ACCA F4 - Corp and Business Law (ENG)

Part B The law of obligations  4: Formation of contract II 61

The courts now appear to be taking a slightly different line on the payment of additional consideration. It

may be that where the party promising the additional reward has received a 'practical' benefit that will be

treated as consideration even if, in law, they have received no more than they were already entitled to

under the contract.

Williams v Roffey Bros & Nicholls (Contractors) Ltd 1990

The facts: The claimants agreed to do carpentry work for the defendants, who were engaged as

contractors to refurbish a block of flats, at a fixed price of £20,000. The work ran late and so the

defendants, concerned that the job might not be finished on time and that they would have to pay money

under a penalty clause, agreed to pay the claimants an extra £10,300 to ensure the work was completed

on time. They later refused to pay the extra amount.

Decision: The fact that there was no apparent consideration for the promise to pay the extra was not held

to be important, as in the court's view both parties derived a practical benefit from the promise. The telling

point was that the defendants' promise had not been extracted by duress or fraud: it was therefore

binding. The defendant had avoided the possible penalty.

Williams v Roffey Bros is important because it is a newer case than the bulk of contract cases, most of

which were decided in the nineteenth century.

Re Selectmove 1994

The facts: A company which was the subject of a winding up order offered to settle its outstanding debts

by instalment. An Inland Revenue inspector agreed to the proposal. The company tried to enforce it.

Decision: Despite the verdict in Williams v Roffey Brothers the court held that an agreement to pay in

instalments is unenforceable. Even though the creditor may obtain some practical benefit this is not

adequate consideration to render the agreement legally binding in respect of part payment of debts.

2.2.3 Performance of existing contractual duty to a third party

If A promises B a reward if B will perform their existing contract with C, there is consideration for A's

promise since they obtain a benefit to which they previously had no right, and B assumes new obligations.

Shadwell v Shadwell 1860

The facts: The claimant, a barrister, was engaged to marry E. His uncle promised the claimant that if he

(the nephew) married E (as he did), the uncle would during their joint lives pay to his nephew £150 pa

until such time as the nephew was earning 600 guineas pa at the bar (which never transpired). The uncle

died after eighteen years owing six annual payments. The claimant claimed the arrears from his uncle's

executors, who denied that there was consideration for the promise.

Decision: Sufficient consideration was provided by the claimant.

2.2.4 Waiver of existing rights

Illustration^

(^)
If X owes Y £100 but Y agrees to accept a lesser sum, say £80, in full settlement of Y's claim, there is a
promise by Y to waive their entitlement to the balance of £20. The promise, like any other, should be
supported by consideration.
Exam focus
point