Bundles
Williams v. Roffey BrosNicholls (Contractors) Ltd. [1991]
Headnote:
The appellants had been contracted to refurbish 25 flats and had a penalty clause for delayed completion. They subcontracted some of the work to Williams who had fallen behind with the work after realizing that he had underestimated the scope of work.
Williams was also in financial difficulties and could not complete the said work in time. The appellants then offered to pay Williams a bonus so that he could finish on time, and Williams continued working until the appellants stopped paying. He sued them for breach of contract.
The appellants argued that Williams had not given any consideration besides helping them evade the penalty clause and that there had been no benefit in law. They further asserted that Williams only performed part of the work that he was to perform under their initial contract. In their defence, the appellants relied on the decision in Stilk v Myrick (1809) 170 ER 1168, in which it was determined that performing an existing duty is not to be taken into consideration.
The decision of the Court of Appeal was that the promise was enforceable, and the appellants had to pay. Evading the penalty clause was accepted by the court as a reasonable and sufficient consideration. It was also determined that the judgment in Stilk v. Myrick had been refined since it occurred. The court decided to adopt a pragmatic approach to evaluate the relationship between the parties to the contract.
The judgment was based on various arguments, including that an agreement is binding if the contract party agrees to pay a bonus to ensure the other party performs his obligations. The agreement is binding if some practical advantage has been achieved by the promisor or if some disadvantage has been avoided.
In the case, some of the advantages included making sure that there was ongoing work by William, avoiding payment of damages under the penalty clause for lateness, and avoiding the trouble and expenses of getting another sub-contractor to complete the works. For these reasons, Williams was entitled to payment.
References:
“A promise to make bonus payments to complete work on time was enforceable if the promisor obtained a practical benefit and the promise was not given under duress or by fraud.””It was the appellants’ own idea to offer the extra payment. Therefore, there was no duress.””The appellants also gained a practical benefit by avoiding the penalty clause.”[1]
Pao On v. Lau Yiu Long [1980]
Headnote:
The defendants wanted to buy a building owned by a private company in which the plaintiff had shares. The defendants were part of a public company in which they had the highest stakes. The plaintiffs agreed that they would sell their shares to the defendant to enable the defendant to acquire the building.
The two parties made another agreement not to sell their shares for some time upon realizing that the value of the public company may drop. The plaintiffs realized that the second agreement might benefit only the defendant and hence demanded a replacement of the agreement with one in which the plaintiff had an indemnity against a fall in share price but might benefit from an increase in the price.
The defendants agreed to the new terms for fear that failing to do so would delay the main contract. As the share price dropped, the plaintiff relied on the indemnity contract. In defense, the defendant claimed that for the indemnity agreement, the consideration had been passed, and he had only agreed to it under duress.
The court applied the exception to the doctrine of past consideration on the basis that the promise was made at the request of the promisor and that the parties had understood that the payment was to be made at a later date.
References:
Lord Scarman: “An act done before the giving of a promise to make a payment or to confer some other benefit can sometimes be consideration for the promise. The act must have been done at the promisors’ request: the parties must have understood that the act was to be remunerated either by a payment or the conferment of some other benefit: and payment, or the conferment of a benefit, must have been legally enforceable had it been promised in advance.”[2]
Chappel v. Nestle Co. Ltd. [1960]
Headnote:
In this case, Nestle ran a promotion in which any person who sent 3 chocolate bar wrappers and a 1 shilling 6d postal order would receive a record. Once received, the wrappers were considered worthless and disposed of by Nestle.
One of the record copyrights was owned by Chappel, who disputed Nestle’s right to offer the record and also sought an injunction against Nestle to prevent the company from selling the records whose normal retail price was 6 shillings 8d. In defence, Chappel cited s.8 of the Copyright Act of 1956 which protected retailers from any copyright breaches only if they had given notice to the copyright holders and paid them 6.25% of the retail price.
Nestle had given notice stating the ordinary selling price as comprising three chocolate bar wrappers and 1 shilling 6d. The court, therefore, questioned whether the chocolate bar wrappers constituted an allowable part of the consideration since it would be difficult to determine the real value they represented.
In such a case, it would be said that Nestle had not given notice of the ordinary retail price. In case the wrappers were merely a condition of sale, then Nestle’s notice would be valid; hence, Nestle could sell the records.
The court decided that the wrappers formed part of the consideration since the objective had been to increase sales, thereby providing value. What the company did with the wrappers (throwing them away) did not eliminate this consideration.
Thus, Chappel received the injunction and Nestle was stopped from selling the records for failure to comply with the notice requirements. Since the wrappers had no monetary value, the sales made were not covered by copyright law; the final ruling was in favour of the defendants.
References:
Lord Somervell (at 114) said: “A contracting party can stipulate what consideration he chooses. A peppercorn does not cease to be good consideration if it is established that the promisee does not like pepper and will throw away the corn.”[3]
Alliance Bank v Broom [1864]
Headnote:
The defendant had an unsecured loan from the bank. The plaintiff asked for security, and the defendant made a promise to give out some goods, which he never produced. The plaintiff tried to enforce the agreement, and the defendant argued that he had received no consideration from the plaintiff.
Unlike most cases, the bank demanded security instead of enforcing the payment. The court held that in such a case, the bank would have promised not to enforce the debt, which was not done in this case.
However, by suing the defendant, the bank showed forbearance, which was a valid consideration; hence, the agreement to give security was binding. Furthermore, the bank had made no promise not to demand payment. The defendant was therefore required to give security.
References:
“The [bank] did in effect give, and the defendant received, the benefit of some degree of forbearance; not, indeed, for any definite time, but, at all events, some extent of forbearance.”[4]
The Court said: “… although there was no promise on the part of the plaintiff to abstain for any certain time from suing for the debt, the effect was that the plaintiff did, in fact, give, and the defendant receive, the benefit of some degree of forbearance…”.
[1]Williams v. Roffey Bros & Nicholls (Contractors) Ltd. [1991] 1 QB 1.
[2]Pao On v. Lau Yiu Long [1980] AC 614.
[3]Chappel v. Nestle Co. Ltd. [1960]AC 97.
[4] Alliance Bank v. Broom [1864] 2 DR and SM 289.
