Essay: Consideration in contract law (MWB Business Exchange Centers Ltd)

Consideration is something of value exchanged by one party for the performance or promise of performance by the other party, Dunlop v Selfridge. The court recognizes valid consideration where the parties to a contract may each obtain a benefit/suffer a detriment. The several rules in the law of consideration are as follows:
1. consideration must not be past: this is where the promise of consideration comes after performance (Re McArdle) ;
2. consideration must be sufficient but need not be adequate i.e. it must have some value in the eyes of the law (Chappel v Nestle) ;
3. consideration must move from the promisee: only the person to whom the promise was made can enforce the contract i.e. no third-party enforcement (Tweddle v Atkinson) ;
4. performance of an existing obligation is not good consideration (Stilk v Myrick) : unless one party goes above and beyond their existing obligations and one party receives a practical benefit (Williams v Roffey) ;
5. part-payment of a debt is not considered as good consideration i.e. the debtor party must fully pay their debt as this is a contractual obligation.
The court of Appeal on 21 July was able to offer an opportunity to accept part payment of a debt and test of practical benefits in agreements where there is a promise to accept less. The main case related to this was MWB Business Exchange Centers Ltd v Rock Advertising Ltd; the appellant had their premises license maintained by the respondents. In 2011, the agreement made was in order to move into the premises of a larger business to facilitate the expansion which was anticipated by their business. It is however, important to know whether part payment of a debt is still valid consideration. The two main problems present in this case were oral variations to a contract and the validity of consideration between the parties.
Oral variation
The Supreme Court has recently overturned the Court of Appeal’s decision that the oral variation was valid; the court held that the ‘No Oral Modification’ clause would be legally effective to prevent a party from orally varying a contract. Lloyd Jones, Lady Hale, Lord Sumption and Lord Wilson found that parties must bind their future conduct in the part autonomy understanding. After an agreement is reached, for their future this agreement sets some boundaries regarding the autonomy of the party. The effect of this is that should variation be required to a written contract, then any oral variations are considered to be invalid. Still, the parties are free to vary the particular clause of ‘No Oral Modifications’ in the contract that is specified for the written variations. Lord Briggs, agreed that no clause of oral modifications prevented any kind of variations in order to be valid in this specific case, he gave a concurring judgment: holding that no clause of “oral modification” could be orally varied by express reference.
MWB Business Exchange Centers Limited (MWB) served and operated various offices in Central London. Rock Advertising Limited (Rock)” entered into a contract with MWB so that they could occupy some space for 12 months in the fixed term starting from 11 November 2011. A clause was contained by the license that required that if the license has any variations, it must then be in written form, and it should also be signed by both the parties.
Rock accumulated an amount of over £12,000 under their license by 27 February 2012. At the first instance, the High Court held that in this case between the Rock and MWB, an oral agreement was reached to vary the contract. However, these variations were not signed by either of the parties and there was no written evidence of it, as it was required by the license terms.
The revised schedule of payment was preceded by MWB as a proposal but ultimately, it was rejected. Rock was later locked out of the premises by MWB for not completing payments and further had their license terminated with effect from 4 May 2012. Under the license, Rock was sued by the MWB for the sum that was owed. From the premises that wrongful exclusion was counterclaimed by Rock. It turned out that the schedule to vary the payment was effective, though it was under the requirements of a breach related to the “no oral modification” clause. The case turned to whether the agreement to vary the payment schedule itself was effective, despite being in breach of the requirements of the no oral modification clause .
Part Payment of a Debt
The decision given by Court of Appeal in the above case is an important factor in understanding consideration with regards to accepting part payments of a debt in an agreement and continuing to perform contractual duties, and judicial intervention will be preferred by the Supreme Court in order to reconcile such inconsistencies as in the cases of Foakes v Beer and Williams v Roffey Bros & Nicholls (Contractors) Ltd. All the cases were examined under the law of “The Contracts (Applicable Law) Act 1990” .
An established doctrine has been that part payment of a debt might not be sufficient for a promise related to consideration by any creditor in order to forgo his binding obligations. From the Pinnel’s Case to Collier v P & MJ Wright, the question was whether partial debt repayment should be fully considered in the law of contract and this has been a reason for the ongoing debate. The Pinnel’s Case established the principle cornerstone from which part payment of a debt can be fully considered. The judgment often cited by Sir Edward Cork states “Gifts of horses, hawks, robes… are good”. In this case, the claimant was owed 10shillings however, the defendant paid only 2 shillings, and the claimant subsequently sued for the outstanding amount. The court held that the claimant was entitled to the full sum of money even though there was an agreement to accept less. From the above judgment, the court created three acceptable exceptions to this rule, where one party must offer something more: this can be either payment of a different thing (substituting money for another item of value which would equate to the value of the debt); payment at a different time (the party can offer part-payment on an earlier date and promise to complete the balance later on); or payment at a different place. The benefits of advanced payment that debtor provides to the creditor, and the partial payment of the debt is fully considered in cases that are based on the desirable partial payments – “the parties can reach an agreement through their own actions or with their own consent” therefore, it can be considered fair.
Further exceptions to the rules from the Pinnel’s Case are where consideration is provided by a third-party (New Zealand Shipping v Satterthwaithe) ; consideration owed to a third-party can be valid consideration for a promise owed to another party. The other exception is the doctrine of Promissory Estoppel, which is a means of making a promise binding in the absence of good consideration (Central London Properties v High Trees) . The effect of this is that it can stop a party from going back on their promise which is not backed up by good consideration.
The requirements as set out by the doctrine of Promissory Estoppel are as follows:
1. There must be pre-existing contractual obligations between the parties; a promise can not be enforced where initially there has not been existing contractual obligations that is later modified by a promise. Also, this can only be used as a defence but not as means of bringing a claim (Combe v Combe) ;
2. There must be a clear and unequivocal promise to suspend existing contractual obligations; and this promise can either be expressed or implied by conduct (Woodhouse v Nigerian Product Marketing Co Ltd) ;
3. There must be a change of position by the promisee in reliance of the promise and this reliance need not be detrimental; the court only needs to establish that the promisor has changed their position (Alan & Co v El Nasr) ;
4. It must be inequitable for the promisor to back on their promise (D & C Builders v Rees).
Collier’s recent case for P&M J Wright seems to recommend such an inference. As far as the Court of Appeal of 2007 is concerned, due to the bankruptcy of the other two parties, the creditors pledged to jointly and individually assume the payment of debt through instalments. Due to the bankruptcy of the other two parties, the creditor’s commitment is considered an individual responsibility. Some argue that the debtor has a reasonable assurance against the promissory estoppel – so it is unjust that the creditors do not accept the promise. The decision was based on the ‘brilliant dictum’ by Lord Denning, who for the first time explained the violation of the contract ban to deal with part payments of debt.
However, the decision in the case of D & C Builders vs. Rees, demonstrated that if the creditor wants to abandon part of their obligation to pay a debt, there must be a real agreement present at the start of the agreement between the parties to accept a lesser amount. In this case, the defendant’s wife, Mrs. Rees, threatened to pay, forcing the plaintiff to accept a payment of a lesser amount which was owed to them for work which was left. The court held that the claim for the balance was allowed to be recovered, and this decision was based on the lack of consideration on the part of the debtor. It is not good consideration for a creditor to abandon the balance of an amount owed where the debtor offers to pay only that which he is contractually obliged to pay. Therefore, Promissory Estoppel applies when it is inequitable for the creditor to insist on his full rights. The plaintiffs were allowed to recover the full payment owed to them; this decision was based on “settlement procured by intimidation” .
It can be noticed in the Pinnel’s Case that the plaintiffs were required to provide protection, as this case rejected consideration as part payment – it was seen as both the parties true accord was present, and such results are not that one desires.
Conclusion
The case of MWB Business Exchange Centres Ltd v Rock Advertising Ltd is the prominent factor in understanding consideration with regards to accepting the part payment of debt in an agreement. As per the case law, Foakes v Beer, it can be stated that part payment of debt is not at all a valid consideration because it has the ability to exploit another part when then they are in a difficult financial situation. However, as seen above, the Pinnel’s Case provides the exceptions related to this rule. Part payment of a debt can only be considered valid if it is supported by other forms of consideration such as the goods. Such exceptions are required to be reviewed as a caution because they depend on the scrutiny. All in all, part payment of a debt may prove to provide for satisfactory consideration as this payment can be varied in different forms, and Lord Denning’s judgment in D & C Builders enforced the role of the doctrine of Promissory Estoppel in binding a promise to accept a lesser amount.