BetterLawNotes-5 (2)

CONTRACT LAW

Generally, a promise to B by A to do what A is already bound to B to do is not good consideration for a further promise by B.

Stilk v Myrick (1809) 2 Camp 317

During a voyage from London to the Baltic and back, two crewmembers deserted at Kronstadt. The ship’s master promised to divide the wages of the two deserters among the remaining crew if the crew would work the ship back home. On their return to London, the master refused to make the additional payment. Held: the remaining crew were not entitled to any additional payment as they had not given any consideration for the master’s promise.

Hartley v Ponsonby (1857) 7 El & Bl 872

Following desertions by members of the ship’s crew, the remaining men were promised an additional payment for continuing with the voyage. Held: the promise was enforceable as the scale of the desertions left the ship so under-manned that the remaining sailors would have entitled to refuse to continue the voyage.

These two cases can reconciled, one with the other. The important difference is that in the Hartley case, the remaining sailors were no longer under a duty to serve when the promise of additional payment was made. The effect of the desertions was so great that the remaining sailors were discharged from their duty to continue to perform their contracts. In other words, the contracts with the remaining crew may be said to have been frustrated by the desertions. (For the doctrine of frustration, see Frustration.)

The general rule, as applied in Stilk v Myrick, must now be seen in the light of a more recent, controversial, and important case:

Williams v Roffey Bros & Nicholls (Contractors) Ltd [1991] 1 QB 1

W agreed with R to carry out carpentry work as a sub-contractor on a block of 27 flats. Having completed work on nine of the flats, W got into financial difficulties. These were caused by W having agreed to do the work for too low a price and because he failed to supervise his men properly. R, concerned at the prospect of incurring financial penalties under the main contract for late completion, promised to pay W extra money. W, having completed a further number of flats ceased work and claimed the additional payment. The Court of Appeal held that the promise of additional money was enforceable as R had obtained a practical benefit from making the promise.

Williams v Roffey is a very important case and it is worthwhile being clear what was said by each of the judges in the Court of Appeal.

As to the nature of the consideration which Williams had provided for the promise of additional payment, Glidewell LJ said that counsel for Roffey Bros conceded that the following benefits arose from its promise to pay additional money: ‘(i) seeking to ensure that the plaintiff continued work and did not stop in breach of the subcontract; (ii) avoiding the penalty for delay; and (iii) avoiding the trouble and expense of engaging other people to complete the carpentry work.’ (At 11).

Russell LJ pointed to ‘a need to replace what had hitherto been a haphazard method of payment by a more formalised scheme involving the payment of a specified sum on the completion of each flat’ (at 19). Likewise, Purchas LJ stated:

‘By completing one flat at a time rather than half completing all the flats the plaintiff was able to receive moneys on account and the defendants were able to direct their other trades to do work in the completed flats which otherwise would have been held up until the plaintiff had completed his work.’ (At 20).

As to why this amounted to good consideration, the judges reasoned as follows. Glidewell LJ held that it was good consideration because each of the following five requirements were satisfied:

‘(i) if 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 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 consideration for B’s promise, so that the promise will be legally binding.’

(At 15-16).

Russell LJ said that the law had developed ‘considerably’ since the decision in Stilk v Myrick:

‘In the late 20th century I do not believe that the rigid approach to the concept of consideration to be found in Stilk v Myrick is either necessary or desirable. Consideration there must still be but, in my judgment, the courts nowadays should be more ready to find its existence so as to reflect the intention of the parties to the contract where the bargaining powers are not unequal and where the finding of consideration reflect the true intention of the parties . . . where, as in this case, a party undertakes to make a payment because by so doing it will gain an advantage arising out of the continuing relationship with the promisee the new bargain will not fail for want of consideration.’

(At 18-19).

Explicitly adopting a modern approach to consideration, and with ‘some hesitation’, Purchas LJ concluded that:

‘where there were benefits derived by each party to a contract of variation even though one party did not suffer a detriment this would not be fatal to the establishing of sufficient consideration to support the agreement. If both parties benefit from an agreement it is not necessary that each also suffers a detriment.’

(At 23).

One thing that is clear from Williams v Roffey is that Stilk v Myrick remains good law: the Court of Appeal did not purport to overrule the earlier case:

‘If it be objected that the propositions above contravene the principle in Stilk v Myrick I answer that in my view they do not; they refine, and limit the application of that principle, but they leave the principle unscathed e.g. where B secures no benefit by his promise.’

(Glidewell LJ at 16).

‘I wish to make it plain that I do not base my judgment upon any reservation as to the correctness of the law long ago enunciated in Stilk v Myrick. A gratuitous promise, pure and simple, remains unenforceable unless given under seal.’

(Russell LJ at 19).

‘In my judgment, therefore, the rule in Stilk v Myrick remains valid as a matter of principle, namely that a contract not under seal must be supported by consideration.’

(Purchas LJ at 21).

While all three members of the Court of Appeal in Willimas v Roffey were at pains to stress that Stilk v Myrick remains good law, it is difficult to see how the two cases can be reconciled. If there was a practical benefit in Williams, it seems plain that there was also one in Stilk: the ship’s master derived a benefit from his promise to pay more money to the remaining crew as it made it more likely that his ship would be sailed back to London, or, at least, more likely that it would get there earlier. If the master saw no benefit from promising more money, why did he make the promise?

Williams v Roffey was applied by Hirst J in the Anangel Atlas case:

Anangel Atlas Compania Naviera SA v Ishikawajima-Harima Heavy Industries Co (No 2) [1990] 2 Lloyd’s Rep 526

The defendant agreed to build four ships for the claimant. During construction there was a slump in the shipping industry. To try and ensure that the claimant honoured the contract, the defendant agreed certain variations to the terms of the original contract to the advantage of the claimant. Later, the defendant argued that there was no consideration for the promise comprising the improved terms. Hirst J held that the claimant had provided good consideration. There was a very substantial practical avoidance of disbenefit to the defendant. Performance by the claimant of the contract would encourage other reluctant customers of the defendant to follow suit.

On the other hand, Williams v Roffey was trenchantly criticised by Colman J in the South Caribbean Trading case:

South Caribbean Trading Ltd v Trafigura Beheer BV [2004] EWHC 2676 (Comm), (2005) 1 Lloyd's Rep 128 at [108]

‘But for the fact that Williams v Roffey Bros was a decision of the Court of Appeal, I would not have followed it. That decision is inconsistent with the long-standing rule that consideration, being the price of the promise sued upon, must move from the promisee. The judgment of Glidewell LJ was substantially based on Pao On v Lau Yiu Long, in which the Judicial Committee of the Privy Council had held a promise by A to B to perform a contractual obligation owed by A to X could be sufficient consideration as against B. At p 15 Glidewell LJ regarded Lord Scarman’s reasoning in relation to such tripartite relationship as applicable in principle to a bipartite relationship. But in the former case by the additional promise to B, consideration has moved from A because he has made himself liable to an additional party, whereas in the latter case he has not undertaken anything that he was not already obliged to do for the benefit of the same party. Glidewell LJ substituted for the established rule as to consideration moving from the promisee a completely different principle – that the promisor must by his promise have conferred a benefit on the other party. Purchas LJ at pp. 22-23 clearly saw the nonsequitur but was “comforted” by observations from Lord Hailsham LC in Woodhouse AC Israel Cocoa Ltd v Nigerian Product Marketing Co Ltd. Investigation of the correspondence referred to in those observations shows that the latter are not authority for the proposition advanced “with some hesitation” by Purchas LJ.’

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