Louis LY Cheng

Lyc28@cam.ac.uk

CONTRACT SUPERVISION 2 PROBLEM QUESTION

PART (A)
The contract between A and C is for C to supply a driver and lorry to deliver the computers to
B’s premises on 15 July to fulfil the contract between A and B.

The fact that C informed A on the day that he could not perform as contracted is prima facie a
breach of the contract. However, C told A that he could make available a drive and lorry if A
was willing to pay an extra 1000 pounds, to which A agreed. This is an ‘increasing pact’ as C
was simply performing what he was contractually obliged to do – making delivery on 15 July
(unless the contract provided for the possibility of ringing up at 9am for postponement which
is unlikely, and in any case unsubstantiated on the facts), in return for additional payment.

In Williams v Roffey & Nicholls, it was held that while increasing pacts, as a form of variation
of the original contract, require consideration: either detriment or benefit will suffice, and it is
sufficient that the party making additional payment will gain an advantage arising out of the
continuing relationship with the promisee. The practical benefit enjoyed by A is not only the
avoidance of the need to seek substitute delivery providers within such short notice, but the
avoidance of the need to pay damages to B for delayed delivery. Note particularly the severe
financial penalty imposed under the contract between A and B. Arguments about this clause
being an unenforceable penalty aside, this points towards a significant amount which A would
be liable for if she could not arrange delivery on 15 July. Such practical benefits were also
supplied by C to A at A’s request, and went beyond mere commercial assurance which was
held sufficient as a benefit constituting consideration in Roffey. Arguably, if C’s
representations were true, C would suffer detriment as well by having to pull a driver and lorry
off another job, potentially losing income from that job and becoming liable for damages for
failure to complete that job. That said, note that this detriment is of limited assistance as C was
contractually obliged to perform on 15 July in any case.

Nevertheless, a distinguishing feature here is the fact that the idea of additional payment was
raised not by A, the payer of this additional sum, but by C, the promisee. The fact that A felt
she had no choice but to agree to pay the additional sum is highly relevant. These two facts
combined point towards some form of pressure imposed upon A by C. The rule in Roffey
 Louis LY Cheng
Lyc28@cam.ac.uk
applies only where duress or fraud is absent. The issue is hence whether A was under economic
duress, assessed by:
1. Whether the threat was illegitimate
2. Factual causation between the threat and the victim’s actions
3. Objective causation between the threat and a reasonable person’s response
On (1), C’s action can be perceived as a threat to breach a contract: if payment was not made,
C would not be able to perform. However, as per Kerr J in The Siboen and The Sibotre, threat
to breach a contract is not automatically illegitimate. On (2), A indeed felt she had no choice
and this was the reason behind her agreement. On (3), if Mance J’s objective approach in
Huyton is applied asking whether the victim had a ‘reasonable’ choice, A may be held to have
had limited choice given the last-minute notice, and the fear of having to pay significant
amounts of damages should she fail to perform a contract which stressed the importance of the
delivery date.

As such, A’s best option is to argue that she was under economic duress, which could have the
effect of disapplying the Roffey practical benefit approach to find lack of consideration, or
rendering the contract unenforceable even if there was valid consideration. Either way, Austen
can avoid having the pay the extra 1000 pounds, with the greatest potential obstacle being
whether the court would find objective causation between the ‘threat’ by C of breach and A’s
agreement.

PART (B)
The agreement between R and Y that Y would accept part payment (500 pounds) of R’s debt
to Y (totaling 1000 bounds) in satisfaction of the entire debt can be characterized as a
‘decreasing pact’.

Issue of consideration

The Common Law Rule in Pinnel’s Case, as affirmed in Foakes v Beer and Re Selectmove, is
that in the absence of a deed or a genuine bargain supported by fresh consideration, the
creditor’s promise to forgo any part of the debt is not binding: part payment of a debt does not
constitute fresh consideration. Applying this rule, Y’s rights are not affected in the sense that
he still has a claim for the remaining sum of the 1000 pound debt.
 Louis LY Cheng
Lyc28@cam.ac.uk

However, the case of MWB Business Exchange Centres v Rock Advertising, now waiting to
be heard in the Supreme Court, extended the Roffey approach to the context of decreasing
pacts, in the sense that in promising to accept an alternate payment arrangement in installments,
there were 2 practical benefits which provided the fresh consideration for a valid, binding
contract:
1. That MWB (creditor) would recover some of the arrears immediately and would have
some hope of recovering them all in due course
2. Rock (debtor) would remain a licensee and continue to occupy the property with the
result that it would not be left standing empty for some time at further loss to MWB.
The Court of Appeal, while not having the power to and not overruling the Foakes rule,
confined it to its facts and limited the general application of the Common Law Rule.
Nevertheless, the facts with regard to the agreement between R and Y can be distinguished
from MWB:
1. With regard to benefit (1), in MWB, the creditor accepted delayed payment of the
FULL sum, while in Foakes and this case, the creditor accepted PART payment to
satisfy the entire debt (i.e. full sum would not be payable eventually). If the latter is
seen as practical benefit, it has the effect of admitting that ‘less money’ is of benefit
(i.e. a person could be better off with less rather than more money), undermining the
notion of an exchange-based market economy.
2. Beyond receiving part payment sooner (but forgoing the full sum), which cannot be
said to be a practical benefit, Y received no further practical benefit.
Hence, the MWB is of limited applicability to the facts at hand and the Common Law Rule
applies

Promissory estoppel

Nevertheless, should Y seek to commence an action against R to claim the rest of the debt, R
may be able to raise the equitable doctrine of promissory estoppel as a defence.
As affirmed in Collier v Wright, a promissory estoppel requires:
1. A promise by one party not to enforce his legal rights against the other party
2. Reliance on that promise by the other party
3. It would be inequitable for the promisor to renege his promise
 Louis LY Cheng
Lyc28@cam.ac.uk

In the classic case, this defence served only as a shield for a short period, removed once the
creditor has given notice to the debtor that he intended on relying on his strict Common Law
rights to enforce the debt.

However, Lord Denning’s dicta in the High Trees case, while not receiving judicial approval,
has gained traction following the MWB case. Lord Denning suggested that the doctrine of
promissory estoppel may offer the debtor permanent immunity from debt action in Common
Law by the creditor where it would be unjust for the creditor to enforce his strict Common Law
rights. The justices in MWB, in particular Kitchin LJ, in obiter since promissory estoppel was
not available to Rock in MWB, accepted that promissory estoppel may suspend or even
extinguish a creditor’s right but all will ‘depend upon the circumstances’.

In any case, on the facts at hand, while Y indeed promised R that he would not claim the
remaining 500 pounds, and this was relied upon by R as he made the part payment in cash, it
was not necessarily inequitable for the promisor to renege. R obtained the decreasing pact
from Y by explaining that 500 pounds was all the money he had to his name as an
‘impoverished student’. However, the fact that R took his friends out for an expensive meal,
paying for it with a credit card, runs counter to R’s representation to Y. This is not necessarily
a misrepresentation as R paid for the meal with his credit card, and hence paid by credit rather
than using money that was to his name (R may not have been able to pay it back). Nevertheless,
since equitable remedies are discretionary, the court may find it not inequitable for the creditor
to go back on his promise.

Even if this is not so found, it is highly unlikely that the facts at hand would create an
exceptional situation where it would be found equitable to extinguish Y’s Common Law right,
in light of the fact that support for the notion of promissory estoppel granting permanent
immunity to the debtor is only found in obiter dicta with no actual authority. Promissory
estoppel would only serve to delay the claim by Y to take a debt action against R.

The fact that R won a large sum a week after the agreement on part payment of debt would not
affect the analysis above: winning such a sum on the National Lottery could not have been
foreseen by any of the parties, and would certainly not operate to disadvantage Y. That said, it
would not be of use to Y as there is no support, in common law or in principle, for the notion
 Louis LY Cheng
Lyc28@cam.ac.uk
that a debt should be claimable in strict Common Law simply because the debtor had received
an unexpected fortune.