Law of Contract: Consideration and Enforceable Agreements

This article discusses the principles of consideration and enforceable agreements in the law of contract. It explores the rules and exceptions related to part payment of debt and existing obligations. The article also provides a case study on Super-Tech and the Hall Owner, analyzing their contractual dispute.

Law of Contract
LAW OF CONTRACT
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Introduction
A client entered into the contract on 20th November with Supertech for installation of hall
equipment at a price of £150,000. Installation was agreed to be finished by 20th December to
make the hall available for business 22nd December. On 15 December Super-tech informed the
owner of a potential delay that will delay the completion until 5th January. The owner promised
extra £35,000 to have the work completed by the deadline.
Completion happened as agreed. The owner contracted a Facility Company (FC) for the
supply of 2,000 chairs at a price of £5,000 to be delivered on 21st December. On 22 December,
the Owner’s employees fell ill and the owner asked Joseph to fill in for the ill worker. After the
event, the owner promised to pay Joseph £100. The owner received less profit that the
anticipated, and he was unable to pay the FC the full £5,000. FC agreed to accept payment of
£4,000 in full settlement. FC want to recover the outstanding £1,000. Also, the Owner is refusing
to pay the extra £35,000 promised to Supertech and the £100 he promised to Joseph.
FC can recovery of the outstanding £1,000
Issue
Whether part payment of the debt is sufficient consideration for the cancellation of the
rest of the debt.
Rule
There is a long-standing rule that if a creditor promises to take a lesser sum to forfeit the
rest of the debt, that promise is not enforceable due to lack of sufficient consideration. This rule
was set in (Pinnel v Cole, 1602) popularly known as the Pinnel’s case. In the case, Cole owed
Pinnel a sum equivalent to £8.50. Pinnel’s requested Cole to pay £5.11 and the rest of the debt
would be forfeited. However, even after Cole’s payment of the lower sum, Pinnel sued for the

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rest of the money. The Court settled that paying a lower sum provided no consideration for the
promise. However, the promise would have been enforceable had the debtor introduced some
fresh consideration.
The rule in Pinnel’s case is based on the principles of the doctrine of consideration. One
of the principles states that consideration must not be adequate, but it has to be sufficient. In
other words, for there to be an enforceable agreement, the promisor must receive something from
the promisee as a consideration during the exchange. That element of exchange does not have to
be comparable to the offer, but it should be acceptable on the eyes of the promisor. Despite the
severity the principles in Pinnel's Case, the House of Lords later affirmed the rules in (Foakes v.
Beer, 1884) where the promise by Mrs. Beer to forfeit the debt of Dr. Foakes was rendered
unenforceable as Dr. Foakes had provided no consideration.
There are a few exceptions to this rule. The first exception is where the promise to accept
a lower sum is made between the third party and the creditor on condition that the creditor would
release the debtor from the obligation to pay the rest of the debt. For instance, in (Hirachand
Punamchand v Temple, 1911), the court prevented the claimant from seeking the payment of the
full payment since they had agreed with the defendant’s father to pay a lesser sum. A second
exception is a composition agreement. In (Good v Cheesman, 1831) as reported in (Stone and
Devenney, 2015), the court stated that where a group of creditors agrees to release the debtor for
a lesser sum, the court cannot allow any of the creditors to claim the debt. The other rule is
promissory estoppel. In (Central London Property Trust Ltd v. High Trees House Ltd, 1947), the
court ruled that the equitable doctrine of promissory estoppel would prevent the creditor from
recovering the remaining debt if the promise to accept smaller debt causes the debtor to change
his legal position.

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A further exception is the introduction of fresh consideration. Fresh consideration can be
an additional element to the lesser amount, creditor’s request to be paid a lesser amount with an
additional element, the lesser amount at a different location, or a lesser amount at a sooner date.
Application
On application, the court's presumption would be the position of pinnels’ principles that a
promise to accept a lesser pay to forgo the entire debt does not constitute an enforceable
agreement. These principles were recently explained in (Collier v P & M J Wright (Holdings)
Ltd, 2008) where the court reiterated that Wright could still recover the remaining debt from
Collier despite the agreement to let Collier pay his share, and Wright to follow other partners for
their share. However, for this case, the court found an exception of promissory estoppel in that
Wright had caused a reliance on Collier. Similarly, the promise of FC to accept the $4000 would
be unenforceable on a mere fact that FC agreed to receive $4000. The Hall Owner must provide
the grounds for rebutting the rule.
A second test that the court would be willing to apply is payment by a third party. In
(Hirachand Punamchand v Temple, 1911), the lesser sum was paid by the defendant’s father,
who was a third party to the contract between the creditor and Mr. Temple. Therefore, for this
exception to become a benefit to the Hall Owner, the promise by FC to accept $4000 in forfeiture
the remaining $1000 must be made between the FC and a third party. However, this is not the
case as we are told FC agree to the Hall Owner’s request, but not to a third party request.
Further, the court would look to find whether the Hall Owner provided fresh
consideration. The rationale for providing fresh consideration is found on the principle that the
creditor would receive a practical benefit. For instance, in (MWB Business Exchange Centres Ltd
v Rock Advertising Ltd, 2016), the court considered that by accepting a lesser amount than what

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the licensee owed, the licensor benefited on the fact that he did not lose profit for the subsequent
months. While looking at the case of FC and Hall Owner, there is no practical benefit that FC is
getting in forfeiture of $1000.
Again, the court may think of the possibility of the composition of creditors. This would
require Hall Owner to demonstrate that FC agreement was an agreement with more than one
creditor. The rationale of this rule is based on the statutes of fraud that allowing one of the
creditors to come back for the remaining debt would be a fraud against the other creditors. In
(Good v Cheesman, 1831), the defendant agreed with the creditors to pay a third of his income
and the creditors would forfeit the rest of the debt. The court held that this agreement bound all
the involved creditors. The Hall Owner would need to demonstrate to the Court that FC was not
just one creditor. However, since this would be impossible, this exception would not work.
The last attempt would be the application of the equitable doctrine of estoppel. In
(Central London Property Trust Ltd v. High Trees House Ltd, 1947), Lord Denning explained
that if one party makes the other an assurance with the intention of affecting the legal
relationship between them, and the assured party act in reliance of that promise, the Court will
not allow the party that gave the promise to back from the promises. In these principles, the
requirements for promissory estoppel were summarized as that, there must be (i) An existing
legal relationship; (ii) the promissor consent to waive his legal rights of the contract with
intention of causing reliance on the promissee; (iii) The promisee must demonstrate that he acted
in reliance on the promise.
Therefore, to benefit from the principles of promissory estoppel, the Hall Owner must
demonstrate that (i) FC gave the promise to forfeit the debt with the intention of causing the Hall
Owner to rely on that promise. (ii) The Hall Owner must show that he acted in reliance on this

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promise. However, since there is no information showing these facts, a claim of promissory
estoppel would fail.
Conclusion
FC would be allowed to claim back $1000 as it was not given any consideration to forgo
the debt.
Super-Tech Recovery of the Outstanding £35,000 From Hall’s Owner
Issue
Whether a promise or performance of an act which a promisor was under a duty to
perform can amount to consideration?
Rule of Law
When it comes to existing duties, English law divides them into three categories. The first
one is a promise to perform an obligation which is imposed as a public duty as in the case of
(Collins v. Godefroy, 1831). The second one is an existing obligation but in an agreement with a
third party (Shadwell v. Shadwell, 1860). The third one is an existing obligation from a previous
ongoing contract (Williams v. Roffey Bros & Nicholls (Contractors) Ltd, 1991).
For a contract made between two parties, courts are reluctant to enforce promises made
for an existing obligation in an existing contract. The basic principle is that once a contract is
made, all of its terms are fixed. If there have to be variations, such variations must have their
additional consideration. The authority for this position was the case of (Stilk v. Myrick, 1809)
where the court ruled that the promise for extra pay was part of the existing obligation to bring
the ship back to London.
However, the position in (Stilk v. Myrick, 1809) changed in 1990 with a twist in the
rationale held in (Williams v. Roffey Bros & Nicholls (Contractors) Ltd, 1991). This case held

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that a promise to perform an existing obligation cab be enforceable as far as (i) The promisor
receives a practical benefit (ii) Both parties intended to make their promises legally binding; (iii)
No party was subjected to duress or other unconscionable conducts.
Application
On application, the court will analyze the facts in the dispute between the Hall Owner and
Super-Tech. The guiding principles for this situation would be the case of (Williams v. Roffey
Bros & Nicholls (Contractors) Ltd, 1991). In this case, the defendants were contractors who had
acquired a contract to refurbish a block. The contract they had contained a clause which stated
that a failure to finish on time will attract a penalty. The defendants then approached the claimant
to execute the work. While refurbishment was being carried out by the claimant, it became
evident that the work will delay, and the defendants were going to be penalized. So they agreed
to pay the claimant extra to hasten the work. The dispute arose when the defendant refused to
pay after completion.
In analyzing the argument from the defendant, the first step that Glidewell LJ took was to
identify the benefit that the defendant received. Firstly, the defendant was able to secure the
continuation of the project. Secondly, the defendant was able to avoid a penalty. Thirdly, the
defendant was able to avoid the inconvenience of finding other contractors who could complete
the work on time. If Supertech has to enforce the promise of £35,000, these are the elements that
it needs to demonstrate. Looking at the facts provided, Super-tech informed the Hall Owner that
the installation would only be completed by 5th January whereas the owner needed to use the hall
on 22nd December. Therefore, to ensure that the hall was ready for use on 22nd, the owner
unenthusiastically agreed to pay Super-tech an extra £35,000.

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The situation is the same in the case of (Williams v. Roffey Bros & Nicholls (Contractors)
Ltd, 1991). Firstly, it was the owner’s free will to provide an additional amount, meaning there
was no duress. Secondly, it can be argued that the extra £35,000 was a detriment that the owner
intended to undergo in order to have the hall by 20th December. The rationale in Williams v
Roffey can also be traced in the subsequent of (Anangel Atlas Compania Naviera SA v
Ishikawajima-Harima Heavy Industries Co Ltd (No 2), 1990) where the court emphasized that
even escaping the other party’s withdrawal from the contract can be considered as a ‘practical
benefit.’ As the Hall Owner was avoiding to miss the business on 22nd December, that was a
practical benefit.
As seen above, courts make emphasis on whether the promisor received a ‘practical
benefit.’ Considering the comments of Elias LJ in (Attrill v Dresdner Kleinwort Ltd, 2013), the
employer was able to avoid the burden of searching for a replacement if the employee exercised
his right. The same case applies to Super-tech and Hall Owner, it is stated on the facts that the
Hall Owner agreed to pay Super-tech an extra £35,000 to allow them to hire additional
technicians. In this way, the Hall Owner avoided the burden of searching for a technician
himself. And then like in the case of Williams V Roffey Bros where the defendants were avoiding
delayed completing, even the Hall Owner was avoiding delay in the completion because he
needed the hall before 22nd December.
Conclusion
Super-Tech would be able to recover the outstanding £35,000 From Hall’s Owner
because the promise was supported by consideration.

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Joseph Chance in Recovering £100 from Owner.
Issue
Whether past consideration can be considered as acceptable consideration to enforce a
promise? Can someone enforce a promise made for an act that has already been performed?
Rule of Law
The general rule is that where a promise is given after performance has been executed,
that promise is not enforceable because it was not part of the already concluded agreement. The
landmark case for this principle was the case of (Roscorla v. Thomas, 1842) where a warrant that
the horse was free from vice was given after the execution of the sale agreement. Later this case
was followed by the ruling of (Re McArdle, 1951) which affirmed the earlier ruling of Roscorla
v. Thomas. In Mr. McArdle, the court affirmed that work completed before an agreement cannot
be enforced with a new agreement.
An exception to this principle is a request which is made with an implied promise that the
work would be paid after completion. Authority for this principle is the case of (Stewart v Casey,
1892) where Stewart made a request to Casey to promote the innovation. A promise to pay Casey
for the promotion was made two years later, and the court held that it was enforceable. A more
recent case that set the requirements for enforcing a past consideration was ruled in (Pao On v.
Lau Yiu Long, 1980). The ruling set that for a for past consideration to be enforceable, (i) it must
be the promisor who had requested the act; (ii) Both parties must contemplate that there would
be some payment after the service; (iii) where the promise to pay was made before the act, the
promise would be enforceable.

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Application
On application, the court would first analyze the facts of Joseph against the legal
principles. When the case of past consideration comes to court, the court’s assumption is that the
promise is unenforceable unless proven otherwise. This rule is based on the principle of the lack
of reciprocity where the promisee receives no benefit from the promisor. This is different from
the case of Williams v Roffey Bros. In that for the case of Williams v Roffey Bros, the promissor is
receiving convenience as the practical benefit. Therefore, consideration focuses more on
identifying the bargain, what the parties exchange, but not the kind of the benefit that parties
exchanged. Therefore, the general principles followed is that where two parties are exchanging
promises, those promises would only be enforceable if they are conferring a subsequent benefit
to the promissor, and a detriment to the promisee. Illustrating this from (Roscorla v. Thomas,
1842), the defendant had already concluded an agreement where the claimant gave the horse for
consideration of £30. So this contract was already concluded. If there have to be another
agreement, such an agreement should have come with fresh consideration.
As this is the principle, the doctrine of implied assumpsit has shown that there are
circumstances when the rules of past consideration would be relaxed. These are circumstances
where the promissor would request the promissee to do an act, and then after its completion, the
promissor promises to pay. The earliest case of (Lampleigh v Brathwait, 1615). In the case, the
defendant was under a capital sentence, and so he asked the claimant to obtain a pardon on his
behalf from King James. When the claimant came back, the defendant promised to reward him
with £1,000. Having seen that this was the request from the promissor, the court found the
promise enforceable. While analyzing the facts in the case of Joseph and Hall Owner, it is
without a doubt that the Court would first identify whether it was the Hall Owner who made the

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request. The principles the court would follow are the once set in (Pao On v. Lau Yiu Long,
1980).
Firstly, it is a matter of identifying the person who initiated the promise. In this case, if
the promisor who initiated the promise is the same who requested the act, the promise would be
enforceable. Looking at the case of Joseph and Hall Owner, it is the Owner who asked Joseph to
fill in for the sick employee. Therefore, this initiation fulfills the first requirement in Pao On v
Lau Yiu Long. The second requirement is the contemplation that the promisee would receive a
reward after executing the act. While explaining the contemplation of the parties in Re McArdle
case, the work of (Stone and Devenney, 2015) explains that the court assumes that payment is
always on the mind of the parties, and the defendant’s promise to pay is a crystallization of the
reasonable expectation to provide payments. Therefore, even if the contemplation of the
payments is not clear, the fact that the defendant spoke about it confirmed that he knew he was
prepared to pay. Looking at this from the case of Joseph, the promise by the owner to pay £100
confirms that he knew Joseph was not offering a free service.
The third requirement is that the promise that comes after the act should be one that if
parties talked about it before the act, the promises would have been executed in the same way.
Even by the look of the facts, the Hall Owner would still have paid the employee had the
employee turned up for the work. Therefore, if parties would have discussed before the contract,
Joseph would have negotiated his part, and the Hall Owner would have also done it for his part.
Conclusion
Joseph would be able to recover £100 from Owner since Joseph agreed to hand out the
materials on Hall Owner’s request.

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References
Anangel Atlas Compania Naviera SA v Ishikawajima-Harima Heavy Industries Co Ltd (No 2)
(1990) 2 Lloyd’s Rep. Available at: https://swarb.co.uk/anangel-atlas-compania-naviera-sa-v-
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Attrill v Dresdner Kleinwort Ltd (2013) EWCA Civ 394; 3 All ER 607. Available at:
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ewca-civ-394-ca (Accessed: 27 April 2019).
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(Accessed: 27 April 2019).
Collier v P & M J Wright (Holdings) Ltd (2008) 1 WLR. Available at:
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Good v Cheesman (1831) 2 B & Ald.
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2019).
Pao On v. Lau Yiu Long (1980) AC. Available at: https://swarb.co.uk/pao-on-and-others-v-lau-
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2019).

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Shadwell v. Shadwell (1860) CB (NS). Available at: https://webstroke.co.uk/law/cases/shadwell-
v-shadwell-1860 (Accessed: 27 April 2019).
Stewart v Casey (1892) 1 Ch. Available at: http://netk.net.au/Contract/ReCasey.asp (Accessed:
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