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St John's Essay Prize Runner-Up The Doctrine of Consideration – Reforming the rule in Pinnel’s Case

June 12, 2018

The recent Supreme Court decision in MWB Business Exchange Centres Ltd v Rock Advertising Ltd[1] has opened the door for judicial change concerning the formation of contracts. The Supreme Court in the case placed significant weight on the issue of anti-oral variation clauses, and merely covered the issue of consideration in obiter. Lord Sumption’s ruling may seem to extinguish the possibility of practical benefit in so-called “pay less” cases. However under closer examination, the rule in Pinnel’s Case[2] is in a more precarious position than ever, and one can expect for there to be a complete overhaul of the doctrine in the coming years. It is time for the law to adapt and recognise contractual bargains to pay less where there exists a benefit to them, analogous of the dictum of Glidewell LJ in Williams v Roffey Bros[3].

 

The rule in Pinnel’s Case

 

In the case, the plaintiff brought a claim for the sum of £8 10s against the defendant, in order to recover an outstanding debt. The defendant contended that there existed an oral agreement that a part payment of the debt owed would discharge the entire debt.

 

Sir Edward Coke gave the seminal judgement that; “payment of a lesser sum on the day in satisfaction of a greater, cannot be any satisfaction for the whole”[4]

This effectively held that if a promisor gave assurances to a promisee to take a lesser sum in satisfaction for the debt owed; and then proceeded to claim the entire sum at a later date, they would be able to do so. This legal principle is based on the opinion that in a contract an individual cannot have ‘something for nothing’, as otherwise good consideration cannot be given. This principle has since been solidified within the common law in the case of Foakes v Beer[5] where Lord Blackburn affirmed the principle.

 

Proposals for Reform

 

Pinnel’s Case has been heavily criticised by judges and academics alike, for not recognising that in commercial situations, promises to bargain can be enforceable. The first criticism can be found within the judgment of Foakes v Beer itself where Lord Blackburn, whilst feeling bound by the rule in Pinnel, noted the benefit of part payment, where he stated that;

“All men of business…do every day recognise and act on the ground that prompt payment of a part of their demand may be more beneficial to them than it would be to insist on their rights and enforce payment of the whole”[6]

 

This quasi-dissent has prompted further criticism spanning the 134 years between then and the ruling in MWB. The Law Revision Committee described the established rule as ‘one of the most absurd doctrines’[7] with the English law of contract, and, whilst not instigating any reform of the doctrine, it signified a shift in judicial thinking and provided uncertainty in the law. The Court of Appeal case of Re Selectmove[8] in 1993 provided the opportunity to give effect to the mass criticism of the law on consideration and permit parties to enforce agreements to accept less in situations. Two years prior, in Williams v Roffey Bros, Glidewell LJ distinguished Stilk v Myrick[9] and provided justice to the carpenters to enforce the contractual agreement to pay more, due to there being a conferral of a ‘practical benefit’ upon the promisor. However, due to the precedent set over 350 years ago in Pinnel’s Case, Peter Gibson was bound to apply the doctrine showing how pragmatism had gave way to the authority of precedent.

 

MWB…The Court of Appeal

 

The case of MWB v Rock has been seen to be a ‘significant challenge’ to the doctrine in Foakes v Beer, and suggests a ‘flexible approach should be welcomed’[10]. Whilst not overruling the longstanding precedent, Arden LJ was able to distinguish Foakes v Beer on the application of the rider set out in Pinnel’s Case by Lord Coke, that a “gift of a horse, hawk, or robe”[11] could be interpreted to be analogous of Glidewell LJ ‘practical benefit’ doctrine laid out in Williams v Roffey Bros. It was seen to be a ‘commercial advantage’[12] by the judges to permit a practical benefit to be found in the case, that MWB would be able to recover the arrears of the debt and still have Rock as a licensee on the premises, avoiding lack of rent due to the building being empty. The judges, left the doctrine in Foakes v Beer unscathed, but have refined and severely limited its application. The ruling in MWB is far from revolutionary but consistent with the dictum.

 

The Supreme Court

 

However, this decision must now be read in light of the recent Supreme Court judgment. Lord Sumption in obiter effectively overruled the Court of Appeal, finding it “undesirable”[13] for the court to consider the doctrine of consideration, which is the cornerstone principle in Contract Law. If there were to be an overhaul of the rule in Pinnel, Lord Sumption felt it necessary for a larger Supreme Court panel to consider such a large issue which is “ripe for examination”[14]. Any future judgment by this court would provide the much-desired clarity, and like Pinnel, likely lay out a doctrine which would last hundreds of years.

 

The Future

 

O’Sullivan provided a strong defence to the doctrine in Foakes v Beer that it was a longstanding principle which upheld the rule that parties to a contract had to give due consideration.[15] The doctrine has remained binding precedent for over 130 years without any legislative intervention, and despite opposition from critics, it has remained secure and narrow concerning partial payment of debts, in order for there to be justice for the promisor party.

 

The argument of Arden LJ is preferable. Foakes v Beer would still exist in a limited scope to the extent to prevent unmeritorious cases being heard, such as in MWB where the ‘practical benefit’ was menial. Like in Roffey, where the case is regarded as providing a "more flexible, less formalistic (approach), and closer to modern commercial practice”[16], the ruling by Arden LJ in the Court of Appeal is a victory for those who advocated for the enforcement of promises within. In practical terms, there is still a strong argument for reform, and one can expect there to be further case law in the future, noting the influx of cases in the previous two decades. Such a resolution is only available to the Supreme Court as noted by Lord Sumption. The developing nature in the law of contract to widen the scope of consideration is to be welcomed. This future however is uncertain as to the extent of such a scope, and how this intervention will affect the law on economic duress and promissory estoppel.

 

Bibliography.

Foakes v Beer [1884] 9 App. Cas. 605.

MWB Business Exchange Centres Ltd v Rock Advertising Ltd [2016] EWCA Civ 553

MWB Business Exchange Centres Ltd v Rock Advertising Ltd [2018] UKSC 24 [2018] 2 W.L.R. 1603

Pinnel’s Case (1602) 5 Co. Rep. 117a

Re Selectmove [1995] 1 W.L.R. 474

Stilk v Myrick (1809) 170 ER 1189

Williams v Roffey Bros & Nicholls (Contractors) Ltd [1991] 1 Q.B. 1

 

Adams J and Brownsword R (1990) Contract, consideration and the critical path. Modern Law Review 53(4): 536–542.

Arzandeh A, McVea H. (2017) Refining Consideration: RIP Foakes v Beer? Lloyd's Maritime and Commercial Law Quarterly. 2017 Feb 1;2017(1):7-12.

Burton M (2016) Practical benefit rides again: MWB business exchange in comparative perspective. Common Law World Review 2017, Vol 46(1) 69–80

O’Sullivan J, ‘Unconsidered Modifications’ (2017) 133 Law Quarterly Review 191

 

Law Revision Committee Report 1937, CMD 5449

 

Wilken S and Ghaly K, The Law of Waiver, Variation, and Estoppel, 3rd edn (Oxford: Oxford University Press, 2012)

 

 

 

[1] [2016] 3 W.L.R. 1519

 

[2] (1602) 5 Co. Rep. 117a

 

[3] [1991] 1 Q.B. 1.

 

[4] Ibid. 237

 

[5] (1884) 9 App. Cas. 605

 

[6] Ibid. 629

 

[7] CMD 5449

 

[8] [1995] 1 W.L.R. 474

 

[9] (1809) 170 E.R. 1168

 

[10] (2017) C.L.W.R, Vol 46(1), 78

 

[11] (1602) (n 2)

 

[12] (n 11), 72

 

[13] [2018] UKSC 24 [2018] 2 W.L.R. 1603, 18

 

[14] Ibid.

 

[15] ‘Unconsidered Modifications’ (2017) 133 L.Q.R 191

 

[16] Wilken S and Ghaly K, The Law of Waiver, Variation, and Estoppel, 3rd edn (OUP, 2012)

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