The decision in Williams v Roffey has broken new ground in the doctrine of consideration, suggesting that if a promise to raise the price paid to the promise is made in the spirit of a genuine attempt to resolve any difficulties which might have arisen during the performance of the contract, the promise can be enforced as consideration for the new promise can come in the form of “practical benefit”1. The Court of Appeal tested the validity of this promise by reliance on economic duress, and since none was found2, the promise was held to be enforceable.
This liberal view of what constitutes consideration is questionable on many grounds. Firstly, Glidewell L.J. made an error when placing his proposition (v) before (vi) in his 6-stage test.3 Their positions should be reversed.4 The test of validity based on the absence of coercion should not be the basis upon which a promise has to be enforced. Just because the promise was not made under duress does not make the promise enforceable if there is no consideration involved. The concept of duress is only applicable and relevant when all other aspects of the contract are met (consideration is present), and this was not the case here.
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The second flaw of this decision is the ramifications of future commercial contracts. It might open the floodgate to commercial “blackmail,” which falls short of provable and positive economic duress. A hypothetical example posed by Norma J. Hird and Ann Blair5 proves this point.6 Further, it could create uncertainty which may be reflected in increased insurance costs as one party is forced to insure against the other, returning to renegotiate an agreement that had placed the risk of increased costs with the latter.7
Despite Glidewell’s claim that his propositions do not contradict the principle set out in Stilk v Myrick8 and merely refine and limit the application of that principle, but leave the principle unscathed, this claim remains dubious. The parallels between the 2 cases are apparent: Glidewell’s benefits in Roffey are similar to that in Stilk v Myrick.9 However, Lord Ellenborough ignored this, which Glidewell regarded as consideration.
Glidewell also felt that the avoidance of the penalty clause amounted to sufficient consideration. But this view runs contrary to a similar argument that failed in North Ocean Shipping Co. Ltd. v. Hyundai Construction Co. Ltd.10 11 It has long been held that merely to perform one’s statutory duty is not enough to support a contract, and in order to sue on a contract, the statutory duty must be exceeded, as in Hartley v Ponsonby.12 To say that the defendant receives consideration simply through the completion of the contract implies that the contract was entered into without any expectation on the defendant’s part that the plaintiff would render his services as he was contractually bound to do. In a nutshell, this would make the contract illogical and absurd and undermines the concept of “a contract.”
A possible defence for this is that unforeseeable events (the unanticipated financial difficulties) have cropped up, resulting in changes in circumstances from those that existed at the time of the original contract, thus making it impossible for the plaintiff to perform his contractual obligations. Taking this into account, the additional or fresh benefit received by the defendants in Williams v Roffey was that in the light of such an anticipated failure to complete the project, the defendants had flats completed in return for their promise to pay additional sums the plaintiff.13
The decision in Williams is nevertheless welcomed in bringing the two-party cases in line with those involving three parties.14 It was at one time thought that a mere promise to perform a contractual duty owed to a third party could not constitute consideration. Thus in Jones v Waite15, it was said that a promise by A to C that A will pay a debt owed by A to B is no consideration for a promise made by C to A. This view seems to be based on the idea that A suffers no legal detriment by promising to pay a debt that he was already bound to pay, nor did it appear that C gained any benefit as a result of the promise. It is, however, possible for C to gain such a benefit: for example, where A breaks a contract with B, a company in which C has an interest.16
In such cases, it would be appropriate to deem the element of substantial benefit, which was stressed in Williams as amounting to consideration where a person performs (or promises to perform) a contractual duty owed to a third party. This view seems, with respect, to be preferable to that expressed in Jones v Waite, for such consideration given by A to C for the promise made by C to A would not be gratuitous in a commercial sense and should amount to consideration.17 It will, of course, be open to the promisor to avoid liability if he can show that the promisee’s refusal to perform the contract with the third party amounted to duress not merely with regards to the third party but also with regards to the promisor himself.
Also worthy of mention is that in The Eurymedon, a promise to perform a contractual duty owed to a third party is said to be a consideration because it is a benefit to the promisee.18 The insistence in the earlier cases on the stricter requirement of legal benefit or detriment is no longer justified by the need to guard against extortion, now that the expanding concept of coercion more satisfactorily deals with this risk.
Thus, the court is more ready in the presence of this defence in the commercial context to look for mutual advantages, which would amount to sufficient consideration, demonstrating the court’s reluctance to give an “inequitable” judgment if they could avoid it by the “manufacturing” of consideration. As much as this decision could be justified, it might raise more problems than solutions regarding future similar applications and should perhaps be confined to the factual matrix of Williams v Roffey.
1. The practical benefit Lord Glidewell claimed the defendant to have received is in the form of ensuring that the plaintiff continued to work and did not stop in breach of the subcontract, avoiding the penalty for the delay and avoiding the trouble and expense of engaging other people to complete the work.
2. It was the defendant company that approached the plaintiff with the promise of extra cash. There was clearly no duress involved, at least, no duress in the legal sense. If Roffey Brothers freely chose to promise more money to ensure that the job was finished and the plaintiff carpenter carried on working in reliance on this promise, it seems only fair that the defendant should be held to that promise.
3. 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 his 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 considered for B’s promise so that the promise will be legally binding.
4. The benefit to B is a consideration for B’s promise which creates a legally binding contract until avoided as a consequence of fraud or duress.
5. Journal of Business Law 1996 Article, Minding your own business-Williams and Roffey re-visited: Consideration re-considered
6. C, a subcontractor, tenders for work with B, where B is bound to A by a head contract that involves a liquidated damages clause. C, desperate for the work, deliberately tenders too low, knowing that there is a real chance that B will offer increased payment later if it appears that C is experiencing difficulties. B, to avoid breaching the head contract and therefore rendering himself liable to pay the liquidated damages, does exactly this, but then thinks better of it, realizing the true situation, and recognizing that he could have accepted another tender at the outset, which would have been cheaper overall. We do not believe that anyone would support the enforcement of B’s promise in this situation, but, following Williams v. Roffey, the promise by B would be legally enforceable by C.
7. Journal of Business Law 1991, Consideration and the existing duty, Richard Hooley
8. Where the plaintiff seaman failed to recover a bonus promised to the crew by their captain when two members of the crew deserted. Lord Ellenborough held that by merely continuing to perform their existing contractual duties the crew had failed to provide sufficient consideration for the captain’s promise. As a result, the crew could not recover the bonus promised by the captain.
9. As a result of the captain’s promise the ship reached its destination and he was relieved of the time, trouble and expense of making alternative arrangements to get the ship there. As a result of the defendant’s promise, the plaintiff was supposed to complete the project on time and the defendant could avoid the trouble and expense of engaging other people to complete the work.
10. Mocatta J. rejected the submission that the shipowners received consideration from the yard in the performance of the contract which meant that the vessel would be available to fulfil the Shell charter party and so avoid the shipowner’s potential liability of $8,000,000 to Shell if the vessel had not been completed on time.
11. However one might argue that the failure of the defendant to extract from the plaintiff secured penalty clauses equivalent to the ones the defendant himself faced suggests that the defendant had accepted the risk of the plaintiff’s inability to perform.
12. Hartley v Ponsonby (1857) 7 El & BL 872, where the crew of the ship were allowed to sue for their bonus promised by the captain as they had exceeded their original duty
13. However this might create a whole new set of problems if the demand for increased remuneration due to the “unforeseeable circumstances” may exceed that which is necessary to deal with the circumstances that have arisen.
14. In Stilk v Myrick, the distinction was ignored: no one even asked whether the original contract was with the promisor (the master) or with a third party (the shipowner).
15. In this case the defendant agreed to pay money to the plaintiff in return for the plaintiff’s promise: (a) to execute a separation deed ; (b) to pay his own(the plaintiff’s) debts to a third party. The promise to execute the separation deed was held good consideration but the Court of Exchequer Chamber held, however, that the plaintiff’s promise to pay his own debts was no consideration.
16. This was the position in Pao On v Lau Yiu Long where A, having entered into a contract with a company (B), refused to perform it unless C, who were shareholders in the company, guaranteed them against loss which might be incurred as a result of the performance of one of the terms of that contract. The guarantee(a promise made by C to A) was given in consideration of A’s promise to perform their contractual obligations to the company; and was held binding on the ground that “A promise to perform or the performance of, a pre-existing contractual obligation to a third party can be valid consideration.”
17. In The Eurymedon, A (a firm of stevedores) had unloaded goods from B’s ship. Some of these belonged to C who had promised A not to sue him for damaging the goods. It was held that A had provided consideration for this promise by unloading the goods for C even if he was already bound by a contract with B to unload them because there is a benefit to the promise(C).
18. This is puzzling at first sight, since consideration must be a detriment to the promisee or a benefit to the promisor. The reference, however, is to a case in which A’s promise to C is said to be the consideration for C’s counter-promise to A, and it is the consideration for C’s counter-promise which is in the issue. In relation to the counter-promise, C is the promisor, and the benefit that he gets from A’s promise satisfies the orthodox test of consideration for C’s counter-promise.