think that your Lordships do right if you were to reverse. As erroneous judgement of the Court of Appeal, proceeding on a doctrine that has been accepted as part of the law of England for 280 years’ (Foakes (1884) HL).

The Lords approved the rule in Pinnel’s case, upholding that part payment cannot be satisfaction for the whole and held that the promise, not to enforce action, was not binding on Beer as Foakes had not provided any consideration. Lord Selbourne explaining that to enforce the agreement they would need to find ‘an independent benefit, actual of contingent, of a kind which might in law be good and valuable consideration’. (Foakes (1884) HL) The decision reached, in this case, has been both binding and influential for over 100 years.

More recently, the case of Williams v Roffey & Nicholls (Contractors) Ltd [1990] 2 WLR 1153. ‘involved a variation in which party A promised to pay more than it had agreed to under the original contract in return for party B are promising to perform the original contract. It did not deal with a promise to accept less money than was originally owed and Foakes v Beer was not cited’ according to Roberts, (Roberts, 2017, p.344).

The facts on the law report reveal the claimant was subcontracted to complete work on 27 flats for a fee of £20.000. When it became apparent the claimant did not have enough money to complete the work, Roffey offered a bonus payment of £10.300 or £575 per flat. Roffey then refused to honour the agreement to pay the additional amounts. Williams had almost completed 8 of the 1o flats requiring completion.

 Case commentary was written by Aliekber YildIrim, published in the Coventry Law Journal, 2018, informs the decision of the court, ‘held that the claimant was entitled to the increased sum as they had conferred on the defendants the practical benefit of avoiding the original penalty clause by completing the work’. The case was then appealed on a ‘point of law’ – whether a claimant carrying out a pre-existing duty can still amount to consideration in the formation of a contract?.

The law reports show that the decision was ‘Held. Dismissing the appeal, that following refinements to the doctrine laid down in Stilk v Myrick 170 E.R 1168…a promise to make bonus payments was enforceable when the promisor obtained a benefit or obviated a dis-benefit where the promise had not been obtained by fraud or duress. On the facts, R had obtained a benefit and so there was consideration to support the agreement to make the bonus payments to W’. (Williams v Roffey Bros & Nicholls Ltd [1991] 1 QB.1 [4]).

The final case surveyed is MWB Business Exchange Centres Ltd v Rock Advertising Ltd [2016] EWCA Civ 553. MWB Business Exchange Centres Ltd sought to recover £12000 rent arrears owed by their tenant. Rock counterclaimed, contesting the action was in breach of a variation agreement he had negotiated with a credit controller, authorised to represent MWB. The variation to the contract included a new repayment plan that would meet current obligations and pay off the debt owed over a 12 months period. Rock made the first payment in good faith. Two days after the initial payment was made, MWB revoked the agreement, claiming it was unauthorised and invalid as there was a ‘No Oral Modification’ clause in the original contract. Clause 7.6 of the contract stated any variation must be in writing and be agreed by both parties. The County Court ruled in favour of MWB. The judge deciding the oral agreement, though supported by consideration, as it brought practical advantage, was ineffective owing to the inclusion of the clause in the original contract.  

The case was appealed to the Supreme Court. Lord Sumption (with whom Lady Hale, Lord Wilson and Lord Lloyd Jones agree) opening statement reads ‘Modern litigation rarely raises truly fundamental issues in the law of contract. This appeal is exceptional. It raises two of them.’ The first issue considers the legal effectiveness of a ‘No Oral Modification’ clause. the second issue to question whether part payment or substituting obligations to pay less money, later is supported by consideration? (SC [2018] UKSC 24).

The supreme court decided that the reliance on clause 7.6 was ineffective, as statute requires only certain contracts to be written, an oral variation agreement, supported by consideration, which in this case was a practical benefit in avoidance of the penalty clause, is legally binding. Enforcing the oral modification, the court agreed the original contract was discharged, therefore clause 7.6 was no longer binding. Deciding the case on a point of law, the appeal was held, overturning the decision of Judge Montgomery. ‘Lord Sumption felt it was both unnecessary and undesirable to deal with the difficult issue of consideration’. (Rock (2018) SC)

The decided cases analysed, all observe and uphold the long-established principles and the Doctrine of Consideration. It is evident that there is an appetite to create good law, there is a respectful reluctance to overturn the established principles. In answer to the question raised, evidence supports that the Supreme Court has not, ‘expanded the definition of consideration for the purposes of variation agreements to include practical benefits that arose from the promise to perform the original contract’ Nor would they do so lightly, confirmed in the closing comment provided by Lord Sumption. ‘the reality is that any decision is likely to involve a re-examination of the decision in Foakes v Beer…. But if it is to be overruled or its effect substantially modified, it should be before an enlarged panel of the court and in a case where the decision should be obiter dictum’. (Rock (2018) SC). Until then, in the words of Marcus Roberts, ‘The Doctrine Marches On’. (Roberts. 2017)

References:

Books

  • Furmston, M. (2017) Cheshire, Fifoot & Furmston’s Law of Contract, 17th edn, Oxford, Oxford University Press

Law Cases

  • (Pinnel’s Case (1602) Co Rep 117).
  • Eastwood v Kenyon (1840) 11 A & E 438
  • Foakes v Beer (1884) 9 App Cas 605.
  • Foakes v Beer (1884) 9 App Cas 605.HL
  • MWB Business Exchange Centres Ltd v Rock Advertising Ltd [2018] UKSC 24, [2018] All ER 81
  • Rock Advertising Limited v MWB Business Exchange Centres Limited [2018] UKSC 24
  • Stilk v Myrick [1809] 170 E.R 1168
  • Williams v Roffey Bros & Nicholls Ltd [1991] 1 QB.1 [4].

Statutes

  • Judgements Act 1838 (S1 & 2 Vict. C. 110. 5. 17)

Articles

  • Aliekber YildIrim, 2018. Case Commentary, Coventry Law Journal, available at www accessed on xx/xx/2018
  • Marcus Roberts, 2017, The Doctrine Marches On. Modern Law Review. Available at www accessed on xx/xx/2018

Module Materials

  • The Open University(2018a.3) Contract Formation. Available at www: accessed on xx/xx/xx
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